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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 811-5017
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Ivy Variable Insurance Portfolios
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(Exact name of registrant as specified in charter)
6300 Lamar Avenue, Overland Park, Kansas 66202
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(Address of principal executive offices) (Zip code)
Jennifer K. Dulski
6300 Lamar Avenue
Overland Park, Kansas 66202
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(Name and address of agent for service)
Registrant’s telephone number, including area code: (913) 236-2000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2020
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ITEM 1. REPORTS TO STOCKHOLDERS.
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VARIABLE INSURANCE PORTFOLIOS |
Annual Report
DECEMBER 31, 2020 |
IVY VARIABLE INSURANCE PORTFOLIOS | ||||||||
Asset Strategy | Class I | Class II | ||||||
Balanced | Class II | |||||||
Energy | Class I | Class II | ||||||
Growth | Class II | |||||||
High Income | Class I | Class II | ||||||
International Core Equity | Class II | |||||||
Mid Cap Growth | Class I | Class II | ||||||
Natural Resources | Class II | |||||||
Science and Technology | Class I | Class II | ||||||
Small Cap Core | Class II | |||||||
Small Cap Growth | Class I | Class II |
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CONTENTS | IVY VIP |
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Management Discussion, Portfolio Highlights and Schedule of Investments: | ||||
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PRESIDENT’S LETTER | IVY VIP |
DECEMBER 31, 2020 (UNAUDITED) | ||
Philip J. Sanders, CFA |
Dear Shareholder,
Markets in 2020 were, to use an overused word, unprecedented. In a matter of months, we witnessed economic and market moves that typically take an entire market cycle of many years to unfold. To start the fiscal year, financial markets had been positive as political conflicts, trade uncertainty and global economic growth concerns waned. However, that upward trajectory suddenly reversed in late February and markets declined in response to two exogenous shocks: the COVID-19 pandemic and the collapse in energy markets. The COVID-19 pandemic caused one of the most rapid and dramatic global economic downturns in history. The U.S. stock markets dropped approximately 35% from peak in February to trough in late March. Global economic activity hit a full stop around the world, as countries and businesses implemented plans to isolate and protect each other. Remarkably, within about 30 days, we moved from a relatively strong domestic economy with financial market indexes hitting record highs, to a global recession.
Governments and central banks took strong steps to mitigate the economic blow of social distancing. Monetary policy response was broader and more rapid than at any other time in history. Global central banks enacted aggressive stimulus through lower interest rates, quantitative easing (QE) and liquidity provisions, with some developing countries implementing QE for the first time. The U.S. Federal Reserve’s (Fed) response included a broad array of policy measures and an unprecedented pace of QE. Fourth quarter 2020 economic data showed the global economy had a very strong rebound. Since the March 23 trough, the S&P 500 Index stabilized and experienced a rapid bounce back. As of fiscal year end, the Index was up 18.40%.
Going forward, we believe there are reasons for optimism as we enter 2021. COVID-19 vaccines are being distributed around the world and record amounts of stimulus continue to support the global economic recovery. This optimism is reflected in our outlook for global growth in 2021, which we believe will return to pre-pandemic levels sooner than expected, driven in part by pent-up demand. We anticipate 2021 U.S. economic GDP growth will average 6.2%, fueled in part by a resurgence in consumption as pandemic-related constraints wane. With President Joe Biden and his administration taking the reins of power in Washington, we anticipate policy changes on several fronts. We expect an additional stimulus package that includes additional checks to individuals, an extension of emergency unemployment benefits and help for state and local governments. Later in the year, we anticipate broader legislation to pass that could include a number of spending initiatives, including an infrastructure plan with a focus on green initiatives. We also expect the legislation to include higher taxes for businesses and high-income earners.
As we examine the investment landscape, we continue to put greater emphasis on the fundamentals and quality of asset classes and sectors. We believe it is important to stay focused on the merits of individual market sectors, industries and company business models when making investment decisions. Those fundamentals historically have tended to outweigh external factors. In today’s environment, we believe there are many high-quality businesses offering attractive entry points and cyclicals that will likely be key beneficiaries as economies continue to recover. Importantly, through this uncertain time, we remain focused on the innovation and management skill within individual companies, the ultimate drivers of long-term stock prices.
Economic Snapshot
12/31/2020 | 12/31/2019 | |||||||
S&P 500 Index | 3,756.07 | 3,230.78 | ||||||
MSCI EAFE Index | 2,147.53 | 2,036.94 | ||||||
10-Year Treasury Yield | 0.93 | % | 1.92 | % | ||||
U.S. unemployment rate | 6.7 | % | 3.6 | % | ||||
30-year fixed mortgage rate | 2.67 | % | 3.74 | % | ||||
Oil price per barrel | $48.52 | $61.14 |
Sources: Bloomberg, U.S. Department of Labor, MBA, CME
All government statistics shown are subject to periodic revision. The S&P 500 Index is an unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies. MSCI EAFE Index is an unmanaged index comprised of securities that represent the securities markets in Europe, Australasia and the Far East. It is not possible to invest directly in any of these indexes. Mortgage rates are from BankRate and reflect the overnight national average rate on a conventional 30-year fixed loan. Oil prices reflect the market price of West Texas intermediate grade crude.
Respectfully,
Philip J. Sanders, CFA
President
The opinions expressed in this letter are those of the President of the Ivy Variable Insurance Portfolios and are current only through the end of the period of the report, as stated on the cover. The President’s views are subject to change at any time, based on market and other conditions, and no forecasts can be guaranteed.
2020 | ANNUAL REPORT | 3 |
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ILLUSTRATION OF PORTFOLIO EXPENSES | IVY VIP |
(UNAUDITED)
Expense Example
As a shareholder of a Portfolio, you incur ongoing costs, including management fees, distribution and service fees, and other Portfolio expenses. The following table is intended to help you understand your ongoing costs (in dollars) of investing in a Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six-month period ended December 31, 2020.
Actual Expenses
The first section in the following table provides information about actual investment values and actual expenses for each share class. You may use the information in this section, together with your initial investment in Portfolio shares, to estimate the expenses that you paid over the period. Simply divide the value of that investment by $1,000 (for example, a $7,500 initial investment divided by $1,000 = 7.5), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your investment during this period. In addition, there are fees and expenses imposed under the variable annuity or variable life insurance contract through which shares of the Portfolio are held. Additional fees have the effect of reducing investment returns.
Hypothetical Example for Comparison Purposes
The second section in the following table provides information about hypothetical investment values and hypothetical expenses for each share class based on the Portfolio’s actual expense ratio and an assumed rate of return of five percent per year before expenses, which is not the Portfolio’s actual return. The hypothetical investment values and expenses may not be used to estimate the actual investment value at the end of the period or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this five percent hypothetical example with the five percent hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs as a shareholder of the Portfolio and do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contract through which shares of the Portfolio are held.
Expenses paid may be impacted by expense reduction arrangements. If those arrangements had not been in place, expenses paid would have been higher. See Note 6 in Notes to Financial Statements for further information.
4 | ANNUAL REPORT | 2020 |
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ILLUSTRATION OF PORTFOLIO EXPENSES | IVY VIP |
(UNAUDITED)
Actual(1) | Hypothetical(2) | |||||||||||||||||||||||||||
Portfolio | Beginning Account Value 6-30-20 | Ending Account Value 12-31-20 | Expenses Paid During Period* | Beginning Account Value 6-30-20 | Ending Account Value 12-31-20 | Expenses Paid During Period* | Annualized Expense Ratio Based on the Six-Month Period | |||||||||||||||||||||
Asset Strategy |
| |||||||||||||||||||||||||||
Class I | $ | 1,000 | $ | 1,198.30 | $ | 4.29 | $ | 1,000 | $ | 1,021.25 | $ | 3.94 | 0.77 | % | ||||||||||||||
Class II | $ | 1,000 | $ | 1,196.80 | $ | 5.60 | $ | 1,000 | $ | 1,019.99 | $ | 5.15 | 1.02 | % | ||||||||||||||
Balanced |
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Class II | $ | 1,000 | $ | 1,179.20 | $ | 5.56 | $ | 1,000 | $ | 1,020.01 | $ | 5.15 | 1.02 | % | ||||||||||||||
Energy |
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Class I | $ | 1,000 | $ | 1,190.50 | $ | 5.91 | $ | 1,000 | $ | 1,019.72 | $ | 5.45 | 1.06 | % | ||||||||||||||
Class II | $ | 1,000 | $ | 1,188.90 | $ | 7.22 | $ | 1,000 | $ | 1,018.50 | $ | 6.66 | 1.31 | % | ||||||||||||||
Growth |
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Class II | $ | 1,000 | $ | 1,200.00 | $ | 5.61 | $ | 1,000 | $ | 1,020.03 | $ | 5.15 | 1.02 | % | ||||||||||||||
High Income |
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Class I | $ | 1,000 | $ | 1,143.80 | $ | 3.75 | $ | 1,000 | $ | 1,021.69 | $ | 3.54 | 0.69 | % | ||||||||||||||
Class II | $ | 1,000 | $ | 1,142.40 | $ | 5.03 | $ | 1,000 | $ | 1,020.43 | $ | 4.75 | 0.94 | % | ||||||||||||||
International Core Equity |
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Class II | $ | 1,000 | $ | 1,201.60 | $ | 6.49 | $ | 1,000 | $ | 1,019.26 | $ | 5.96 | 1.17 | % | ||||||||||||||
Mid Cap Growth |
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Class I | $ | 1,000 | $ | 1,334.20 | $ | 5.02 | $ | 1,000 | $ | 1,020.86 | $ | 4.34 | 0.85 | % | ||||||||||||||
Class II | $ | 1,000 | $ | 1,332.50 | $ | 6.41 | $ | 1,000 | $ | 1,019.61 | $ | 5.55 | 1.10 | % | ||||||||||||||
Natural Resources |
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Class II | $ | 1,000 | $ | 1,139.10 | $ | 6.85 | $ | 1,000 | $ | 1,018.74 | $ | 6.46 | 1.27 | % | ||||||||||||||
Science and Technology |
| |||||||||||||||||||||||||||
Class I | $ | 1,000 | $ | 1,297.60 | $ | 5.28 | $ | 1,000 | $ | 1,020.56 | $ | 4.65 | 0.91 | % | ||||||||||||||
Class II | $ | 1,000 | $ | 1,296.00 | $ | 6.66 | $ | 1,000 | $ | 1,019.32 | $ | 5.86 | 1.16 | % | ||||||||||||||
Small Cap Core |
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Class II | $ | 1,000 | $ | 1,288.80 | $ | 6.87 | $ | 1,000 | $ | 1,019.11 | $ | 6.06 | 1.20 | % | ||||||||||||||
Small Cap Growth |
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Class I | $ | 1,000 | $ | 1,382.60 | $ | 5.36 | $ | 1,000 | $ | 1,020.63 | $ | 4.55 | 0.89 | % | ||||||||||||||
Class II | $ | 1,000 | $ | 1,380.90 | $ | 6.90 | $ | 1,000 | $ | 1,019.37 | $ | 5.86 | 1.14 | % |
* | Portfolio expenses are equal to the Portfolio’s annualized expense ratio (provided in the table), multiplied by the average account value over the period, multiplied by 184 days in the six-month period ended December 31, 2020, and divided by 366. |
(1) | This section uses the Portfolio’s actual total return and actual Portfolio expenses. It is a guide to the actual expenses paid by the Portfolio in the period. The “Ending Account Value” shown is computed using the Portfolio’s actual return and the “Expenses Paid During Period” column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Portfolio. A shareholder may use the information here, together with the dollar amount invested, to estimate the expenses that were paid over the period. For every thousand dollars a shareholder has invested, the expenses are listed in the last column of this section. |
(2) | This section uses a hypothetical five percent annual return and actual Portfolio expenses. It helps to compare the Portfolio’s ongoing costs with other mutual funds. A shareholder can compare the Portfolio’s ongoing costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other Portfolios. |
The above illustrations are based on ongoing costs only.
2020 | ANNUAL REPORT | 5 |
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MANAGEMENT DISCUSSION | ASSET STRATEGY |
(UNAUDITED)
Chace Brundige
W. Jeffery Surles |
Below, F. Chace Brundige, CFA, and W. Jeffery Surles, CFA, portfolio managers of Ivy VIP Asset Strategy, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Brundige has managed the Portfolio since 2014 and has 27 years of industry experience. Mr. Surles has managed the Portfolio since 2018 and has 19 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Asset Strategy (Class II shares at net asset value) | 13.88% | |||
Benchmark and Morningstar Category | ||||
MSCI All Country World Index (ACWI) | 16.26% | |||
(generally reflects the performance of stocks in 46 developed and emerging markets) | ||||
Morningstar World Allocation Category Average | 6.18% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that the Portfolio returns include applicable investment fees and expense, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
A checkmark chart in a calendar year
Roughly eleven years ago, global markets foundered in the depths of the Global Financial Crisis, with the S&P 500 Index bottoming in March after the U.S. Federal Reserve (Fed) introduced its initial Quantitative Easing (QE) program. From its peak in 2007, it took around four years to return to that level. During the COVID-19 induced downturn of 2020, it took just six months. While the amplitude of the drawdown was smaller (-35% in 2020 versus -57% in 2007-08), the speed of the recovery was dizzying nonetheless. The rapid return to prior peak is at least partly due to the transitory nature of the pandemic as compared to the scary uncertainty surrounding the health of our banking system and capital markets. However, it was also due in part to the speed with which the Fed and our legislature returned to their monetary and fiscal playbooks, with new programs not exactly repeated, but rhyming, as the saying goes. For the first time, the Fed purchased corporate credit assets in the open market and the U.S. Treasury distributed checks directly to millions while also supplementing state unemployment programs and funding small business payrolls. If the markets have learned one thing during this pandemic, it’s that the government has our backs. The “Fed put” is firmly in place.
The November 2020 U.S. election, which was near the top of our list of variables heading into the year, shrunk in importance as the pandemic took hold. As the campaign entered a fever pitch, markets wrestled with the pace and timing of recovery, the likelihood of a successful vaccine and the mixture of local, state, and federal policies to “flatten the curve” of infections while preserving economic activity. “Stay-at-home” stocks, which led the market recovery, began to lead or lag on a daily basis, driven solely by pandemic news flow. As described later herein, we chose to attempt to maintain a balance relative to these drivers – lockdowns, recovery, Republican or Democratic administration. We felt we really had no edge versus the market in those areas.
As the U.S. and Europe wrestled with the pandemic, China and other parts of Asia experienced the COVID-19 onset earlier and took decisive action, allowing their economies to recover more rapidly (of course, the threat has not yet been eliminated). Indeed, Asia ex-Japan was a key component of our equity performance during the year. Chinese growth is important for the world, but particularly for its Asian trading partners, and this, combined with continued strength across several segments of information technology, caused that region to lead performance within our MSCI ACWI Index benchmark.
Performance: A tough blow in March, but we stayed the course
For the year, the Portfolio captured just over 85% of the MSCI ACWI Index’s rise, returning 13.9% versus 16.3% for the benchmark. Equities averaged 64% of portfolio assets under management during the year, roughly in the middle of our stated range of 50-80%. Meanwhile, our fixed-income portfolio averaged just over 28% and gold 6.4% of portfolio assets. While we entered the year below the midpoint of our expected volatility target of 70-90% of the benchmark index, relative volatility rose during the peak of pandemic market stress largely due to rising correlations across asset classes. Equity weight remained in the low-to-mid 60s percent during the year, while we shifted a chunk of our high-yield exposure into investment grade (IG) credit as the Fed began buying IG bonds and new issues came to the market with attractive terms.
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During the year, given the volatility and uncertainty, we did our best to mitigate impact from relative factor exposures (like momentum and beta) and to maintain a balance of quality growth stocks (especially in information technology) and traditional value and cyclical stocks, many of which performed very poorly during the downturn. Of our holdings most directly (and negatively) affected by the pandemic, we added to some on weakness, like Zimmer Biomet Holdings, Inc., and sold where we felt the negative impact may linger long past the virus. The latter category includes Compass Group plc, which has exposure to office catering and therefore to a permanent shift down in daily office occupancy. As always, we continue to focus on companies we believe are competitively well-positioned and where our forecast differs from consensus or expectations discounted in the price, whether in traditional growth or value categories.
On an equity-only basis, we outperformed the benchmark index by a little more than 2%. Performance was led by exposure to information technology and Asia ex-Japan, with much overlap between the two. Taiwan Semiconductor Manufacturing Co. Ltd. and QUALCOMM, Inc. (QUALCOMM sold during the year) both returned over 70% for the year, while ASML Holding N.V., Ordinary Shares, a Dutch semiconductor manufacturing equipment company, rose 64%. South Korean company Samsung Electronics Co. Ltd. and U.S.-based Adobe, Inc. were also strong contributors within the information technology sector. The Portfolio also benefitted from exposure within the energy sector where our largest holding, Reliance Industries Ltd. in India, rose roughly 30% due to its attractive investments within Indian telecommunications and retail. We were underweight traditional exploration and production, oil services, and integrated oil within that sector for most of the year.
On the negative side, our underweight in the consumer discretionary sector combined with stock selection detracted. While we purchased Adidas AG during the market sell-off, which proved beneficial, our automotive investments in Subaru Corp. and Suzuki Motor Corp. (Suzuki sold during the year) outweighed the positive impact of Aptiv plc, which performed well. In addition, we did not own Tesla, Inc., which skyrocketed during the year (+734%), amplified by its inclusion in the S&P 500 Index. The aforementioned Compass Group plc (sold during the year) also detracted from our performance in that sector. Our underweight in communication services also proved a drag, though that was more than offset by our overweight in information technology, which performed better for the year.
Our fixed-income portfolio returned just over 6.5% during the year. It experienced a fair amount of volatility early in 2020. We largely run a credit heavy fixed-income portfolio, which was hit hard in March by the leveraged unwind in financial markets. Following the March sell-off, we pivoted the portfolio quite quickly, taking our focus off the high-yield market and participating aggressively in the record amounts of investment-grade corporate issuance which came to market as companies looked to ensure liquidity for the pandemic. That proved to be a good decision as a combination of economic improvement, Fed support and large inflows into the asset class pushed investment-grade spreads back down near all-time tight levels by the end of the fiscal year.
Our major detractors from performance were several issuers we own on a restructuring thesis. In our quest to find non-correlated returns, we will at times participate in this market. These investments were hit hard during the March sell-off and failed to rebound throughout much of the year. All the restructurings are now effectively complete, and we are optimistic about our ability to realize value from the positions now that they have new capital structures.
We continue to hold our long-standing large position in subordinated debt under financial institutions, mainly in Europe. Our thesis of increased regulation and safer balance sheets making it very unlikely these securities become impaired still holds. On a relative basis, many of the securities still have attractive yields compared to other securities of similar risk.
Gold rose over 24% in 2020, outperforming equities. Gold continues to benefit from the confluence of aggressive central bank policies and pronounced fiscal policies to combat economic weakness but thereby increasing budget deficits. The former effect is best captured in the 10-year TIP yield, which closed the year at -1.03%. Mathematically, this rate is simply the yield on the 10-year U.S. Treasury less the level of inflation projected by the 10-year breakeven or, alternatively, the level of inflation the 10-year TIP must experience to cause one to earn the same rate of return as the 10-year Treasury. However you look at it, it means real rates are solidly negative and this, combined with large budget deficits, provide a tailwind to gold as priced in U.S. dollars (and the currencies of any economy with similar features). We’d be remiss not to point out that bitcoin rose 294% during the year, largely due to the same drivers, but also benefitting from increased buy-in from popular financial commentators. We’ve stayed away from bitcoin for a variety of reasons, not the least of which are the lack of a status as legal tender, the prospect of increased regulation, and the simple fact that while bitcoin supply is known and finite, the potential future supply of crypto currencies generally is unknown, infinite, and certain to be impacted by decisions made by nation states. The underlying blockchain technology, key to bitcoin’s design, will continue to increase in use across various technology and financial service applications.
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Our outlook and positioning heading into 2021
Much of the current controversy in the market centers around the outlook for inflation. With a newly confirmed government dominated by the Democratic party, another round of stimulus, vaccines hopefully becoming widely available and a Fed intent on providing stimulus, many in the market are starting to anticipate a return to inflation. In fact, simple base effects could cause inflation to rise to near 3% for a period, though we feel most market participants are aware of this. Regarding prolonged higher inflation, we feel that is a macro call which is very difficult to predict. We prefer to focus on individual security selection and not pick stocks based on a thesis of higher rates or rotation towards value. In fixed income, we prefer to focus on credit selection and markets where positive real returns are available rather than make large duration calls.
As part of this focus on security selection, we continue to keep our factor exposure relatively neutral, making sure we do not take on outsized relative factor exposures when valuation dispersions are still quite high within areas like value, growth and momentum. Our fixed-income portfolio continues to focus on individual credit bets rather than making duration calls. When we do add duration, we are more focused on markets where real rates are still positive and relatively high compared to the rest of the world.
We saw cross asset-class correlations normalize significantly during the back half of the year, which has dropped our predicted risk budget from the high 80s back down to around 77%. With more flexibility in the risk budget, we are looking to take advantage of emerging opportunities, especially within equities which could slightly raise our risk profile going forward. That said, we are unlikely to approach our stated maximum of 80% equities unless the market were to pull back in a way that affords pronounced upside to our individual price targets. In fixed-income markets, we currently see few opportunities to effectively take risk while being rewarded with the proper medium of returns.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
The Portfolio may allocate its assets among different asset classes of varying correlation around the globe.
International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets.
Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds.
The Portfolio may seek to hedge market risk via the use of derivative instruments. Such investments involve additional risks.
Investing in commodities is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
The use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Portfolio’s value and the risk that fluctuations in the value of the derivatives may not correlate with the corresponding securities or fixed income markets or the underlying asset upon which the derivative’s value is based.
These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Asset Strategy.
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PORTFOLIO HIGHLIGHTS | ASSET STRATEGY |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 66.6% | |||
Information Technology | 19.3% | |||
Industrials | 11.3% | |||
Financials | 9.8% | |||
Health Care | 8.2% | |||
Consumer Discretionary | 6.8% | |||
Consumer Staples | 4.6% | |||
Energy | 2.7% | |||
Communication Services | 2.1% | |||
Utilities | 1.0% | |||
Materials | 0.8% | |||
Bullion (Gold) | 5.8% | |||
Purchased Options | 0.0% | |||
Bonds | 26.3% | |||
Corporate Debt Securities | 18.3% | |||
Loans | 3.1% | |||
United States Government and Government Agency Obligations | 2.7% | |||
Mortgage-Backed Securities | 1.2% | |||
Other Government Securities | 0.9% | |||
Asset-Backed Securities | 0.1% | |||
Cash and Other Assets (Net of Liabilities), | 1.3% |
Country Weightings
North America | 49.7% | |||
United States | 47.2% | |||
Other North America | 2.5% | |||
Bullion (Gold) | 5.8% | |||
Europe | 26.4% | |||
United Kingdom | 6.3% | |||
France | 6.0% | |||
Germany | 4.7% | |||
Other Europe | 9.4% | |||
Pacific Basin | 14.4% | |||
South America | 1.4% | |||
Bahamas/Caribbean | 0.7% | |||
Middle East | 0.3% | |||
Cash and Other Assets (Net of Liabilities), | 1.3% |
Top 10 Equity Holdings
Company | Country | Sector | Industry | |||
Amazon.com, Inc. | United States | Consumer Discretionary | Internet & Direct Marketing Retail | |||
Microsoft Corp. | United States | Information Technology | Systems Software | |||
Taiwan Semiconductor Manufacturing Co. Ltd. | Taiwan | Information Technology | Semiconductors | |||
Visa, Inc., Class A | United States | Information Technology | Data Processing & Outsourced Services | |||
Intuit, Inc. | United States | Information Technology | Application Software | |||
Apple, Inc. | United States | Information Technology | Technology Hardware, Storage & Peripherals | |||
Samsung Electronics Co. Ltd. | South Korea | Information Technology | Technology Hardware, Storage & Peripherals | |||
Ingersoll-Rand, Inc. | United States | Industrials | Industrial Machinery | |||
Adobe, Inc. | United States | Information Technology | Application Software | |||
Reliance Industries Ltd. | India | Energy | Oil & Gas Refining & Marketing |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+ Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 9 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | ASSET STRATEGY |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class I | Class II | ||||||
1-year period ended 12-31-20 | 14.16% | 13.88% | ||||||
5-year period ended 12-31-20 | — | 8.61% | ||||||
10-year period ended 12-31-20 | — | 6.15% | ||||||
Since Inception of Class through 12-31-20(3) | 11.02% | — |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 4-28-17 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
10 | ANNUAL REPORT | 2020 |
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS | ASSET STRATEGY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Integrated Telecommunication Services – 1.0% |
| |||||||
Deutsche Telekom AG, Registered Shares(A) | 438 | $ | 7,986 | |||||
|
| |||||||
Interactive Media & Services – 1.1% |
| |||||||
Alphabet, Inc., Class A(B) | 2 | 3,665 | ||||||
Tencent Holdings Ltd.(A) | 58 | 4,205 | ||||||
|
| |||||||
7,870 | ||||||||
|
| |||||||
Total Communication Services – 2.1% |
| 15,856 | ||||||
Consumer Discretionary |
| |||||||
Apparel, Accessories & Luxury Goods – 1.3% |
| |||||||
adidas AG(A) | 26 | 9,635 | ||||||
|
| |||||||
Auto Parts & Equipment – 1.4% |
| |||||||
Aptiv plc | 83 | 10,776 | ||||||
|
| |||||||
Automobile Manufacturers – 0.4% |
| |||||||
Subaru Corp.(A) | 173 | 3,458 | ||||||
|
| |||||||
General Merchandise Stores – 0.9% |
| |||||||
Dollar Tree, Inc.(B) | 67 | 7,288 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 2.8% |
| |||||||
Amazon.com, Inc.(B) | 7 | 21,254 | ||||||
|
| |||||||
Leisure Facilities – 0.0% |
| |||||||
COTA Racing & Entertainment LLC, Class B(B) | — | * | — | |||||
|
| |||||||
Leisure Products – 0.0% |
| |||||||
Media Group Holdings LLC, Series H(B)(C)(D)(E) | 32 | — | * | |||||
Media Group Holdings LLC, Series T(B)(C)(D)(E) | 4 | — | ||||||
|
| |||||||
— | * | |||||||
|
| |||||||
Total Consumer Discretionary – 6.8% |
| 52,411 | ||||||
Consumer Staples |
| |||||||
Distillers & Vintners – 0.8% |
| |||||||
Pernod Ricard S.A.(A) | 32 | 6,069 | ||||||
|
| |||||||
Household Products – 1.0% |
| |||||||
Procter & Gamble Co. (The) | 55 | 7,658 | ||||||
|
| |||||||
Hypermarkets & Super Centers – 1.0% |
| |||||||
Wal-Mart Stores, Inc. | 51 | 7,389 | ||||||
|
| |||||||
Packaged Foods & Meats – 0.8% |
| |||||||
Nestle S.A., Registered Shares(A) | 55 | 6,466 | ||||||
|
| |||||||
Personal Products – 1.0% |
| |||||||
Unilever plc(A) | 121 | 7,264 | ||||||
|
| |||||||
Total Consumer Staples – 4.6% |
| 34,846 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Energy |
| |||||||
Oil & Gas Exploration & Production – 0.8% |
| |||||||
Canadian Natural Resources Ltd. | 239 | $ | 5,760 | |||||
|
| |||||||
Oil & Gas Refining & Marketing – 1.9% |
| |||||||
Phillips 66 | 46 | 3,228 | ||||||
Reliance Industries Ltd.(A) | 393 | 10,689 | ||||||
Reliance Industries Ltd.(A) | 27 | 409 | ||||||
|
| |||||||
14,326 | ||||||||
|
| |||||||
Total Energy – 2.7% |
| 20,086 | ||||||
Financials |
| |||||||
Diversified Banks – 1.5% |
| |||||||
BNP Paribas S.A.(A) | 142 | 7,500 | ||||||
UniCredit S.p.A.(A) | 403 | 3,776 | ||||||
|
| |||||||
11,276 | ||||||||
|
| |||||||
Financial Exchanges & Data – 0.7% |
| |||||||
Intercontinental Exchange, Inc. | 44 | 5,101 | ||||||
|
| |||||||
Investment Banking & Brokerage – 1.8% |
| |||||||
Goldman Sachs Group, Inc. (The) | 25 | 6,694 | ||||||
Morgan Stanley | 101 | 6,917 | ||||||
|
| |||||||
13,611 | ||||||||
|
| |||||||
Life & Health Insurance – 2.4% |
| |||||||
AIA Group Ltd.(A) | 674 | 8,220 | ||||||
Ping An Insurance (Group) Co. of China Ltd., H Shares(A) | 790 | 9,618 | ||||||
|
| |||||||
17,838 | ||||||||
|
| |||||||
Mortgage REITs – 1.1% |
| |||||||
AGNC Investment Corp. | 558 | 8,701 | ||||||
|
| |||||||
Other Diversified Financial Services – 1.3% |
| |||||||
ORIX Corp.(A) | 628 | 9,658 | ||||||
|
| |||||||
Thrifts & Mortgage Finance – 1.0% |
| |||||||
Housing Development Finance Corp. Ltd.(A) | 230 | 8,075 | ||||||
|
| |||||||
Total Financials – 9.8% |
| 74,260 | ||||||
Health Care |
| |||||||
Biotechnology – 1.5% |
| |||||||
Genmab A.S.(A)(B) | 13 | 5,349 | ||||||
Sarepta Therapeutics, Inc.(B) | 38 | 6,498 | ||||||
|
| |||||||
11,847 | ||||||||
|
| |||||||
Health Care Equipment – 2.8% |
| |||||||
Koninklijke Philips Electronics N.V., Ordinary Shares(A) | 139 | 7,468 | ||||||
Masimo Corp.(B) | 22 | 6,008 | ||||||
Zimmer Holdings, Inc. | 53 | 8,216 | ||||||
|
| |||||||
21,692 | ||||||||
|
| |||||||
Managed Health Care – 0.9% |
| |||||||
Anthem, Inc. | 21 | 6,645 | ||||||
|
| |||||||
Pharmaceuticals – 3.0% |
| |||||||
GlaxoSmithKline plc(A) | 329 | 6,024 | ||||||
Merck & Co., Inc. | 79 | 6,500 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Pharmaceuticals (Continued) |
| |||||||
Merck KGaA(A) | 58 | $ | 10,013 | |||||
|
| |||||||
22,537 | ||||||||
|
| |||||||
Total Health Care – 8.2% |
| 62,721 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 1.9% |
| |||||||
Airbus SE(A) | 77 | 8,462 | ||||||
Northrop Grumman Corp. | 19 | 5,758 | ||||||
|
| |||||||
14,220 | ||||||||
|
| |||||||
Construction & Engineering – 1.7% |
| |||||||
Larsen & Toubro Ltd.(A) | 338 | 5,975 | ||||||
Vinci(A) | 69 | 6,922 | ||||||
|
| |||||||
12,897 | ||||||||
|
| |||||||
Construction Machinery & Heavy Trucks – 0.9% |
| |||||||
Caterpillar, Inc. | 38 | 6,882 | ||||||
|
| |||||||
Electrical Components & Equipment – 1.1% |
| |||||||
Schneider Electric S.A.(A) | 57 | 8,253 | ||||||
|
| |||||||
Environmental & Facilities Services – 0.7% |
| |||||||
Waste Management, Inc. | 44 | 5,237 | ||||||
|
| |||||||
Industrial Machinery – 1.5% |
| |||||||
Ingersoll-Rand, Inc.(B) | 251 | 11,454 | ||||||
|
| |||||||
Railroads – 2.4% |
| |||||||
Kansas City Southern | 39 | 7,992 | ||||||
Union Pacific Corp. | 51 | 10,534 | ||||||
|
| |||||||
18,526 | ||||||||
|
| |||||||
Trading Companies & Distributors – 1.1% |
| |||||||
Ferguson plc(A) | 67 | 8,165 | ||||||
|
| |||||||
Total Industrials – 11.3% |
| 85,634 | ||||||
Information Technology |
| |||||||
Application Software – 3.2% |
| |||||||
Adobe, Inc.(B) | 23 | 11,406 | ||||||
Intuit, Inc. | 34 | 13,068 | ||||||
|
| |||||||
24,474 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 3.3% |
| |||||||
Fiserv, Inc.(B) | 92 | 10,435 | ||||||
Visa, Inc., Class A | 69 | 15,032 | ||||||
|
| |||||||
25,467 | ||||||||
|
| |||||||
Electronic Equipment & Instruments – 1.3% |
| |||||||
Keyence Corp.(A) | 18 | 10,125 | ||||||
|
| |||||||
Internet Services & Infrastructure – 0.6% |
| |||||||
VeriSign, Inc.(B) | 21 | 4,648 | ||||||
|
| |||||||
IT Consulting & Other Services – 0.8% |
| |||||||
Garter, Inc., Class A(B) | 36 | 5,834 | ||||||
|
| |||||||
Semiconductor Equipment – 1.4% |
| |||||||
ASML Holding N.V., Ordinary Shares(A) | 22 | 10,707 | ||||||
|
|
2020 | ANNUAL REPORT | 11 |
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS | ASSET STRATEGY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS (Continued) | Shares | Value | ||||||
Semiconductors – 2.5% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd.(A) | 1,010 | $ | 19,103 | |||||
|
| |||||||
Systems Software – 2.6% |
| |||||||
Microsoft Corp. | 88 | 19,670 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 3.6% |
| |||||||
Apple, Inc. | 88 | 11,737 | ||||||
Samsung Electronics Co. Ltd.(A) | 156 | 11,615 | ||||||
Seagate Technology | 60 | 3,708 | ||||||
|
| |||||||
27,060 | ||||||||
|
| |||||||
Total Information Technology – 19.3% |
| 147,088 | ||||||
Materials | ||||||||
Diversified Metals & Mining – 0.3% |
| |||||||
Teck Resources Ltd., Class B | 124 | 2,258 | ||||||
|
| |||||||
Gold – 0.5% |
| |||||||
Barrick Gold Corp. | 181 | 4,122 | ||||||
|
| |||||||
Total Materials – 0.8% |
| 6,380 | ||||||
Utilities | ||||||||
Multi-Utilities – 1.0% |
| |||||||
E.ON AG(A) | 724 | 8,014 | ||||||
|
| |||||||
Total Utilities – 1.0% | 8,014 | |||||||
TOTAL COMMON STOCKS – 66.6% |
| $ | 507,296 | |||||
(Cost: $396,807) |
PURCHASED OPTIONS | Number of Contracts (Unrounded) | Notional Amount | ||||||||||
Kansas City Southern, | ||||||||||||
Call $210.00, Expires 2-19-21 | 247 | 25 | 141 | |||||||||
|
|
TOTAL PURCHASED OPTIONS – 0.0% |
| $ | 141 | |||||
(Cost: $113) | ||||||||
ASSET-BACKED SECURITIES | Principal | |||||||
British Airways Pass-Through Trust, Series 2020-1A, 4.250%, 11-15-32 (F) | $ | 400 | 428 | |||||
|
| |||||||
TOTAL ASSET-BACKED SECURITIES – 0.1% | $428 | |||||||
(Cost: $400) | ||||||||
CORPORATE DEBT SECURITIES | ||||||||
Communication Services | ||||||||
Cable & Satellite – 0.3% | ||||||||
Altice France Holding S.A., | 2,383 | 2,675 | ||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Integrated Telecommunication Services – 1.4% |
| |||||||
AT&T, Inc., | $ | 653 | $ | 682 | ||||
Consolidated Communications, Inc., | 370 | 396 | ||||||
Frontier Communications Corp.: | ||||||||
7.625%, 4-15-24(G) | 2,119 | 1,070 | ||||||
6.875%, 1-15-25(G) | 6,323 | 3,067 | ||||||
11.000%, 9-15-25(G) | 5,680 | 2,982 | ||||||
9.000%, 8-15-31(G) | 2,119 | 1,022 | ||||||
West Corp., | ||||||||
8.500%, 10-15-25(F) | 1,500 | 1,451 | ||||||
|
| |||||||
10,670 | ||||||||
|
| |||||||
Interactive Media & Services – 0.1% | ||||||||
Tencent Holdings Ltd., | 1,090 | 1,129 | ||||||
|
| |||||||
Total Communication Services – 1.8% |
| 14,474 | ||||||
Consumer Discretionary | ||||||||
Automobile Manufacturers – 0.6% | ||||||||
Ford Motor Co., | 1,081 | 1,219 | ||||||
Nissan Motor Co. Ltd.: | ||||||||
4.345%, 9-17-27(F) | 1,537 | 1,697 | ||||||
4.810%, 9-17-30(F) | 1,098 | 1,237 | ||||||
|
| |||||||
4,153 | ||||||||
|
| |||||||
Hotels, Resorts & Cruise Lines – 0.1% |
| |||||||
Carnival Corp., | 432 | 500 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 0.2% |
| |||||||
Amazon.com, Inc.: | ||||||||
1.500%, 6-3-30 | 654 | 664 | ||||||
2.500%, 6-3-50 | 218 | 226 | ||||||
Meituan: | ||||||||
2.125%, 10-28-25(F) | 439 | 446 | ||||||
3.050%, 10-28-30(F) | 732 | 761 | ||||||
|
| |||||||
2,097 | ||||||||
|
| |||||||
Leisure Facilities – 0.1% |
| |||||||
Circuit of the Americas LLC, Series D, 0.000%, 10-2-23(H) | 3,642 | 637 | ||||||
|
| |||||||
Specialty Stores – 0.3% |
| |||||||
Staples, Inc., | 2,191 | 2,288 | ||||||
|
| |||||||
Total Consumer Discretionary – 1.3% | 9,675 | |||||||
Consumer Staples |
| |||||||
Brewers – 0.2% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. (GTD by AB INBEV/BBR/COB): | ||||||||
3.500%, 6-1-30 | 860 | 996 | ||||||
4.500%, 6-1-50 | 432 | 543 | ||||||
|
| |||||||
1,539 | ||||||||
|
| |||||||
Total Consumer Staples – 0.2% | 1,539 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Energy |
| |||||||
Integrated Oil & Gas – 1.0% |
| |||||||
Petrobras Global Finance B.V. (GTD by Petroleo Brasileiro S.A.), 5.600%, 1-3-31 | $ | 1,090 | $ | 1,253 | ||||
Petroleos Mexicanos: | ||||||||
6.490%, 1-23-27 | 4,223 | 4,460 | ||||||
6.840%, 1-23-30 | 822 | 860 | ||||||
Petronas Capital Ltd.: | ||||||||
3.500%, 4-21-30(F) | 432 | 496 | ||||||
4.550%, 4-21-50(F) | 424 | 566 | ||||||
|
| |||||||
7,635 | ||||||||
|
| |||||||
Oil & Gas Exploration & Production – 0.8% |
| |||||||
Laredo Petroleum, Inc.: | ||||||||
9.500%, 1-15-25 | 2,741 | 2,385 | ||||||
10.125%, 1-15-28(I) | 3,064 | 2,604 | ||||||
Saudi Arabian Oil Co.: | ||||||||
1.625%, 11-24-25(F)(I) | 440 | 451 | ||||||
2.250%, 11-24-30(F) | 1,210 | 1,231 | ||||||
|
| |||||||
6,671 | ||||||||
|
| |||||||
Oil & Gas Refining & Marketing – 0.4% |
| |||||||
PBF Holding Co. LLC, | 2,314 | 2,269 | ||||||
Valero Energy Corp., | 1,102 | 1,125 | ||||||
|
| |||||||
3,394 | ||||||||
|
| |||||||
Oil & Gas Storage & Transportation – 0.9% |
| |||||||
Energy Transfer Operating L.P.: | ||||||||
6.750%, 5-15-2168 | 3,900 | 3,559 | ||||||
7.125%, 5-15-2168 | 3,900 | 3,705 | ||||||
|
| |||||||
7,264 | ||||||||
|
| |||||||
Total Energy – 3.1% | 24,964 | |||||||
Financials |
| |||||||
Diversified Banks – 6.5% |
| |||||||
Australia and New Zealand | 881 | 898 | ||||||
Banco de Credito del Peru, | 438 | 448 | ||||||
Banco Mercantil del Norte S.A., | 1,095 | 1,307 | ||||||
Banco Santander S.A.: | ||||||||
5.375%, 4-17-25(F) | 702 | 807 | ||||||
2.746%, 5-28-25 | 654 | 698 | ||||||
3.490%, 5-28-30 | 436 | 489 | ||||||
Barclays plc: | ||||||||
3.564%, 9-23-35 | 659 | 714 | ||||||
7.875%, 12-29-49 | 7,618 | 7,980 | ||||||
8.000%, 9-15-2168 | 2,013 | 2,245 | ||||||
6.125%, 12-15-2168 | 1,099 | 1,184 | ||||||
Credit Agricole S.A., | 657 | 681 | ||||||
HSBC Holdings plc: | ||||||||
2.848%, 6-4-31 | 652 | 700 | ||||||
6.875%, 12-29-49 | 1,089 | 1,108 | ||||||
4.600%, 6-17-69 | 1,101 | 1,121 |
12 | ANNUAL REPORT | 2020 |
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS | ASSET STRATEGY (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Diversified Banks (Continued) |
| |||||||
ING Groep N.V., | $ | 2,681 | $ | 2,802 | ||||
Royal Bank of Scotland Group plc (The), | 5,081 | 5,274 | ||||||
Societe Generale Group, | 6,791 | 6,954 | ||||||
Societe Generale S.A., | 1,532 | 1,658 | ||||||
Standard Chartered plc, | 3,731 | 3,890 | ||||||
UniCredit S.p.A.: | ||||||||
2.569%, 9-22-26(F) | 2,200 | 2,245 | ||||||
5.861%, 6-19-32(F) | 3,047 | 3,432 | ||||||
5.459%, 6-30-35(F) | 2,672 | 2,940 | ||||||
|
| |||||||
49,575 | ||||||||
|
| |||||||
Diversified Capital Markets – 1.5% |
| |||||||
Credit Suisse Group AG: | ||||||||
2.193%, 6-5-26(F) | 654 | 684 | ||||||
6.375%, 2-21-2168(F) | 1,232 | 1,372 | ||||||
7.500%, 6-11-2168(F) | 2,852 | 3,171 | ||||||
7.125%, 7-29-2168 | 4,855 | 5,128 | ||||||
5.250%, 2-11-2169(F) | 1,099 | 1,162 | ||||||
|
| |||||||
11,517 | ||||||||
|
| |||||||
Financial Exchanges & Data – 0.3% |
| |||||||
Intercontinental Exchange, Inc., 1.850%, 9-15-32 | 658 | 663 | ||||||
Refinitiv U.S. Holdings, Inc., | 1,759 | 1,919 | ||||||
|
| |||||||
2,582 | ||||||||
|
| |||||||
Investment Banking & Brokerage – 0.0% |
| |||||||
Macquarie Bank Ltd., | 436 | 477 | ||||||
|
| |||||||
Life & Health Insurance – 0.2% |
| |||||||
AIA Group Ltd.: | ||||||||
3.375%, 4-7-30(F) | 540 | 605 | ||||||
3.200%, 9-16-40(F) | 1,098 | 1,151 | ||||||
|
| |||||||
1,756 | ||||||||
|
| |||||||
Multi-Line Insurance – 0.2% |
| |||||||
Athene Holding Ltd., | 1,287 | 1,600 | ||||||
|
| |||||||
Other Diversified Financial Services – 0.1% |
| |||||||
Grupo Aval Ltd., | 999 | 1,064 | ||||||
|
| |||||||
Specialized Finance – 0.1% |
| |||||||
AerCap Ireland Capital Ltd. and AerCap Global Aviation Trust, 4.500%, 9-15-23 | 657 | 712 | ||||||
|
| |||||||
Total Financials – 8.9% |
| 69,283 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Health Care |
| |||||||
Pharmaceuticals – 0.1% |
| |||||||
Teva Pharmaceutical Finance Netherlands III B.V. (GTD by Teva Pharmaceutical Industries Ltd.), 2.800%, 7-21-23 | $ | 1,000 | $ | 990 | ||||
|
| |||||||
Total Health Care – 0.1% |
| 990 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 1.1% |
| |||||||
Boeing Co. (The): | ||||||||
4.875%, 5-1-25 | 1,083 | 1,234 | ||||||
5.150%, 5-1-30 | 1,083 | 1,311 | ||||||
5.805%, 5-1-50 | 644 | 888 | ||||||
Wolverine Escrow LLC: | ||||||||
8.500%, 11-15-24(F) | 2,080 | 1,985 | ||||||
9.000%, 11-15-26(F) | 2,081 | 1,970 | ||||||
13.125%, 11-15-27(F) | 2,081 | 1,675 | ||||||
|
| |||||||
9,063 | ||||||||
|
| |||||||
Airlines – 0.1% |
| |||||||
Southwest Airlines Co., | �� | 542 | 628 | |||||
|
| |||||||
Highways & Railtracks – 0.1% |
| |||||||
Transurban Finance Co. Pty Ltd., 2.450%, 3-16-31(F) | 611 | 641 | ||||||
|
| |||||||
Total Industrials – 1.3% |
| 10,332 | ||||||
Information Technology |
| |||||||
Internet Services & Infrastructure – 0.1% |
| |||||||
Baidu, Inc., | 470 | 477 | ||||||
|
| |||||||
IT Consulting & Other Services – 0.1% |
| |||||||
Leidos, Inc. (GTD by Leidos Holdings, Inc.): | ||||||||
3.625%, 5-15-25(F) | 326 | 365 | ||||||
4.375%, 5-15-30(F) | 326 | 390 | ||||||
|
| |||||||
755 | ||||||||
|
| |||||||
Semiconductors – 0.2% |
| |||||||
Broadcom, Inc., | 541 | 620 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd., | 1,318 | 1,293 | ||||||
|
| |||||||
1,913 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 0.1% |
| |||||||
Apple, Inc., | 878 | 897 | ||||||
|
| |||||||
Total Information Technology – 0.5% |
| 4,042 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Materials |
| |||||||
Diversified Metals & Mining – 0.3% |
| |||||||
Glencore Funding LLC: | ||||||||
1.625%, 9-1-25(F) | $ | 659 | $ | 678 | ||||
2.500%, 9-1-30(F) | 1,537 | 1,567 | ||||||
|
| |||||||
2,245 | ||||||||
|
| |||||||
Steel – 0.4% |
| |||||||
CSN Resources S.A., | 2,960 | 3,071 | ||||||
|
| |||||||
Total Materials – 0.7% |
| 5,316 | ||||||
Real Estate |
| |||||||
Industrial REITs – 0.2% |
| |||||||
Aircastle Ltd., | 1,466 | 1,614 | ||||||
|
| |||||||
Total Real Estate – 0.2% |
| 1,614 | ||||||
Utilities |
| |||||||
Independent Power Producers & Energy |
| |||||||
NRG Energy, Inc.: | ||||||||
2.000%, 12-2-25(F) | 1,100 | 1,140 | ||||||
2.450%, 12-2-27(F) | 110 | 116 | ||||||
|
| |||||||
1,256 | ||||||||
|
| |||||||
Total Utilities – 0.2% |
| 1,256 | ||||||
TOTAL CORPORATE DEBT |
| $ | 143,485 | |||||
(Cost: $142,702) | ||||||||
MORTGAGE-BACKED SECURITIES |
| |||||||
Non-Agency REMIC/CMO – 1.2% |
| |||||||
Credit Suisse Mortgage Trust, Series 2018-RPL8, Class A1 (Mortgage spread to 3-year U.S. Treasury index), | 1,543 | 1,549 | ||||||
Homeward Opportunities Fund I Trust, Series 2019-1, Class B1 (Mortgage spread to 10-year U.S. Treasury index), | 1,061 | 1,071 | ||||||
Merrill Lynch Mortgage Investors Trust, Series 1998-C1, Class F, 6.250%, 11-15-26 | 270 | 275 | ||||||
Verus Securitization Trust, Series 2018-3, Class B1 (Mortgage spread to 5-year U.S. Treasury index), | 2,100 | 2,126 | ||||||
Verus Securitization Trust, Series 2019-1, Class B1 (Mortgage spread to 10-year U.S. Treasury index), | 3,432 | 3,327 |
2020 | ANNUAL REPORT | 13 |
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS | ASSET STRATEGY (in thousands) |
DECEMBER 31, 2020
MORTGAGE-BACKED SECURITIES (Continued) | Principal | Value | ||||||
Non-Agency REMIC/CMO Continued) |
| |||||||
Verus Securitization Trust, Series 2019-2, Class B1 (Mortgage spread to 5-year U.S. Treasury index), | $ | 531 | $ | 536 | ||||
|
| |||||||
8,884 | ||||||||
|
| |||||||
TOTAL MORTGAGE-BACKED |
| $ | 8,884 | |||||
(Cost: $9,085) | ||||||||
OTHER GOVERNMENT SECURITIES(K) |
| |||||||
Argentina – 0.8% |
| |||||||
Province of Mendoza, | 4,362 | 2,922 | ||||||
Republic of Argentina: | ||||||||
1.000%, 7-9-29 | 272 | 118 | ||||||
0.125%, 7-9-30 | 7,054 | 2,857 | ||||||
0.125%, 7-9-35 | 1,318 | 481 | ||||||
|
| |||||||
6,378 | ||||||||
|
| |||||||
Colombia – 0.1% |
| |||||||
Republic of Colombia, | 327 | 347 | ||||||
|
| |||||||
TOTAL OTHER GOVERNMENT |
| $ | 6,725 | |||||
(Cost: $7,146) | ||||||||
LOANS(J) | ||||||||
Communication Services |
| |||||||
Integrated Telecommunication Services – 0.8% |
| |||||||
West Corp. (3-Month ICE LIBOR plus 400 bps), | 6,031 | 5,830 | ||||||
|
| |||||||
Total Communication Services – 0.8% |
| 5,830 | ||||||
Consumer Discretionary |
| |||||||
Specialty Stores – 0.0% |
| |||||||
Staples, Inc. (ICE LIBOR plus 500 bps), | 2 | 2 | ||||||
|
| |||||||
Total Consumer Discretionary – 0.0% |
| 2 | ||||||
Energy |
| |||||||
Oil & Gas Storage & Transportation – 0.3% |
| |||||||
EPIC Crude Services L.P. (ICE LIBOR plus 500 bps), | 2,811 | 1,936 | ||||||
|
| |||||||
Total Energy – 0.3% |
| 1,936 |
LOANS(J) (Continued) | Principal | Value | ||||||
Financials |
| |||||||
Property & Casualty Insurance – 0.7% |
| |||||||
Amynta Agency Borrower, Inc. (ICE LIBOR plus 400 bps), | $ | 5,256 | $ | 5,072 | ||||
|
| |||||||
Total Financials – 0.7% |
| 5,072 | ||||||
Health Care |
| |||||||
Health Care Facilities – 0.4% |
| |||||||
Surgery Center Holdings, Inc. (ICE LIBOR plus 325 bps), | 2,791 | 2,739 | ||||||
|
| |||||||
Health Care Services – 0.2% |
| |||||||
Heartland Dental LLC (ICE LIBOR plus 375 bps), | 1,958 | 1,907 | ||||||
|
| |||||||
Total Health Care – 0.6% |
| 4,646 | ||||||
Materials |
| |||||||
Construction Materials – 0.7% |
| |||||||
Hillman Group, Inc. (The) (ICE LIBOR plus 350 bps), | 5,250 | 5,221 | ||||||
|
| |||||||
Total Materials – 0.7% |
| 5,221 | ||||||
TOTAL LOANS – 3.1% |
| $ | 22,707 | |||||
(Cost: $23,978) | ||||||||
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS |
| |||||||
Mortgage-Backed Obligations – 0.9% |
| |||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO, | 4,347 | 600 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 615 bps), | 2,437 | 428 | ||||||
Federal National Mortgage Association Agency REMIC/CMO: | ||||||||
4.500%, 10-25-40(L) | 2,160 | 340 | ||||||
4.500%, 5-25-47(L) | 1,789 | 277 | ||||||
5.000%, 3-25-49(L) | 1,623 | 201 | ||||||
Federal National Mortgage Association Agency REMIC/CMO (1-Month U.S. LIBOR plus 562 bps), | 3,589 | 767 | ||||||
Federal National Mortgage Association Agency REMIC/CMO (1-Month U.S. LIBOR plus 625 bps): | ||||||||
5.972%, 4-25-45(J)(L) | 1,787 | 437 | ||||||
5.952%, 4-25-46(J)(L) | 4,210 | 809 | ||||||
5.952%, 8-25-46(J)(L) | 4,246 | 809 | ||||||
6.102%, 6-25-48(J)(L) | 9,372 | 2,159 | ||||||
|
| |||||||
6,827 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 0.9% |
| $ | 6,827 | |||||
(Cost: $6,869) |
UNITED STATES GOVERNMENT OBLIGATIONS | Principal | Value | ||||||
Treasury Inflation Protected Obligations – 0.5% |
| |||||||
U.S. Treasury Notes: | ||||||||
0.625%, 1-15-26 | $ | 1,134 | $ | 1,266 | ||||
0.125%, 7-15-26 | 2,607 | 2,866 | ||||||
|
| |||||||
4,132 | ||||||||
|
| |||||||
Treasury Obligations – 1.3% |
| |||||||
U.S. Treasury Bonds: | ||||||||
2.750%, 8-15-47 | 6,210 | 7,770 | ||||||
3.000%, 2-15-49 | 1,591 | 2,095 | ||||||
|
| |||||||
9,865 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS – 1.8% |
| $ | 13,997 | |||||
(Cost: $11,428) | ||||||||
BULLION – 5.8% | | Troy Ounces | | |||||
Gold | 23 | 44,036 | ||||||
|
| |||||||
(Cost: $28,369) | ||||||||
SHORT-TERM SECURITIES | Shares | |||||||
Money Market Funds(N) – 1.1% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares, 0.030%(M) | 665 | 665 | ||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% | 7,549 | 7,550 | ||||||
|
| |||||||
8,215 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 1.1% |
| $ | 8,215 | |||||
(Cost: $8,215) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.8% |
| $ | 762,741 | |||||
(Cost: $635,112) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.2% |
| 1,833 | ||||||
NET ASSETS – 100.0% |
| $ | 764,574 |
14 | ANNUAL REPORT | 2020 |
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS | ASSET STRATEGY (in thousands) |
DECEMBER 31, 2020
Notes to Consolidated Schedule of Investments
* | Not shown due to rounding. |
(A) | Listed on an exchange outside the United States. |
(B) | No dividends were paid during the preceding 12 months. |
(C) | Restricted securities. At December 31, 2020, the Portfolio owned the following restricted securities: |
Security | Acquisition Date(s) | Shares | Cost | Value | ||||||||||||||||
Media Group Holdings LLC, Series H | 8-29-13 to 10-31-13 | 32 | $ | 22,309 | $ | — | * | |||||||||||||
Media Group Holdings LLC, Series T | 7-2-13 to 1-23-15 | 4 | 8,413 | — | ||||||||||||||||
|
| |||||||||||||||||||
$ | 30,722 | $ | — | * | ||||||||||||||||
|
|
The total value of these securities represented 0.0% of net assets at December 31, 2020. |
(D) | Investment is owned by an entity that is treated as a corporation for U.S. tax purposes and is owned by the Portfolio and consolidated as described in Note 5 of the Notes to Financial Statements. |
(E) | Securities whose value was determined using significant unobservable inputs. |
(F) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $82,922 or 10.8% of net assets. |
(G) | Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy. |
(H) | Zero coupon bond. |
(I) | All or a portion of securities with an aggregate value of $649 are on loan. |
(J) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Description of the reference rate and spread, if applicable, are included in the security description. |
(K) | Other Government Securities may include emerging markets sovereign, quasi-sovereign, corporate and supranational agency and organization debt securities. |
(L) | Interest-only security. Amount shown as principal represents notional amount for computation of interest. |
(M) | Investment made with cash collateral received from securities on loan. |
(N) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(O) | Principal amounts are denominated in the indicated foreign currency, where applicable (CNY – Chinese Yuan Renminbi). |
The following total return swap agreements were outstanding at December 31, 2020:
Underlying Security | Long/Short | Counterparty | Maturity Date | Notional Amount(O) | Financing Fee(1)(2) | Value | Upfront Payments/ (Receipts) | Unrealized Appreciation | ||||||||||||||||||||
China Government Bond | Long | Morgan Stanley & Co. International plc | 02/20/2021 | CNY74,039 | 7-Day China Fixing Repo Rates plus 65 bps | $ | 382 | $ | — | $ | 382 | |||||||||||||||||
|
|
(1) | The Portfolio pays the financing fee multiplied by the notional amount if long on the swap agreement. If the Portfolio is short on the swap agreement, the Portfolio receives the financing fee multiplied by the notional amount. |
(2) | At the termination date, a net cash flow is exchanged where the market-linked total return is equivalent to the return of the underlying security less a financing rate, if any. If the Portfolio is long on the swap agreement, the Portfolio would receive payments on any net positive total return, and would owe payments in the event of a negative total return. If the Portfolio is short on the swap agreement, the Portfolio would owe payments on any net positive total return, and would receive payments in the event of a negative total return. |
The following written options were outstanding at December 31, 2020 (contracts and exercise prices unrounded):
Underlying Security | Counterparty, if OTC | Type | Number of Contracts | Notional Amount | Expiration Month | Exercise Price | Premium Received | Value | ||||||||||||||||||||
Kansas City Southern | N/A | Put | 198 | 20 | February 2021 | $ | 175.00 | $ | 33 | $ | (29 | ) | ||||||||||||||||
|
|
2020 | ANNUAL REPORT | 15 |
Table of Contents
CONSOLIDATED SCHEDULE OF INVESTMENTS | ASSET STRATEGY (in thousands) |
DECEMBER 31, 2020
The following table is a summary of the valuation of the Portfolios’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Communication Services | $ | 3,665 | $ | 12,191 | $ | — | ||||||
Consumer Discretionary | 39,318 | 13,093 | — | * | ||||||||
Consumer Staples | 15,047 | 19,799 | — | |||||||||
Energy | 8,988 | 11,098 | — | |||||||||
Financials | 27,413 | 46,847 | — | |||||||||
Health Care | 33,867 | 28,854 | — | |||||||||
Industrials | 47,857 | 37,777 | — | |||||||||
Information Technology | 95,538 | 51,550 | — | |||||||||
Materials | 6,380 | — | — | |||||||||
Utilities | — | 8,014 | — | |||||||||
Total Common Stocks | $ | 278,073 | $ | 229,223 | $ | — | * | |||||
Purchased Options | 141 | — | — | |||||||||
Asset-Backed Securities | — | 428 | — | |||||||||
Corporate Debt Securities | — | 143,485 | — | |||||||||
Mortgage-Backed Securities | — | 8,884 | — | |||||||||
Other Government Securities | — | 6,725 | — | |||||||||
Loans | — | 22,707 | — | |||||||||
United States Government Agency Obligations | — | 6,827 | — | |||||||||
United States Government Obligations | — | 13,997 | — | |||||||||
Bullion | 44,036 | — | — | |||||||||
Short-Term Securities | 8,215 | — | — | |||||||||
Total | $ | 330,465 | $ | 432,276 | $ | — | * | |||||
Total Return Swaps | $ | — | $ | 382 | $ | — | ||||||
Liabilities | ||||||||||||
Written Options | $ | — | $ | 29 | $ | — |
During the year ended December 31, 2020, there were no transfers in or out of Level 3.
The following acronyms are used throughout this schedule:
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
ICE = Intercontinental Exchange
LIBOR = London Interbank Offered Rate
OTC = Over the Counter
REIT = Real Estate Investment Trust
REMIC = Real Estate Mortgage Investment Conduit
Country Diversification
|
| |||
(as a % of net assets) | ||||
United States | 47.2% | |||
United Kingdom | 6.3% | |||
France | 6.0% | |||
Germany | 4.7% | |||
Japan | 3.4% | |||
Switzerland | 3.4% | |||
India | 3.3% | |||
Netherlands | 3.0% |
Country Diversification (Continued)
Taiwan | 2.5% | |||
China | 1.9% | |||
Italy | 1.6% | |||
Canada | 1.5% | |||
South Korea | 1.5% | |||
Hong Kong | 1.3% | |||
Mexico | 1.0% | |||
Other Countries | 4.3% | |||
Other+ | 7.1% |
+Includes gold bullion, options, cash and other assets (net of liabilities), and cash equivalents
See Accompanying Notes to Financial Statements.
16 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | BALANCED |
(UNAUDITED)
Matthew A. Hekman
Mark G. Beischel
Susan Regan
Below, Matthew A. Hekman, Mark G. Beischel, CFA, and Susan K. Regan, co-portfolio managers of Ivy VIP Balanced, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Hekman has managed the Portfolio since 2014 and has 22 years of industry experience. Mr. Beischel and Ms. Regan joined Mr. Hekman as co-portfolio managers of the Portfolio in April 2018. Mr. Beischel has 27 years of industry experience, while Ms. Regan has 33 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Balanced (Class II shares at net asset value) | 14.11% | |||
Benchmarks and Morningstar Category | ||||
S&P 500 Index | 18.40% | |||
(Generally reflects the performance of large- and medium-sized U.S. stocks) | ||||
Bloomberg Barclays U.S. Government/Credit Index | 8.92% | |||
(Generally reflects the performance of securities in the bond market) | ||||
Morningstar Allocation 50% to 70% Equity Category Average | 11.72% | |||
(Generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that the Portfolio returns include applicable fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Key drivers
The fiscal year ended December 31, 2020 was one for the record books. The year began with historic levels of volatility, with equity markets posting dramatic declines in February and March as the COVID-19 pandemic spread across the globe, and countries adopted increasingly stringent policies to slow the rate of infection. Since the onset of the pandemic, we have seen a dizzying array of unprecedented market, economic and societal events. In the realm of economics, the March initial jobless claims data was a stark indicator of the challenge faced by the domestic economy with 3.28 million claims filed, a level that was four times the previous record high. As the economic ramifications of the virus and its remediation became apparent, markets declined and policy makers responded. Global central banks dramatically reduced interest rates with the U.S. Federal Reserve (Fed) cutting its target range by 100 basis points (bps) over a two-week time period to a range of 0.00% — 0.25%. In addition, the Fed launched a series of monetary and regulatory measures to ease the hit to the U.S. economy, including unlimited purchases of Treasuries and agency mortgages; various loan facilities; and foreign exchange swap lines with global central banks, to name a few. The U.S. Congress also moved quickly to pass legislation with the most significant being the $2.2 trillion CARES Act signed into law over the summer with several subsequent legislative relief packages throughout the rest of the year. Our country endured multiple bouts of social unrest and a contentious election cycle late in the year which presented headwinds to confidence and morale. While this isn’t an exhaustive list of the travails of 2020, it captures some of the significant events and provides a backdrop for what many would consider to be a very difficult year. While 2020 is a year most of us are glad to see end, investors know there were reasons for celebration as well. Despite significant volatility, domestic equity markets rose to all-time highs to close out the calendar year — a record we don’t mind setting!
As investors can attest, 2020 has had more than its fair share of drama, vitriol and negativity. These often result in periodic bouts of volatility that can be un-nerving, but the trailing fiscal-year performance of the Portfolio is a profitable reminder of the value of patient, disciplined investing with a long-term perspective.
The S&P 500 Index, the Portfolio’s equity benchmark, advanced 18.4% for the fiscal period. The dispersion in sector returns over that time period was significant with information technology being the stand-out, posting a 43.9% return. Both consumer discretionary (up 33.3%) and communication services (up 23.6%) sectors also outperformed the index. The
2020 | ANNUAL REPORT | 17 |
Table of Contents
laggards were the beleaguered energy (down 33.7%), financials (down 1.7%) and real estate (down 2.2%) sectors, with the traditionally more defensive utilities, consumer staples and health care sectors each underperforming the index though they posted positive returns.
The Portfolio’s fixed-income benchmark, the Bloomberg Barclays U.S. Government/Credit Index, rose 8.9% for the fiscal year as interest rates declined. The 10-year Treasury yield collapsed by approximately 100 bps to 0.92%. The Treasury curve steepened with the spread relationship between the 2-year and the 10-year Treasury bond at 79 bps, up from 35 bps at the start of the fiscal year. Investment-grade credit spreads were volatile but ended the year at 92 bps, well below the 20-year average of 146 bps and just 2 bps wider than where they started the year.
Contributors and detractors
The Portfolio advanced 14.1% for the fiscal year, outperforming its Morningstar category peers. Performance was driven by a modest overweight of equities relative to the blended benchmark and strong credit selection in the fixed-income sleeve. For the fiscal year, the Portfolio’s equity weight averaged 63.3%, fixed income averaged 36.2%, with the remaining balance in cash.
The equity component of the Portfolio advanced 17.0% for the year, underperforming the S&P 500 Index. Poor stock selection in the materials, industrials and health care sectors hampered relative performance. The fixed-income component of the Portfolio was up 11.9% for the year, strongly outperforming its benchmark. The Portfolio opportunistically added credit exposure in the second and third calendar quarters of 2020 which subsequently tightened meaningfully. As a result of that trade into credit, the Portfolio was underweight Treasuries relative to the benchmark which was a significant contributor to relative performance. Finally, derivatives written against positions in the equity sleeve were a modest positive contributor to total Portfolio performance.
Top contributors to overall performance were Apple Inc., Autodesk, Inc., Microsoft Corp., Amazon.com, Inc. and QUALCOMM, Inc. (no longer a Portfolio holding). Apple had a remarkable year as investors revalued its equity in recognition of the strength of the brand and in growing anticipation of an iPhone refresh cycle in 2021. Autodesk has been a long-standing position for the Portfolio as its competitive position in the architectural engineering industry continues to produce profitable growth, while new addressable markets in the building management, construction and industrial end markets present compelling opportunities. Microsoft continues to expand its capability and market share in the cloud with its Azure product. Its deep focus and expertise in serving corporate information technology departments has strengthened a competitive moat we believe will prove durable. Amazon benefited as consumers shifted consumption patterns online as a result of COVID-19 restrictions on mobility. We believe many of these patterns will prove durable beyond the pandemic. QUALCOMM posted strong returns as it benefited from its technology lead in next-generation 5G Wireless chipsets which drove strong revenue and gross margin upside. While we continue to be impressed with the business, the valuation of the equity became prohibitively rich in our view and we elected to exit the position.
Detractors to performance in the fiscal year were Delta Air Lines, Inc. The Boeing Co., Lyondellbasell, Industries N.V., Class A, PPG Industries, Inc. and Citigroup, Inc. These stocks are no longer held in the Portfolio. Delta Airlines and Boeing were victims of the COVID-19 pandemic as global air traffic fell precipitously and airlines were forced to largely ground their fleets. While Delta is better capitalized than many of its peers and Boeing is making modest strides in recapturing the trust of global regulators, the industry will be burdened by excess capacity and the lingering effects of federal aid. As a result, we exited our positions. Lyondellbasell and PPG Industries are deeply cyclical companies that were negatively impacted by the implications resulting from the COVID-19 pandemic. As we evaluated the best investment opportunities post the market decline early in the fiscal year, we elected to exit our positions to fund purchases in what we found to be more attractive opportunities. Citigroup was a frustrating investment for the Portfolio as regulators identified several longstanding deficiencies in its data and risk management systems that resulted in fines and restrictions. Our confidence in management was sufficiently impaired to motivate us to exit our position.
Outlook
As we look ahead, we believe global economic growth is likely to rebound meaningfully in the near term as economies re-open and stimulus has its intended effect. However, we continue to expect heightened levels of uncertainty as governments, businesses and individuals adjust to the necessary realities of combating a global pandemic. Our thoughts and prayers go out to the growing number of people tragically impacted by this virus as well as to those working tirelessly to contain it. As stewards of your capital, it is our responsibility to perform the seemingly cold-hearted but necessary analysis of the financial impacts of this pandemic on markets and individual securities. To that end, we have modestly increased our exposure to equities and begun to reduce our exposure to corporate credit. Late in the fourth quarter, after a strong run of performance, we began the process of reducing our exposure to investment grade and non-investment grade credit with the proceeds invested in Treasuries which will serve to narrow the large underweight versus the benchmark. At fiscal year end, the Portfolio’s equity allocation was 66.7%, fixed income was 32.6%, with the balance in cash.
18 | ANNUAL REPORT | 2020 |
Table of Contents
Economic impacts of COVID-19 are likely to be persistent, however, the experience of other countries provides some hope and evidence that a sharp rebound in economic activity can commence once the spread of the virus slows. We have begun to see this rebound domestically and expect it to continue in the short term in part due to the lagged effects of fiscal and monetary stimulus put in place over the last several months. As economies recover, we are closely watching inflation rates and inflation expectations, which have been modest and must remain so in order to allow central banks to maintain their accommodative monetary policies.
While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding perceived high quality, growing companies whose securities are trading at a reasonable valuation with visible catalysts to drive relative outperformance over the next twelve months. This approach has served investors well over time, and our confidence in it has not waned.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Fixed-income securities are subject to interest rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. The lower-rated securities in which the Portfolio may invest may carry greater risk of nonpayment of interest or principal then higher-rated bonds. In addition to the risks typically associated with fixed-income securities, loan participations in which the Portfolio may invest carry other risks, including the risk of insolvency of the lending bank or other intermediary. The Portfolio’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Portfolio invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates.
The Portfolio typically holds a limited number of stocks (generally 45 to 55). As a result, the appreciation or depreciation of any one security held by the Portfolio will have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a large number of securities.
The value of a security believed by the Portfolio’s managers to be undervalued may never reach what the managers believe to be its full value, or such security’s value may decrease. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the Portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The indexes noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Balanced.
2020 | ANNUAL REPORT | 19 |
Table of Contents
PORTFOLIO HIGHLIGHTS | BALANCED |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
|
| |||
Stocks | 66.7% | |||
Information Technology | 14.8% | |||
Health Care | 11.0% | |||
Financials | 10.4% | |||
Consumer Discretionary | 8.5% | |||
Communication Services | 7.0% | |||
Industrials | 6.4% | |||
Consumer Staples | 4.3% | |||
Energy | 3.7% | |||
Materials | 0.6% | |||
Bonds | 32.6% | |||
Corporate Debt Securities | 16.0% | |||
United States Government and Government Agency Obligations | 15.7% | |||
Loans | 0.9% | |||
Cash and Other Assets (Net of Liabilities), | 0.7% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
Microsoft Corp. | Information Technology | Systems Software | ||
Autodesk, Inc. | Information Technology | Application Software | ||
Apple, Inc. | Information Technology | Technology Hardware, Storage & Peripherals | ||
Zimmer Holdings, Inc. | Health Care | Health Care Equipment | ||
Constellation Brands, Inc. | Consumer Staples | Distillers & Vintners | ||
Electronic Arts, Inc. | Communication Services | Interactive Home Entertainment | ||
Micron Technology, Inc. | Information Technology | Semiconductors | ||
Goldman Sachs Group, Inc. (The) | Financials | Investment Banking & Brokerage | ||
Lowe’s Co., Inc. | Consumer Discretionary | Home Improvement Retail | ||
Facebook, Inc., Class A | Communication Services | Interactive Media & Services |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
20 | ANNUAL REPORT | 2020 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | BALANCED |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 14.11% | |||
5-year period ended 12-31-20 | 8.90% | |||
10-year period ended 12-31-20 | 8.90% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 21 |
Table of Contents
SCHEDULE OF INVESTMENTS | BALANCED (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Interactive Home Entertainment – 1.8% |
| |||||||
Electronic Arts, Inc. | 44 | $ | 6,258 | |||||
|
| |||||||
Interactive Media & Services – 4.3% |
| |||||||
Alphabet, Inc., Class A(A) | 3 | 4,651 | ||||||
Alphabet, Inc., Class C(A) | 3 | 4,658 | ||||||
Facebook, Inc., Class A(A) | 20 | 5,492 | ||||||
|
| |||||||
14,801 | ||||||||
|
| |||||||
Movies & Entertainment – 0.9% |
| |||||||
Walt Disney Co. (The) | 17 | 3,087 | ||||||
|
| |||||||
Total Communication Services – 7.0% |
| 24,146 | ||||||
Consumer Discretionary |
| |||||||
Apparel, Accessories & Luxury Goods – 1.1% |
| |||||||
V.F. Corp. | 42 | 3,588 | ||||||
|
| |||||||
Automotive Retail – 0.7% |
| |||||||
O’Reilly Automotive, Inc.(A) | 5 | 2,468 | ||||||
|
| |||||||
Casinos & Gaming – 1.4% |
| |||||||
Las Vegas Sands, Inc. | 80 | 4,755 | ||||||
|
| |||||||
Home Improvement Retail – 1.7% |
| |||||||
Lowe’s Co., Inc. | 36 | 5,844 | ||||||
|
| |||||||
Hotels, Resorts & Cruise Lines – 0.9% |
| |||||||
Hilton Worldwide Holdings, Inc. | 28 | 3,072 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 0.7% |
| |||||||
Amazon.com, Inc.(A) | 1 | 2,436 | ||||||
|
| |||||||
Restaurants – 1.0% |
| |||||||
Darden Restaurants, Inc. | 30 | 3,591 | ||||||
|
| |||||||
Specialty Stores – 1.0% |
| |||||||
Tractor Supply Co. | 25 | 3,508 | ||||||
|
| |||||||
Total Consumer Discretionary – 8.5% |
| 29,262 | ||||||
Consumer Staples |
| |||||||
Distillers & Vintners – 1.8% |
| |||||||
Constellation Brands, Inc. | 29 | 6,302 | ||||||
|
| |||||||
Packaged Foods & Meats – 1.0% |
| |||||||
Mondelez International, Inc., Class A | 58 | 3,419 | ||||||
|
| |||||||
Tobacco – 1.5% |
| |||||||
Philip Morris International, Inc. | 62 | 5,122 | ||||||
|
| |||||||
Total Consumer Staples – 4.3% |
| 14,843 | ||||||
Energy |
| |||||||
Integrated Oil & Gas – 0.3% |
| |||||||
Chevron Corp. | 14 | 1,141 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 1.9% |
| |||||||
Canadian Natural Resources Ltd. | 151 | 3,623 | ||||||
Hess Corp. | 51 | 2,676 | ||||||
|
| |||||||
6,299 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Oil & Gas Storage & Transportation – 0.6% |
| |||||||
Enterprise Products Partners L.P. | 97 | $ | 1,900 | |||||
|
| |||||||
Total Energy – 2.8% |
| 9,340 | ||||||
Financials |
| |||||||
Consumer Finance – 1.1% |
| |||||||
American Express Co. | 32 | 3,825 | ||||||
|
| |||||||
Financial Exchanges & Data – 1.1% |
| |||||||
Intercontinental Exchange, Inc. | 33 | 3,821 | ||||||
|
| |||||||
Insurance Brokers – 0.9% |
| |||||||
Aon plc | 15 | 3,266 | ||||||
|
| |||||||
Investment Banking & Brokerage – 3.0% |
| |||||||
Goldman Sachs Group, Inc. (The) | 23 | 5,943 | ||||||
Morgan Stanley | 62 | 4,263 | ||||||
|
| |||||||
10,206 | ||||||||
|
| |||||||
Multi-Sector Holdings – 1.5% |
| |||||||
Berkshire Hathaway, Inc., Class B(A) | 22 | 5,035 | ||||||
|
| |||||||
Other Diversified Financial Services – 1.4% |
| |||||||
JPMorgan Chase & Co. | 38 | 4,845 | ||||||
|
| |||||||
Regional Banks – 1.4% |
| |||||||
PNC Financial Services Group, Inc. (The) | 33 | 4,951 | ||||||
|
| |||||||
Total Financials – 10.4% |
| 35,949 | ||||||
Health Care |
| |||||||
Health Care Equipment – 2.0% |
| |||||||
Zimmer Holdings, Inc. | 44 | 6,777 | ||||||
|
| |||||||
Health Care Technology – 1.4% |
| |||||||
Cerner Corp. | 64 | 5,019 | ||||||
|
| |||||||
Managed Health Care – 2.5% |
| |||||||
Anthem, Inc. | 16 | 5,161 | ||||||
UnitedHealth Group, Inc. | 10 | 3,340 | ||||||
|
| |||||||
8,501 | ||||||||
|
| |||||||
Pharmaceuticals – 5.0% |
| |||||||
Elanco Animal Health, Inc.(A) | 98 | 2,992 | ||||||
Eli Lilly and Co. | 23 | 3,901 | ||||||
GlaxoSmithKline plc ADR | 74 | 2,732 | ||||||
Jazz Pharmaceuticals plc(A) | 24 | 4,027 | ||||||
Merck & Co., Inc. | 42 | 3,413 | ||||||
|
| |||||||
17,065 | ||||||||
|
| |||||||
Total Health Care – 10.9% |
| 37,362 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 1.2% |
| |||||||
Northrop Grumman Corp. | 5 | 1,383 | ||||||
Raytheon Technologies Corp. | 37 | 2,612 | ||||||
|
| |||||||
3,995 | ||||||||
|
| |||||||
Agricultural & Farm Machinery – 0.7% |
| |||||||
Deere & Co. | 9 | 2,443 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Electrical Components & Equipment – 0.8% |
| |||||||
Emerson Electric Co. | 34 | $ | 2,758 | |||||
|
| |||||||
Industrial Machinery – 1.0% |
| |||||||
Snap-on, Inc. | 21 | 3,632 | ||||||
|
| |||||||
Railroads – 1.5% |
| |||||||
Union Pacific Corp. | 25 | 5,180 | ||||||
|
| |||||||
Research & Consulting Services – 1.2% |
| |||||||
IHS Markit Ltd. | 43 | 3,903 | ||||||
|
| |||||||
Total Industrials – 6.4% |
| 21,911 | ||||||
Information Technology |
| |||||||
Application Software – 2.2% |
| |||||||
Autodesk, Inc.(A) | 25 | 7,552 | ||||||
|
| |||||||
Communications Equipment – 1.3% |
| |||||||
Cisco Systems, Inc. | 40 | 1,792 | ||||||
Motorola Solutions, Inc. | 16 | 2,662 | ||||||
|
| |||||||
4,454 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 1.5% |
| |||||||
Fiserv, Inc.(A) | 45 | 5,094 | ||||||
|
| |||||||
Electronic Manufacturing Services – 0.3% |
| |||||||
IPG Photonics Corp.(A) | 4 | 921 | ||||||
|
| |||||||
IT Consulting & Other Services – 1.0% |
| |||||||
Cognizant Technology Solutions Corp., Class A | 42 | 3,453 | ||||||
|
| |||||||
Semiconductors – 3.2% |
| |||||||
Infineon Technologies AG ADR(B) | 136 | 5,246 | ||||||
Micron Technology, Inc.(A) | 79 | 5,951 | ||||||
|
| |||||||
11,197 | ||||||||
|
| |||||||
Systems Software – 3.2% |
| |||||||
Microsoft Corp. | 49 | 10,912 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 2.1% |
| |||||||
Apple, Inc. | 56 | 7,375 | ||||||
|
| |||||||
Total Information Technology – 14.8% |
| 50,958 | ||||||
Materials |
| |||||||
Specialty Chemicals – 0.6% |
| |||||||
Sherwin-Williams Co. (The) | 3 | 1,976 | ||||||
|
| |||||||
Total Materials — 0.6% |
| 1,976 | ||||||
TOTAL COMMON STOCKS – 65.7% |
| $ | 225,747 | |||||
(Cost: $169,194) | ||||||||
PREFERRED STOCKS | ||||||||
Energy |
| |||||||
Oil & Gas Exploration & Production – 0.9% |
| |||||||
Targa Resources Corp., 9.500%(A)(C) | 3 | 3,243 | ||||||
|
| |||||||
Total Energy – 0.9% |
| 3,243 |
22 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | BALANCED (in thousands) |
DECEMBER 31, 2020
PREFERRED STOCKS (Continued) | Shares | Value | ||||||
Health Care |
| |||||||
Pharmaceuticals – 0.1% |
| |||||||
Elanco Animal Health, Inc., | 8 | $ | 391 | |||||
|
| |||||||
Total Health Care – 0.1% |
| 391 | ||||||
TOTAL PREFERRED STOCKS – 1.0% |
| $ | 3,634 | |||||
(Cost: $3,625) | ||||||||
CORPORATE DEBT SECURITIES | Principal | |||||||
Communication Services |
| |||||||
Alternative Carriers – 0.1% |
| |||||||
Bell Canada (GTD by BCE, Inc.), 4.300%, 7-29-49 | $ | 120 | 157 | |||||
|
| |||||||
Cable & Satellite – 0.4% |
| |||||||
Comcast Corp. (GTD by Comcast Cable Communications and NBCUniversal), | 450 | 554 | ||||||
Comcast Corp. (GTD by Comcast Cable Communications LLC and NBCUniversal Media LLC), | 675 | 794 | ||||||
|
| |||||||
1,348 | ||||||||
|
| |||||||
Movies & Entertainment – 0.3% |
| |||||||
Walt Disney Co. (The), | 1,000 | 1,056 | ||||||
|
| |||||||
Publishing – 0.1% |
| |||||||
Thomson Reuters Corp., | 425 | 477 | ||||||
|
| |||||||
Wireless Telecommunication Service – 0.2% |
| |||||||
T-Mobile USA, Inc., | 575 | 666 | ||||||
|
| |||||||
Total Communication Services – 1.1% |
| 3,704 | ||||||
Consumer Discretionary |
| |||||||
Apparel, Accessories & Luxury Goods – 0.1% |
| |||||||
PVH Corp., | 350 | 394 | ||||||
|
| |||||||
Casinos & Gaming – 0.1% |
| |||||||
International Game Technology plc, 5.250%, 1-15-29(D) | 350 | 377 | ||||||
|
| |||||||
Footwear – 0.1% |
| |||||||
NIKE, Inc., | 235 | 266 | ||||||
|
| |||||||
Home Improvement Retail – 0.2% |
| |||||||
Home Depot, Inc. (The), | 700 | 831 | ||||||
|
| |||||||
Homebuilding – 0.1% |
| |||||||
NVR, Inc., | 400 | 438 | ||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Internet & Direct Marketing Retail – 0.5% |
| |||||||
Amazon.com, Inc., | $ | 1,000 | $ | 1,082 | ||||
Expedia Group, Inc.: | ||||||||
6.250%, 5-1-25(D) | 360 | 417 | ||||||
7.000%, 5-1-25(D) | 25 | 28 | ||||||
|
| |||||||
1,527 | ||||||||
|
| |||||||
Total Consumer Discretionary – 1.1% |
| 3,833 | ||||||
Consumer Staples |
| |||||||
Brewers – 0.1% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. (GTD by AB INBEV/BBR/COB), 4.750%, 1-23-29 | 312 | 385 | ||||||
|
| |||||||
Drug Retail – 0.1% |
| |||||||
CVS Health Corp., | 180 | 244 | ||||||
|
| |||||||
Food Retail – 0.1% |
| |||||||
Alimentation Couche-Tard, Inc., 2.950%, 1-25-30(D) | 350 | 382 | ||||||
|
| |||||||
Hypermarkets & Super Centers – 0.8% |
| |||||||
Costco Wholesale Corp., | 350 | 359 | ||||||
Walmart, Inc., | 1,800 | 2,438 | ||||||
|
| |||||||
2,797 | ||||||||
|
| |||||||
Packaged Foods & Meats – 0.3% |
| |||||||
Hormel Foods Corp., | 175 | 181 | ||||||
Nestle Holdings, Inc., | 555 | 737 | ||||||
|
| |||||||
918 | ||||||||
|
| |||||||
Personal Products – 0.1% |
| |||||||
Estee Lauder Co., Inc. (The), | 375 | 491 | ||||||
|
| |||||||
Soft Drinks – 0.5% |
| |||||||
Keurig Dr Pepper, Inc., | 400 | 448 | ||||||
PepsiCo, Inc., 2.875%, 10-15-49 | 1,050 | 1,174 | ||||||
|
| |||||||
1,622 | ||||||||
|
| |||||||
Total Consumer Staples – 2.0% |
| 6,839 | ||||||
Energy |
| |||||||
Oil & Gas Drilling – 0.5% |
| |||||||
Nabors Industries Ltd., Convertible, 0.750%, 1-15-24 | 3,600 | 1,846 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 0.2% |
| |||||||
EQT Corp., 7.875%, 2-1-25(E) | 500 | 569 | ||||||
|
| |||||||
Oil & Gas Storage & Transportation – 0.3% |
| |||||||
Williams Partners L.P., | 1,000 | 1,032 | ||||||
|
| |||||||
Total Energy – 1.0% |
| 3,447 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 0.5% |
| |||||||
Apollo Management Holdings L.P., 2.650%, 6-5-30(D) | $ | 600 | $ | 613 | ||||
KKR Group Finance Co. VI LLC, 3.750%, 7-1-29(D) | 350 | 410 | ||||||
National Securities Clearing Corp., 1.500%, 4-23-25(D) | 350 | 362 | ||||||
Owl Rock Capital Corp., | 375 | 395 | ||||||
|
| |||||||
1,780 | ||||||||
|
| |||||||
Consumer Finance – 0.1% |
| |||||||
General Motors Financial Co., Inc. (GTD by AmeriCredit Financial Services, Inc.): | ||||||||
3.450%, 4-10-22 | 250 | 257 | ||||||
3.700%, 5-9-23 | 150 | 159 | ||||||
|
| |||||||
416 | ||||||||
|
| |||||||
Diversified Banks – 0.3% |
| |||||||
Bank of America Corp., | 400 | 439 | ||||||
U.S. Bancorp, | 400 | 445 | ||||||
|
| |||||||
884 | ||||||||
|
| |||||||
Financial Exchanges & Data – 0.3% |
| |||||||
Intercontinental Exchange, Inc., 2.100%, 6-15-30 | 900 | 941 | ||||||
|
| |||||||
Investment Banking & Brokerage – 0.7% |
| |||||||
Goldman Sachs Group, Inc. (The), 2.905%, 7-24-23 | 2,000 | 2,077 | ||||||
Morgan Stanley, | 400 | 434 | ||||||
|
| |||||||
2,511 | ||||||||
|
| |||||||
Life & Health Insurance – 0.3% |
| |||||||
Northwestern Mutual Life Insurance Co. (The), | 1,000 | 1,176 | ||||||
|
| |||||||
Multi-Line Insurance – 0.3% |
| |||||||
Aon Corp. (GTD by Aon plc), | 350 | 382 | ||||||
Aon plc (GTD by Aon Corp.), | 500 | 501 | ||||||
|
| |||||||
883 | ||||||||
|
| |||||||
Other Diversified Financial Services – 0.8% |
| |||||||
Citigroup, Inc., | 750 | 860 | ||||||
Citigroup, Inc. (3-Month U.S. LIBOR plus 409.5 bps), | 150 | 149 | ||||||
JPMorgan Chase & Co., | 371 | 390 | ||||||
JPMorgan Chase & Co. (3-Month U.S. LIBOR plus 332 bps), | 750 | 737 |
2020 | ANNUAL REPORT | 23 |
Table of Contents
SCHEDULE OF INVESTMENTS | BALANCED (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Other Diversified Financial Services (Continued) |
| |||||||
JPMorgan Chase & Co. (3-Month U.S. LIBOR plus 347 bps), | $ | 194 | $ | 193 | ||||
JPMorgan Chase & Co. (3-Month U.S. LIBOR plus 380 bps), | 250 | 249 | ||||||
|
| |||||||
2,578 | ||||||||
|
| |||||||
Property & Casualty Insurance – 0.1% |
| |||||||
Berkshire Hathaway Finance Corp. (GTD by Berkshire Hathaway, Inc.), 2.200%, 3-15-21 | 200 | 201 | ||||||
|
| |||||||
Regional Banks – 0.2% |
| |||||||
PNC Bank N.A., | 600 | 666 | ||||||
|
| |||||||
Specialized Finance – 0.1% |
| |||||||
AerCap Ireland Capital Ltd. and AerCap Global Aviation Trust, 6.500%, 7-15-25 | 250 | 299 | ||||||
|
| |||||||
Total Financials – 3.7% |
| 12,335 | ||||||
Health Care |
| |||||||
Biotechnology – 0.2% |
| |||||||
Amgen, Inc., | 700 | 781 | ||||||
|
| |||||||
Health Care Supplies – 0.5% |
| |||||||
Dentsply Sirona, Inc., | 475 | 529 | ||||||
Shire Acquisitions Investments Ireland Designated Activity Co., 2.875%, 9-23-23 | 1,000 | 1,060 | ||||||
|
| |||||||
1,589 | ||||||||
|
| |||||||
Managed Health Care – 0.1% |
| |||||||
UnitedHealth Group, Inc., | 475 | 504 | ||||||
|
| |||||||
Pharmaceuticals – 0.9% |
| |||||||
Bristol-Myers Squibb Co., | 500 | 576 | ||||||
Forest Laboratories, Inc., | 1,258 | 1,299 | ||||||
Johnson & Johnson, | 1,000 | 1,208 | ||||||
|
| |||||||
3,083 | ||||||||
|
| |||||||
Total Health Care – 1.7% |
| 5,957 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 0.6% |
| |||||||
Boeing Co. (The), | 525 | 551 | ||||||
L3Harris Technologies, Inc., | 1,000 | 1,205 | ||||||
Raytheon Technologies Corp.: | ||||||||
2.250%, 7-1-30 | 300 | 318 | ||||||
3.125%, 7-1-50 | 175 | 193 | ||||||
|
| |||||||
2,267 | ||||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Environmental & Facilities Services – 0.4% |
| |||||||
Republic Services, Inc.: | ||||||||
2.300%, 3-1-30 | $ | 72 | $ | 76 | ||||
3.050%, 3-1-50 | 225 | 246 | ||||||
Waste Management, Inc. (GTD by Waste Management Holdings, Inc.), | 1,000 | 1,128 | ||||||
|
| |||||||
1,450 | ||||||||
|
| |||||||
Research & Consulting Services – 0.1% |
| |||||||
CoStar Group, Inc., | 350 | 364 | ||||||
|
| |||||||
Total Industrials – 1.1% |
| 4,081 | ||||||
Information Technology |
| |||||||
Application Software – 0.3% |
| |||||||
Autodesk, Inc., | 500 | 555 | ||||||
Infor, Inc., | 125 | 130 | ||||||
Intuit, Inc., | 350 | 359 | ||||||
|
| |||||||
1,044 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 0.2% |
| |||||||
PayPal Holdings, Inc., | 350 | 375 | ||||||
Visa, Inc., | 240 | 262 | ||||||
|
| |||||||
637 | ||||||||
|
| |||||||
IT Consulting & Other Services – 0.0% |
| |||||||
Leidos, Inc. (GTD by Leidos Holdings, Inc.), | 175 | 195 | ||||||
|
| |||||||
Semiconductor Equipment – 0.1% |
| |||||||
Lam Research Corp., | 350 | 364 | ||||||
|
| |||||||
Semiconductors – 0.6% |
| |||||||
Broadcom, Inc., | 300 | 344 | ||||||
Intel Corp., | 500 | 559 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd., | 300 | 294 | ||||||
Xilinx, Inc., | 525 | 551 | ||||||
|
| |||||||
1,748 | ||||||||
|
| |||||||
Systems Software – 0.2% |
| |||||||
Microsoft Corp., | 350 | 368 | ||||||
ServiceNow, Inc., | 525 | 512 | ||||||
|
| |||||||
880 | ||||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Technology Hardware, Storage & Peripherals – 0.5% |
| |||||||
Apple, Inc.: | ||||||||
3.200%, 5-11-27 | $ | 1,000 | $ | 1,129 | ||||
2.950%, 9-11-49 | 500 | 557 | ||||||
|
| |||||||
1,686 | ||||||||
|
| |||||||
Total Information Technology – 1.9% |
| 6,554 | ||||||
Materials |
| |||||||
Construction Materials – 0.1% |
| |||||||
Hillman Group, Inc. (The), | 417 | 414 | ||||||
|
| |||||||
Diversified Metals & Mining – 0.0% |
| |||||||
Anglo American plc, | 200 | 201 | ||||||
|
| |||||||
Metal & Glass Containers – 0.1% |
| |||||||
Ardagh Packaging Finance plc and Ardagh Holdings USA, Inc., 5.250%, 8-15-27(D) | 220 | 231 | ||||||
|
| |||||||
Specialty Chemicals – 0.3% |
| |||||||
Ecolab, Inc., | 1,000 | 1,134 | ||||||
|
| |||||||
Total Materials – 0.5% |
| 1,980 | ||||||
Real Estate |
| |||||||
Real Estate Services – 0.1% |
| |||||||
Realogy Group LLC and Realogy Co-Issuer Corp. (GTD by Realogy Intermediate Holdings LLC), 7.625%, 6-15-25(D) | 350 | 380 | ||||||
|
| |||||||
Specialized REITs – 0.6% |
| |||||||
American Tower Corp., | 1,200 | 1,223 | ||||||
Crown Castle International Corp., 5.250%, 1-15-23 | 200 | 219 | ||||||
EPR Properties, | 535 | 538 | ||||||
|
| |||||||
1,980 | ||||||||
|
| |||||||
Total Real Estate – 0.7% |
| 2,360 | ||||||
Utilities |
| |||||||
Electric Utilities – 0.9% |
| |||||||
Commonwealth Edison Co., | 350 | 374 | ||||||
Duke Energy Corp., | 500 | 558 | ||||||
Duke Energy Indiana LLC, | 120 | 144 | ||||||
Duke Energy Ohio, Inc., | 115 | 148 | ||||||
Entergy Corp., | 235 | 254 | ||||||
Entergy Texas, Inc., | 300 | 302 | ||||||
Exelon Corp., | 400 | 401 |
24 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | BALANCED (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Electric Utilities (Continued) |
| |||||||
Florida Power & Light Co., | $ | 425 | $ | 489 | ||||
Oncor Electric Delivery Co. LLC, 2.750%, 5-15-30 | 450 | 504 | ||||||
|
| |||||||
3,174 | ||||||||
|
| |||||||
Multi-Utilities – 0.2% |
| |||||||
Dominion Energy, Inc., | 450 | 511 | ||||||
|
| |||||||
Water Utilities – 0.1% |
| |||||||
American Water Capital Corp., 3.750%, 9-1-47 | 375 | 459 | ||||||
|
| |||||||
Total Utilities – 1.2% |
| 4,144 | ||||||
TOTAL CORPORATE DEBT |
| $ | 55,234 | |||||
(Cost: $ 52,801) | ||||||||
LOANS(F) | ||||||||
Communication Services |
| |||||||
Integrated Telecommunication Services – 0.2% |
| |||||||
West Corp. (3-Month ICE LIBOR plus 400 bps), | 717 | 693 | ||||||
Windstream Services LLC (ICE LIBOR plus 625 bps), | 37 | 36 | ||||||
|
| |||||||
729 | ||||||||
|
| |||||||
Total Communication Services – 0.2% |
| 729 | ||||||
Consumer Discretionary |
| |||||||
Leisure Facilities – 0.3% |
| |||||||
United PF Holdings LLC (ICE LIBOR plus 400 bps), | 1,014 | 946 | ||||||
|
| |||||||
Total Consumer Discretionary – 0.3% |
| 946 | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 0.1% |
| |||||||
Edelman Financial Holdings II, Inc. (ICE LIBOR plus 675 bps), | 375 | 375 | ||||||
|
| |||||||
Total Financials – 0.1% |
| 375 | ||||||
Industrials |
| |||||||
Industrial Machinery – 0.3% |
| |||||||
Form Technologies LLC (ICE LIBOR plus 850 bps), | 1,100 | 921 | ||||||
|
| |||||||
Total Industrials – 0.3% |
| 921 | ||||||
TOTAL LOANS – 0.9% |
| $ | 2,971 | |||||
(Cost: $2,951) |
|
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS | Principal | Value | ||||||
Mortgage-Backed Obligations – 0.8% |
| |||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO, | $ | 619 | $ | 647 | ||||
Federal National Mortgage Association Agency REMIC/CMO: | ||||||||
3.500%, 6-25-29 | 418 | 452 | ||||||
3.000%, 10-25-46 | 591 | 632 | ||||||
Federal National Mortgage Association Fixed Rate Pass-Through Certificates: | ||||||||
6.500%, 10-1-28 | 47 | 52 | ||||||
6.500%, 2-1-29 | 20 | 22 | ||||||
7.500%, 4-1-31 | 16 | 18 | ||||||
7.000%, 7-1-31 | 30 | 37 | ||||||
7.000%, 9-1-31 | 53 | 63 | ||||||
6.500%, 2-1-32 | 122 | 145 | ||||||
7.000%, 2-1-32 | 75 | 88 | ||||||
7.000%, 3-1-32 | 29 | 35 | ||||||
7.000%, 7-1-32 | 52 | 60 | ||||||
5.500%, 5-1-33 | 22 | 26 | ||||||
5.500%, 6-1-33 | 25 | 30 | ||||||
4.500%, 11-1-43 | 366 | 414 | ||||||
U.S. Department of Veterans Affairs, Guaranteed REMIC Pass-Through Certificates, Vendee Mortgage Trust, Series 1997-1, Class 3A, | 21 | 24 | ||||||
|
| |||||||
2,745 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 0.8% |
| $ | 2,745 | |||||
(Cost: $2,626) | ||||||||
UNITED STATES GOVERNMENT OBLIGATIONS | ||||||||
Treasury Obligations – 14.9% |
| |||||||
U.S. Treasury Bonds: | ||||||||
0.625%, 5-15-30 | 525 | 513 | ||||||
3.500%, 2-15-39 | 3,000 | 4,068 | ||||||
1.125%, 5-15-40 | 1,623 | 1,538 | ||||||
1.375%, 11-15-40 | 385 | 380 | ||||||
3.750%, 8-15-41 | 150 | 213 | ||||||
1.250%, 5-15-50(B) | 709 | 642 | ||||||
U.S. Treasury Notes: | ||||||||
2.875%, 11-15-21 | 750 | 768 | ||||||
2.000%, 10-31-22 | 480 | 496 | ||||||
2.125%, 12-31-22 | 2,900 | 3,015 | ||||||
2.750%, 11-15-23 | 1,600 | 1,719 | ||||||
0.125%, 12-15-23 | 4,205 | 4,200 | ||||||
1.750%, 6-30-24 | 1,400 | 1,475 | ||||||
2.250%, 10-31-24 | 3,635 | 3,913 | ||||||
1.500%, 11-30-24 | 1,700 | 1,782 | ||||||
2.875%, 4-30-25 | 500 | 555 | ||||||
2.875%, 5-31-25 | 8,795 | 9,784 | ||||||
3.000%, 9-30-25 | 900 | 1,013 | ||||||
2.625%, 12-31-25 | 800 | 889 | ||||||
1.625%, 9-30-26 | 1,915 | 2,041 | ||||||
0.625%, 3-31-27 | 8,670 | 8,719 | ||||||
2.750%, 2-15-28 | 250 | 287 | ||||||
2.875%, 8-15-28 | 737 | 856 | ||||||
1.500%, 2-15-30 | 2,095 | 2,215 | ||||||
|
| |||||||
51,081 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS – 14.9% |
| $ | 51,081 | |||||
(Cost: $49,024) |
SHORT-TERM SECURITIES | Shares | Value | ||||||
Money Market Funds(I) – 0.0% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund –Institutional Shares, | ||||||||
0.030%(H) | 71 | $ | 71 | |||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.0% |
| $ | 71 | |||||
(Cost: $71) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.3% |
| $ | 341,483 | |||||
(Cost: $280,292) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.7% |
| 2,243 | ||||||
NET ASSETS – 100.0% |
| $ | 343,726 |
2020 | ANNUAL REPORT | 25 |
Table of Contents
SCHEDULE OF INVESTMENTS | BALANCED (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | All or a portion of securities with an aggregate value of $195 are on loan. |
(C) | Restricted security. At December 31, 2020, the Portfolio owned the following restricted security: |
Security | Acquisition Date(s) | Shares | Cost | Value | ||||||||||||
Targa Resources Corp., 9.500% | 3-2-20 | 3 | $ | 3,225 | $ | 3,242 |
The total value of this security represented 0.9% of net assets at December 31, 2020. |
(D) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $7,377 or 2.1% of net assets. |
(E) | Step bond that pays an initial coupon rate for the first period and then a higher or lower coupon rate for the following periods. Interest rate disclosed is that which is in effect at December 31, 2020. |
(F) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Description of the reference rate and spread, if applicable, are included in the security description. |
(G) | Securities whose value was determined using significant unobservable inputs. |
(H) | Investment made with cash collateral received from securities on loan. |
(I) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 225,747 | $ | — | $ | — | ||||||
Preferred Stocks | 391 | 3,243 | — | |||||||||
Corporate Debt Securities | — | 55,234 | — | |||||||||
Loans | — | 2,050 | 921 | |||||||||
United States Government Agency Obligations | — | 2,745 | — | |||||||||
United States Government Obligations | — | 51,081 | — | |||||||||
Short-Term Securities | 71 | — | — | |||||||||
Total | $ | 226,209 | $ | 114,353 | $ | 921 |
During the year ended December 31, 2020, securities totaling $1,037 were transferred from Level 2 to Level 3 due to decreased availability of observable market data due to decreased market activity or information for these securities.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
ICE = Intercontinental Exchange
LIBOR = London Interbank Offered Rate
REMIC = Real Estate Mortgage Investment Conduit
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
26 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | ENERGY |
(UNAUDITED)
David P. Ginther
Michael T. Wolverton
Below, David P. Ginther, CPA, and Michael T. Wolverton, CFA, portfolio managers of Ivy VIP Energy, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Ginther has managed the Portfolio since its inception in 2006 and has 25 years of industry experience. Mr. Wolverton has managed the Portfolio since 2016 and has 16 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Energy (Class II shares at net asset value) | -36.83% | |||
Benchmark and Morningstar Category | ||||
S&P 1500 Energy Sector Index | -33.81% | |||
(generally reflects the performance of stocks that represent the energy market) | ||||
Morningstar Equity Energy Category Average | -24.54% | |||
(generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Key factors
Oil markets were volatile throughout 2020 as oil prices collapsed in the first half of the year to below $10 per barrel and slowly recovered to $40 per barrel by December 31, 2020. In March, a perfect storm of falling demand and increased supply jolted the industry. The OPEC+ group of producing countries was unable to reach an agreement on production cuts, which led to a price war that increased oil production. Demand collapsed at the worst time because of the unprecedented demand shock from the spread of the coronavirus.
OPEC+ failed to agree to extend output cuts beyond March 2020 due to Russia’s decision to disagree with the rest of the producers. Disagreement caused Saudi Arabia to start a price war with a significant increase in production instead of restricting production. At the same time, worldwide oil demand fell by more than 20 million barrels a day due to the spread of COVID-19 as the world sheltered in place, schools closed and nonessential businesses shut down. The demand shock was most notable in lower usage of gasoline and aviation fuel.
Oil prices went negative for the first time in the history of the oil markets. Negative oil prices equated to producers willing to pay someone to move their crude instead of storing it. Storage around the world was rapidly approaching full capacity due to the largest unprecedented imbalance of oil supply to demand. Resulting supply of oil led to significant inventory builds and dramatic collapse in oil prices.
Saudi Arabia, Russia and the U.S. agreed to lead a multinational coalition in major-oil production cuts by a record 9.7 million barrels. OPEC+ and its allies cut by more than anticipated and compliance was higher than expected. U.S. crude supply fell at a record pace by roughly 2 million barrels and U.S. shale production dropped to a two-year low.
During the period, crude markets were concerned about global oil demand growth and ongoing economic recovery amid the coronavirus resurgence in the U.S. and Europe. Oil prices moved higher driven by vaccine optimism, hopes for easing lockdowns, greater mobility and rising global demand. Strong demand in Asia led by China and India also continued to provide some support. China’s crude throughput is back to pre-COVID-19 levels. More optimism around stimulus negotiations in Washington and the weaker U.S. dollar should be positive for demand.
OPEC+ and its allies agreed to ease production restrictions by 500,000 barrels per day in January 2021. OPEC+ will continue to meet to discuss similar actions in February and March as the monitoring committee assesses market conditions. Compliance remains high. Libya’s crude production was at a 13-month high in December after a two-month surge in output due to the ceasefire in the country’s long-running civil war.
A challenging year
The Portfolio had a negative return for the measurement period, underperforming the returns of its benchmark, the S&P 1500 Energy Sector Index, and category averages.
2020 | ANNUAL REPORT | 27 |
Table of Contents
The Portfolio’s five greatest detractors from relative performance in the fiscal year relative to the benchmark were PBF Energy, Inc., Chevron Corp., Helix Energy Solutions Group, Continental Resources, Inc. and ProPetro Holding Corp. Note: PBF Energy, Inc., Helix Energy Solutions Group and ProPetro Holding Corp. are no longer holdings of the Portfolio.
The Portfolio’s five greatest contributors to relative performance in the period were Enphase Energy, Inc., Exxon Mobil Corp., First Solar, Inc., WEX, Inc. and Cactus, Inc. WEX, Inc. is no longer a holding of the Portfolio.
During the fiscal year, we increased our weighting in integrated oil companies and alternative/clean energy. We lowered our exposure in the oil and gas exploration & production industry and in the oil & gas equipment & services industry segment. The weighting in those industry segments detracted from relative performance versus the benchmark, which had heavier weighting to integrated oil companies.
The focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We identify those as companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.
Outlook for recovery
We expect oil prices to move higher as oil inventories draw down in 2021. Demand is exceeding supply as demand recovers and supply is restricted. Our outlook assumes that coronavirus vaccines will be successful and faster testing capabilities will improve and worldwide economic growth will recover throughout 2021.
We believe global oil demand continues to be the key to higher oil prices in 2021. In our view, oil demand should approach pre-COVID-19 levels in the second half of 2021 or early 2022. Demand growth should be driven by stronger worldwide economic growth and affordable fuel prices (currently at record low levels), which usually leads to demand creation. Demand concerns include fears about a new and highly infectious strain of the coronavirus that is raising the risk of greater lockdowns and regional travel bans.
Our mid-term view is focused on whether oil demand is a permanent change and whether human behavior will change. We think commuting and travel will be affected the most. We see greater use of passenger vehicles with less use of public transportation offset by higher teleworking, increased online shopping, and decreased personal and business travel.
On the supply side, OPEC+ is set to increase output in every month of the first quarter in 2021 and we expect more increases in production throughout the year due to stronger demand growth. Non-OPEC supply may be disappointing in 2021. Declining access to capital and consolidation have led to lower investment and supply, especially in high-decline areas such as U.S. shale.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater sector diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Energy.
28 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | ENERGY |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
| ||||
Stocks | 97.8% | |||
Energy | 77.8% | |||
Information Technology | 13.3% | |||
Industrials | 4.0% | |||
Utilities | 2.7% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 2.2% |
Country Weightings
|
| |||
North America | 95.8% | |||
United States | 92.0% | |||
Canada | 3.8% | |||
Europe | 2.0% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 2.2% |
Top 10 Equity Holdings
| ||||||
Company | Country | Sector | Industry | |||
Marathon Petroleum Corp. | United States | Energy | Oil & Gas Refining & Marketing | |||
Enphase Energy, Inc. | United States | Information Technology | Semiconductor Equipment | |||
Wright Express Corp. | United States | Information Technology | Data Processing & Outsourced Services | |||
Phillips 66 | United States | Energy | Oil & Gas Refining & Marketing | |||
Valero Energy Corp. | United States | Energy | Oil & Gas Refining & Marketing | |||
Cactus, Inc., Class A | United States | Energy | Oil & Gas Equipment & Services | |||
Pioneer Natural Resources Co. | United States | Energy | Oil & Gas Exploration & Production | |||
Baker Hughes, Inc. | United States | Energy | Oil & Gas Equipment & Services | |||
Hess Corp. | United States | Energy | Oil & Gas Exploration & Production | |||
Concho Resources, Inc. | United States | Energy | Oil & Gas Exploration & Production |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+ Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 29 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | ENERGY |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class I | Class II | ||||||
1-year period ended 12-31-20 | -36.67% | -36.83% | ||||||
5-year period ended 12-31-20 | — | -12.74% | ||||||
10-year period ended 12-31-20 | — | -8.42% | ||||||
Since Inception of Class through 12-31-20(3) | -19.99% | — |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 4-28-17 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
30 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | ENERGY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Energy |
| |||||||
Integrated Oil & Gas – 6.5% |
| |||||||
Chevron Corp. | 14 | $ | 1,162 | |||||
Suncor Energy, Inc. | 46 | 777 | ||||||
Total S.A. ADR | 21 | 886 | ||||||
|
| |||||||
2,825 | ||||||||
|
| |||||||
Oil & Gas Drilling – 1.0% |
| |||||||
Helmerich & Payne, Inc. | 19 | 432 | ||||||
|
| |||||||
Oil & Gas Equipment & Services – 22.5% |
| |||||||
Baker Hughes, Inc. | 78 | 1,630 | ||||||
Cactus, Inc., Class A | 67 | 1,752 | ||||||
ChampionX Corp. (A) | 100 | 1,534 | ||||||
Dril-Quip, Inc. (A) | 31 | 912 | ||||||
Halliburton Co. | 78 | 1,476 | ||||||
Liberty Oilfield Services, Inc., Class A | 68 | 702 | ||||||
National Oilwell Varco, Inc. | 38 | 523 | ||||||
Schlumberger Ltd. | 57 | 1,243 | ||||||
|
| |||||||
9,772 | ||||||||
|
| |||||||
Oil & Gas Exploration & Production – 32.0% |
| |||||||
Cabot Oil & Gas Corp. | 25 | 400 | ||||||
Canadian Natural Resources Ltd. | 37 | 888 | ||||||
Concho Resources, Inc. | 26 | 1,538 | ||||||
ConocoPhillips | 28 | 1,100 | ||||||
Continental Resources, Inc. (B) | 30 | 492 | ||||||
Diamondback Energy, Inc. | 22 | 1,056 | ||||||
EOG Resources, Inc. | 21 | 1,065 | ||||||
Exxon Mobil Corp. | 36 | 1,472 | ||||||
Hess Corp. | 30 | 1,600 | ||||||
Parsley Energy, Inc., Class A | 101 | 1,433 | ||||||
Pioneer Natural Resources Co. | 15 | 1,675 | ||||||
Viper Energy Partners L.P. | 30 | 345 | ||||||
WPX Energy, Inc. (A) | 108 | 879 | ||||||
|
| |||||||
13,943 | ||||||||
|
| |||||||
Oil & Gas Refining & Marketing – 13.2% |
| |||||||
Marathon Petroleum Corp. | 51 | 2,122 | ||||||
Phillips 66 | 27 | 1,861 | ||||||
Valero Energy Corp. | 32 | 1,783 | ||||||
|
| |||||||
5,766 | ||||||||
|
| |||||||
Oil & Gas Storage & Transportation – 2.6% |
| |||||||
Enterprise Products Partners L.P. | 45 | 883 | ||||||
MPLX L.P. | 12 | 250 | ||||||
|
| |||||||
1,133 | ||||||||
|
| |||||||
Total Energy – 77.8% |
| 33,871 | ||||||
Industrials |
| |||||||
Electrical Components & Equipment – 2.1% |
| |||||||
Plug Power, Inc. (A) | 28 | 936 | ||||||
|
| |||||||
Heavy Electrical Equipment – 1.9% |
| |||||||
Bloom Energy Corp., Class A (A) | 29 | 828 | ||||||
|
| |||||||
Total Industrials – 4.0% |
| 1,764 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Information Technology |
| |||||||
Application Software – 2.7% |
| |||||||
Aspen Technology, Inc. (A) | 9 | $ | 1,151 | |||||
|
| |||||||
Data Processing & Outsourced Services – 4.3% |
| |||||||
Wright Express Corp. (A) | 9 | 1,876 | ||||||
|
| |||||||
Semiconductor Equipment – 4.4% |
| |||||||
Enphase Energy, Inc. (A) | 11 | 1,917 | ||||||
|
| |||||||
Semiconductors – 1.9% |
| |||||||
First Solar, Inc.(A) | 8 | 827 | ||||||
|
| |||||||
Total Information Technology – 13.3% |
| 5,771 | ||||||
Utilities |
| |||||||
Electric Utilities – 2.1% |
| |||||||
American Electric Power Co., Inc. | 3 | 220 | ||||||
Duke Energy Corp. | 2 | 220 | ||||||
NextEra Energy, Inc. | 6 | 481 | ||||||
|
| |||||||
921 | ||||||||
|
| |||||||
Multi-Utilities – 0.6% |
| |||||||
Dominion Energy, Inc. | 3 | 257 | ||||||
|
| |||||||
Total Utilities – 2.7% |
| 1,178 | ||||||
TOTAL COMMON STOCKS – 97.8% |
| $ | 42,584 | |||||
(Cost: $52,748) |
| |||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds(D) – 2.7% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares, 0.030% (C) | 2 | 2 | ||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% | 1,173 | 1,173 | ||||||
|
| |||||||
1,175 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 2.7% |
| $ | 1,175 | |||||
(Cost: $1,175) |
| |||||||
TOTAL INVESTMENT SECURITIES – 100.5% |
| $ | 43,759 | |||||
(Cost: $53,923) |
| |||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – (0.5)% |
| (217 | ) | |||||
NET ASSETS – 100.0% |
| $ | 43,542 |
2020 | ANNUAL REPORT | 31 |
Table of Contents
SCHEDULE OF INVESTMENTS | ENERGY (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | All or a portion of securities with an aggregate value of $492 are on loan. |
(C) | Investment made with cash collateral received from securities on loan. |
(D) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 42,584 | $ | — | $ | — | ||||||
Short-Term Securities | 1,175 | — | — | |||||||||
Total | $ | 43,759 | $ | — | $ | — |
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
Country Diversification
(as a % of net assets) | ||||
United States | 92.0% | |||
Canada | 3.8% | |||
France | 2.0% | |||
Other+ | 2.2% |
+Includes liabilities (net of cash and other assets), and cash equivalents
See Accompanying Notes to Financial Statements.
32 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | GROWTH |
(UNAUDITED)
Bradley M. Klapmeyer
Below, Bradley M. Klapmeyer, CFA, portfolio manager of Ivy VIP Growth, discusses positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Klapmeyer has managed the Portfolio since August 2016 and he has 21 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Growth (Class II shares at net asset value) | 30.55% | |||
Benchmark and Morningstar Category | ||||
Russell 1000 Growth Index | 38.49% | |||
(generally reflects the performance of securities that represent the large-cap growth market) | ||||
Morningstar Large Growth Category Average | 35.86% | |||
(generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Market conditions
The Russell 1000 Growth Index, the Portfolio’s benchmark, was up a staggering 38% during the measurement period. Maintaining exposure to the large-cap growth style over the past decade has been a rewarding proposition with an annual total return of more than 17% for the index since 2010. While those average annual gains are remarkable, it hasn’t been a smooth ride as the past decade has been marked by its fair share of turbulence as global economies emerged from the depths of the global financial crisis. While this decade long run for growth-style investing was capped with another year of strong gains, 2020 made sure it was a hard-earned return.
2020 initially started (pre-pandemic) with hopes that easing credit conditions and monetary policy would ultimately lead to accelerating growth later in the calendar year. Oddly enough, 2020 ended with that same narrative. For 2021 there is hope that another round of, again unprecedented, monetary and fiscal policy will kick-start a new, but stronger post-pandemic economic cycle. We think the easy part for 2021 will be comparisons to 2020 numbers, exaggerating growth for a portion of the calendar year. The hard part for 2021 will be generating convincing evidence that this latest round of quantitative easing will be more successful than a decade of rather unsuccessful attempts to generate a seemingly unobtainable strong virtuous growth cycle. In that vein, 2020, and likely 2021 in our view, was and will be no different than the prior decade, requiring the promise of extremely easy monetary conditions to achieve some level of modest growth.
Equity markets were remarkably resilient during 2020. The markets reacted quickly and negatively to the early signs of the pandemic in the first quarter, with the index declining roughly 14%. Subsequently, the index rallied 27.8% in the second quarter and never looked back with additional gains of 13.2% in the third quarter and 11.4% in the fourth quarter. As is typical, the stock market decided to move on from the depths of the pandemic despite the economic freeze caused by mobility restrictions and lower activity during the second quarter — recall that second quarter gross domestic product (GDP) dropped nearly 32%.
We have shared several observations throughout the course of 2020 and thought it would be interesting to assess the validity of those observations at year end. For starters, we suggested that, if needed, unlimited resources could be provided to remove the downside risks associated with the pandemic. In total the Federal Reserve’s balance sheet expanded by $3.2 trillion, and U.S. fiscal stimulus amounted to $3.4 trillion, with more expected to come in 2021. A staggering fact is that aggregate 2020 U.S. fiscal stimulus, on a per capita basis or as a percentage of U.S. GDP, was larger than The New Deal of 1933 (when adjusted to 2020 dollars). Those efforts clearly passed the hurdle of adequate additional resources to remove downside risk from the economy and buoy asset prices. Frankly, it was a job well done as the equity markets quickly priced out a potential downside scenario.
An additional observation we made was that the ramifications from the pandemic would continue to show in the data for quarters to come but the market would begin to look through to normalized earnings. On the surface those statements seemed simple enough, and in some respect that is what occurred. However, consistent with a 2020 narrative, it was more complicated. The economy recovered from the second quarter downdraft faster than most anticipated — improvements in the housing market, manufacturing, employment and consumer spending were generally comforting. Unfortunately, there was a stalling progress on employment as the year progressed even with a background of strong monetary support. Similarly, even though equity markets have moved well past pre-pandemic highs, the gains have not been broad-based and extreme gains were generated by pockets of specific styles and sectors.
2020 | ANNUAL REPORT | 33 |
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Finally, we believed business and personal lives would go back to something resembling the “old normal.” The reality landed somewhere in the middle with some activities having resumed, while others have not. For example, the ability to leave home to buy contact lenses and shop for power tools, resumed. The ability to comfortably grab a seated dinner or jump on a plane did not fully normalize. That said, with each effort to lift mobility constraints, consumers appear eager to resume many of the “old normal” activities. We personally share that sentiment. We are truly most amazed by human resiliency in these abnormal times, and the desire to press on despite challenging conditions. It needs to be highlighted that once again the innovative spirit was in full effect, with COVID-19 vaccines being develop within a year’s time frame and the world knowing there is a line of sight to mass vaccinations and mobility normalization. An effort clearly worthy of praise.
When you look deeper at the performance of the index during 2020, it is notable that every sector, excluding energy, posted positive performance. The standout sectors included consumer discretionary, information technology and communications services. All three were home to many of the technology, internet and retail beneficiaries of the COVID-19 pandemic. The concentration of the index has been a point of discussion throughout the year, and as it relates to 2020 attribution, the FAANG+M+T stocks (Facebook, Amazon, Apple, Netflix, Alphabet (Google), Microsoft and Tesla) ended the calendar year contributing more than 60% to overall Russell 1000 Growth Index returns. Performance was undeniably dependent on a handful of mega-cap stocks. Add in the additional contribution from many technology and e-commerce stocks and attribution becomes more aggregated into a specific theme.
From a style perspective, momentum (relative strength and price return) and growth (5-year earnings per share growth and estimate revisions) were runaway positive factors. Quality factors (return on assets, return on equity and return on capital) were more mixed and worsened, in terms of relative performance, later in the calendar year. Value factors (price to book and earnings yield) were laggards. It is worth noting that the spread between the best performing factors and the worst performing factor was rather wide.
Strategies employed, contributors and detractors
During the measurement period, the Portfolio posted a strong absolute gain of 31%, but underperformed relative to its benchmark. Stock selection was mainly attributable for the underperformance in the calendar year. Consumer discretionary, information technology and communication services led the relative underperformance. Market returns were strongly influenced by the “tails” — on one end are hyper growers that lack proven business models through-out cycles and on the other end are cyclical value stocks that are highly dependent on accelerating economic growth prospects. This created a unique challenge for our desire to maintain a strong quality bias as many of the outperforming areas lacked the strong business model characteristics we typically require. Given that we believe quality is more durable than growth, we were forced to sacrifice on some relative growth attributes in favor of quality, and although that resulted in laggard performance in 2020, we think maintaining a focus on quality growth will be rewarded through the cycle.
Performance in consumer discretionary was the leading source of negative sector attribution. The Portfolio was overweight the sector but challenging stock selection more than offset this positive allocation. The most significant detractor was our underweight exposure to Tesla, which posted a gain of more than 700% for the period. We maintained no exposure to Tesla as we believe its valuation is embedding unrealistic long-term business economics and earnings. Overweight positions in two stocks, V.F. Corp. and Booking Holdings Inc., also detracted from performance. V.F. Corp. is no longer a holding in the Portfolio. Finally, a notable overweight position in Tractor Supply Co. was a source of positive attribution. Strength in Tractor Supply, a position initially introduced to the Portfolio in January 2020, outperformed as it remained operational during the COVID-19 pandemic because its products were deemed essential to consumers.
Information technology was another detractor, driven by an overweight position in Motorola Solutions, Inc., which underperformed as a result of concerns related to demand within its first responder communications business unit. Apple, Inc. was another detractor as our underweight position proved incorrect given impressive returns exceeding 80% during the measurement period, although this was driven by significant multiple expansion as expectations were built for a strong iPhone 5G replacement cycle. Positive attribution wasn’t completely absent as several overweight positions, including NVIDIA Corp., PayPal Holdings, Inc., Adobe, Inc. and Microsoft Corp. provided a partial offset to challenged performance within the sector.
Within the communication services sector, the Portfolio continued to experience a headwind from the pervasive theme of rewarding relatively unproven business models, which stands in contrast to our strategy’s well-tenured process and philosophy. Underweight positions in Netflix, Inc., Pinterest, Inc. and Roku were sources of detraction, while an overweight position in Electronic Arts, despite gaining 34% in the period, added to the relative underperformance within the sector. (Netflix is not a holding and we never held Roku.) Positive attribution was present as the Fund continued to avoid traditional media companies that significantly underperformed the sector.
34 | ANNUAL REPORT | 2020 |
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Industrials were a source of positive attribution driven by the Portfolio’s stock selection within the sector. Underweight positions in aerospace and defense stalwarts such as Boeing Co. and Lockheed Martin Corp. were bright spots. A continued overweight position in CoStar Group, Inc., as in recent years, again proved to be a source of positive attribution. The Portfolio experienced a headwind to performance with overweight positions in several long-term holdings such as Stanley Black & Decker, Inc., Caterpillar, Inc., Northrop Grumman Corp. and J.B. Hunt Transport Services, Inc. Boeing, Lockheed Martin and Caterpillar are no longer holdings in the Portfolio.
Lastly, the Portfolio’s positions in real estate and materials, while relatively small, provided positive sources of attribution through both positive allocation and stock selection.
Outlook and positioning
Supported by low interest rates, flowing fiscal stimulus and improving global growth prospects, the markets will likely enter 2021 with a sustained desire to swing for the fences. As such, we believe it is possible to see continued strength in the near-term from hyper-growth dream stocks and the lower-quality, deeply cyclical value names. There needs to be a catalyst or evidence against this trend and the timing of that is uncertain.
We see these tail trades, or “barbell strategies,” as temporary as neither has deep roots attached to quality businesses. We believe as the year progresses, the persistence and intensity of outperformance from these tails will cede momentum to more durable investment strategies. We are hopeful macro and stylistic influences on the market will diminish, leaving it better tuned for stock picking, not macro or factor guessing.
We believe the missing piece, or the catalyst, needed to allow for a less intense market environment to emerge is simply fundamentals. Letting the “rubber meet the road.” Market valuation expansion has been a significant portion of growth style returns over the past two years, which embeds a high level of expectations around accelerating growth or sustaining high levels of rapid growth. We believe that parts of the market — work from home, pandemic beneficiaries and hyper-growth stocks — reflect multiple years of extremely optimistic good news based on current low interest rates, contained inflation, upsized fiscal stimulus and stronger near-term economic prospects. We believe these expectations of a high rate of sustained revenue growth along with a broadening economic recovery and upward movement in rates, pose a real risk to the growth tail of the market. Let us be very clear on one point — although we are skeptical of how quickly the market has crowned many pandemic beneficiary stocks as persistent growers, there will be good secular growers that emerge from the pandemic investment fervor, just like there are in a normal environment. However, good businesses are much different from good stocks, and pulling forward multiple years of stock returns based on a nine-month period of extreme conditions seems nothing short of irresponsible.
Our investment philosophy starts with the reality that growth sustainability is fleeting for most companies and that growth, if ultimately durable, needs to be attached to a quality business. We view the durability of growth with a skeptical eye until we understand the quality of the business — barriers to competition, long-term economic model, addressable market, brand durability, etc. As such, we have always started our stock selection process with good business model choices and believe quality is paramount to controlling downside risk and driving strong multi-year returns. Although the current environment may be recklessly rewarding only those companies with the highest near-term growth or strongest pandemic revisions, we stand firm in our assessment that quality is more durable than growth and starting with quality and not chasing growth for growth’s sake (at any cost), will reap significant benefits over a multi-year horizon.
As of calendar year end 2020, the Portfolio’s largest positions are Microsoft Corp., Apple, Inc., Amazon.com, Inc., Visa, Inc., Alphabet, Inc., Facebook, Inc., PayPal Holdings, Inc., Adobe, Inc., Motorola Solutions, Inc. and Intuit, Inc. Thank you for your continued interest and support.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Growth.
2020 | ANNUAL REPORT | 35 |
Table of Contents
PORTFOLIO HIGHLIGHTS | GROWTH |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
|
| |||
Stocks | 99.7% | |||
Information Technology | 45.3% | |||
Consumer Discretionary | 16.6% | |||
Health Care | 12.7% | |||
Communication Services | 12.0% | |||
Industrials | 6.7% | |||
Consumer Staples | 3.3% | |||
Financials | 2.8% | |||
Real Estate | 0.3% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 0.3% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
Microsoft Corp. | Information Technology | Systems Software | ||
Apple, Inc. | Information Technology | Technology Hardware, Storage & Peripherals | ||
Amazon.com, Inc. | Consumer Discretionary | Internet & Direct Marketing Retail | ||
Visa, Inc., Class A | Information Technology | Data Processing & Outsourced Services | ||
Alphabet, Inc., Class A | Communication Services | Interactive Media & Services | ||
Facebook, Inc., Class A | Communication Services | Interactive Media & Services | ||
PayPal, Inc. | Information Technology | Data Processing & Outsourced Services | ||
Adobe, Inc. | Information Technology | Application Software | ||
Motorola Solutions, Inc. | Information Technology | Communications Equipment | ||
Intuit, Inc. | Information Technology | Application Software |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
36 | ANNUAL REPORT | 2020 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | GROWTH |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 30.55% | |||
5-year period ended 12-31-20 | 19.01% | |||
10-year period ended 12-31-20 | 16.22% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 37 |
Table of Contents
SCHEDULE OF INVESTMENTS | GROWTH (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Interactive Home Entertainment – 2.7% |
| |||||||
Electronic Arts, Inc. | 169 | $ | 24,318 | |||||
|
| |||||||
Interactive Media & Services – 9.3% |
| |||||||
Alphabet, Inc., Class A(A) | 22 | 38,313 | ||||||
Alphabet, Inc., Class C(A) | 4 | 7,377 | ||||||
Facebook, Inc., Class A(A) | 120 | 32,703 | ||||||
Pinterest, Inc., Class A(A) | 75 | 4,914 | ||||||
|
| |||||||
83,307 | ||||||||
|
| |||||||
Total Communication Services – 12.0% |
| 107,625 | ||||||
Consumer Discretionary |
| |||||||
Automobile Manufacturers – 2.2% |
| |||||||
Ferrari N.V. | 87 | 19,874 | ||||||
|
| |||||||
Automotive Retail – 0.7% |
| |||||||
O’Reilly Automotive, Inc.(A) | 13 | 5,912 | ||||||
|
| |||||||
Footwear – 1.2% |
| |||||||
NIKE, Inc., Class B | 79 | 11,210 | ||||||
|
| |||||||
Home Improvement Retail – 1.7% |
| |||||||
Home Depot, Inc. (The) | 58 | 15,408 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 10.0% |
| |||||||
Amazon.com, Inc.(A) | 21 | 67,842 | ||||||
Booking Holdings, Inc.(A) | 10 | 21,968 | ||||||
|
| |||||||
89,810 | ||||||||
|
| |||||||
Specialty Stores – 0.8% |
| |||||||
Tractor Supply Co. | 49 | 6,886 | ||||||
|
| |||||||
Total Consumer Discretionary – 16.6% |
| 149,100 | ||||||
Consumer Staples |
| |||||||
Personal Products – 0.6% |
| |||||||
Estee Lauder Co., Inc. (The), Class A | 20 | 5,271 | ||||||
|
| |||||||
Soft Drinks – 2.7% |
| |||||||
Coca-Cola Co. (The) | 441 | 24,187 | ||||||
|
| |||||||
Total Consumer Staples – 3.3% |
| 29,458 | ||||||
Financials |
| |||||||
Financial Exchanges & Data – 2.8% |
| |||||||
Intercontinental Exchange, Inc. | 113 | 13,006 | ||||||
S&P Global, Inc. | 36 | 11,832 | ||||||
|
| |||||||
24,838 | ||||||||
|
| |||||||
Total Financials – 2.8% |
| 24,838 | ||||||
Health Care |
| |||||||
Health Care Equipment – 3.0% |
| |||||||
Danaher Corp. | 54 | 12,097 | ||||||
DexCom, Inc.(A) | 8 | 2,809 | ||||||
Intuitive Surgical, Inc.(A) | 15 | 12,374 | ||||||
|
| |||||||
27,280 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Health Care Supplies – 2.2% |
| |||||||
Cooper Cos., Inc. (The) | 55 | $ | 19,848 | |||||
|
| |||||||
Health Care Technology – 2.6% |
| |||||||
Cerner Corp. | 293 | 23,020 | ||||||
|
| |||||||
Life Sciences Tools & Services – 0.6% |
| |||||||
Mettler-Toledo International, Inc.(A) | 5 | 5,211 | ||||||
|
| |||||||
Managed Health Care – 2.9% |
| |||||||
UnitedHealth Group, Inc. | 74 | 26,119 | ||||||
|
| |||||||
Pharmaceuticals – 1.4% |
| |||||||
Zoetis, Inc. | 77 | 12,662 | ||||||
|
| |||||||
Total Health Care – 12.7% |
| 114,140 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 0.5% |
| |||||||
Northrop Grumman Corp. | 15 | 4,441 | ||||||
|
| |||||||
Industrial Machinery – 2.1% |
| |||||||
Stanley Black & Decker, Inc. | 104 | 18,489 | ||||||
|
| |||||||
Railroads – 1.3% |
| |||||||
Union Pacific Corp. | 56 | 11,676 | ||||||
|
| |||||||
Research & Consulting Services – 1.4% |
| |||||||
Verisk Analytics, Inc., Class A | 62 | 12,907 | ||||||
|
| |||||||
Trucking – 1.4% |
| |||||||
J.B. Hunt Transport Services, Inc. | 93 | 12,683 | ||||||
|
| |||||||
Total Industrials – 6.7% |
| 60,196 | ||||||
Information Technology |
| |||||||
Application Software – 10.7% |
| |||||||
Adobe, Inc.(A) | 56 | 27,840 | ||||||
Intuit, Inc. | 69 | 26,232 | ||||||
NVIDIA Corp. | 40 | 21,008 | ||||||
salesforce.com, Inc.(A) | 91 | 20,265 | ||||||
|
| |||||||
95,345 | ||||||||
|
| |||||||
Communications Equipment – 3.1% |
| |||||||
Motorola Solutions, Inc. | 161 | 27,345 | ||||||
|
| |||||||
Data Processing & Outsourced Services – 9.4% |
| |||||||
Broadridge Financial Solutions, Inc. | 107 | 16,349 | ||||||
PayPal, Inc.(A) | 120 | 28,123 | ||||||
Visa, Inc., Class A | 182 | 39,733 | ||||||
|
| |||||||
84,205 | ||||||||
|
| |||||||
Electronic Equipment & Instruments – 1.2% |
| |||||||
Zebra Technologies Corp., Class A(A) | 29 | 11,090 | ||||||
|
| |||||||
Internet Services & Infrastructure – 2.4% |
| |||||||
VeriSign, Inc.(A) | 98 | 21,233 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Systems Software – 9.7% |
| |||||||
Microsoft Corp. | 392 | $ | 87,173 | |||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 8.8% |
| |||||||
Apple, Inc. | 596 | 79,149 | ||||||
|
| |||||||
Total Information Technology – 45.3% |
| 405,540 | ||||||
Real Estate |
| |||||||
Specialized REITs – 0.3% |
| |||||||
Equinix, Inc. | 4 | 2,915 | ||||||
|
| |||||||
Total Real Estate – 0.3% |
| 2,915 | ||||||
TOTAL COMMON STOCKS – 99.7% |
| $ | 893,812 | |||||
(Cost: $522,739) |
| |||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds(B) – 0.3% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% | 2,686 | 2,686 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.3% |
| $ | 2,686 | |||||
(Cost: $2,686) |
| |||||||
TOTAL INVESTMENT SECURITIES – 100.0% |
| $ | 896,498 | |||||
(Cost: $525,425) |
| |||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – 0.0% |
| (317 | ) | |||||
NET ASSETS – 100.0% |
| $ | 896,181 |
38 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | GROWTH (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 893,812 | $ | — | $ | — | ||||||
Short-Term Securities | 2,686 | — | — | |||||||||
Total | $ | 896,498 | $ | — | $ | — |
The following acronym is used throughout this schedule:
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 39 |
Table of Contents
MANAGEMENT DISCUSSION | HIGH INCOME |
(UNAUDITED)
Chad A. Gunther
Below, Chad Gunther, portfolio manager of Ivy VIP High Income, discusses positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Gunther has managed the Portfolio since July 2014, and has 23 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP High Income (Class II shares at net asset value) | 6.03% | |||
Benchmark and Morningstar Category | ||||
ICE BofA US High Yield Index | 6.17% | |||
(generally reflects the performance of securities representing the high-yield sector of the bond market) | ||||
Morningstar High Yield Bond Category Average | 4.91% | |||
(generally reflects the performance of portfolios with similar investment objectives) |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Market Update
During early calendar year 2020, risk assets sold off dramatically beginning in February 2020 due to the COVID-19 pandemic. Investors seeking safety rushed out of corporate bonds and into U.S. Treasuries and cash, which caused the S&P 500 Index to decline 34% by March 23. High yield credit spreads widened during that same time from 364 basis points (bps) to 1,085 bps and returns over the same timeframe declined by approximately 24%.
High yield credit spreads, as of March 31, rebounded to end the month at 877 bps. By year end, spreads had recovered much of what was lost in the selloff to end the year at 386 bps. The rally in credit spreads since March 23 can be directly attributed to the Federal Reserve (Fed) announcement of several wide-ranging facilities aimed at stabilizing and providing liquidity to markets. The Fed is implicitly taking on the role of market liquidity provider of last resort, which substantially reduces the tail risk of a Great Depression-type scenario for both the economy and markets.
Throughout calendar year 2020 interest rates continued to decline with the 10-year U.S. Treasury declining from 1.7% at the beginning of the year to 91 bps by year-end. The 10-year hit a low of 51 bps on August 4. The 3-year U.S. Treasury followed a similar trajectory starting the year at 1.56% and ending the year at just 16 bps. Both are near their all-time lows.
High yield bond new issue activity reached a record high in 2020. The total volume was $446.3 billion on a gross basis, which is a 56% increase from last year’s volume of $286 billion. Notably, this is 40% above the average annual issuance volume of $320 billion over the past ten years. Leveraged loan gross issuance for 2020 was $422 billion, up 8% from $392 billion last year.
Retail demand for high yield bonds reached a record high during the year as inflows totaled $45 billion, which compares to inflows of $19 billion during calendar year 2019. This is even more noteworthy considering the first quarter of 2020 had $15.4 billion in outflows. Leveraged loan flows continued to be negative in 2020 as $27 billion exited the asset class compared to record outflows of $38.3 billion in calendar year 2019.
Amid the global pandemic, default activity picked up significantly during the year. The period had the second highest volume total on record — 88 companies defaulted with debt totaling $129.6 billion in bonds and loans, while an additional 21 companies completed distressed transactions totaling $11.8 billion. Energy, retail and two large defaults in the telecommunications and cable sectors led the way.
Portfolio Strategy/Performance
The Portfolio mix between bonds, leveraged loans and other investments started 2020 at 65%, 22% (18% first liens, 4% second liens) and 3%, respectively. We ended the year with 63% in high yield bonds, 26% in leveraged loans (21% first liens, 5% second liens) and 6% other. In previous communications, we said we have maintained our exposure to leveraged loans as we thought they continued to offer attractive yields relative to their seniority in the capital structure. At this point, with yields so low across all asset classes, leveraged loans look attractive from a relative value standpoint as well as from their seniority in the capital structure. Also, from a technical perspective, the leveraged loan assets class has continued to experience outflows over the past couple of years, however in 2021 we think inflows into the asset class is a greater probability than not.
40 | ANNUAL REPORT | 2020 |
Table of Contents
The Portfolio outperformed its Morningstar peer group by 112 bps and underperformed the ICE BofA US High Yield Index by 14 bps. Our loan exposure detracted 18 bps from performance relative to the benchmark, while bond exposure contributed 167 bps. Equities detracted 159 bps from performance.
Several loans negatively impacted performance during the year, notably McDermott, Dynacast, EPIC Crude and CEC Entertainment. We are still invested in three of these businesses and believe there is the potential for significant upside in each of them. Time will ultimately tell if we are correct in our assessment of the values of these businesses, but we feel comfortable the downside is limited in the three names. On the positive side, two long-term investments stood out over the past twelve months — West Corp. and Jo-Ann’s Stores returned 21% and 50% returns, respectively.
Our bond portfolio (65% of assets) returned 8.7%, which handily outperformed the index and the Morningstar peer group. Credit selection in the insurance and support services sectors as well as underweights in the telecom/satellite and car rental sectors all had outsized contributions. Underweights in autos, building & construction and chemicals, as well as credit selection in the energy E&P sector, detracted from performance.
Outlook
At the end of the third quarter of the fiscal year, we laid out several unknowns at the time that would become clearer as year-end drew near. We now know that Joe Biden will be the next president of the United States, two vaccines have been approved for emergency use authorization, a second wave of COVID-19 is spreading throughout the country and another round of stimulus (or two) is on the way. The credit markets continue to be wide open to those wishing to issue debt, and at absolute yield levels that are the lowest in history.
With spreads compressing another 159 bps in the final quarter of the year to 444 bps, the high yield market has completely come around to where it started at the outset of the COVID-19 pandemic. However, the comparisons with early 2020 end there. Relative to a year ago, monetary and fiscal policies are more accommodative, demand technicals are stronger, and the risk of overheating in the economy is lower. In addition, a full-on vaccine roll-out to achieve herd immunity looks to be a high probability by the May-to-June timeframe.
With the assumption of a successful vaccine roll-out and uptake, our attention on the risk side of the equation turns to rates. The biggest question being — will the return of the reflation trade in the rates market reduce the value proposition of the high yield and leveraged loan markets? We believe that returns are more constrained in the current environment but barring a massive (200 bps+) rate move, high yield should be able to withstand higher yields and provide positive excess returns.
There is potential for rates to rise in 2021 as more stimulus gets pumped into the system and the world population, through a successful inoculation program, gets back to “normal.” Based on that, we think the loan asset category looks particularly attractive as markets should start to price in the first Fed rate hike well in advance of there ever being one. We remain overexposed to the leveraged loan asset class relative to our peers and believe 2021 has the potential for this allocation to meaningfully outperform.
For those that have followed us, our focus is on the credits we invest in and finding businesses that can outperform throughout the cycles. Our exhaustive due diligence process has served us well and helped us maintain exposure to those investments that we believe can outperform over the long term.
Past performance is not a guarantee of future results. As with any investment, the value of the Portfolio’s shares will change, and you could lose money on your investment.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations.
Fixed-income securities are subject to interest rate risk and, as such, the Fund’s net asset value may fall as interest rates rise. Investing in high-income securities may carry a greater risk of non-payment of interest or principal than higher-rated bonds. In addition to the risks typically associated with fixed-income securities, loan participations in which the fund may invest carry other risks including the risk of insolvency of the lending bank or other intermediary. Loan participations may be unsecured or not fully collateralized, may be subject to restrictions on resale, and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged, includes reinvested dividends, and does not include fees. One cannot invest directly in an index, nor is an index representative of the Ivy VIP High Income.
2020 | ANNUAL REPORT | 41 |
Table of Contents
PORTFOLIO HIGHLIGHTS | HIGH INCOME |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 8.6% | |||
Financials | 3.9% | |||
Consumer Discretionary | 3.1% | |||
Energy | 1.6% | |||
Health Care | 0.0% | |||
Consumer Staples | 0.0% | |||
Industrials | 0.0% | |||
Materials | 0.0% | |||
Warrants | 0.0% | |||
Bonds | 87.5% | |||
Corporate Debt Securities | 61.7% | |||
Loans | 25.8% | |||
Liabilities (Net of Cash and Other Assets), and | 3.9% |
Quality Weightings
Non-Investment Grade | 87.5% | |||
BB | 8.5% | |||
B | 40.1% | |||
CCC | 35.7% | |||
Below CCC | 1.0% | |||
Non-rated | 2.2% | |||
Liabilities (Net of Cash and Other Assets), Cash Equivalents+ and Equities | 12.5% |
Our preference is to always use ratings obtained from Standard & Poor’s, Moody’s, and Fitch. It is each Portfolio’s general policy to classify such security at the lower rating level if only two ratings are available. If more than two ratings are available and a median exists, the median is used. If more than two ratings exist without a median, the lower of the two middle ratings is used. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
42 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE IN $10,000 INVESTMENT | HIGH INCOME |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class I | Class II | ||||||
1-year period ended 12-31-20 | 6.30% | 6.03% | ||||||
5-year period ended 12-31-20 | — | 7.42% | ||||||
10-year period ended 12-31-20 | — | 6.52% | ||||||
Since Inception of Class through 12-31-20(3) | 5.15% | — |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 4-28-17 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 43 |
Table of Contents
SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Consumer Discretionary |
| |||||||
Apparel Retail – 0.0% |
| |||||||
True Religion Apparel, Inc. (A)(B)(C) | 13 | $ | — | * | ||||
|
| |||||||
Casinos & Gaming – 2.4% |
| |||||||
New Cotai Participation Corp., Class B (A)(C)(D) | 3,073 | 15,029 | ||||||
Studio City International Holdings Ltd. ADR (A) | 343 | 4,073 | ||||||
Studio City International Holdings Ltd. ADR (A)(D) | 141 | 1,678 | ||||||
|
| |||||||
20,780 | ||||||||
|
| |||||||
Education Services – 0.7% |
| |||||||
Laureate Education, Inc., Class A (A) | 443 | 6,445 | ||||||
|
| |||||||
Total Consumer Discretionary – 3.1% |
| 27,225 | ||||||
Consumer Staples |
| |||||||
Agricultural Products – 0.0% |
| |||||||
Pinnacle Agriculture Enterprises LLC (A)(B)(C)(D) | 12 | — | * | |||||
|
| |||||||
Food Distributors – 0.0% |
| |||||||
ASG Warrant Corp. (A)(C)(D) | 1 | — | * | |||||
|
| |||||||
Total Consumer Staples – 0.0% |
| — | * | |||||
Energy |
| |||||||
Coal & Consumable Fuels – 0.4% |
| |||||||
Foresight Energy L.P. (A)(C)(D) | 186 | 3,065 | ||||||
|
| |||||||
Oil & Gas Drilling – 0.1% |
| |||||||
KCA Deutag UK Finance plc (A)(B)(C) | 27 | 1,098 | ||||||
Vantage Drilling Co., Units (A) | — | * | 1 | |||||
|
| |||||||
1,099 | ||||||||
|
| |||||||
Oil & Gas Equipment & Services – 0.0% |
| |||||||
Larchmont Resources LLC (A)(B)(C)(D)(E) | 1 | 40 | ||||||
McDermott International, Inc. (A)(C) | 21 | — | * | |||||
McDermott International, Inc. (A) | 399 | 323 | ||||||
|
| |||||||
363 | ||||||||
|
| |||||||
Oil & Gas Exploration & Production – 0.2% |
| |||||||
Bellatrix Exploration Ltd. (A)(B)(C) | 436 | — | * | |||||
California Resources Corp. (A) | 38 | 903 | ||||||
EP Energy Corp. (A)(D) | 21 | 744 | ||||||
Sabine Oil & Gas Corp. (A)(C)(D) | — | * | 4 | |||||
|
| |||||||
1,651 | ||||||||
|
| |||||||
Total Energy – 0.7% |
| 6,178 | ||||||
Health Care |
| |||||||
Pharmaceuticals – 0.0% |
| |||||||
Advanz Pharma Corp. (A)(B) | 35 | 152 | ||||||
|
| |||||||
Total Health Care – 0.0% |
| 152 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Industrials |
| |||||||
Air Freight & Logistics – 0.0% |
| |||||||
BIS Industries Ltd. (C)(D) | 1,605 | $ | 10 | |||||
|
| |||||||
Total Industrials – 0.0% |
| 10 | ||||||
Materials |
| |||||||
Diversified Metals & Mining – 0.0% |
| |||||||
Westmoreland Coal Co. (A) | 29 | 100 | ||||||
|
| |||||||
Total Materials – 0.0% |
| 100 | ||||||
TOTAL COMMON STOCKS – 3.8% |
| $ | 33,665 | |||||
(Cost: $56,058) | ||||||||
INVESTMENT FUNDS |
| |||||||
Registered Investment Companies – 3.9% |
| |||||||
Invesco Senior Loan ETF | 424 | 9,450 | ||||||
iShares iBoxx $ High Yield Corporate Bond ETF | 290 | 25,317 | ||||||
|
| |||||||
34,767 | ||||||||
|
| |||||||
TOTAL INVESTMENT FUNDS – 3.9% |
| $ | 34,767 | |||||
(Cost: $33,375) | ||||||||
PREFERRED STOCKS |
| |||||||
Energy |
| |||||||
Oil & Gas Exploration & Production – 0.9% |
| |||||||
Targa Resources Corp., 9.500% (A)(D) | 8 | 8,122 | ||||||
|
| |||||||
Total Energy – 0.9% |
| 8,122 | ||||||
TOTAL PREFERRED STOCKS – 0.9% |
| $ | 8,122 | |||||
(Cost: $8,416) |
| |||||||
WARRANTS |
| |||||||
Oil & Gas Exploration & Production – 0.0% |
| |||||||
California Resources Corp., expires 10-27-24 (G) | 8 | 31 | ||||||
|
| |||||||
TOTAL WARRANTS – 0.0% |
| $ | 31 | |||||
(Cost: $674) | ||||||||
CORPORATE DEBT SECURITIES | Principal | |||||||
Communication Services |
| |||||||
Advertising – 0.7% |
| |||||||
Advantage Sales & Marketing, Inc., 6.500%, 11-15-28 (H) | $ | 5,840 | 6,176 | |||||
|
| |||||||
Broadcasting – 1.2% |
| |||||||
Clear Channel International B.V., 6.625%, 8-1-25 (H) | 572 | 603 | ||||||
Clear Channel Outdoor Holdings, Inc., 5.125%, 8-15-27 (H) | 5,508 | 5,563 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Broadcasting (Continued) |
| |||||||
Clear Channel Worldwide Holdings, Inc., 9.250%, 2-15-24 | $ | 3,979 | $ | 4,029 | ||||
|
| |||||||
10,195 | ||||||||
|
| |||||||
Cable & Satellite – 6.4% |
| |||||||
Altice France Holding S.A.: | ||||||||
10.500%, 5-15-27 (H) | 12,589 | 14,131 | ||||||
6.000%, 2-15-28 (H) | 10,750 | 10,887 | ||||||
Altice France S.A.: | ||||||||
7.375%, 5-1-26 (H) | 1,673 | 1,761 | ||||||
8.125%, 2-1-27 (H) | 7,213 | 7,952 | ||||||
CCO Holdings LLC and CCO Holdings Capital Corp., | ||||||||
5.000%, 2-1-28 (H) | 4,233 | 4,476 | ||||||
CSC Holdings LLC, | ||||||||
5.750%, 1-15-30 (H) | 1,372 | 1,504 | ||||||
DISH DBS Corp.: | ||||||||
5.875%, 11-15-24 | 1,610 | 1,688 | ||||||
7.750%, 7-1-26 | 2,821 | 3,158 | ||||||
7.375%, 7-1-28 | 741 | 789 | ||||||
Ligado Networks LLC (15.500% Cash or 15.500% PIK), 15.500%, 11-1-23 (H)(I) | 4,968 | 4,819 | ||||||
VTR Comunicaciones S.p.A., 5.125%, 1-15-28 (H) | 1,379 | 1,469 | ||||||
VTR Finance B.V., | ||||||||
6.375%, 7-15-28 (H) | 2,826 | 3,088 | ||||||
|
| |||||||
55,722 | ||||||||
|
| |||||||
Integrated Telecommunication Services – 5.0% |
| |||||||
Cablevision Lightpath LLC, | ||||||||
5.625%, 9-15-28 (H) | 1,225 | 1,282 | ||||||
Consolidated Communications, Inc., 6.500%, 10-1-28 (H) | 2,423 | 2,592 | ||||||
Frontier Communications Corp.: | ||||||||
6.875%, 1-15-25 (F) | 6,315 | 3,063 | ||||||
11.000%, 9-15-25 (F) | 8,236 | 4,324 | ||||||
5.875%, 10-15-27 (H) | 3,860 | 4,174 | ||||||
6.750%, 5-1-29 (H) | 1,507 | 1,612 | ||||||
Northwest Fiber LLC, | ||||||||
10.750%, 6-1-28 (H) | 957 | 1,091 | ||||||
West Corp., | 18,737 | 18,121 | ||||||
Windstream Escrow LLC, | ||||||||
7.750%, 8-15-28 (H) | 7,618 | 7,671 | ||||||
|
| |||||||
43,930 | ||||||||
|
| |||||||
Interactive Media & Services – 0.2% |
| |||||||
Cars.com, Inc., | ||||||||
6.375%, 11-1-28 (H) | 1,560 | 1,656 | ||||||
|
| |||||||
Publishing – 0.3% |
| |||||||
MDC Partners, Inc., 6.500%, 5-1-24 (H) | 2,381 | 2,414 | ||||||
|
| |||||||
Wireless Telecommunication Service – 2.7% |
| |||||||
Digicel Group Ltd., | ||||||||
8.750%, 5-25-24 (H)(J) | 1,651 | 1,733 | ||||||
Digicel Group Ltd. | ||||||||
(5.000% Cash and 3.000% PIK), 8.000%, 4-1-25 (H)(I) | 585 | 306 |
44 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Wireless Telecommunication Service (Continued) |
| |||||||
Digicel Group Ltd. | ||||||||
(7.000% Cash or 7.000% PIK), 7.000%, 10-1-2168 (H)(I) | $ | 543 | $ | 149 | ||||
Digicel International Finance Ltd.: | ||||||||
8.750%, 5-25-24 (H) | 9,626 | 10,107 | ||||||
8.000%, 12-31-26 (H) | 539 | 451 | ||||||
Digicel International Finance Ltd. (8.000% Cash and 2.000% PIK or 10.000% PIK), | ||||||||
10.000%, 4-1-24 (I) | 5,234 | 4,685 | ||||||
Digicel International Finance Ltd. (6.000% Cash and 7.000% PIK), | ||||||||
13.000%, 12-31-25 (H)(I) | 716 | 727 | ||||||
Digicel Ltd., | ||||||||
6.750%, 3-1-23 (H) | 7,056 | 5,460 | ||||||
|
| |||||||
23,618 | ||||||||
|
| |||||||
Total Communication Services – 16.5% |
| 143,711 | ||||||
Consumer Discretionary |
| |||||||
Apparel Retail – 0.6% |
| |||||||
Abercrombie & Fitch Management Co. (GTD by Abercrombie & Fitch Co.), | ||||||||
8.750%, 7-15-25 (H) | 2,594 | 2,882 | ||||||
L Brands, Inc.: | ||||||||
9.375%, 7-1-25 (H) | 673 | 828 | ||||||
6.625%, 10-1-30 (H) | 1,541 | 1,714 | ||||||
|
| |||||||
5,424 | ||||||||
|
| |||||||
Auto Parts & Equipment – 0.0% |
| |||||||
Tenneco, Inc., | ||||||||
7.875%, 1-15-29 (H) | 157 | 176 | ||||||
|
| |||||||
Automotive Retail – 1.2% |
| |||||||
Asbury Automotive Group, Inc.: | ||||||||
4.500%, 3-1-28 | 2,532 | 2,639 | ||||||
4.750%, 3-1-30 | 4,451 | 4,774 | ||||||
Ken Garff Automotive LLC, | ||||||||
4.875%, 9-15-28 (H) | 770 | 801 | ||||||
Lithia Motors, Inc., | ||||||||
4.375%, 1-15-31 (H) | 1,236 | 1,326 | ||||||
Sonic Automotive, Inc., | ||||||||
6.125%, 3-15-27 | 1,198 | 1,262 | ||||||
|
| |||||||
10,802 | ||||||||
|
| |||||||
Casinos & Gaming – 3.1% |
| |||||||
Boyd Gaming Corp., | ||||||||
4.750%, 12-1-27 | 2,089 | 2,170 | ||||||
Colt Merger Sub, Inc.: | ||||||||
6.250%, 7-1-25 (H) | 2,963 | 3,155 | ||||||
8.125%, 7-1-27 (H) | 4,631 | 5,127 | ||||||
Everi Payments, Inc., | ||||||||
7.500%, 12-15-25 (H) | 3,511 | 3,643 | ||||||
Gateway Casinos & Entertainment Ltd., | ||||||||
8.250%, 3-1-24 (H) | 2,450 | 2,303 | ||||||
Golden Nugget, Inc., | ||||||||
6.750%, 10-15-24 (H) | 7,026 | 6,975 | ||||||
Scientific Games International, Inc. (GTD by Scientific Games Corp.): | ||||||||
7.000%, 5-15-28 (H) | 282 | 303 | ||||||
7.250%, 11-15-29 (H) | 282 | 310 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Casinos & Gaming (Continued) |
| |||||||
Wynn Macau Ltd.: | ||||||||
4.875%, 10-1-24 (H) | $ | 855 | $ | 866 | ||||
5.500%, 10-1-27 (H) | 2,301 | 2,387 | ||||||
|
| |||||||
27,239 | ||||||||
|
| |||||||
Department Stores – 0.5% |
| |||||||
Nordstrom, Inc.: | ||||||||
4.375%, 4-1-30 | 2,223 | 2,189 | ||||||
5.000%, 1-15-44 | 2,125 | 1,987 | ||||||
|
| |||||||
4,176 | ||||||||
|
| |||||||
Hotels, Resorts & Cruise Lines – 1.5% |
| |||||||
Boyne USA, Inc., | ||||||||
7.250%, 5-1-25 (H) | 931 | 976 | ||||||
Carnival Corp.: | ||||||||
11.500%, 4-1-23 (H) | 1,783 | 2,062 | ||||||
10.500%, 2-1-26 (H) | 339 | 395 | ||||||
7.625%, 3-1-26 (H) | 788 | 858 | ||||||
9.875%, 8-1-27 (H) | 1,525 | 1,754 | ||||||
NCL Corp. Ltd.: | ||||||||
12.250%, 5-15-24 (H) | 2,920 | 3,504 | ||||||
10.250%, 2-1-26 (H) | 1,805 | 2,112 | ||||||
5.875%, 3-15-26 (H) | 784 | 826 | ||||||
POWDR Corp., | ||||||||
6.000%, 8-1-25 (H) | 756 | 796 | ||||||
|
| |||||||
13,283 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail – 1.0% |
| |||||||
Arches Buyer, Inc.: | ||||||||
4.250%, 6-1-28 (H) | 4,719 | 4,779 | ||||||
6.125%, 12-1-28 (H) | 4,179 | 4,315 | ||||||
|
| |||||||
9,094 | ||||||||
|
| |||||||
Leisure Facilities – 0.8% |
| |||||||
Cedar Fair L.P., Magnum Management Corp., Canada’s Wonderland Co. and Millennium Operations LLC: | ||||||||
5.375%, 4-15-27 | 2,451 | 2,506 | ||||||
6.500%, 10-1-28 (H) | 1,235 | 1,339 | ||||||
Live Nation Entertainment, Inc., | ||||||||
4.750%, 10-15-27 (H) | 2,679 | 2,750 | ||||||
Six Flags Theme Parks, Inc., | ||||||||
7.000%, 7-1-25 (H) | 297 | 321 | ||||||
|
| |||||||
6,916 | ||||||||
|
| |||||||
Specialized Consumer Services – 0.5% |
| |||||||
Nielsen Finance LLC and Nielsen Finance Co.: | ||||||||
5.625%, 10-1-28 (H) | 2,311 | 2,511 | ||||||
5.875%, 10-1-30 (H) | 1,926 | 2,179 | ||||||
|
| |||||||
4,690 | ||||||||
|
| |||||||
Specialty Stores – 4.2% |
| |||||||
Academy Ltd., | ||||||||
6.000%, 11-15-27 (H) | 3,902 | 4,087 | ||||||
Guitar Center Escrow Issuer II, Inc., | ||||||||
8.500%, 1-15-26 (H) | 157 | 163 | ||||||
Michaels Stores, Inc.: | ||||||||
8.000%, 7-15-27 (H) | 4,039 | 4,342 | ||||||
4.750%, 10-1-27 (H) | 771 | 790 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Specialty Stores (Continued) |
| |||||||
Party City Holdings, Inc. (5.000% Cash and 5.000% PIK), | ||||||||
10.000%, 8-15-26 (H)(I) | $ | 210 | $ | 207 | ||||
Party City Holdings, Inc. | ||||||||
(6-Month U.S. LIBOR plus 500 bps), | ||||||||
5.750%, 7-15-25 (H)(K) | 389 | 350 | ||||||
Staples, Inc.: | ||||||||
7.500%, 4-15-26 (H) | 18,924 | 19,762 | ||||||
10.750%, 4-15-27 (H) | 7,355 | 7,318 | ||||||
|
| |||||||
37,019 | ||||||||
|
| |||||||
Total Consumer Discretionary — 13.4% |
| 118,819 | ||||||
Consumer Staples |
| |||||||
Packaged Foods & Meats – 2.1% |
| |||||||
JBS USA LLC and JBS USA Finance, Inc., | ||||||||
5.750%, 6-15-25 (H) | 4,650 | 4,801 | ||||||
JBS USA Lux S.A. and JBS USA Finance, Inc., | ||||||||
6.750%, 2-15-28 (H) | 3,115 | 3,500 | ||||||
Pilgrim’s Pride Corp.: | ||||||||
5.750%, 3-15-25 (H) | 881 | 904 | ||||||
5.875%, 9-30-27 (H) | 3,082 | 3,343 | ||||||
Simmons Foods, Inc., | ||||||||
5.750%, 11-1-24 (H) | 5,981 | 6,108 | ||||||
|
| |||||||
18,656 | ||||||||
|
| |||||||
Total Consumer Staples – 2.1% |
| 18,656 | ||||||
Energy |
| |||||||
Oil & Gas Drilling – 0.3% |
| |||||||
KCA Deutag UK Finance plc, 9.875%, 12-1-25 | 1,339 | 1,388 | ||||||
Offshore Drilling Holding S.A., 8.375%, 9-20-20 (F)(H)(L) | 8,682 | 1,042 | ||||||
|
| |||||||
2,430 | ||||||||
|
| |||||||
Oil & Gas Equipment & Services – 0.1% |
| |||||||
Nine Energy Service, Inc., | ||||||||
8.750%, 11-1-23 (H) | 1,917 | 853 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 3.4% |
| |||||||
Ascent Resources Utica Holdings LLC and ARU Finance Corp., | ||||||||
8.250%, 12-31-28 (H) | 157 | 157 | ||||||
Bellatrix Exploration Ltd., | ||||||||
8.500%, 9-11-23 (F) | 1,022 | — | * | |||||
Bellatrix Exploration Ltd. | ||||||||
(3.000% Cash or 9.500% PIK), | ||||||||
9.500%, 12-15-23 (F)(I) | 1,113 | — | * | |||||
Continental Resources, Inc., | ||||||||
5.750%, 1-15-31 (H) | 1,574 | 1,747 | ||||||
Crownrock L.P., | ||||||||
5.625%, 10-15-25 (H) | 8,707 | 8,881 | ||||||
Endeavor Energy Resources L.P., | ||||||||
5.500%, 1-30-26 (H) | 2,453 | 2,517 |
2020 | ANNUAL REPORT | 45 |
Table of Contents
SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Oil & Gas Exploration & Production (Continued) |
| |||||||
Endeavor Energy Resources L.P. and EER Finance, Inc., | ||||||||
6.625%, 7-15-25 (H) | $ | 1,803 | $ | 1,929 | ||||
Laredo Petroleum, Inc.: | ||||||||
9.500%, 1-15-25 | 4,262 | 3,708 | ||||||
10.125%, 1-15-28 (J) | 2,841 | 2,415 | ||||||
QEP Resources, Inc., | ||||||||
5.625%, 3-1-26 | 191 | 209 | ||||||
Seven Generations Energy Ltd.: | ||||||||
6.750%, 5-1-23 (H) | 5,646 | 5,710 | ||||||
5.375%, 9-30-25 (H) | 2,523 | 2,567 | ||||||
|
| |||||||
29,840 | ||||||||
|
| |||||||
Oil & Gas Refining & Marketing – 2.0% |
| |||||||
Callon Petroleum Co. (GTD by Callon Petroleum Operating Co.), | ||||||||
6.125%, 10-1-24 | 1,081 | 622 | ||||||
Comstock Escrow Corp., | ||||||||
9.750%, 8-15-26 | 11,276 | 12,093 | ||||||
CVR Energy, Inc., | ||||||||
5.250%, 2-15-25 (H) | 1,512 | 1,459 | ||||||
PBF Holding Co. LLC: | ||||||||
9.250%, 5-15-25 (H) | 3,006 | 2,948 | ||||||
6.000%, 2-15-28 | 1,420 | 811 | ||||||
|
| |||||||
17,933 | ||||||||
|
| |||||||
Oil & Gas Storage & Transportation – 0.4% |
| |||||||
Crestwood Midstream Partners L.P. and Crestwood Midstream Finance Corp., | ||||||||
6.250%, 4-1-23 | 1,517 | 1,521 | ||||||
|
| |||||||
Rattler Midstream L.P., | ||||||||
5.625%, 7-15-25 (H) | 1,506 | 1,591 | ||||||
|
| |||||||
3,112 | ||||||||
|
| |||||||
Total Energy – 6.2% |
| 54,168 | ||||||
Financials |
| |||||||
Consumer Finance – 0.4% |
| |||||||
Alliance Data Systems Corp., | ||||||||
4.750%, 12-15-24 (H) | 3,840 | 3,878 | ||||||
|
| |||||||
Financial Exchanges & Data – 0.7% |
| |||||||
Refinitiv U.S. Holdings, Inc., | ||||||||
8.250%, 11-15-26 (H) | 5,889 | 6,426 | ||||||
|
| |||||||
Insurance Brokers – 2.9% |
| |||||||
Ardonagh Midco 2 plc, | ||||||||
11.500%, 1-15-27 (H)(J) | 6,277 | 6,701 | ||||||
NFP Corp., | ||||||||
6.875%, 8-15-28 (H) | 17,409 | 18,587 | ||||||
|
| |||||||
25,288 | ||||||||
|
| |||||||
Investment Banking & Brokerage – 0.5% |
| |||||||
INTL FCStone, Inc., | ||||||||
8.625%, 6-15-25 (H) | 3,787 | 4,118 | ||||||
|
| |||||||
Property & Casualty Insurance – 0.8% |
| |||||||
Amwins Group, Inc., | ||||||||
7.750%, 7-1-26 (H) | 2,530 | 2,717 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Property & Casualty Insurance (Continued) |
| |||||||
Highlands Holdings Bond Issuer Ltd. and Highlands Holdings Bond Co-Issuer, Inc. (7.625% Cash or 8.375% PIK), | ||||||||
7.625%, 10-15-25 (H)(I) | $ | 3,896 | $ | 4,159 | ||||
|
| |||||||
6,876 | ||||||||
|
| |||||||
Specialized Finance – 1.7% |
| |||||||
BCPE Cycle Merger Sub II, Inc., | ||||||||
10.625%, 7-15-27 (H) | 5,496 | 6,073 | ||||||
Compass Group Diversified Holdings LLC, | ||||||||
8.000%, 5-1-26 (H) | 8,003 | 8,403 | ||||||
|
| |||||||
14,476 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance – 0.7% |
| |||||||
Provident Funding Associates L.P. and PFG Finance Corp., | ||||||||
6.375%, 6-15-25 (H) | 5,937 | 6,086 | ||||||
|
| |||||||
Total Financials – 7.7% |
| 67,148 | ||||||
Health Care |
| |||||||
Health Care Facilities – 2.2% |
| |||||||
Providence Service Corp. (The), | ||||||||
5.875%, 11-15-25 (H) | 2,329 | 2,463 | ||||||
RegionalCare Hospital Partners Holdings, Inc. and Legend Merger Sub, Inc., | ||||||||
9.750%, 12-1-26 (H) | 8,103 | 8,934 | ||||||
Surgery Center Holdings, Inc., | ||||||||
10.000%, 4-15-27 (H)(J) | 7,296 | 8,062 | ||||||
|
| |||||||
19,459 | ||||||||
|
| |||||||
Health Care Services – 0.6% |
| |||||||
Heartland Dental LLC, | ||||||||
8.500%, 5-1-26 (H) | 4,714 | 4,867 | ||||||
|
| |||||||
Health Care Technology – 1.1% |
| |||||||
Verscend Holding Corp., | ||||||||
9.750%, 8-15-26 (H) | 8,552 | 9,268 | ||||||
|
| |||||||
Pharmaceuticals – 1.8% |
| |||||||
Advanz Pharma Corp., | ||||||||
8.000%, 9-6-24 | 430 | 429 | ||||||
Bausch Health Cos., Inc.: | ||||||||
9.250%, 4-1-26 (H) | 2,264 | 2,524 | ||||||
8.500%, 1-31-27 (H) | 5,239 | 5,827 | ||||||
P&L Development LLC and PLD Finance Corp., | ||||||||
7.750%, 11-15-25 (H) | 3,902 | 4,195 | ||||||
Par Pharmaceutical, Inc., | ||||||||
7.500%, 4-1-27 (H) | 2,871 | 3,115 | ||||||
|
| |||||||
16,090 | ||||||||
|
| |||||||
Total Health Care – 5.7% |
| 49,684 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 4.8% |
| |||||||
TransDigm UK Holdings plc, | ||||||||
6.875%, 5-15-26 | 2,821 | 2,980 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Aerospace & Defense (Continued) |
| |||||||
TransDigm, Inc. (GTD by TransDigm Group, Inc.): | ||||||||
6.500%, 7-15-24 | $ | 6,077 | $ | 6,185 | ||||
6.500%, 5-15-25 | 1,162 | 1,194 | ||||||
6.375%, 6-15-26 | 2,490 | 2,577 | ||||||
7.500%, 3-15-27 | 2,673 | 2,853 | ||||||
5.500%, 11-15-27 | 6,936 | 7,292 | ||||||
Wolverine Escrow LLC: | ||||||||
8.500%, 11-15-24 (H) | 7,697 | 7,343 | ||||||
9.000%, 11-15-26 (H) | 11,228 | 10,628 | ||||||
13.125%, 11-15-27 (H) | 847 | 682 | ||||||
|
| |||||||
41,734 | ||||||||
|
| |||||||
Building Products – 0.1% |
| |||||||
CP Atlas Buyer, Inc., | ||||||||
7.000%, 12-1-28 (H) | 803 | 833 | ||||||
|
| |||||||
Diversified Support Services – 0.3% |
| |||||||
Ahern Rentals, Inc., | ||||||||
7.375%, 5-15-23 (H) | 3,901 | 2,848 | ||||||
|
| |||||||
Security & Alarm Services – 0.5% |
| |||||||
APX Group, Inc. (GTD by APX Group Holdings, Inc.), | ||||||||
7.625%, 9-1-23 | 2,172 | 2,253 | ||||||
Prime Security Services Borrower LLC and Prime Finance, Inc., | ||||||||
6.250%, 1-15-28 (H) | 2,132 | 2,289 | ||||||
|
| |||||||
4,542 | ||||||||
|
| |||||||
Total Industrials – 5.7% |
| 49,957 | ||||||
Information Technology |
| |||||||
Application Software – 1.1% |
| |||||||
J2 Global, Inc., | ||||||||
4.625%, 10-15-30 (H) | 926 | 977 | ||||||
Kronos Acquisition Holdings, Inc. and KIK Custom Products, Inc.: | ||||||||
5.000%, 12-31-26 (H) | 2,411 | 2,513 | ||||||
7.000%, 12-31-27 (H) | 5,974 | 6,255 | ||||||
|
| |||||||
9,745 | ||||||||
|
| |||||||
Electronic Equipment & Instruments – 0.6% |
| |||||||
NCR Corp.: | ||||||||
5.750%, 9-1-27 (H) | 755 | 802 | ||||||
5.000%, 10-1-28 (H) | 2,287 | 2,413 | ||||||
6.125%, 9-1-29 (H) | 966 | 1,070 | ||||||
5.250%, 10-1-30 (H) | 762 | 817 | ||||||
|
| |||||||
5,102 | ||||||||
|
| |||||||
IT Consulting & Other Services – 0.1% |
| |||||||
Sabre GLBL, Inc. (GTD by Sabre Holdings Corp.): | ||||||||
9.250%, 4-15-25 (H) | 739 | 879 | ||||||
7.375%, 9-1-25 (H) | 306 | 332 | ||||||
|
| |||||||
1,211 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 0.3% |
| |||||||
Brightstar Escrow Corp., | ||||||||
9.750%, 10-15-25 (H) | 2,136 | 2,283 | ||||||
|
| |||||||
Total Information Technology – 2.1% |
| 18,341 |
46 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Materials |
| |||||||
Aluminum – 0.1% |
| |||||||
Constellium SE, | ||||||||
5.625%, 6-15-28 (H) | $ | 1,090 | $ | 1,174 | ||||
|
| |||||||
Commodity Chemicals – 0.6% |
| |||||||
NOVA Chemicals Corp.: | ||||||||
4.875%, 6-1-24 (H) | 2,943 | 3,064 | ||||||
5.250%, 6-1-27 (H) | 1,655 | 1,764 | ||||||
|
| |||||||
4,828 | ||||||||
|
| |||||||
Construction Materials – 1.3% |
| |||||||
Hillman Group, Inc. (The), | ||||||||
6.375%, 7-15-22 (H) | 11,252 | 11,168 | ||||||
|
| |||||||
Metal & Glass Containers – 0.3% |
| |||||||
ARD Finance S.A. (6.500% Cash or 7.250% PIK), | ||||||||
6.500%, 6-30-27 (H)(I) | 2,110 | 2,252 | ||||||
HudBay Minerals, Inc., | ||||||||
7.625%, 1-15-25 (H) | 611 | 635 | ||||||
|
| |||||||
2,887 | ||||||||
|
| |||||||
Total Materials – 2.3% |
| 20,057 | ||||||
Real Estate |
| |||||||
Real Estate Operating Companies – 0.0% |
| |||||||
Service Properties Trust, | ||||||||
5.500%, 12-15-27 | 315 | 344 | ||||||
|
| |||||||
Total Real Estate – 0.0% |
| 344 | ||||||
TOTAL CORPORATE DEBT |
| $ | 540,885 | |||||
(Cost: $532,414) | ||||||||
LOANS(K) |
| |||||||
Communication Services |
| |||||||
Advertising – 0.6% |
| |||||||
Advantage Sales & Marketing, Inc., | ||||||||
0.000%, 10-28-27 (M) | 5,406 | 5,381 | ||||||
|
| |||||||
Broadcasting – 0.7% |
| |||||||
Clear Channel Outdoor Holdings, Inc. (ICE LIBOR plus 350 bps), | ||||||||
3.714%, 8-21-26 | 6,531 | 6,275 | ||||||
|
| |||||||
Integrated Telecommunication Services – 3.0% |
| |||||||
Consolidated Communications, Inc. (ICE LIBOR plus 475 bps), | ||||||||
5.750%, 10-2-27 | 3,077 | 3,087 | ||||||
Northwest Fiber LLC (ICE LIBOR plus 550 bps), | ||||||||
5.653%, 5-1-27 | 6,572 | 6,583 | ||||||
West Corp. (3-Month ICE LIBOR plus 400 bps), | ||||||||
5.000%, 10-10-24 | 14,767 | 14,275 |
LOANS(K) (Continued) | Principal | Value | ||||||
Integrated Telecommunication Services (Continued) |
| |||||||
Windstream Services LLC (ICE LIBOR plus 625 bps), | ||||||||
7.250%, 9-21-27 | $ | 2,694 | $ | 2,630 | ||||
|
| |||||||
26,575 | ||||||||
|
| |||||||
Publishing – 0.2% |
| |||||||
Recorded Books, Inc. (ICE LIBOR plus 425 bps), | ||||||||
4.395%, 8-31-25 | 2,242 | 2,226 | ||||||
|
| |||||||
Wireless Telecommunication Service – 0.8% |
| |||||||
Digicel International Finance Ltd. (ICE LIBOR plus 325 bps), | ||||||||
3.510%, 5-27-24 | 7,847 | 7,157 | ||||||
|
| |||||||
Total Communication Services – 5.3% |
| 47,614 | ||||||
Consumer Discretionary |
| |||||||
Apparel Retail – 0.4% |
| |||||||
Talbots, Inc. (The) (ICE LIBOR plus 700 bps), | ||||||||
8.000%, 11-28-22 | 3,763 | 2,810 | ||||||
TRLG Intermediate Holdings LLC, | ||||||||
10.000%, 10-27-22 (F) | 1,517 | 664 | ||||||
|
| |||||||
3,474 | ||||||||
|
| |||||||
Automotive Retail – 0.1% |
| |||||||
Midas Intermediate Holdco II LLC, | ||||||||
0.000%, 12-22-25 (M) | 628 | 636 | ||||||
|
| |||||||
Casinos & Gaming – 0.1% |
| |||||||
New Cotai LLC (14.000% Cash or 14.000% PIK), | ||||||||
14.000%, 9-10-25 (I) | 831 | 839 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 0.5% |
| |||||||
CNT Holdings I Corp. (ICE LIBOR plus 375 bps), | ||||||||
7.500%, 11-8-27 | 1,940 | 1,937 | ||||||
CNT Holdings I Corp. (ICE LIBOR plus 675 bps), | ||||||||
7.500%, 11-6-28 (C) | 2,060 | 2,091 | ||||||
|
| |||||||
4,028 | ||||||||
|
| |||||||
Leisure Facilities – 0.6% |
| |||||||
United PF Holdings LLC (ICE LIBOR plus 400 bps), | ||||||||
4.254%, 12-30-26 | 4,242 | 3,958 | ||||||
United PF Holdings LLC (ICE LIBOR plus 850 bps), | ||||||||
9.500%, 11-12-26 (C) | 941 | 938 | ||||||
|
| |||||||
4,896 | ||||||||
|
| |||||||
Restaurants – 0.2% |
| |||||||
NPC International, Inc. (ICE LIBOR plus 750 bps), | ||||||||
8.500%, 4-18-25 (F) | 3,326 | 200 | ||||||
Zaxby’s Operating Co. L.P. (1-Month ICE LIBOR plus 650 bps), | ||||||||
7.250%, 12-9-28 (C) | 1,335 | 1,348 | ||||||
|
| |||||||
1,548 | ||||||||
|
|
LOANS(K) (Continued) | Principal | Value | ||||||
Specialized Consumer Services – 0.2% |
| |||||||
Asurion LLC (ICE LIBOR plus 600 bps), | ||||||||
6.647%, 8-4-25 | $ | 1,748 | $ | 1,759 | ||||
|
| |||||||
Specialty Stores – 2.8% |
| |||||||
Jo-Ann Stores, Inc. (ICE LIBOR plus 500 bps): | ||||||||
0.000%, 10-16-23 (M) | 2,420 | 2,324 | ||||||
6.000%, 10-16-23 | 6,162 | 5,919 | ||||||
Jo-Ann Stores, Inc. (ICE LIBOR plus 925 bps), | ||||||||
10.250%, 5-21-24 | 3,971 | 3,605 | ||||||
Party City Holdings, Inc., | ||||||||
0.000%, 8-19-22 (M) | 158 | 146 | ||||||
Party City Holdings, Inc. (ICE LIBOR plus 250 bps), | ||||||||
3.250%, 8-19-22. | 5,848 | 5,397 | ||||||
Staples, Inc. (ICE LIBOR plus 500 bps), | ||||||||
5.214%, 4-12-26 | 6,000 | 5,800 | ||||||
Woof Holdings LLC (1-Month ICE LIBOR plus 725 bps), | ||||||||
8.000%, 12-16-28 | 544 | 545 | ||||||
Woof Holdings LLC (ICE LIBOR plus 375 bps), | ||||||||
4.500%, 12-16-27 | 880 | 878 | ||||||
|
| |||||||
24,614 | ||||||||
|
| |||||||
Textiles – 0.5% |
| |||||||
SIWF Holdings, Inc. (ICE LIBOR plus 425 bps), | ||||||||
4.397%, 6-15-25 | 4,176 | 4,136 | ||||||
|
| |||||||
Total Consumer Discretionary – 5.4% |
| 45,930 | ||||||
Energy |
| |||||||
Coal & Consumable Fuels – 0.3% |
| |||||||
Foresight Energy LLC (ICE LIBOR plus 800 bps), | ||||||||
9.500%, 6-29-27 | 1,556 | 1,788 | ||||||
Westmoreland Coal Co. (ICE LIBOR plus 650 bps), | ||||||||
9.250%, 3-15-22 | 331 | 297 | ||||||
Westmoreland Mining Holdings LLC (15.000% Cash or 15.000% PIK), | ||||||||
15.000%, 3-15-29 (C)(I) | 2,172 | 869 | ||||||
|
| |||||||
2,954 | ||||||||
|
| |||||||
Oil & Gas Equipment & Services – 0.2% |
| |||||||
Larchmont Resources LLC (8.000% Cash or 8.000% PIK), | ||||||||
11.000%, 8-9-21 (C)(E)(I) | 778 | 312 | ||||||
McDermott Technology Americas, Inc. | ||||||||
(ICE LIBOR plus 400 bps), | ||||||||
1.146%, 6-30-25 | 909 | 589 | ||||||
McDermott Technology | ||||||||
Americas, Inc. | ||||||||
(ICE LIBOR plus 500 bps), | ||||||||
0.000%, 5-10-25 (F)(M) | 3,050 | 503 | ||||||
|
| |||||||
1,404 | ||||||||
|
|
2020 | ANNUAL REPORT | 47 |
Table of Contents
SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
LOANS(K) (Continued) | Principal | Value | ||||||
Oil & Gas Storage & Transportation – 0.4% |
| |||||||
EPIC Crude Services L.P. (ICE LIBOR plus 500 bps), | ||||||||
5.260%, 3-1-26 | $ | 5,985 | $ | 4,122 | ||||
|
| |||||||
Total Energy – 0.9% |
| 8,480 | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 0.5% |
| |||||||
Edelman Financial Holdings II, Inc. (ICE LIBOR plus 675 bps), | ||||||||
6.897%, 7-20-26 | 4,048 | 4,048 | ||||||
|
| |||||||
Property & Casualty Insurance – 0.9% |
| |||||||
Amynta Agency Borrower, Inc. (ICE LIBOR plus 400 bps), | ||||||||
4.647%, 2-28-25 | 8,761 | 8,455 | ||||||
|
| |||||||
Specialized Finance – 0.5% |
| |||||||
Gulf Finance LLC (ICE LIBOR plus 525 bps), | ||||||||
6.250%, 8-25-23 | 6,001 | 4,512 | ||||||
Lealand Finance Co. B.V., | ||||||||
0.000%, 6-30-24 (C)(M) | 23 | 18 | ||||||
Lealand Finance Co. B.V. (ICE LIBOR plus 300 bps), | ||||||||
3.146%, 6-30-24 (C) | 72 | 58 | ||||||
|
| |||||||
4,588 | ||||||||
|
| |||||||
Total Financials – 1.9% |
| 17,091 | ||||||
Health Care |
| |||||||
Health Care Facilities – 0.4% |
| |||||||
Surgery Center Holdings, Inc. (ICE LIBOR plus 325 bps), | ||||||||
4.250%, 8-31-24 | 3,253 | 3,193 | ||||||
Surgery Center Holdings, Inc. (ICE LIBOR plus 800 bps), | ||||||||
9.000%, 8-31-24 | 335 | 343 | ||||||
|
| |||||||
3,536 | ||||||||
|
| |||||||
Health Care Services – 1.9% |
| |||||||
Heartland Dental LLC | ||||||||
(ICE LIBOR plus 375 bps), | ||||||||
3.647%, 4-30-25 | 6,756 | 6,581 | ||||||
U.S. Renal Care, Inc. (3-Month ICE LIBOR plus 500 bps), | ||||||||
5.188%, 6-26-26 | 10,857 | 10,789 | ||||||
|
| |||||||
17,370 | ||||||||
|
| |||||||
Pharmaceuticals – 0.2% |
| |||||||
Concordia International Corp. | ||||||||
(ICE LIBOR plus 550 bps), | ||||||||
6.500%, 9-6-24 | 1,430 | 1,395 | ||||||
|
| |||||||
Total Health Care – 2.5% |
| 22,301 | ||||||
Industrials |
| |||||||
Building Products – 0.5% |
| |||||||
CP Atlas Buyer, Inc. (1-Month ICE LIBOR plus 450 bps), | ||||||||
5.250%, 11-23-27 | 4,451 | 4,457 | ||||||
|
|
LOANS (K) (Continued) | Principal | Value | ||||||
Construction & Engineering – 0.1% |
| |||||||
WaterBridge Midstream Operating LLC, | ||||||||
0.000%, 6-21-26 (M) | $ | 314 | $ | 269 | ||||
WaterBridge Midstream Operating LLC (3-Month ICE LIBOR plus 575 bps), | ||||||||
6.750%, 6-21-26 | 833 | 712 | ||||||
|
| |||||||
981 | ||||||||
|
| |||||||
Industrial Conglomerates – 1.8% |
| |||||||
PAE Holding Corp. (ICE LIBOR plus 450 bps), | ||||||||
5.250%, 10-19-27 | 15,523 | 15,542 | ||||||
|
| |||||||
Industrial Machinery – 1.8% |
| |||||||
Form Technologies LLC, | ||||||||
0.000%, 1-28-22 (M) | 1,750 | 1,654 | ||||||
Form Technologies LLC (ICE LIBOR plus 325 bps), | ||||||||
4.250%, 1-28-22 | 2,994 | 2,829 | ||||||
Form Technologies LLC (ICE LIBOR plus 850 bps), | ||||||||
9.500%, 1-30-23 (C) | 13,614 | 11,402 | ||||||
|
| |||||||
15,885 | ||||||||
|
| |||||||
Total Industrials – 4.2% |
| 36,865 | ||||||
Information Technology |
| |||||||
Application Software – 0.9% |
| |||||||
Applied Systems, Inc. (ICE LIBOR plus 700 bps), | ||||||||
8.000%, 9-19-25 | 1,376 | 1,381 | ||||||
Kronos Acquisition Holdings, Inc., | ||||||||
0.000%, 12-17-26 (M) | 5,882 | 5,875 | ||||||
Ultimate Software Group, Inc. (The) (ICE LIBOR plus 675 bps), | ||||||||
7.500%, 5-3-27 | 744 | 764 | ||||||
|
| |||||||
8,020 | ||||||||
|
| |||||||
Communications Equipment – 1.1% |
| |||||||
MLN U.S. Holdco LLC (ICE LIBOR plus 450 bps), | ||||||||
4.652%, 11-30-25 | 9,152 | 8,254 | ||||||
MLN U.S. Holdco LLC (ICE LIBOR plus 875 bps), | ||||||||
8.902%, 11-30-26 | 2,920 | 1,463 | ||||||
|
| |||||||
9,717 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 1.8% |
| |||||||
Cardtronics USA, Inc. (ICE LIBOR plus 400 bps), | ||||||||
5.000%, 6-29-27 | 2,375 | 2,371 | ||||||
CommerceHub, Inc. (1-Month ICE LIBOR plus 400 bps), | ||||||||
4.750%, 12-2-27 | 2,935 | 2,931 | ||||||
CommerceHub, Inc. (1-Month ICE LIBOR plus 700 bps), | ||||||||
7.750%, 12-2-28 | 3,112 | 3,120 |
LOANS (K) (Continued) | Principal | Value | ||||||
Data Processing & Outsourced Services (Continued) |
| |||||||
Cyxtera DC Holdings, Inc. (ICE LIBOR plus 300 bps), | ||||||||
8.250%, 5-1-25 | $ | 3,429 | $ | 2,673 | ||||
Cyxtera DC Holdings, Inc. (ICE LIBOR plus 325 bps), | ||||||||
4.000%, 5-1-24 | 5,271 | 4,920 | ||||||
|
| |||||||
16,015 | ||||||||
|
| |||||||
Internet Services & Infrastructure – 0.5% |
| |||||||
Informatica LLC, | ||||||||
7.125%, 2-25-25 | 4,147 | 4,212 | ||||||
|
| |||||||
IT Consulting & Other Services – 0.6% |
| |||||||
Milano Acquisition Corp. (ICE LIBOR plus 400 bps), | ||||||||
4.750%, 10-1-27 | 4,998 | 4,990 | ||||||
|
| |||||||
Total Information Technology – 4.9% |
| 42,954 | ||||||
Materials |
| |||||||
Construction Materials – 0.7% |
| |||||||
Hillman Group, Inc. (The) (ICE LIBOR plus 350 bps), | ||||||||
4.147%, 5-31-25 | 5,951 | 5,919 | ||||||
|
| |||||||
Total Materials – 0.7% |
| 5,919 | ||||||
TOTAL LOANS – 25.8% |
| $ | 227,154 | |||||
(Cost: $240,464) | ||||||||
SHORT-TERM SECURITIES | Shares | |||||||
Money Market Funds(O) – 5.3% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund - Institutional Shares, 0.030% (N) | 6,310 | 6,310 | ||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, 0.030% | 40,426 | 40,426 | ||||||
|
| |||||||
46,736 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 5.3% |
| $ | 46,736 | |||||
(Cost: $46,736) | ||||||||
TOTAL INVESTMENT SECURITIES – 101.4% |
| $ | 891,360 | |||||
(Cost: $918,137) | ||||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – (1.4)% |
| (11,891 | ) | |||||
NET ASSETS – 100.0% |
| $ | 879,469 |
48 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | No dividends were paid during the preceding 12 months. |
(B) | Listed on an exchange outside the United States. |
(C) | Securities whose value was determined using significant unobservable inputs. |
(D) | Restricted securities. At December 31, 2020, the Portfolio owned the following restricted securities: |
Security | Acquisition Date(s) | Shares | Cost | Value | ||||||||||||||||
ASG Warrant Corp. | 6-14-18 | �� | 1 | $ | 72 | $ | — | * | ||||||||||||
BIS Industries Ltd. | 12-22-17 | 1,605 | 151 | 10 | ||||||||||||||||
EP Energy Corp. | 10-1-20 | 21 | 410 | 744 | ||||||||||||||||
Foresight Energy L.P. | 6-30-20 -9-8-20 | 186 | 3,639 | 3,065 | ||||||||||||||||
Larchmont Resources LLC | 12-8-16 | 1 | 340 | 40 | ||||||||||||||||
New Cotai Participation Corp., Class B | 9-29-20 | 3,073 | 28,520 | 15,029 | ||||||||||||||||
Pinnacle Agriculture Enterprises LLC | 7-17-20 | 12 | 2,083 | — | * | |||||||||||||||
Sabine Oil & Gas Corp. | 12-7-16 | — | * | 11 | 4 | |||||||||||||||
Studio City International Holdings Ltd. ADR | 8-5-20 | 141 | 2,200 | 1,678 | ||||||||||||||||
Targa Resources Corp., 9.500% | 10-24-17 | 8 | 8,416 | 8,122 | ||||||||||||||||
|
|
|
| |||||||||||||||||
$ | 45,842 | $ | 28,692 | |||||||||||||||||
|
|
|
|
The total value of these securities represented 3.3% of net assets at December 31, 2020. |
(E) | Deemed to be an affiliate due to the Portfolio owning at least 5% of the voting securities. |
(F) | Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy. |
(G) | Warrants entitle the Portfolio to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any. |
(H) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $452,748 or 51.5% of net assets. |
(I) | Payment-in-kind bond which may pay interest in additional par and/or in cash. Rates shown are the current rate and possible payment rates. |
(J) | All or a portion of securities with an aggregate value of $8,521 are on loan. |
(K) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Description of the reference rate and spread, if applicable, are included in the security description. |
(L) | Step bond that pays an initial coupon rate for the first period and then a higher or lower coupon rate for the following periods. Interest rate disclosed is that which is in effect at December 31, 2020. |
(M) | All or a portion of this position has not settled. Full contract rates do not take effect until settlement date. |
(N) | Investment made with cash collateral received from securities on loan. |
(O) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Consumer Discretionary | $ | 12,196 | $ | — | $ | 15,029 | ||||||
Consumer Staples | — | — | — | * | ||||||||
Energy | 1,227 | 744 | 4,207 | |||||||||
Health Care | — | 152 | — | |||||||||
Industrials | — | — | 10 | |||||||||
Materials | — | 100 | — | |||||||||
Total Common Stocks | $ | 13,423 | $ | 996 | $ | 19,246 |
2020 | ANNUAL REPORT | 49 |
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SCHEDULE OF INVESTMENTS | HIGH INCOME (in thousands) |
DECEMBER 31, 2020
Level 1 | Level 2 | Level 3 | ||||||||||
Investment Funds | $ | 34,767 | $ | — | $ | — | ||||||
Preferred Stocks | — | 8,122 | — | |||||||||
Warrants | 31 | — | — | |||||||||
Corporate Debt Securities | — | 540,885 | — | |||||||||
Loans | — | 210,118 | 17,036 | |||||||||
Short-Term Securities | 46,736 | — | — | |||||||||
Total | $ | 94,957 | $ | 760,121 | $ | 36,282 |
The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
Common Stocks | Preferred Stocks | Corporate Debt Securities | Loans | |||||||||||||
Beginning Balance 1-1-20 | $ | 350 | $ | — | * | $ | 2,640 | $ | 20,995 | |||||||
Net realized gain (loss) | — | — | (2,412 | ) | 9 | |||||||||||
Net change in unrealized appreciation (depreciation) | (14,375 | ) | — | 3,934 | (2,239 | ) | ||||||||||
Purchases | 28,520 | — | — | 6,508 | ||||||||||||
Sales | — | — | * | (4,162 | ) | (6,624 | ) | |||||||||
Amortization/Accretion of premium/discount | — | — | — | (127 | ) | |||||||||||
Transfers into Level 3 during the period | 4,751 | — | — | 14,026 | ||||||||||||
Transfers out of Level 3 during the period | — | — | — | (15,512 | ) | |||||||||||
Ending Balance 12-31-20 | $ | 19,246 | $ | — | $ | — | $ | 17,036 | ||||||||
Net change in unrealized appreciation (depreciation) for all Level 3 investments still held as of 12-31-20 | $ | (14,375 | ) | $ | — | $ | (27 | ) | $ | (2,424 | ) |
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information.
Information about Level 3 fair value measurements:
Fair Value at 12-31-20 | Valuation Technique(s) | Unobservable Input(s) | Input value(s) | |||||||||
Assets | ||||||||||||
Common Stocks | $ | 15,029 | Market approach | Illiquidity discount | 10.00% | |||||||
3,065 | Market approach | Illiquidity discount | 30.00% | |||||||||
1,098 | Market approach | Broker quote | N/A | |||||||||
40 | Third-party valuation service | Broker quote | N/A | |||||||||
10 | Market comparable approach | Adjusted EBITDA multiple | 4.17X | |||||||||
4 | Market approach | Broker quote | N/A | |||||||||
Loans | 17,036 | Third-party valuation service | Broker quotes | N/A |
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
GTD = Guaranteed
ICE = Intercontinental Exchange
PIK = Payment In Kind
LIBOR = London Interbank Offered Rate
See Accompanying Notes to Financial Statements.
50 | ANNUAL REPORT | 2020 |
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MANAGEMENT DISCUSSION | INTERNATIONAL CORE EQUITY |
(UNAUDITED)
John C. Maxwell
Catherine L. Murray |
Below, John Maxwell, CFA, and Catherine Murray, portfolio managers of Ivy VIP International Core Equity, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Maxwell has managed the Portfolio since May 2009 and has 29 years of industry experience. Ms. Murray was named co-portfolio manager in January 2017 and was previously an assistant portfolio manager on the Portfolio since 2014. She has 30 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP International Core Equity (Class II shares at net asset value) | 7.19% | |||
Benchmark and Morningstar Category | ||||
MSCI EAFE Index | 7.82% | |||
(generally reflects the performance of securities in Europe, Australasia and the Far East) | ||||
Morningstar Foreign Large Blend Category Average | 9.30% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that the Portfolio returns include applicable fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
In the face of the sharpest economic downturn in history, markets gained on the year.
The MSCI EAFE Index, the Portfolio’s benchmark, was up 7.8% in 2020 after being down more than 20% in the first quarter of the year. The global pandemic that began with flight, was quickly met with fight as governments and central banks unleashed all stimulus tools at their disposal. After credit markets were sent into a liquidity frenzy, oil prices went negative and equity prices collapsed, global markets eventually began to recover and, in some cases, hit new all-time highs to close 2020.
In addition to the global pandemic, the year was quite eventful. During the fourth quarter of the fiscal year U.S. elections were sorted, Chinese equities continued to face several new road bumps stemming from geopolitics and regulation, and the U.K. finalized a “soft” Brexit. The markets tended to shrug off bad news and celebrate good news as global asset prices continued to climb.
For much of the year, risk appetite for growth stocks continued to increase as a result of two major circumstances: 1) lockdowns across the globe supported tech driven business models and 2) historically low interest rates. The dispersion between growth and value was driven even wider; the MSCI EAFE Growth Index outperformed value by 21.3%. As a result, many potential good investments were left behind.
The worst performing sector for the year was energy, down 27.5%. Financials were also under pressure reflecting economic and credit market uncertainty, and the prospects for lower interest rates for longer. Information technology and materials were the best performing sectors, both up more than 20%. Technology has been a clear winner during the pandemic while materials was driven by higher inflation expectations, which sparked a rally in metals and mining stocks.
From a regional/country standpoint, Japan was the greatest positive driver to returns, while the U.K. dragged on the index amid Brexit concerns. Europe performed slightly better than the index for the year.
Ultimately, markets overcame one of the greatest global economic shocks as governments and central banks signaled they would bridge economies to the other side of the pandemic, giving investors the comfort to invest in risk assets.
Portfolio review
For the fiscal year ended December 31, 2020, the Portfolio posted positive absolute returns but slightly underperformed its benchmark index and Morningstar peer group. Given the wide dispersion between growth and value, we were pleased the Portfolio nearly kept up with our core benchmark given the Portfolio’s tilt toward value. An underweight allocation and good stock selection in financials as well as positive stock selection in industrials and real estate were the greatest overall relative contributors to Portfolio performance. From a country standpoint, stock selection in Hong Kong and the U.K. as well as the Portfolio’s allocation to South Korea contributed positively. Individually, the biggest relative gainers were Samsung Electronics Co. Ltd., Hong Kong Exchanges and Clearing Ltd. and Zozo Inc. Samsung Electronics, a South Korean semiconductor and consumer electronics company, has been gaining market share in key end markets, and we believe is likely to experience a recovery in their key memory chip segment next year. Hong Kong Exchanges, the owner of the
2020 | ANNUAL REPORT | 51 |
Table of Contents
securities exchange in Hong Kong, has benefited from increased trading and expectations that U.S. delisting rhetoric and actions will continue to drive Chinese companies to list shares in Hong Kong. This position was sold on valuation during the year. Lastly, Zozo, a Japan-based ecommerce company, was helped by the acceleration of ecommerce trends through the pandemic.
Key detractors to relative performance were stock selection in consumer staples and an overweight to energy. An underweight to and stock selection in Japan as well as stock selection in Italy and exposure to India all detracted from performance as well. Key individual detractors included Suncor Energy, Inc., a Canadian oil and gas company that was down with the severe decline in energy prices. This position was sold during the year. Airbus SE, a French aerospace and defense company, pulled back on the impact the pandemic had on travel and commercial aircraft use; however, the company maintains a dominant market position and recovered in the final quarter of the 2020. Lastly, Axis Bank, Ltd., an Indian bank, was down with the economic weakness that hit India as the pandemic took its toll on the country. This position was sold during the year to buy other financial stocks with perceived higher upside potential and better risk/reward during/following the pandemic.
Actions in the Portfolio during the year
The Portfolio had a value tilt throughout the year. As a core strategy, we can tilt toward growth companies when valuations are relatively attractive and toward value when they offer investors the best upside prospects, in our opinion. We took advantage of market volatility in 2020. The pullback presented wider valuation gaps in companies with perceived long-term staying power in both defensive and cyclical areas of the economy. We were actionable in replacing holdings where we felt there was a more attractive risk/reward profile elsewhere.
Current Portfolio themes are:
• | Disproportionate growth of emerging-market consumers, particularly in the Asia-Pacific region |
• | Strong growth in infrastructure |
• | Solid and believable dividend yields |
• | Forces of market disruption |
What we seek
As we move forward, we continue to seek companies we believe are underpriced relative to their prospects and peers in both the growth and value parts of the market. The Portfolio’s defensive/cyclical weighting is slightly tilted toward cyclical. We are also increasingly focused on companies we believe have sustainable competitive advantages or improving industry dynamics that are not appreciated by the market and companies which may be better positioned coming out of the COVID-19 pandemic than they were before the outbreak.
Outlook
The future has become clearer with respect to COVID-19, but many lingering side effects remain, and new factors have entered the equation. Government bond yields are near historic lows and corporate bond yields have dropped to levels unheard of but are starting to rise again in the U.S. with inflation prospects increasing. What are the implications? Massive amounts of fiscal and monetary stimulus have been pumped into the system, does this spark inflation when the global economy is back on solid ground? 2020 propelled a further valuation discrepancy between value and growth. Will this gap narrow? We believe it will.
These scenarios, largely intertwined, carry significance for markets moving forward. Investors have been complacent to anchor in growth stocks without hesitation and embrace greed. This greed has overpowered the possibility of disruption to the status quo. The world has lived with low rates and low growth for so long that the simple idea of anything but this environment appears to many as an impossibility. We believe we are at the point where a reality check is on the horizon. Timing cannot be known for sure, but given the environment and valuations, the performance division of value versus growth could finally begin to re-converge. The risk/reward trade-off, in our opinion, favors a value bias within our core approach. Government bonds with near zero yields, we believe, have no upside and most asset classes that are priced off Government bonds likely have a similar reward profile. For us, we can buy and focus on international value and core stocks that appear to have a real absolute return potential — that is where we are concentrating our efforts.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
52 | ANNUAL REPORT | 2020 |
Table of Contents
International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. Investments in countries with emerging economies or securities markets may carry greater risk than investments in more developed countries. Political and economic structures in many such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristics of more developed countries. Investments in securities issued in these countries may be more volatile and less liquid than securities issued in more developed countries. The use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Portfolio’s value and the risk that fluctuations in the value of the derivatives may not correlate with the corresponding securities or fixed income markets or the underlying asset upon which the derivative’s value is based. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged, and includes reinvested dividends and does not include fees. One cannot invest directly in an index, nor is an index representative of Ivy VIP International Core Equity.
2020 | ANNUAL REPORT | 53 |
Table of Contents
PORTFOLIO HIGHTLIGHTS | INTERNATIONAL CORE EQUITY |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 97.0% | |||
Industrials | 16.6% | |||
Financials | 13.0% | |||
Consumer Discretionary | 12.8% | |||
Health Care | 12.7% | |||
Consumer Staples | 10.5% | |||
Information Technology | 7.4% | |||
Communication Services | 7.0% | |||
Materials | 6.9% | |||
Energy | 6.0% | |||
Real Estate | 2.5% | |||
Utilities | 1.6% | |||
Bonds | 1.2% | |||
Other Government Securities | 1.2% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 1.8% |
Country Weightings
Europe | 61.5% | |||
France | 15.7% | |||
United Kingdom | 15.6% | |||
Germany | 15.0% | |||
Switzerland | 5.2% | |||
Netherlands | 3.5% | |||
Other Europe | 6.5% | |||
Pacific Basin | 28.0% | |||
Japan | 13.8% | |||
China | 4.1% | |||
Other Pacific Basin | 10.1% | |||
North America | 7.5% | |||
Canada | 5.9% | |||
Other North America | 1.6% | |||
South America | 1.2% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 1.8% |
Top 10 Equity Holdings
Company | Country | Sector | Industry | |||
Merck KGaA | Germany | Health Care | Pharmaceuticals | |||
Roche Holdings AG, Genusscheine | Switzerland | Health Care | Pharmaceuticals | |||
Samsung Electronics Co. Ltd. | South Korea | Information Technology | Technology Hardware, Storage & Peripherals | |||
DNB ASA | Norway | Financials | Diversified Banks | |||
Airbus SE | France | Industrials | Aerospace & Defense | |||
Legal & General Group plc | United Kingdom | Financials | Life & Health Insurance | |||
Carrefour S.A. | France | Consumer Staples | Hypermarkets & Super Centers | |||
AIA Group Ltd. | Hong Kong | Financials | Life & Health Insurance | |||
WPP Group plc | United Kingdom | Communication Services | Advertising | |||
ENGIE | France | Utilities | Multi-Utilities |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
54 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | INTERNATIONAL CORE EQUITY |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 7.19% | |||
5-year period ended 12-31-20 | 5.41% | |||
10-year period ended 12-31-20 | 4.78% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 55 |
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SCHEDULE OF INVESTMENTS | INTERNATIONAL CORE EQUITY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Australia |
| |||||||
Financials – 1.5% |
| |||||||
Australia and New Zealand Banking Group Ltd. | 561 | $ | 9,837 | |||||
|
| |||||||
Materials – 1.6% |
| |||||||
Newcrest Mining Ltd. | 518 | 10,333 | ||||||
|
| |||||||
Total Australia – 3.1% |
| $ | 20,170 | |||||
Brazil |
| |||||||
Consumer Staples – 1.2% |
| |||||||
Ambev S.A. | 2,518 | 7,611 | ||||||
|
| |||||||
Total Brazil – 1.2% |
| $ | 7,611 | |||||
Canada |
| |||||||
Consumer Discretionary – 2.4% |
| |||||||
Canada Goose Holdings, Inc. (A)(B) | 301 | 8,954 | ||||||
Dollarama, Inc. | 163 | 6,630 | ||||||
|
| |||||||
15,584 | ||||||||
|
| |||||||
Energy – 2.3% |
| |||||||
Canadian Natural Resources Ltd. | 326 | 7,830 | ||||||
Seven Generations Energy Ltd., Class A (A) | 1,408 | 7,310 | ||||||
|
| |||||||
15,140 | ||||||||
|
| |||||||
Materials – 1.2% |
| |||||||
Teck Cominco Ltd. | 435 | 7,900 | ||||||
|
| |||||||
Total Canada – 5.9% |
| $ | 38,624 | |||||
China |
| |||||||
Consumer Discretionary – 2.0% |
| |||||||
Alibaba Group Holding Ltd. (A) | 211 | 6,141 | ||||||
Gree Electric Appliances, Inc. of Zhuhai, A Shares | 714 | 6,805 | ||||||
|
| |||||||
12,946 | ||||||||
|
| |||||||
Consumer Staples – 1.0% |
| |||||||
Wens Foodstuffs Group Co. Ltd., Class A | 2,170 | 6,090 | ||||||
|
| |||||||
Materials – 1.1% |
| |||||||
Anhui Conch Cement Co. Ltd., H Shares | 1,072 | 6,715 | ||||||
|
| |||||||
Total China – 4.1% |
| $ | 25,751 | |||||
Denmark |
| |||||||
Industrials – 1.5% |
| |||||||
A.P. Moller – Maersk A/S | 3 | 7,096 | ||||||
A.P. Moller – Maersk A/S, Class A | 1 | 2,731 | ||||||
|
| |||||||
9,827 | ||||||||
|
| |||||||
Total Denmark – 1.5% |
| $ | 9,827 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
France |
| |||||||
Communication Services – 1.0% |
| |||||||
Ubisoft Entertainment S.A. (A) | 67 | $ | 6,480 | |||||
|
| |||||||
Consumer Discretionary – 1.3% |
| |||||||
Peugeot S.A. | 310 | 8,503 | ||||||
|
| |||||||
Consumer Staples – 2.9% |
| |||||||
Carrefour S.A. | 694 | 11,877 | ||||||
Pernod Ricard S.A. | 36 | 6,827 | ||||||
|
| |||||||
18,704 | ||||||||
|
| |||||||
Energy – 1.0% |
| |||||||
Total S.A.(B) | 155 | 6,687 | ||||||
|
| |||||||
Financials – 1.1% |
| |||||||
BNP Paribas S.A. | 135 | 7,131 | ||||||
|
| |||||||
Industrials – 5.6% |
| |||||||
Airbus SE | 120 | 13,118 | ||||||
Compagnie de Saint-Gobain | 171 | 7,848 | ||||||
Schneider Electric S.A. | 72 | 10,410 | ||||||
Vinci | 54 | 5,405 | ||||||
|
| |||||||
36,781 | ||||||||
|
| |||||||
Information Technology – 1.2% |
| |||||||
Cap Gemini S.A. | 52 | 8,072 | ||||||
|
| |||||||
Utilities – 1.6% |
| |||||||
ENGIE | 694 | 10,638 | ||||||
|
| |||||||
Total France – 15.7% |
| $ | 102,996 | |||||
Germany |
| |||||||
Communication Services – 1.1% |
| |||||||
Deutsche Telekom AG, Registered Shares | 387 | 7,065 | ||||||
|
| |||||||
Consumer Staples – 1.0% |
| |||||||
Beiersdorf Aktiengesellschaft | 59 | 6,769 | ||||||
|
| |||||||
Financials – 2.5% |
| |||||||
Deutsche Boerse AG | 42 | 7,220 | ||||||
Munchener Ruckversicherungs-Gesellschaft AG, Registered Shares | 30 | 8,817 | ||||||
|
| |||||||
16,037 | ||||||||
|
| |||||||
Health Care – 3.9% |
| |||||||
Fresenius Medical Care AG & Co. KGaA | 94 | 7,832 | ||||||
Merck KGaA | 103 | 17,597 | ||||||
|
| |||||||
25,429 | ||||||||
|
| |||||||
Industrials – 2.3% |
| |||||||
Hochtief Aktiengesellschaft | 79 | 7,674 | ||||||
Siemens AG | 49 | 7,020 | ||||||
|
| |||||||
14,694 | ||||||||
|
| |||||||
Information Technology – 1.4% |
| |||||||
SAP AG | 69 | 8,918 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Real Estate – 1.5% |
| |||||||
Deutsche Wohnen AG | 178 | $ | 9,489 | |||||
|
| |||||||
Total Germany – 13.7% |
| $ | 88,401 | |||||
Hong Kong |
| |||||||
Financials – 1.8% |
| |||||||
AIA Group Ltd. | 971 | 11,838 | ||||||
|
| |||||||
Total Hong Kong – 1.8% |
| $ | 11,838 | |||||
India |
| |||||||
Energy – 0.8% |
| |||||||
Reliance Industries Ltd. | 193 | 5,241 | ||||||
|
| |||||||
Total India – 0.8% |
| $ | 5,241 | |||||
Japan |
| |||||||
Communication Services – 0.8% |
| |||||||
Dentsu Group, Inc. (B) | 187 | 5,577 | ||||||
|
| |||||||
Consumer Discretionary – 3.0% |
| |||||||
Sekisui House Ltd. | 200 | 4,064 | ||||||
Subaru Corp. | 444 | 8,892 | ||||||
Zozo, Inc. | 264 | 6,512 | ||||||
|
| |||||||
19,468 | ||||||||
|
| |||||||
Consumer Staples – 1.5% |
| |||||||
Seven & i Holdings Co. Ltd. | 278 | 9,855 | ||||||
|
| |||||||
Energy – 1.1% |
| |||||||
Inpex Corp. (B) | 1,244 | 6,705 | ||||||
|
| |||||||
Financials – 1.4% |
| |||||||
ORIX Corp. | 611 | 9,405 | ||||||
|
| |||||||
Health Care – 1.0% |
| |||||||
Terumo Corp. | 162 | 6,773 | ||||||
|
| |||||||
Industrials – 2.5% |
| |||||||
ITOCHU Corp. | 250 | 7,189 | ||||||
SMC Corp. | 14 | 8,673 | ||||||
|
| |||||||
15,862 | ||||||||
|
| |||||||
Information Technology – 1.5% |
| |||||||
Shimadzu Corp. | 247 | 9,616 | ||||||
|
| |||||||
Real Estate – 1.0% |
| |||||||
Mitsubishi Estate Co. Ltd. | 406 | 6,523 | ||||||
|
| |||||||
Total Japan – 13.8% |
| $ | 89,784 | |||||
Netherlands |
| |||||||
Consumer Discretionary – 1.5% |
| |||||||
Prosus N.V. | 89 | 9,613 | ||||||
|
| |||||||
Health Care – 1.0% |
| |||||||
Koninklijke Philips Electronics N.V., Ordinary Shares | 126 | 6,778 | ||||||
|
|
56 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | INTERNATIONAL CORE EQUITY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS (Continued) | Shares | Value | ||||||
Industrials – 1.0% |
| |||||||
Randstad Holding N.V. | 103 | $ | 6,641 | |||||
|
| |||||||
Total Netherlands – 3.5% |
| $ | 23,032 | |||||
Norway |
| |||||||
Financials – 2.1% |
| |||||||
DNB ASA (A) | 698 | 13,672 | ||||||
|
| |||||||
Total Norway – 2.1% |
| $ | 13,672 | |||||
Singapore |
| |||||||
Communication Services – 1.2% |
| |||||||
Singapore Telecommunications Ltd. | 4,384 | 7,655 | ||||||
|
| |||||||
Total Singapore – 1.2% |
| $ | 7,655 | |||||
South Korea |
| |||||||
Industrials – 1.1% |
| |||||||
LG Corp. (A) | 91 | 7,367 | ||||||
|
| |||||||
Information Technology – 2.1% |
| |||||||
Samsung Electronics Co. Ltd. | 188 | 14,003 | ||||||
|
| |||||||
Total South Korea – 3.2% |
| $ | 21,370 | |||||
Sweden |
| |||||||
Health Care – 0.5% |
| |||||||
Getinge AB | 129 | 3,013 | ||||||
|
| |||||||
Industrials – 1.2% |
| |||||||
Epiroc AB, Class A | 317 | 5,769 | ||||||
Epiroc AB, Class B | 128 | 2,154 | ||||||
|
| |||||||
7,923 | ||||||||
|
| |||||||
Total Sweden – 1.7% |
| $ | 10,936 | |||||
Switzerland |
| |||||||
Health Care – 3.8% |
| |||||||
Alcon, Inc. | 104 | 6,910 | ||||||
Roche Holdings AG, Genusscheine | 50 | 17,337 | ||||||
|
| |||||||
24,247 | ||||||||
|
| |||||||
Industrials – 1.4% |
| |||||||
Ferguson plc | 71 | 8,591 | ||||||
|
| |||||||
Total Switzerland – 5.2% |
| $ | 32,838 | |||||
United Kingdom |
| |||||||
Communication Services – 2.9% |
| |||||||
BT Group plc | 4,119 | 7,424 | ||||||
WPP Group plc | 1,063 | 11,519 | ||||||
|
| |||||||
18,943 | ||||||||
|
| |||||||
Consumer Discretionary – 1.3% |
| |||||||
Persimmon plc | 222 | 8,375 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Consumer Staples – 2.9% |
| |||||||
British American Tobacco plc | 233 | $ | 8,670 | |||||
Unilever plc | 173 | 10,355 | ||||||
|
| |||||||
19,025 | ||||||||
|
| |||||||
Energy – 0.8% |
| |||||||
Technip-Coflexip | 310 | 2,918 | ||||||
TechnipFMC plc (A) | 254 | 2,384 | ||||||
|
| |||||||
5,302 | ||||||||
|
| |||||||
Financials – 2.6% |
| |||||||
Legal & General Group plc | 3,505 | 12,774 | ||||||
Lloyds Banking Group plc | 6,939 | 3,460 | ||||||
|
| |||||||
16,234 | ||||||||
|
| |||||||
Health Care – 2.5% |
| |||||||
GlaxoSmithKline plc | 528 | 9,668 | ||||||
GlaxoSmithKline plc ADR | 180 | 6,608 | ||||||
|
| |||||||
16,276 | ||||||||
|
| |||||||
Information Technology – 1.2% |
| |||||||
Amdocs Ltd. | 109 | 7,727 | ||||||
|
| |||||||
Materials – 1.4% |
| |||||||
Anglo American plc | 277 | 9,139 | ||||||
|
| |||||||
Total United Kingdom – 15.6% |
| $ | 101,021 | |||||
TOTAL COMMON STOCKS – 94.1% |
| $ | 610,767 | |||||
(Cost: $547,236) |
| |||||||
INVESTMENT FUNDS | ||||||||
United States – 1.6% |
| |||||||
SPDR Gold Trust (A) | 59 | 10,472 | ||||||
|
| |||||||
TOTAL INVESTMENT FUNDS – 1.6% |
| $ | 10,472 | |||||
(Cost: $7,631) |
| |||||||
PREFERRED STOCKS |
| |||||||
Germany |
| |||||||
Consumer Discretionary – 1.3% |
| |||||||
Volkswagen AG, 2.260% | 47 | 8,776 | ||||||
|
| |||||||
Total Germany – 1.3% |
| $ | 8,776 | |||||
TOTAL PREFERRED STOCKS – 1.3% |
| $ | 8,776 | |||||
(Cost: $7,656) |
OTHER GOVERNMENT SECURITIES (C) | Principal | Value | ||||||
Norway – 1.2% |
| |||||||
Norway Government Bond 3.750%, 5-25-21 (D)(E) | NOK67,170 | $ | 7,942 | |||||
|
| |||||||
TOTAL OTHER GOVERNMENT |
| $ | 7,942 | |||||
(Cost: $7,588) | ||||||||
SHORT-TERM SECURITIES | Shares | |||||||
Money Market Funds (F) – 1.7% |
| |||||||
State Street Institutional U.S. Government Money Market Fund-Premier Class 0.030% | 8,144 | 8,144 | ||||||
Dreyfus Institutional Preferred Government Money Market Fund-Institutional Shares 0.030% (G) | 2,601 | 2,601 | ||||||
|
| |||||||
10,745 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 1.7% |
| $ | 10,745 | |||||
(Cost: $10,745) |
| |||||||
TOTAL INVESTMENT | $ | 648,702 | ||||||
(Cost: $580,856) |
| |||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% |
| 716 | ||||||
NET ASSETS – 100.0% |
| $ | 649,418 |
2020 | ANNUAL REPORT | 57 |
Table of Contents
SCHEDULE OF INVESTMENTS | INTERNATIONAL CORE EQUITY (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | All or a portion of securities with an aggregate value of $20,940 are on loan. |
(C) | Other Government Securities may include emerging markets sovereign, quasi-sovereign, corporate and supranational agency and organization debt securities. |
(D) | Principal amounts are denominated in the indicated foreign currency, where applicable (NOK – Norwegian Krone). |
(E) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $7,942 or 1.2% of net assets. |
(F) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(G) | Investment made with cash collateral received from securities on loan. |
The following forward foreign currency contracts were outstanding at December 31, 2020:
Currency to be Delivered | Currency to be Received | Settlement Date | Counterparty | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||||
U.S. Dollar | 37,424 | Japanese Yen | 3,934,529 | 1-14-21 | Deutsche Bank AG | $ | 685 | $ | — |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Communication Services | $ | — | $ | 45,720 | $ | — | ||||||
Consumer Discretionary | 15,584 | 58,905 | — | |||||||||
Consumer Staples | — | 68,054 | — | |||||||||
Energy | 17,524 | 21,551 | — | |||||||||
Financials | — | 84,154 | — | |||||||||
Health Care | 8,057 | 74,459 | — | |||||||||
Industrials | — | 107,686 | — | |||||||||
Information Technology | 7,727 | 40,609 | — | |||||||||
Materials | 7,900 | 26,187 | — | |||||||||
Real Estate | — | 16,012 | — | |||||||||
Utilities | — | 10,638 | — | |||||||||
Total Common Stocks | $ | 56,792 | $ | 553,975 | $ | — | ||||||
Investment Funds | 10,472 | — | — | |||||||||
Preferred Stocks | — | 8,776 | — | |||||||||
Other Government Securities | — | 7,942 | — | |||||||||
Short-Term Securities | 10,745 | — | — | |||||||||
Total | $ | 78,009 | $ | 570,693 | $ | — | ||||||
Forward Foreign Currency Contracts | $ | — | $ | 685 | $ | — |
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
Market Sector Diversification
(as a % of net assets) |
| |||
Industrials | 16.6% | |||
Financials | 13.0% | |||
Consumer Discretionary | 12.8% | |||
Health Care | 12.7% | |||
Consumer Staples | 10.5% | |||
Information Technology | 7.4% |
Market Sector Diversification (Continued)
Communication Services | 7.0% | |||
Materials | 6.9% | |||
Energy | 6.0% | |||
Real Estate | 2.5% | |||
Utilities | 1.6% | |||
Other Government Securities | 1.2% | |||
Other+ | 1.8% |
+ Includes cash and other assets (net of liabilities), and cash equivalents
See Accompanying Notes to Financial Statements.
58 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | MID CAP GROWTH |
(UNAUDITED)
Kimberly A. Scott
Nathan A. Brown
Below, Kimberly A. Scott, CFA, and Nathan A. Brown, CFA, co-portfolio managers of Ivy VIP Mid Cap Growth, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Ms. Scott has managed the Portfolio since its inception in 2005 and has 33 years of industry experience. Mr. Brown became co-portfolio manager in October 2016 and has 21 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Mid Cap Growth (Class II shares at net asset value) | 49.00% | |||
Benchmark and Morningstar Category | ||||
Russell Midcap Growth Index | 35.59% | |||
(generally reflects the performance of securities that represent the mid-cap sector of the stock market) | ||||
Morningstar Mid-Cap Growth Category Average | 39.26% | |||
(generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Mid-cap growth stocks, as represented by the Russell Midcap Growth Index, the portfolio’s benchmark, gained 35.59% for the 12-month period ended December 31, 2020. Ivy VIP Mid Cap Growth posted a 49.00% return for the measurement period, soundly beating the benchmark as well as the peer category average.
Contributors and detractors
During the measurement period, all sectors in the index and Portfolio posted positive returns, except for energy, which suffered from global shelter-in-place mandates. Sector overweight and underweight allocations were an overall detractor to the Portfolio’s relative performance to the benchmark; however, stock selection — the expected primary driver of returns for the strategy — more than made up for the negative performance, netting out to an overall outperformance for the portfolio of 14.87% during the time period measured.
The strongest sector contribution to relative outperformance where we had exposure came from information technology, followed by industrials, consumer discretionary, health care, financials, consumer staples and materials. Real estate was additive due to our lack of exposure to the underperforming sector. Detractors to performance where we had exposure came from energy and communication services and utilities by way of no holdings in a very small allocation within the index. Equity options detracted significantly from performance by way of exposure throughout the calendar year to portfolio insurance in lieu of raising excess cash. While there was tremendous uncertainty throughout the period due to significant macroeconomic disruptions, the market largely shrugged off the uncertainty and thus, the portfolio insurance was not needed. Cash, as would be expected in a strong market environment, while at the lower range of our historical norms, was also a drag on performance.
Information technology was the largest allocation and strongest relative contributor within the Portfolio for the measurement period. As the sector outperformed within the index, our underweight position detracted to relative outperformance while our stock selection more than offset the underweight as the strongest returns to the Portfolio. The top three relative contributors to performance were in the information technology sector: Twilio, Inc., DocuSign, Inc, and Square, Inc. Twilio, a company that provides cloud-based business communication consolidation and aggregation platform tools, posted a 241.26% gain to the Portfolio for the year as businesses increasingly look to communicate with customers across multiple platforms. DocuSign, a company that provides cloud-based electronic signature options, posted a 201.33% return to the Portfolio for the year. Our thesis for DocuSign revolves around a very large market of both contractual and internal approval processes that can be greatly enhanced with the company’s platform. Social distancing and work-from-home mandates provided an incremental tailwind to what we already believed to be a strong growth opportunity. Shelter-in-place mandates also benefitted e-commerce facilitation companies like Square, Inc., as consumers were still buying, but doing so from the comfort and isolation of their homes. Square is a credit card payment processing solutions company that helps businesses with an entire ecosystem of payment processing, not just at point of sale. Square posted a 247.89% gain to the Portfolio in 2020. As the year progressed, we remained actively engaged in monitoring valuation risk of these names and we have trimmed position sizes accordingly. We have taken gains in each name while maintaining exposure to what we deem to be strong business models. Coherent, Inc., a small allocation and standout underperformer in the Portfolio, was sold midyear as we grew concerned that growth was not accruing to the company as we had expected given what should have been a clear driver from organic light-emitting diode (OLED) smartphone screen adoption.
2020 | ANNUAL REPORT | 59 |
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Health care, the second largest sector in the Portfolio was a contributor by way of both allocation and stock selection during the year. DexCom, Inc., a leading app-based continuous glucose monitoring manufacturer serving diabetic patients, was a strong performer to the Portfolio as adoption of its more complete and less invasive Type II diabetes monitoring hardware and ecosystem ramped up. Abiomed, Inc. was a standout in 2020 as it announced Food and Drug Administration (FDA) approval of the first in-human trial of the company’s expandable cardiac power (ECP) heart pump, the world’s smallest heart pump.
Consumer discretionary was a third largest sector with the strong stock selection outweighing the slight negative relative contribution of the overweight to the sector. Standout performers for the period were Chipotle Mexican Grill, Inc., Tractor Supply Company and MercadoLibre, Inc. Chipotle, a top-three holding in the Portfolio, had another strong year despite the pandemic, leveraging the ongoing focus on its omnichannel presence as touchless dining become so important in 2020. While other restaurants closed, Chipotle was able to continue to operate at a respectable level, while announcing some needed store consolidation measures. Tractor Supply, a farm and ranch supply retailer, benefitted from home improvement projects brought on by shelter-in-place mandates as well as an internal initiative to optimize usage of each store’s side lots. MercadoLibre, an off-benchmark Central and South American focused e-commerce platform was also a standout for the period. We continue to hold Chipotle as a top holding in the Portfolio but have chosen to sell and take profit from both Tractor Supply and MercadoLibre as we felt the risk reward for potential growth at current valuations was too high.
Industrials, the fourth largest sector in the Portfolio as well as the largest overweight to the benchmark, was a drag on relative performance based on allocation but was the second highest overall contributor to relative performance due to stock selection, with standout holdings such as Trex Company, Inc. and CoStar Group, Inc. Trex, a market leader in composite decking solutions, benefitted from shelter-in-place mandates, as new work-from-home participants began to look around the house for projects they could undertake to improve their environment. CoStar Group is the leading provider of real estate data, analytics and marketplace listing platforms, including Apartments.com. It has a defensible franchise of mainly subscription-based revenue that continues to grow with solid management execution. Off-benchmark holding Middleby Corp. has been a disappointing detractor from overall performance on the year, but it rallied in the fourth quarter with news of two COVID-19 vaccines. Middleby designs and manufactures foodservice equipment and we are choosing to stay the course with the company because of its durable financials, strong management execution, desirable product set and long-term growth potential.
Overweight exposure to the financials sector had a small negative contribution to relative performance. Stock selection, however, more than offset the negative allocation effect. The benchmark is comprised of 23 small allocations in this sector, yet our exposure comes from two off-benchmark holdings, SVB Financial Group and First Republic Bank, and one significant overweight, MarketAxess Holdings, Inc. The standout for the Portfolio in the period was MarketAxess, a growing electronic trading platform for fixed-income securities.
Materials was a slight detractor to performance as an overweight position added to relative returns from stock selection. Strong performance came from Scotts Miracle-Gro Co., a lawn, garden and hydroponics provider, which continues to benefit from work-from-home trends. This strong performance was offset by underperforming Axalta Coating Systems, which we sold after struggling to assess the firm’s longer-term strategy coupled with a tough macroeconomic environment for coatings companies.
Communication services was again the largest relative detractor for the period. We continue to gain exposure to this sector through a total of two names, Twitter, Inc. and Electronic Arts, Inc. (which is not held in the benchmark). While both Twitter and Electronic Arts posted solid positive absolute results on the period and both were relative contributors to overall performance, it was our lack of exposure to names like Roku, Spotify and Pinterest that created the drag on overall relative performance.
Our one holding in the consumer staples sector, Hershey Foods Corp., underperformed the sector within the index for the period. The Portfolio was sufficiently underweight this solid returning sector, our allocation detracted and our stock selection was a push.
We continue to have no exposure to the real estate and utilities sectors, which are de minimis in the benchmark, and we eliminated our small exposure to the energy sector at midyear.
Market conditions and outlook
Outlooks are point-in-time assessments, a look at the future today, and as has been made abundantly clear over the past year, they exist to be challenged, rethought and rewritten. Still, outlooks are a useful tool for organizing thoughts, communicating expectations, and forcing a framework for actions should any need be taken. The abiding principles of our outlook in all that we do all year, every year, and not just at the beginning of the year, are that “well-valued stocks of
60 | ANNUAL REPORT | 2020 |
Table of Contents
companies with growing streams of cash flow derived from innovation and strong management execution are key to wealth creation;” “markets go up more than they go down,” and, outside of stock picking, “the outlook that matters most is the one that figures out when the broad corporate profit cycle is determinedly inflecting into or out of a recession.” We witnessed a serious pandemic-wrought corporate profit recession in 2020, one that few would have predicted as it was swiftly and steeply discounted by gobsmacked investors. The recovery, also not well predicted, was almost as swiftly and steeply discounted to a market upside that has broken records. We believe this may be indicating economic growth and prosperity beyond previous expectations as world economies emerge and heal from the impact of the pandemic, but also carried along by government stimulus and interest rate maneuvering. At the same time, impressive innovation in life sciences, business and consumer technology, green energy, and many other areas has captured the imagination of professional and retail investors alike, driving the valuations of many companies to dizzying levels. So where does this leave us? We offer a series of predictions:
• | World economies should continue to recover and grow as vaccine distributions allow them to emerge from the pandemic lockdowns. |
• | The strength of the recovery is overestimated as the underlying economic damage may be deeper than we appreciate. |
• | This will be a year where the market takes a breather to digest the spectacular gains and sturdy valuations achieved over the last half of 2020. |
• | Return compositions will be such that some stocks perform quite well as many companies regain earnings power in a broad economic recovery, while stocks of companies that over earned during the pandemic struggle to appreciate further or even give up some value. |
• | Many technology and health care companies will experience a soft spot in demand in 2021 after a surprisingly robust 2020. Stock valuations could be at risk as a result. |
• | Inflation and interest rate expectations will be too low as a result of persistent supply chain disruptions related to the lockdowns and to a strong generational demand for housing in an under-inventoried market. |
• | The Federal Reserve will continue to be supportive, but could possibly lag in its response to demand, inflation and interest rate pressures. |
While stock picking is always key to our process and performance, it will be paramount in this environment as we seek to manage valuation risk in the Portfolio, while investing in durable growers, both secularly and cyclically.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more-established companies. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. The use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Portfolio’s value and the risk that fluctuations in the value of the derivatives may not correlate exactly with the corresponding securities markets or the underlying asset upon which the derivative’s value is based. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Mid Cap Growth.
2020 | ANNUAL REPORT | 61 |
Table of Contents
PORTFOLIO HIGHLIGHTS | MID CAP GROWTH |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 96.2% | |||
Information Technology | 31.7% | |||
Health Care | 21.6% | |||
Industrials | 15.6% | |||
Consumer Discretionary | 12.2% | |||
Financials | 6.6% | |||
Communication Services | 4.2% | |||
Materials | 3.1% | |||
Consumer Staples | 1.2% | |||
Purchased Options | 0.1% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 3.7% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
CoStar Group, Inc. | Industrials | Research & Consulting Services | ||
Chipotle Mexican Grill, Inc., Class A | Consumer Discretionary | Restaurants | ||
MarketAxess Holdings, Inc. | Financials | Financial Exchanges & Data | ||
Twilio, Inc., Class A | Information Technology | Internet Services & Infrastructure | ||
Electronic Arts, Inc. | Communication Services | Interactive Home Entertainment | ||
Monolithic Power Systems, Inc. | Information Technology | Semiconductors | ||
DocuSign, Inc. | Information Technology | Application Software | ||
Teradyne, Inc. | Information Technology | Semiconductor Equipment | ||
DexCom, Inc. | Health Care | Health Care Equipment | ||
Fastenal Co. | Industrials | Trading Companies & Distributors |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
62 | ANNUAL REPORT | 2020 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | MID CAP GROWTH |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class I | Class II | ||||||
1-year period ended 12-31-20 | 49.37% | 49.00% | ||||||
5-year period ended 12-31-20 | — | 22.57% | ||||||
10-year period ended 12-31-20 | — | 15.22% | ||||||
Since Inception of Class through 12-31-20(3) | 27.03% | — |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 4-28-17 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 63 |
Table of Contents
SCHEDULE OF INVESTMENTS | MID CAP GROWTH (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services | ||||||||
Interactive Home Entertainment – 2.7% |
| |||||||
Electronic Arts, Inc. | 131 | $ | 18,778 | |||||
|
| |||||||
Interactive Media & Services – 1.5% | ||||||||
Twitter, Inc. (A) | 185 | 10,014 | ||||||
|
| |||||||
Total Communication Services – 4.2% |
| 28,792 | ||||||
Consumer Discretionary | ||||||||
Apparel, Accessories & Luxury Goods – 2.0% |
| |||||||
Canada Goose Holdings, Inc. (A)(B) | 208 | 6,184 | ||||||
lululemon athletica, Inc. (A) | 22 | 7,818 | ||||||
|
| |||||||
14,002 | ||||||||
|
| |||||||
Auto Parts & Equipment – 1.4% | ||||||||
BorgWarner, Inc. | 250 | 9,650 | ||||||
|
| |||||||
Department Stores – 0.6% | ||||||||
Nordstrom, Inc. (B) | 119 | 3,710 | ||||||
|
| |||||||
General Merchandise Stores – 1.8% | ||||||||
Dollar Tree, Inc. (A) | 80 | 8,640 | ||||||
Ollie’s Bargain Outlet Holdings, | 46 | 3,782 | ||||||
|
| |||||||
12,422 | ||||||||
|
| |||||||
Restaurants – 3.3% | ||||||||
Chipotle Mexican Grill, Inc., | 16 | 22,687 | ||||||
|
| |||||||
Specialty Stores – 3.1% | ||||||||
National Vision Holdings, Inc. (A) | 171 | 7,749 | ||||||
Ulta Beauty, Inc. (A) | 48 | 13,670 | ||||||
|
| |||||||
21,419 | ||||||||
|
| |||||||
Total Consumer Discretionary – 12.2% |
| 83,890 | ||||||
Consumer Staples | ||||||||
Packaged Foods & Meats – 1.2% | ||||||||
Hershey Foods Corp. | 54 | 8,285 | ||||||
|
| |||||||
Total Consumer Staples – 1.2% | 8,285 | |||||||
Financials | ||||||||
Financial Exchanges & Data – 2.9% | ||||||||
MarketAxess Holdings, Inc. | 34 | 19,601 | ||||||
|
| |||||||
Regional Banks – 3.7% | ||||||||
First Republic Bank | 85 | 12,529 | ||||||
SVB Financial Group (A) | 34 | 13,137 | ||||||
|
| |||||||
25,666 | ||||||||
|
| |||||||
Total Financials – 6.6% | 45,267 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Health Care | ||||||||
Biotechnology – 2.7% | ||||||||
Genmab A.S. ADR (A) | 195 | $ | 7,944 | |||||
Seattle Genetics, Inc. (A) | 61 | 10,606 | ||||||
|
| |||||||
18,550 | ||||||||
|
| |||||||
Health Care Equipment – 10.5% | ||||||||
Abiomed, Inc. (A) | 42 | 13,541 | ||||||
DexCom, Inc. (A) | 44 | 16,114 | ||||||
Edwards Lifesciences Corp. (A) | 116 | 10,550 | ||||||
Envista Holdings Corp. (A) | 238 | 8,031 | ||||||
Glaukos Corp. (A) | 89 | 6,684 | ||||||
Intuitive Surgical, Inc. (A) | 14 | 11,172 | ||||||
Masimo Corp. (A) | 24 | 6,559 | ||||||
|
| |||||||
72,651 | ||||||||
|
| |||||||
Health Care Services – 1.4% | ||||||||
Laboratory Corp. of America | 48 | 9,672 | ||||||
|
| |||||||
Health Care Supplies – 0.9% | ||||||||
Align Technology, Inc. (A) | 11 | 6,115 | ||||||
|
| |||||||
Health Care Technology – 2.7% | ||||||||
Cerner Corp. | 143 | 11,243 | ||||||
Teladoc Health, Inc. (A) | 36 | 7,148 | ||||||
|
| |||||||
18,391 | ||||||||
|
| |||||||
Life Sciences Tools & Services – 3.4% |
| |||||||
10x Genomics, Inc., Class A (A) | 27 | 3,839 | ||||||
Agilent Technologies, Inc. | 72 | 8,473 | ||||||
Maravai LifeSciences Holdings, Inc., Class A (A) | 147 | 4,112 | ||||||
TECHNE Corp. | 23 | 7,320 | ||||||
|
| |||||||
23,744 | ||||||||
|
| |||||||
Total Health Care – 21.6% | 149,123 | |||||||
Industrials | ||||||||
Building Products – 4.4% | ||||||||
A. O. Smith Corp. | 189 | 10,341 | ||||||
Trane Technologies plc | 54 | 7,769 | ||||||
Trex Co., Inc. (A) | 144 | 12,078 | ||||||
|
| |||||||
30,188 | ||||||||
|
| |||||||
Industrial Machinery – 3.5% | ||||||||
IDEX Corp. | 52 | 10,335 | ||||||
Middleby Corp. (A) | 108 | 13,928 | ||||||
|
| |||||||
24,263 | ||||||||
|
| |||||||
Research & Consulting Services – 5.5% |
| |||||||
CoStar Group, Inc. (A) | 26 | 23,629 | ||||||
TransUnion | 147 | 14,592 | ||||||
|
| |||||||
38,221 | ||||||||
|
| |||||||
Trading Companies & Distributors – 2.2% |
| |||||||
Fastenal Co. | 304 | 14,860 | ||||||
|
| |||||||
Total Industrials – 15.6% | 107,532 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Information Technology | ||||||||
Application Software – 8.4% | ||||||||
DocuSign, Inc. (A) | 78 | $ | 17,263 | |||||
Guidewire Software, Inc. (A) | 96 | 12,314 | ||||||
Paycom Software, Inc. (A) | 18 | 8,003 | ||||||
Tyler Technologies, Inc. (A) | 26 | 11,398 | ||||||
Zendesk, Inc. (A) | 61 | 8,720 | ||||||
|
| |||||||
57,698 | ||||||||
|
| |||||||
Communications Equipment – 1.5% | ||||||||
Arista Networks, Inc. (A) | 37 | 10,656 | ||||||
|
| |||||||
Data Processing & Outsourced Services – 1.1% | ||||||||
Square, Inc., Class A (A) | 35 | 7,616 | ||||||
|
| |||||||
Electronic Components – 1.7% | ||||||||
II-VI, Inc. (A) | 157 | 11,896 | ||||||
|
| |||||||
Electronic Equipment & Instruments – 2.6% |
| |||||||
Keysight Technologies, Inc. (A) | 106 | 13,944 | ||||||
Novanta, Inc. (A) | 33 | 3,930 | ||||||
|
| |||||||
17,874 | ||||||||
|
| |||||||
Internet Services & Infrastructure – 2.8% |
| |||||||
Twilio, Inc., Class A (A) | 56 | 19,041 | ||||||
|
| |||||||
Semiconductor Equipment – 3.2% | ||||||||
Brooks Automation, Inc. | 82 | 5,550 | ||||||
Teradyne, Inc. | 141 | 16,845 | ||||||
|
| |||||||
22,395 | ||||||||
|
| |||||||
Semiconductors – 7.4% | ||||||||
Marvell Technology Group Ltd. | 198 | 9,392 | ||||||
Microchip Technology, Inc. | 96 | 13,301 | ||||||
Monolithic Power Systems, Inc. | 50 | 18,171 | ||||||
Universal Display Corp. | 43 | 9,991 | ||||||
|
| |||||||
50,855 | ||||||||
|
| |||||||
Systems Software – 3.0% | ||||||||
CrowdStrike Holdings, Inc., | 52 | 11,034 | ||||||
Palo Alto Networks, Inc. (A) | 26 | 9,414 | ||||||
|
| |||||||
20,448 | ||||||||
|
| |||||||
Total Information Technology – 31.7% |
| 218,479 | ||||||
Materials | ||||||||
Fertilizers & Agricultural Chemicals – 1.7% |
| |||||||
Scotts Miracle-Gro Co. (The) | 59 | 11,691 | ||||||
|
| |||||||
Specialty Chemicals – 1.4% | ||||||||
RPM International, Inc. | 108 | 9,773 | ||||||
|
| |||||||
Total Materials – 3.1% | 21,464 | |||||||
TOTAL COMMON STOCKS – 96.2% | $ | 662,832 | ||||||
(Cost: $367,990) |
64 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | MID CAP GROWTH (in thousands) |
DECEMBER 31, 2020
PURCHASED OPTIONS | Number of Contracts (Unrounded) | Notional Amount | Value | |||||||||
Invesco QQQ Trust, | ||||||||||||
Put $300.00, Expires 1-15-21, OTC (Ctrpty: JPMorgan Chase Bank N.A.) | 1,743 | 174 | $ | 400 | ||||||||
iShares Russell 2000 ETF, | ||||||||||||
Put $188.00, Expires 1-15-21, OTC (Ctrpty: Citibank N.A.) | 619 | 62 | 121 | |||||||||
Marvell Technology Group Ltd., | ||||||||||||
Call $45.00, Expires 1-15-21, OTC (Ctrpty: JPMorgan Chase Bank N.A.) | 687 | 69 | 222 | |||||||||
SPDR S&P MidCap 400 ETF Trust: | ||||||||||||
Put $400.00, Expires 1-15-21, OTC (Ctrpty: Citibank N.A.) | 649 | 65 | 123 | |||||||||
Put $405.00, Expires 1-15-21, OTC (Ctrpty: Citibank N.A.) | 650 | 65 | 195 | |||||||||
Twitter, Inc., | ||||||||||||
Call $54.00, Expires 1-22-21, OTC (Ctrpty: Citibank N.A.) | 918 | 92 | 213 | |||||||||
TOTAL PURCHASED OPTIONS – 0.1% |
| $ | 1,274 | |||||||||
(Cost: $2,291) |
|
SHORT-TERM SECURITIES | Shares | Value | ||||||||||
Money Market Funds(D) – 4.3% |
| |||||||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares, 0.030% (C) |
| 4,040 | $ | 4,040 | ||||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% |
| 25,397 | 25,397 | |||||||||
|
| |||||||||||
29,437 | ||||||||||||
|
| |||||||||||
TOTAL SHORT-TERM SECURITIES – 4.3% |
| $ | 29,437 | |||||||||
(Cost: $29,437) |
| |||||||||||
TOTAL INVESTMENT |
| $ | 693,543 | |||||||||
(Cost: $399,718) |
| |||||||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – (0.6)% |
| (3,984 | ) | |||||||||
NET ASSETS – 100.0% |
| $ | 689,559 |
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | All or a portion of securities with an aggregate value of $7,018 are on loan. |
(C) | Investment made with cash collateral received from securities on loan. |
(D) | Rate shown is the annualized 7-day yield at December 31, 2020. |
2020 | ANNUAL REPORT | 65 |
Table of Contents
SCHEDULE OF INVESTMENTS | MID CAP GROWTH (in thousands) |
DECEMBER 31, 2020
The following written options were outstanding at December 31, 2020 (contracts and exercise prices unrounded):
Underlying Security | Counterparty, if OTC | Type | Number of Contracts | Notional Amount | Expiration Month | Exercise Price | Premium Received | Value | ||||||||||||||||||||
Invesco QQQ Trust | JPMorgan Chase Bank N.A. | Put | 1,743 | 174 | January 2021 | $ | 262.00 | $ | 145 | $ | (34 | ) | ||||||||||||||||
iShares Russell 2000 ETF | Citibank N.A. | Put | 619 | 62 | January 2021 | 164.00 | 36 | (10 | ) | |||||||||||||||||||
Marvell Technology Group Ltd. | JPMorgan Chase Bank N.A. | Put | 687 | 69 | January 2021 | 35.00 | 134 | (6 | ) | |||||||||||||||||||
JPMorgan Chase Bank N.A. | Call | 687 | 69 | January 2021 | 55.00 | 31 | (9 | ) | ||||||||||||||||||||
SPDR S&P MidCap 400 ETF Trust | Citibank N.A. | Put | 1,299 | 130 | January 2021 | 355.00 | 91 | (45 | ) | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | 437 | $ | (104 | ) | ||||||||||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 662,832 | $ | — | $ | — | ||||||
Purchased Options | — | 1,274 | — | |||||||||
Short-Term Securities | 29,437 | — | — | |||||||||
Total | $ | 692,269 | $ | 1,274 | $ | — | ||||||
Liabilities | ||||||||||||
Written Options | $ | — | $ | 104 | $ | — |
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
OTC = Over the Counter
See Accompanying Notes to Financial Statements.
66 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | NATURAL RESOURCES |
(UNAUDITED)
David P. Ginther
Michael T. Wolverton
Below, David P. Ginther, CPA, and Michael T. Wolverton, CFA, portfolio managers of Ivy VIP Natural Resources, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Ginther has managed the Portfolio since 2013 and has 25 years of industry experience. Mr. Wolverton has managed the Portfolio since 2016 and has 16 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Natural Resources (Class II shares at net asset value) | -11.99% | |||
Benchmark and Morningstar Category | ||||
S&P North American Natural Resources Sector Index | -19.01% | |||
(generally reflects the performance of the energy and materials stocks in North America) | ||||
Morningstar Natural Resources Category Average | 16.37% | |||
(generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Energy continued to lag
No other area of the market has struggled as much as energy over the past several years, and 2020 was no exception. Energy was the worst performing sector of the market, and this was the fourth straight year of underperformance versus the broader market. The sector continued to face an array of short- and long-term headwinds that contributed to this negative performance. The most significant issue was the loss of demand triggered by the COVID-19 pandemic. Perhaps no industry was harder hit than energy. The work-from-home explosion and the subsequent decline in personal and business travel caused a severe downturn in oil demand, resulting in a significantly oversupplied market. Amazingly, the price of oil even went negative for a brief period of time due to lack of available storage; a truly unprecedented event. As the year progressed, the price of oil recovered to around the marginal cost of supply as demand recovered. However, oil demand exited 2020 still below pre-pandemic levels. After a very volatile year, the price of oil ended at around $48 per barrel after entering 2020 around $61 per barrel.
On the supply side, the industry spent much of the calendar year reducing production, while also reducing capital spending and headcount. In short, companies went into survival mode, and consolidation began to take place with several mergers. A number of companies did not survive and filed for bankruptcy. OPEC did its part by reducing supply by 10 million barrels per day in April. Lastly, many refineries chose to permanently close in order to rationalize supply of oil products. All of these actions helped stabilize the market, but excess supply capacity still remains.
Outside of the pandemic issues, the energy industry also continued to face headwinds from longer-term uncertainty. Namely, the push by governments around the world to reduce carbon emissions has put a target on the back of fossil fuel energy producers. The increase in energy production from renewable sources continued to progress in 2020, taking share from traditional fossil fuels. This energy transition remains a threat to future price and volume for many energy companies.
The materials sector fared much better than energy, even outperforming the broader market. Precious metals were a big contributor to this performance. Deflationary conditions and falling bond yields provided a strong environment for gold and other precious metals equities to perform well. In other areas, copper and iron ore prices appreciated as emerging market demand held strong and supply chains were disrupted by the pandemic. In addition, various specialty chemical companies and packaging companies saw strong demand from the stay-at-home trend.
Portfolio positioning
The Portfolio had a negative return for the measurement period but outperformed its benchmark, the S&P North American Natural Resources Sector Index, while underperforming its category average. The Portfolio held an underweight position to the energy sector and overweight position to the materials sector compared to its benchmark. The Portfolio averaged about 34% energy exposure for the year, with the remainder in materials. This energy weighting was reduced materially from the previous 2019 measurement period.
2020 | ANNUAL REPORT | 67 |
Table of Contents
Globally, the energy sector significantly underperformed the materials sector during 2020, with energy significantly underperforming the overall market and materials slightly outperforming the overall market. Generally, more defensive names outperformed in energy, as did companies with high-quality balance sheets. Overweight positions in alternative energy, other metals, railroads, chemicals and utilities contributed to positive relative performance. Underweight positions in several energy sub-sectors also contributed to positive relative performance. Contributions to negative relative performance included an overweight position in refining and underweight positions in precious metals, construction materials, packaging and forest products.
The Portfolio’s five greatest contributors to performance relative to the benchmark in the measurement period were an underweight position in Exxon Mobil Corp. and overweight positions in Enphase Energy, Inc., Rio Tinto plc, Southern Copper Corp. and Canadian Pacific Railway Ltd. Exxon is not a holding of the Portfolio.
The five greatest relative detractors were Newmont Corp., Freeport-McMoRan Inc., Halliburton Co., Franco-Nevada Corp. and Williams Companies Inc. Freeport-McMoRan Inc., Halliburton Co. and Williams Companies, Inc. are no longer holdings.
The return to normalization or a new normal?
Since the announcement of COVID-19 vaccines, energy equities have rebounded strongly. Despite that move, energy equities remain far below pre-pandemic levels. We believe the path forward in 2021 will depend on supply restraint from energy companies/OPEC, as well as the pace of demand recovery.
With regard to demand, we expect leisure travel will recover and resume growth throughout the coming year. We also expect many more businesses will resume on-premise work arrangements, which would improve work commute travel demand. It remains unclear if employers will permanently embrace work from home for employees, but it seems reasonable that at least some percentage of workers going forward will be working from home rather than commuting. Even with sequentially improving demand recovery, we think getting back to pre-pandemic demand levels is likely a second half of 2021 or 2022 event.
On the supply side, U.S. oil production is forecasted to be lower in 2021. OPEC production is also expected to be down from the previous year but will likely be increasing sequentially throughout 2021 as demand recovers. Overall, reduced capacity and consolidation by energy companies should help regulate supply increases. In addition, energy companies are under considerable pressure from investors to not spend free cash flow on additional growth. As oil prices improve, it is unknown whether these companies will maintain discipline, but we believe that it is a necessary condition in order to be rewarded by investors. We will focus on increasing positions in the energy space with companies that maintain discipline and focus on returns over growth.
From a macroeconomic level, the outlook for the natural resource space is improving. After facing crippling deflation for most of 2020, the economic backdrop has shifted to reflation. Historically, this has been positive for commodity demand and prices. The highest demand growth for commodities is mostly driven by emerging markets. This makes commodity prices dependent on currency movements, particularly in the U.S. dollar. Government stimulus remains high as the world digs out from slower economic growth and high-debt levels. This could continue to put more downward pressure on the U.S. dollar, which would likely be supportive for emerging market and commodity demand. Many governments have signaled a desire for higher inflation and will implement policies to encourage that to happen. If successful, we believe natural resource equities are positioned well to see improved performance in the coming year. The Portfolio is focusing on companies across the natural resources landscape that we think can deliver above market returns on capital, with disciplined capital allocation and strong balance sheets.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations.
International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets.
68 | ANNUAL REPORT | 2020 |
Table of Contents
Commodity trading, including trading in precious metals, is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Natural Resources.
2020 | ANNUAL REPORT | 69 |
Table of Contents
PORTFOLIO HIGHLIGHTS | NATURAL RESOURCES |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 98.7% | |||
Materials | 44.5% | |||
Energy | 36.4% | |||
Industrials | 8.1% | |||
Consumer Staples | 4.2% | |||
Utilities | 3.8% | |||
Information Technology | 1.7% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 1.3% |
Country Weightings
North America | 76.1% | |||
United States | 62.9% | |||
Canada | 13.2% | |||
Europe | 13.7% | |||
United Kingdom | 6.5% | |||
France | 4.6% | |||
Other Europe | 2.6% | |||
Pacific Basin | 6.0% | |||
Other | 1.6% | |||
South America | 1.3% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 1.3% |
Top 10 Equity Holdings
Company | Country | Sector | Industry | |||
Phillips 66 | United States | Energy | Oil & Gas Refining & Marketing | |||
Rio Tinto plc | United Kingdom | Materials | Diversified Metals & Mining | |||
BHP Group plc | Australia | Materials | Diversified Metals & Mining | |||
Barrick Gold Corp. | Canada | Materials | Gold | |||
EOG Resources, Inc. | United States | Energy | Oil & Gas Exploration & Production | |||
Total S.A. ADR | France | Energy | Integrated Oil & Gas | |||
Reliance Industries Ltd. | India | Energy | Oil & Gas Refining & Marketing | |||
Canadian Pacific Railway Ltd. | Canada | Industrials | Railroads | |||
Union Pacific Corp. | United States | Industrials | Railroads | |||
Valero Energy Corp. | United States | Energy | Oil & Gas Refining & Marketing |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
70 | ANNUAL REPORT | 2020 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | NATURAL RESOURCES |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | -11.99% | |||
5-year period ended 12-31-20 | -1.17% | |||
10-year period ended 12-31-20 | -5.82% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 71 |
Table of Contents
SCHEDULE OF INVESTMENTS | NATURAL RESOURCES (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Australia |
| |||||||
Materials – 3.2% |
| |||||||
BHP Group plc | 90 | $ | 2,386 | |||||
|
| |||||||
Total Australia – 3.2% |
| $ | 2,386 | |||||
Brazil |
| |||||||
Energy – 1.3% |
| |||||||
Petroleo Brasileiro S.A. – Petrobras ADR | 83 | 935 | ||||||
|
| |||||||
Total Brazil – 1.3% |
| $ | 935 | |||||
Canada |
| |||||||
Energy – 1.7% |
| |||||||
Cameco Corp. | 20 | 264 | ||||||
Canadian Natural Resources Ltd. | 39 | 937 | ||||||
|
| |||||||
1,201 | ||||||||
|
| |||||||
Industrials – 2.8% |
| |||||||
Canadian Pacific Railway Ltd. | 6 | 2,047 | ||||||
|
| |||||||
Materials – 8.7% |
| |||||||
Agnico-Eagle Mines Ltd. | 14 | 978 | ||||||
Barrick Gold Corp. | 98 | 2,236 | ||||||
Franco-Nevada Corp. | 14 | 1,814 | ||||||
Kirkland Lake Gold Ltd. | 9 | 366 | ||||||
Wheaton Precious Metals Corp. | 27 | 1,125 | ||||||
|
| |||||||
6,519 | ||||||||
|
| |||||||
Total Canada – 13.2% |
| $ | 9,767 | |||||
France |
| |||||||
Energy – 2.8% |
| |||||||
Total S.A. ADR | 50 | 2,114 | ||||||
|
| |||||||
Materials – 1.8% |
| |||||||
L Air Liquide S.A. | 8 | 1,318 | ||||||
|
| |||||||
Total France – 4.6% |
| $ | 3,432 | |||||
Germany |
| |||||||
Utilities – 1.1% |
| |||||||
RWE Aktiengesellschaft | 19 | 813 | ||||||
|
| |||||||
Total Germany – 1.1% |
| $ | 813 | |||||
Hong Kong |
| |||||||
Materials – 0.0% |
| |||||||
China Metal Recycling (Holdings) | 1,900 | — | * | |||||
|
| |||||||
Total Hong Kong – 0.0% |
| $ | — | * | ||||
India |
| |||||||
Energy – 2.8% |
| |||||||
Reliance Industries Ltd. | 80 | 2,124 | ||||||
|
| |||||||
Total India – 2.8% |
| $ | 2,124 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Portugal |
| |||||||
Energy – 1.5% |
| |||||||
Galp Energia SGPS S.A., Class B | 106 | $ | 1,118 | |||||
|
| |||||||
Total Portugal – 1.5% |
| $ | 1,118 | |||||
South Africa |
| |||||||
Materials – 1.6% |
| |||||||
Mondi plc | 52 | 1,208 | ||||||
|
| |||||||
Total South Africa – 1.6% |
| $ | 1,208 | |||||
United Kingdom |
| |||||||
Materials – 6.5% |
| |||||||
Anglo American plc | 39 | 1,304 | ||||||
Croda International plc | 14 | 1,223 | ||||||
Rio Tinto plc | 32 | 2,397 | ||||||
|
| |||||||
4,924 | ||||||||
|
| |||||||
Total United Kingdom – 6.5% |
| $ | 4,924 | |||||
United States |
| |||||||
Consumer Staples – 4.2% |
| |||||||
Bunge Ltd. | 25 | 1,622 | ||||||
Tyson Foods, Inc. | 23 | 1,497 | ||||||
|
| |||||||
3,119 | ||||||||
|
| |||||||
Energy – 26.3% |
| |||||||
Cabot Oil & Gas Corp. | 75 | 1,226 | ||||||
Chevron Corp. | 20 | 1,675 | ||||||
Concho Resources, Inc. | 25 | 1,473 | ||||||
Diamondback Energy, Inc. | 33 | 1,587 | ||||||
Enterprise Products Partners L.P. | 75 | 1,472 | ||||||
EOG Resources, Inc. | 43 | 2,140 | ||||||
Magellan Midstream Partners L.P. | 31 | 1,325 | ||||||
Marathon Petroleum Corp. | 37 | 1,511 | ||||||
Parsley Energy, Inc., Class A | 106 | 1,501 | ||||||
Phillips 66 | 43 | 2,976 | ||||||
Schlumberger Ltd. | 41 | 889 | ||||||
Valero Energy Corp. | 34 | 1,946 | ||||||
|
| |||||||
19,721 | ||||||||
|
| |||||||
Industrials – 5.3% |
| |||||||
Union Pacific Corp. | 10 | 2,025 | ||||||
Waste Management, Inc. | 13 | 1,563 | ||||||
Xylem, Inc. | 4 | 390 | ||||||
|
| |||||||
3,978 | ||||||||
|
| |||||||
Information Technology – 1.7% |
| |||||||
Enphase Energy, Inc. (A) | 7 | 1,298 | ||||||
|
| |||||||
Materials – 22.7% |
| |||||||
Air Products and Chemicals, Inc. | 6 | 1,541 | ||||||
Albemarle Corp. | 5 | 711 | ||||||
AptarGroup, Inc. | 7 | 972 | ||||||
Avery Dennison Corp. | 10 | 1,527 | ||||||
Ball Corp. | 14 | 1,348 | ||||||
Ecolab, Inc. | 5 | 1,085 | ||||||
FMC Corp. | 14 | 1,606 | ||||||
Newmont Corp. | 13 | 773 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Materials – (Continued) |
| |||||||
Packaging Corp. of America | 11 | $ | 1,509 | |||||
PPG Industries, Inc. | 9 | 1,304 | ||||||
Scotts Miracle-Gro Co. (The) | 2 | 387 | ||||||
Sherwin-Williams Co. (The) | 2 | 1,554 | ||||||
Southern Copper Corp. | 30 | 1,935 | ||||||
Steel Dynamics, Inc. | 20 | 727 | ||||||
|
| |||||||
16,979 | ||||||||
|
| |||||||
Utilities – 2.7% |
| |||||||
American Water Works Co., Inc. | 4 | 658 | ||||||
NextEra Energy, Inc. | 18 | 1,401 | ||||||
|
| |||||||
2,059 | ||||||||
|
| |||||||
Total United States – 62.9% |
| $ | 47,154 | |||||
TOTAL COMMON STOCKS – 98.7% |
| $ | 73,861 | |||||
(Cost: $77,365) |
| |||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (C) – 1.8% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class 0.030% | 1,370 | 1,370 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 1.8% |
| $ | 1,370 | |||||
(Cost: $1,370) |
| |||||||
TOTAL INVESTMENT SECURITIES – 100.5% |
| $ | 75,231 | |||||
(Cost: $78,735) |
| |||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS (D) – (0.5)% |
| (409 | ) | |||||
NET ASSETS – 100.0% |
| $ | 74,822 |
72 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | NATURAL RESOURCES (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | No dividends were paid during the preceding 12 months. |
(B) | Securities whose value was determined using significant unobservable inputs. |
(C) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(D) | Cash of $310 has been pledged as collateral on OTC forward foreign currency contracts. |
The following forward foreign currency contracts were outstanding at December 31, 2020:
Currency to be Delivered | Currency to be Received | Settlement Date | Counterparty | Unrealized Appreciation | Unrealized Depreciation | |||||||||||||||||||||||
Euro | 3,532 | U.S. Dollar | 4,177 | 1-14-21 | Morgan Stanley International | $ | — | $ | 139 | |||||||||||||||||||
British Pound | 5,202 | U.S. Dollar | 6,782 | 1-14-21 | UBS AG | — | 333 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | — | $ | 472 | |||||||||||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Consumer Staples | $ | 3,119 | $ | — | $ | — | ||||||
Energy | 23,971 | 3,242 | — | |||||||||
Industrials | 6,025 | — | — | |||||||||
Information Technology | 1,298 | — | — | |||||||||
Materials | 23,498 | 9,836 | — | * | ||||||||
Utilities | 2,059 | 813 | — | |||||||||
Total Common Stocks | $ | 59,970 | $ | 13,891 | $ | — | * | |||||
Short-Term Securities | 1,370 | — | — | |||||||||
Total | $ | 61,340 | $ | 13,891 | $ | — | * | |||||
Liabilities | ||||||||||||
Forward Foreign Currency Contracts | $ | — | $ | 472 | $ | — |
During the year ended December 31, 2020, there were no transfers in or out of Level 3.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
OTC = Over the Counter
Market Sector Diversification
(as a % of net assets) |
| |||
Materials | 44.5% | |||
Energy | 36.4% | |||
Industrials | 8.1% | |||
Consumer Staples | 4.2% | |||
Utilities | 3.8% | |||
Information Technology | 1.7% | |||
Other+ | 1.3% |
+ Includes liabilities (net of cash and other assets), and cash equivalents
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 73 |
Table of Contents
MANAGEMENT DISCUSSION | SCIENCE AND TECHNOLOGY |
(UNAUDITED)
Zachary H. Shafran
Bradley J. Warden
Below, Zachary Shafran and Bradley Warden, portfolio managers of Ivy VIP Science and Technology, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Shafran has managed the Portfolio since 2001 and has 32 years of industry experience. Mr. Warden was named portfolio manager in October 2016 and was previously an assistant portfolio manager on the Portfolio since 2014. He has 23 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Science and Technology (Class II) | 35.36% | |||
Benchmark(s) and Morningstar Category | ||||
S&P North American Technology Sector Index | 45.15% | |||
(generally reflects the performance of U.S. science and technology stocks) | ||||
Morningstar Technology Category Average | 55.91% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
An unprecedented year
Fiscal year 2020 was historic in virtually every way possible. The COVID-19 pandemic consumed our lives and drove innovation across the globe as we were forced to adapt, virtually overnight, to entirely different social, work and education environments. Portions of the economy shuttered, while other areas thrived in this new reality. In spite of COVID-19’s tragic consequences and economic shutdowns, the equity and fixed-income markets proved resilient and gained strength through the year. This strength may largely be attributed to extremely accommodative financial policies, including direct stimulus payments, along with technological innovation that made it possible to continue commerce.
As the pandemic hit in the first quarter of 2020, coordinated fiscal and monetary policies caused a V-shaped recovery in financial markets. Despite millions of job losses and drastic economic hits, the markets responded favorably due to all-time low interest rates and Federal Reserve (Fed) policy that promised easy monetary policy far into the future, even beyond signs of improvement. With a low rate environment and technology-enabling companies at the forefront, growth stocks continued to pace the market.
Globally, the U.S.-China relationship remained tense, with the U.S. government eventually adding more Chinese companies to its black list, as entities of the Chinese government. Within technology, the U.S. prohibited semiconductor and other suppliers from selling to China’s Huawei Technologies on grounds of national security and intellectual property theft. Additionally, the Trump administration blamed China for the COVID-19 virus pandemic, further straining the relationship between the countries.
Divisive politics were pervasive over the course of 2020. President Donald Trump found himself at the center of controversy regarding his administration’s handling of the COVID-19 pandemic, along with the country’s various responses to virus hot-spots. The country was prepared for an ugly election season, but the runoffs in Georgia’s Senate elections and the president’s consistent claim that the election was stolen created new levels of political dissent. The market continued its advance following the election of Joe Biden, and although the Senate went Democratic following the runoff, the majority is razor thin and the market consensus, for the time being, is that any extremely progressive tax policies remain off the table.
Within a massive pandemic, global tensions, and a toxic political environment, technology saw incredible amounts of innovation. A vaccine was developed within a month of sequencing the COVID-19 virus and approved globally within a year — an unprecedented accomplishment. Many companies went immediately to a work-from-home mandate to protect their workers and, despite some early challenges, most companies recognized the change was not nearly as disruptive as expected. Companies like Zoom Video Communications, Inc., Amazon, Inc. and DoorDash, Inc. became critical to daily work and school. In essence, many innovative tools saw accelerated adoption as a result of the pandemic, changing not only how we currently operate on a daily basis, but altering the path of the future. The ability to adapt to an unforeseen circumstance and thrive continues to be the promise of innovation and technology.
During the fiscal year, information technology stocks performed well with the Portfolio’s benchmark advancing 45.2%. Within information technology, the internet, software, and semiconductor subsectors made significant positive contributions to performance. In addition to these subsectors, other areas like hardware and interactive media added positively, illustrating the broad market strength across the technology sector.
74 | ANNUAL REPORT | 2020 |
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On the health care front, company stocks that benefited from the COVID-19 pandemic saw significant stock price appreciation. The U.S. presidential election caused the usual consternation over the potential for policy changes with a potential new administration. Overall, the small majority in Congress made for a lower likelihood of more progressive health care policy that might negatively impact public company stocks.
Positions in IT services and software drove relative underperformance
The Portfolio underperformed its technology-only benchmark and Morningstar peer group average during the fiscal year. Underperformance in the Portfolio’s technology exposure was primarily driven by positions in Euronet Worldwide, Inc., WNS Holdings Ltd., ACI Worldwide, Inc., and Aspen Technology, Inc. An underweight position in Amazon.com, Inc. and not holding PayPal Holdings Inc. negatively impacted relative returns as well.
Health care is not represented in the benchmark, so the Portfolio’s allocation to the sector is an important distinction when comparing performance metrics. In the fiscal year, the Portfolio’s health care allocation was a marginal positive contributor to relative performance, with outperformance in biotechnology offset by underperformance in health care technology. Within biotechnology, Moderna, Inc. was the greatest positive contributor.
The Portfolio maintained a mid-single-digit cash position while repositioning during the market selloff and rebound which negatively contributed to relative performance. Additionally, the Portfolio used derivatives over the reporting period, but the usage had no material impact on Portfolio performance.
Portfolio positioning
While we recognize the challenges facing a world in the midst of a pandemic, we are excited about the innovation and growth that we continue to see. Despite our relative underperformance in fiscal year 2020, we remain convinced that the Portfolio is positioned to outperform over our targeted three-plus year time horizon. We believe the extremely low interest rate environment has inflated valuations of some of the most expensive technology stocks to unsustainable levels. We remain committed to ensuring current valuations appropriately reflect the current and future opportunities for the stocks in the Portfolio.
The Portfolio had approximately 59.4% of its equity exposure in the information technology sector, as of Dec. 31, 2020. The overall exposure in information technology is more appropriately assessed by including the communication services sector, which includes many companies previously in the information technology sector. The Portfolio had approximately 12.6% of its equity assets in the communication services sector as of Dec. 31, 2020, for a total of 72% of assets exposed to the information technology and communications services sectors.
As of the fiscal year end, roughly 15% of the Portfolio’s equity assets were in the health care sector. In developing markets, as the standard of living increases, we continue to believe the demand for quality health care should increase. In our view, biotechnology, health care information technology systems and pharmaceuticals are among the greatest innovators and early adopters of new science and technology, so we continue to focus particular attention to companies in those areas. Companies in the Portfolio, like Moderna, Inc., reflect our investment interests where a new technology (mRNA) can have enormous impacts on health care (COVID-19 vaccine). We believe the next few years should continue to be constructive for biotechnology company stocks and we remain well invested within this health care subsector.
The Portfolio’s “applied science and technology” holdings span several industries and sectors and, along with the consumer discretionary subsector (largely Amazon), make up the remainder of the Portfolio’s equity composition. At the end of the fiscal year, the Portfolio’s cash position was 3.3% of net assets. We almost always have some cash on hand to take advantage of opportunities that may present themselves.
Watching areas of stretched valuations as the economy reopens
As we look forward to fiscal 2021, we see pockets of technology where valuations concern us. We believe growth and earnings will remain strong and improve as the world begins to see widespread COVID-19 vaccinations and economies reopen. In spite of these positive financial metrics, we believe that rising interest rates and the potential for increasing inflation expectations in the middle and back half of 2021 could put pressure on stock multiples in segments of both information technology and health care. We remain diligent in assessing the appropriate valuations of names in the Portfolio.
Broadly, we expect more muted political rhetoric as President Donald Trump exits office. We expect additional regulatory scrutiny on some of the key information technology companies, including Facebook, Inc., Alphabet, Inc. (Google), Amazon, Inc. and Apple, Inc. on the relative power these companies wield in economic markets and communication. Globally, we think China will remain a key area of concern and of opportunity. We will carefully balance our investments impacted by China with expectations around both growth and the Chinese government’s strong-handed style of capitalism.
2020 | ANNUAL REPORT | 75 |
Table of Contents
Company management teams we speak with have expressed optimism about new trends in areas like artificial intelligence and electric vehicles, along with the increased use of technology in old economy areas like industrials. We will be prudent in balancing growth with valuations, as we believe there are many potential investment opportunities — especially in biotechnology, data and semiconductors — around the world. As we look at the securities of such companies, we are focused on what we believe are good growth prospects and sound capital structures.
As always, we continue to carefully monitor the macroeconomic environment, but our focus remains primarily on security-specific fundamental research. Going forward, we believe this attention to bottom-up research, coupled with the innovation and transformation under way across the globe should continue to provide investment opportunities for the Portfolio.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Because the Portfolio invests more than 25% of its total assets in the science and technology industry, the Portfolio’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a portfolio that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Portfolio’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology.
International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations.
Dividend-paying stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole. In addition, dividend-paying companies may not pay dividends in the future; such dividends, if declared, may not remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. Dividend-paying stocks can decline in value when interest rates rise; this risk may be greater during the current period of historically low interest rates. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Science and Technology.
76 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | SCIENCE AND TECHNOLOGY |
ALL DATA AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 99.7% | |||
Information Technology | 64.9% | |||
Health Care | 13.8% | |||
Communication Services | 12.4% | |||
Consumer Discretionary | 6.7% | |||
Real Estate | 1.4% | |||
Industrials | 0.3% | |||
Materials | 0.2% | |||
Warrants | 0.0% | |||
Bonds | 0.1% | |||
Corporate Debt Securities | 0.1% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 0.2% |
Country Weightings
North America | 80.6% | |||
United States | 80.6% | |||
Pacific Basin | 10.2% | |||
India | 3.6% | |||
Other Pacific Basin | 6.6% | |||
Europe | 8.9% | |||
Netherlands | 3.9% | |||
Germany | 3.5% | |||
Other Europe | 1.5% | |||
Other | 0.1% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 0.2% |
Top 10 Equity Holdings
Company | Country | Sector | Industry | |||
Microsoft Corp. | United States | Information Technology | Systems Software | |||
Apple, Inc. | United States | Information Technology | Technology Hardware, Storage & Peripherals | |||
Facebook, Inc., Class A | United States | Communication Services | Interactive Media & Services | |||
Micron Technology, Inc. | United States | Information Technology | Semiconductors | |||
QUALCOMM, Inc. | United States | Information Technology | Semiconductors | |||
Aspen Technology, Inc. | United States | Information Technology | Application Software | |||
Amazon.com, Inc. | United States | Consumer Discretionary | Internet & Direct Marketing Retail | |||
ASML Holding N.V., NY Registry Shares | Netherlands | Information Technology | Semiconductor Equipment | |||
ACI Worldwide, Inc. | United States | Information Technology | Application Software | |||
WNS (Holdings) Ltd. ADR | India | Information Technology | Data Processing & Outsourced Services |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 77 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | SCIENCE AND TECHNOLOGY |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class I | Class II | ||||||
1-year period ended 12-31-20 | 35.70% | 35.36% | ||||||
5-year period ended 12-31-20 | — | 20.80% | ||||||
10-year period ended 12-31-20 | — | 17.09% | ||||||
Since Inception of Class through 12-31-20(3) | 24.90% | — |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 4-28-17 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
78 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | SCIENCE AND TECHNOLOGY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Interactive Media & Services – 12.4% |
| |||||||
Alphabet, Inc., Class A (A) | 9 | $ | 16,277 | |||||
Alphabet, Inc., Class C (A) | 9 | 16,180 | ||||||
Facebook, Inc., Class A (A) | 150 | 40,847 | ||||||
IAC/InterActiveCorp (A) | 25 | 4,797 | ||||||
Snap, Inc., Class A (A) | 39 | 1,969 | ||||||
Tencent Holdings Ltd. (B) | 55 | 3,950 | ||||||
|
| |||||||
84,020 | ||||||||
|
| |||||||
Total Communication Services – 12.4% |
| 84,020 | ||||||
Consumer Discretionary |
| |||||||
Internet & Direct Marketing Retail – 6.5% |
| |||||||
Alibaba Group Holding Ltd. | 75 | 17,408 | ||||||
Amazon.com, Inc. (A) | 8 | 26,668 | ||||||
|
| |||||||
44,076 | ||||||||
|
| |||||||
Specialized Consumer Services – 0.2% |
| |||||||
Uber Technologies, Inc. (A) | 32 | 1,632 | ||||||
|
| |||||||
Total Consumer Discretionary – 6.7% |
| 45,708 | ||||||
Health Care |
| |||||||
Biotechnology – 9.5% |
| |||||||
CRISPR Therapeutics AG (A) | 65 | 10,010 | ||||||
Evogene Ltd. (A)(C) | 137 | 644 | ||||||
Ionis Pharmaceuticals, Inc. (A) | 139 | 7,881 | ||||||
Moderna, Inc. (A) | 136 | 14,160 | ||||||
Sarepta Therapeutics, Inc. (A) | 60 | 10,267 | ||||||
Vertex Pharmaceuticals, Inc. (A)(D) | 90 | 21,314 | ||||||
|
| |||||||
64,276 | ||||||||
|
| |||||||
Health Care Technology – 4.3% |
| |||||||
Cerner Corp. | 278 | 21,824 | ||||||
Teladoc Health, Inc. (A) | 37 | 7,361 | ||||||
|
| |||||||
29,185 | ||||||||
|
| |||||||
Total Health Care – 13.8% |
| 93,461 | ||||||
Industrials |
| |||||||
Trucking – 0.3% |
| |||||||
Lyft, Inc., Class A (A) | 40 | 1,940 | ||||||
|
| |||||||
Total Industrials – 0.3% |
| 1,940 | ||||||
Information Technology |
| |||||||
Application Software – 10.7% |
| |||||||
ACI Worldwide, Inc. (A) | 637 | 24,495 | ||||||
Aspen Technology, Inc. (A) | 212 | 27,656 | ||||||
NVIDIA Corp. | 17 | 9,077 | ||||||
Palantir Technologies, Inc. (A)(C) | 157 | 3,688 | ||||||
salesforce.com, Inc. (A) | 33 | 7,405 | ||||||
|
| |||||||
72,321 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 7.9% |
| |||||||
Euronet Worldwide, Inc. (A) | 142 | 20,607 | ||||||
Fiserv, Inc. (A) | 75 | 8,582 | ||||||
WNS (Holdings) Ltd. ADR (A) | 338 | 24,346 | ||||||
|
| |||||||
53,535 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Electronic Equipment & Instruments – 0.6% |
| |||||||
Keysight Technologies, Inc. (A) | 32 | $ | 4,188 | |||||
|
| |||||||
Semiconductor Equipment – 3.9% |
| |||||||
ASML Holding N.V., NY Registry Shares | 54 | 26,355 | ||||||
|
| |||||||
Semiconductors – 23.4% |
| |||||||
Infineon Technologies AG (B) | 626 | 23,906 | ||||||
Microchip Technology, Inc. | 80 | 11,045 | ||||||
Micron Technology, Inc. (A) | 511 | 38,405 | ||||||
ON Semiconductor Corp. (A) | 167 | 5,454 | ||||||
QUALCOMM, Inc. | 220 | 33,451 | ||||||
Semtech Corp. (A) | 135 | 9,720 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 117 | 12,749 | ||||||
Universal Display Corp. | 105 | 24,061 | ||||||
|
| |||||||
158,791 | ||||||||
|
| |||||||
Systems Software – 10.7% |
| |||||||
Microsoft Corp. | 283 | 63,034 | ||||||
ServiceNow, Inc. (A) | 17 | 9,585 | ||||||
|
| |||||||
72,619 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 7.7% |
| |||||||
Apple, Inc. | 316 | 41,978 | ||||||
Samsung Electronics Co. Ltd. (B) | 140 | 10,460 | ||||||
|
| |||||||
52,438 | ||||||||
|
| |||||||
Total Information Technology – 64.9% |
| 440,247 | ||||||
Materials |
| |||||||
Fertilizers & Agricultural Chemicals – 0.2% |
| |||||||
Marrone Bio Innovations, Inc. (A) | 1,241 | 1,552 | ||||||
|
| |||||||
Total Materials – 0.2% |
| 1,552 | ||||||
Real Estate |
| |||||||
Specialized REITs – 1.4% |
| |||||||
QTS Realty Trust, Inc., Class A | 155 | 9,610 | ||||||
|
| |||||||
Total Real Estate – 1.4% |
| 9,610 | ||||||
TOTAL COMMON STOCKS – 99.7% |
| $ | 676,538 | |||||
(Cost: $279,772) |
| |||||||
WARRANTS | ||||||||
Fertilizers & Agricultural Chemicals – 0.0% |
| |||||||
Marrone Bio Innovations, Inc., expires 3-15-21 (E)(F) | 38 | 19 | ||||||
Marrone Bio Innovations, Inc., expires 12-15-21 (E)(F) | 32 | 16 | ||||||
|
| |||||||
35 | ||||||||
|
| |||||||
TOTAL WARRANTS – 0.0% |
| $ | 35 | |||||
(Cost: $—) |
|
CORPORATE DEBT SECURITIES | Principal | Value | ||||||
Materials |
| |||||||
Fertilizers & Agricultural Chemicals – 0.1% |
| |||||||
Marrone Bio Innovations, Inc., | ||||||||
8.000%, 12-31-22 (E) | $ | 288 | $ | 298 | ||||
|
| |||||||
Total Materials – 0.1% |
| 298 | ||||||
TOTAL CORPORATE DEBT SECURITIES – 0.1% |
| $ | 298 | |||||
(Cost: $288) |
| |||||||
SHORT-TERM SECURITIES | Shares | |||||||
Money Market Funds(H) – 0.8% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares, 0.030% (G) | 4,387 | 4,387 | ||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% | 947 | 947 | ||||||
|
| |||||||
5,334 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.8% |
| $ | 5,334 | |||||
(Cost: $5,334) |
| |||||||
TOTAL INVESTMENT |
| $ | 682,205 | |||||
(Cost: $285,394) |
| |||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – (0.6)% |
| (3,838 | ) | |||||
NET ASSETS – 100.0% |
| $ | 678,367 |
2020 | ANNUAL REPORT | 79 |
Table of Contents
SCHEDULE OF INVESTMENTS | SCIENCE AND TECHNOLOGY (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | Listed on an exchange outside the United States. |
(C) | All or a portion of securities with an aggregate value of $4,279 are on loan. |
(D) | All or a portion of securities with an aggregate value of $71 are held in collateralized accounts to cover potential obligations with respect to outstanding written options. |
(E) | Restricted securities. At December 31, 2020, the Portfolio owned the following restricted securities: |
Security | Acquisition Date(s) | Principal | Cost | Value | ||||||||||||||||
Marrone Bio Innovations, Inc., 8.000%, 12-31-22 | 8-20-15 | $ | 288 | $ | 287 | $ | 298 | |||||||||||||
Shares | ||||||||||||||||||||
Marrone Bio Innovations, Inc., expires 3-15-21 | 8-20-15 – 5-1-20 | 38 | $ | — | $ | 19 | ||||||||||||||
Marrone Bio Innovations, Inc., expires 12-15-21 | 8-20-15 – 5-1-20 | 32 | $ | — | $ | 16 | ||||||||||||||
|
| |||||||||||||||||||
$ | 287 | $ | 333 | |||||||||||||||||
|
|
The total value of these securities represented 0.0% of net assets at December 31, 2020. |
(F) | Warrants entitle the Portfolio to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any. |
(G) | Investment made with cash collateral received from securities on loan. |
(H) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following written options were outstanding at December 31, 2020 (contracts and exercise prices unrounded):
Underlying Security | Counterparty, if OTC | Type | Number of Contracts | Notional Amount | Expiration Month | Exercise Price | Premium Received | Value | ||||||||||||||||||||||||
ACI Worldwide, Inc. | N/A | Call | 191 | 19 | January 2021 | $ | 40.00 | $ | 17 | $ | (11 | ) | ||||||||||||||||||||
Palantir Technologies, Inc. | JPMorgan Chase Bank N.A. | Call | 1,566 | 157 | January 2021 | 35.00 | 361 | (23 | ) | |||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
$ | 378 | $ | (34 | ) | ||||||||||||||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Communication Services | $ | 80,070 | $ | 3,950 | $ | — | ||||||
Consumer Discretionary | 45,708 | — | — | |||||||||
Health Care | 93,461 | — | — | |||||||||
Industrials | 1,940 | — | — | |||||||||
Information Technology | 405,881 | 34,366 | — | |||||||||
Materials | 1,552 | — | — | |||||||||
Real Estate | 9,610 | — | — | |||||||||
Total Common Stocks | $ | 638,222 | $ | 38,316 | $ | — | ||||||
Warrants | — | 35 | — | |||||||||
Corporate Debt Securities | — | 298 | — | |||||||||
Short-Term Securities | 5,334 | — | — | |||||||||
Total | $ | 643,556 | $ | 38,649 | $ | — | ||||||
Liabilities | ||||||||||||
Written Options | $ | 11 | $ | 23 | $ | — |
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
OTC = Over the Counter
REIT = Real Estate Investment Trust
80 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | SCIENCE AND TECHNOLOGY (in thousands) |
DECEMBER 31, 2020
Country Diversification
|
| |||
(as a % of net assets) |
| |||
United States | 80.6% | |||
Netherlands | 3.9% | |||
India | 3.6% | |||
Germany | 3.5% | |||
China | 3.2% | |||
Taiwan | 1.9% | |||
South Korea | 1.5% | |||
Switzerland | 1.5% | |||
Other Countries | 0.1% | |||
Other+ | 0.2% |
+Includes liabilities (net of cash and other assets), and cash equivalents
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 81 |
Table of Contents
MANAGEMENT DISCUSSION | SMALL CAP CORE |
(UNAUDITED)
Kenneth G. Gau
Below, Kenneth G. Gau, portfolio manager of Ivy VIP Small Cap Core, discusses positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Gau has managed the Portfolio since 2014, and has 27 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Small Cap Core (Class II shares at net asset value) | 7.03% | |||
Benchmark and Morningstar Category | ||||
Russell 2000 Index | 19.96% | |||
(Generally reflects the performance of small-company stocks) | ||||
Morningstar Small Blend Category Average | 10.99% | |||
(Generally reflects the performance of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Market Sector Update
Calendar year 2020 was a roller coaster, and the final installment of this unprecedented year did not disappoint as the fourth quarter registered the largest gain in the history of the Russell 2000 Index. After seeing the biggest drawdown ever in the first quarter this clearly supports the unprecedented assertion. While the market recovery began in earnest back in April, the approval of two COVID-19 vaccines in November further accelerated the recovery as the perception grew that the pandemic’s grip was loosening and a return to normalcy is drawing closer.
Additionally, moving beyond a contentious U.S. presidential election, an additional $900 billion in fiscal stimulus by the U.S., continued global stimulus and central bank support, the idea of easy comparisons around the corner and the need to replenish inventories globally and investors can see a setup for tremendous economic reacceleration in 2021, a magnitude of which we have not experienced in years.
After appreciating greater than 31% in the fourth quarter, the Russell 2000 finished up over 19% for the full year, something that seems unfathomable considering the events of the year. From a sector perspective, health care (+46.1%), technology (+38.0%), and consumer discretionary (+32.7%) led the index higher driven by rallies in biotechnology, health care information technology, software, semiconductors, internet marketing and consumer durables. Energy (-36.9%), real estate (-4.7%), and financials (-4.1%) lagged on the pandemic-led oil demand destruction, concerns on office, retail and hospitality properties, and compressing interest rates pressured these groups.
As the focus now turns to how the economy and companies continue their recovery in 2021 and beyond, it will be important to consider how far the market has come. With the index up 15% from its January 2020 highs and expectations for forward 12-month index earnings are roughly 10% below estimates at that time, a decent amount of the recovery appears to be priced in.
Portfolio Strategy
The Fund produced a positive return for the year though trailed its benchmark, while finishing in the third quartile relative to its peers with only 11% of the category outperforming the benchmark. Clearly, 2020 was a challenging year for active management in this segment.
Underperformance for the year was driven by stock selection with allocation providing some positive offset. Stocks with higher price-to-earnings multiples, higher sales growth, higher beta, and lower return on equity outperformed for the year, which provided a headwind challenge based on our selection process.
Looking at sector attribution, communication services, real estate and materials provided the best performance in 2020 with health care, industrials, and technology creating the greatest drag. Struggles at the top of the portfolio were a tremendous headwind for the fund in 2020. Among the top 20 average holdings, attribution was a drag of just under 800 basis points relative to the benchmark. Most of this underperformance was related to the type of companies we held at the top of portfolio rather than anything being particularly wrong with their business models. This was clearly not a year to hold reasonably valued more stable and consistent growers. Greater risk was rewarded in 2020, due to the tremendous fiscal and monetary stimulus provided by the governments globally. While we did trim and exit some of our more conservative
82 | ANNUAL REPORT | 2020 |
Table of Contents
positions at the top of the portfolio, we stuck with many companies believing that they are long-term winners. We also added risk through smaller positions at the bottom of the portfolio to better reflect the current investment environment. Enphase Energy, Varonis Systems and Scotts Miracle-Gro were the top contributors for the year and Cardtronics, TreeHouse Foods, and Magnolia Oil & Gas were the largest detractors. The Portfolio no longer holds Enphase Energy, Scotts Miracle-Gro nor Cardtronics.
As alluded to above, the Portfolio has continued to selectively add more cyclical exposure to companies that stand to benefit from the continued recovery in the economy. The Portfolio’s predicted beta has also continued to migrate upward and is now close to 1. This is one of the highest levels it has been in my tenure (for perspective our 3-year realized beta has been just under 0.9), though remains below the index. This is where we expect it to most often be due to our preference for stable, higher quality business models, and our more conservative nature.
Outlook
How this recovery will manifest in the markets will likely be very different in 2021 than it has been in 2020. The reopening will drive many different end markets and will be fueled by a reallocation of consumers wallets from goods to services as people get out of their houses after being cooped up for an extended period.
We believe many businesses will forever be changed by this pandemic, and consumption trends are unlikely to be the same as they were pre-pandemic. All impacts are unlikely to crystalize immediately and will likely be figured out over a period of years. There should be tremendous disconnects between perceptions around the health and wellness of companies and reality, creating opportunities that hopefully we can exploit.
There is no way to get around the fact that performance in calendar 2020 was certainly not up to our expectations; however, our confidence and commitment to identifying quality, underappreciated companies coupled with thoughtful portfolio construction remains. We expect to recover and deliver results more in line with our history as the cycle progresses.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in small-cap growth and value stocks may carry more risk than investing in stocks of larger, more well-established companies. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. Value stocks are stocks of companies that may have experienced adverse developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Portfolio’s manager, undervalued. Such security may never reach what the manager believes to be its full value, or such security’s value may decrease. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the Portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Small Cap Core.
2020 | ANNUAL REPORT | 83 |
Table of Contents
PORTFOLIO HIGHLIGHTS | SMALL CAP CORE |
ALL DATA AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 99.5% | |||
Information Technology | 20.1% | |||
Industrials | 17.3% | |||
Financials | 16.4% | |||
Health Care | 15.6% | |||
Consumer Discretionary | 13.0% | |||
Materials | 6.8% | |||
Consumer Staples | 3.5% | |||
Energy | 2.8% | |||
Communication Services | 2.3% | |||
Real Estate | 1.7% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.5% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
2U, Inc. | Information Technology | Application Software | ||
Coherent, Inc. | Information Technology | Electronic Equipment & Instruments | ||
Switch, Inc., Class A | Information Technology | Internet Services & Infrastructure | ||
TCF Financial Corp. | Financials | Regional Banks | ||
Element Solutions, Inc. | Materials | Specialty Chemicals | ||
Encompass Health Corp. | Health Care | Health Care Facilities | ||
Varonis Systems, Inc. | Information Technology | Systems Software | ||
Triton International Ltd. | Industrials | Trading Companies & Distributors | ||
Envista Holdings Corp. | Health Care | Health Care Equipment | ||
Skechers USA, Inc. | Consumer Discretionary | Footwear |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
84 | ANNUAL REPORT | 2020 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | SMALL CAP CORE |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 7.03% | |||
5-year period ended 12-31-20 | 11.79% | |||
10-year period ended 12-31-20 | 9.32% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 85 |
Table of Contents
SCHEDULE OF INVESTMENTS | SMALL CAP CORE (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Interactive Media & Services – 2.3% |
| |||||||
Groupon, Inc. (A) | 50 | $ | 1,887 | |||||
TripAdvisor, Inc. (A) | 79 | 2,280 | ||||||
|
| |||||||
4,167 | ||||||||
|
| |||||||
Total Communication Services – 2.3% |
| 4,167 | ||||||
Consumer Discretionary |
| |||||||
Apparel Retail – 2.2% |
| |||||||
American Eagle Outfitters, Inc. | 108 | 2,168 | ||||||
Boot Barn Holdings, Inc. (A) | 44 | 1,901 | ||||||
|
| |||||||
4,069 | ||||||||
|
| |||||||
Auto Parts & Equipment – 3.3% |
| |||||||
Dana Holding Corp. | 84 | 1,638 | ||||||
Visteon Corp. (A) | 35 | 4,354 | ||||||
|
| |||||||
5,992 | ||||||||
|
| |||||||
Automotive Retail – 0.7% |
| |||||||
Vroom, Inc. (A) | 30 | 1,244 | ||||||
|
| |||||||
Footwear – 2.4% |
| |||||||
Skechers USA, Inc. (A) | 124 | 4,472 | ||||||
|
| |||||||
Home Improvement Retail – 1.2% |
| |||||||
Beacon Roofing Supply, Inc. (A) | 55 | 2,200 | ||||||
|
| |||||||
Homebuilding – 2.2% |
| |||||||
TopBuild Corp. (A) | 22 | 4,013 | ||||||
|
| |||||||
Restaurants – 1.0% |
| |||||||
Brinker International, Inc. | 33 | 1,851 | ||||||
|
| |||||||
Total Consumer Discretionary – 13.0% |
| 23,841 | ||||||
Consumer Staples |
| |||||||
Agricultural Products – 1.7% |
| |||||||
Darling International, Inc. (A) | 55 | 3,146 | ||||||
|
| |||||||
Packaged Foods & Meats – 1.8% |
| |||||||
TreeHouse Foods, Inc. (A) | 75 | 3,187 | ||||||
|
| |||||||
Total Consumer Staples – 3.5% |
| 6,333 | ||||||
Energy |
| |||||||
Oil & Gas Equipment & Services – 0.6% |
| |||||||
TechnipFMC plc (A) | 111 | 1,047 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 2.2% |
| |||||||
Magnolia Oil & Gas Corp. (A) | 173 | 1,218 | ||||||
Parsley Energy, Inc., Class A | 203 | 2,886 | ||||||
|
| |||||||
4,104 | ||||||||
|
| |||||||
Total Energy – 2.8% |
| 5,151 | ||||||
Financials |
| |||||||
Consumer Finance – 1.2% |
| |||||||
Encore Capital Group, Inc. (A) | 56 | 2,192 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Financial Exchanges & Data – 0.7% |
| |||||||
Morningstar, Inc. | 6 | $ | 1,390 | |||||
|
| |||||||
Investment Banking & Brokerage – 2.1% |
| |||||||
LPL Investment Holdings, Inc. | 37 | 3,861 | ||||||
|
| |||||||
Multi-Line Insurance – 1.2% |
| |||||||
Kemper Corp. | 28 | 2,124 | ||||||
|
| |||||||
Property & Casualty Insurance – 1.2% |
| |||||||
Palomar Holdings, Inc. (A) | 25 | 2,234 | ||||||
|
| |||||||
Regional Banks – 7.9% |
| |||||||
First Horizon Corp. | 194 | 2,474 | ||||||
Pinnacle Financial Partners, Inc. | 30 | 1,921 | ||||||
TCF Financial Corp. | 152 | 5,637 | ||||||
Webster Financial Corp. | 105 | 4,414 | ||||||
|
| |||||||
14,446 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance – 2.1% |
| |||||||
Essent Group Ltd. | 89 | 3,830 | ||||||
|
| |||||||
Total Financials – 16.4% |
| 30,077 | ||||||
Health Care |
| |||||||
Biotechnology – 3.2% |
| |||||||
ChemoCentryx, Inc. (A) | 17 | 1,051 | ||||||
Halozyme Therapeutics, Inc. (A) | 86 | 3,676 | ||||||
Insmed, Inc. (A) | 34 | 1,138 | ||||||
|
| |||||||
5,865 | ||||||||
|
| |||||||
Health Care Equipment – 3.6% |
| |||||||
Cantel Medical Corp. | 26 | 2,023 | ||||||
Envista Holdings Corp. (A) | 135 | 4,555 | ||||||
|
| |||||||
6,578 | ||||||||
|
| |||||||
Health Care Facilities – 2.8% |
| |||||||
Encompass Health Corp. | 62 | 5,118 | ||||||
|
| |||||||
Health Care Services – 1.4% |
| |||||||
Chemed Corp. | 5 | 2,553 | ||||||
|
| |||||||
Health Care Supplies – 2.2% |
| |||||||
Haemonetics Corp. (A) | 15 | 1,785 | ||||||
SI-BONE, Inc. (A) | 77 | 2,309 | ||||||
|
| |||||||
4,094 | ||||||||
|
| |||||||
Health Care Technology – 1.1% |
| |||||||
Change Healthcare, Inc. (A) | 110 | 2,049 | ||||||
|
| |||||||
Managed Health Care – 1.3% |
| |||||||
HealthEquity, Inc. (A) | 33 | 2,277 | ||||||
|
| |||||||
Total Health Care – 15.6% |
| 28,534 | ||||||
Industrials |
| |||||||
Agricultural & Farm Machinery – 1.7% |
| |||||||
AGCO Corp. (A) | 31 | 3,167 | ||||||
|
| |||||||
Construction & Engineering – 1.4% |
| |||||||
Valmont Industries, Inc. | 14 | 2,502 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Electrical Components & Equipment – 4.3% |
| |||||||
EnerSys | 16 | $ | 1,329 | |||||
nVent Electric plc | 159 | 3,714 | ||||||
Regal-Beloit Corp. | 22 | 2,740 | ||||||
|
| |||||||
7,783 | ||||||||
|
| |||||||
Environmental & Facilities Services – 1.8% |
| |||||||
Clean Harbors, Inc. (A) | 44 | 3,340 | ||||||
|
| |||||||
Industrial Machinery – 1.1% |
| |||||||
RBC Bearings, Inc. (A) | 11 | 1,920 | ||||||
|
| |||||||
Marine – 0.5% |
| |||||||
Kirby Corp. (A) | 19 | 994 | ||||||
|
| |||||||
Research & Consulting Services – 1.7% |
| |||||||
ICF International, Inc. | 42 | 3,122 | ||||||
|
| |||||||
Trading Companies & Distributors – 2.6% |
| |||||||
Triton International Ltd. | 97 | 4,691 | ||||||
|
| |||||||
Trucking – 2.2% |
| |||||||
Knight Transportation, Inc. | 97 | 4,042 | ||||||
|
| |||||||
Total Industrials – 17.3% |
| 31,561 | ||||||
Information Technology |
| |||||||
Application Software – 5.6% |
| |||||||
2U, Inc. (A) | 187 | 7,494 | ||||||
Q2 Holdings, Inc. (A) | 22 | 2,823 | ||||||
|
| |||||||
10,317 | ||||||||
|
| |||||||
Data Processing & Outsourced Services – 1.9% |
| |||||||
EVERTEC, Inc. | 87 | 3,426 | ||||||
|
| |||||||
Electronic Components – 1.1% |
| |||||||
Knowles Corp. (A) | 112 | 2,064 | ||||||
|
| |||||||
Electronic Equipment & Instruments – 3.6% |
| |||||||
Coherent, Inc. (A) | 43 | 6,507 | ||||||
|
| |||||||
Internet Services & Infrastructure – 3.4% |
| |||||||
Switch, Inc., Class A | 375 | 6,141 | ||||||
|
| |||||||
Semiconductor Equipment – 1.9% |
| |||||||
Brooks Automation, Inc. | 51 | 3,475 | ||||||
|
| |||||||
Systems Software – 2.6% |
| |||||||
Varonis Systems, Inc. (A) | 29 | 4,767 | ||||||
|
| |||||||
Total Information Technology – 20.1% |
| 36,697 | ||||||
Materials |
| |||||||
Commodity Chemicals – 1.8% |
| |||||||
Cabot Corp. | 75 | 3,351 | ||||||
|
| |||||||
Diversified Chemicals – 1.1% |
| |||||||
Huntsman Corp. | 80 | 2,003 | ||||||
|
| |||||||
Specialty Chemicals – 2.9% |
| |||||||
Element Solutions, Inc. | 303 | 5,371 | ||||||
|
|
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SCHEDULE OF INVESTMENTS | SMALL CAP CORE (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS (Continued) | Shares | Value | ||||||
Steel – 1.0% |
| |||||||
Warrior Met Coal, Inc. | 85 | $ | 1,813 | |||||
|
| |||||||
Total Materials – 6.8% |
| 12,538 | ||||||
Real Estate |
| |||||||
Industrial REITs – 0.7% |
| |||||||
STAG Industrial, Inc. | 43 | 1,344 | ||||||
|
| |||||||
Retail REITs – 1.0% |
| |||||||
Agree Realty Corp. | 27 | 1,789 | ||||||
|
| |||||||
Total Real Estate – 1.7% |
| 3,133 | ||||||
TOTAL COMMON STOCKS – 99.5% |
| $ | 182,032 | |||||
(Cost: $152,190) |
|
SHORT-TERM SECURITIES | Shares | Value | ||||||
Money Market Funds (B) – 0.1% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% | 128 | $ | 128 | |||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.1% | $ | 128 | ||||||
(Cost: $128) | ||||||||
TOTAL INVESTMENT |
| $ | 182,160 | |||||
(Cost: $152,318) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.4% |
| 710 | ||||||
NET ASSETS – 100.0% | $ | 182,870 |
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 182,032 | $ | — | $ | — | ||||||
Short-Term Securities | 128 | — | — | |||||||||
Total | $ | 182,160 | $ | — | $ | — |
The following acronym is used throughout this schedule:
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
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MANAGEMENT DISCUSSION | SMALL CAP GROWTH |
(UNAUDITED)
Kenneth G. McQuade
Timothy J. Miller
Bradley P. Halverson |
Below, Bradley P. Halverson, CFA, Kenneth G. McQuade and Timothy J. Miller, CFA, co-portfolio managers of Ivy VIP Small Cap Growth, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Miller has managed the Portfolio since 2010 and has 42 years of investment experience. Mr. Halverson and Mr. McQuade assumed co-manager responsibilities in 2016. Mr. McQuade has 25 years of industry experience and Mr. Halverson has 19 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Small Cap Growth (Class II shares at net asset value) | 37.66% | |||
Benchmark and/or Morningstar Category | ||||
Russell 2000 Growth Index | 34.63% | |||
(generally reflects the performance of small-company stocks) | ||||
Morningstar Small Growth Category Average | 38.62% | |||
(generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Key factors
One needed more than “2020” vision to foresee the events that would transpire during the calendar year and how the market could rise so much in the midst of all of the chaos. The broad market gains in the U.S. were good last year and the small-cap market gains were great. The Russell 2000 Growth Index, the Portfolio’s benchmark, rose 35% for the measurement period, routing the corresponding Russell Value Index gain of 5%. Growth stocks were the leaders across the entire market cap spectrum, as investors gravitated to the durability and predictability of companies in the technology, health care and emerging growth industries. The COVID-19 pandemic caused a sharp correction in the spring, but the rapid and forceful response of U.S. fiscal and monetary policy provided the catalyst for the stock market to foresee better days ahead. Confidence in that foresight was further enhanced by the rapid development and success of a vaccine late in the year, sparking a broader year-end rally.
Contributors and detractors
Ivy VIP Small Cap Growth outperformed the benchmark for the year. The Portfolio’s steady focus on sustainable, quality growth companies provided a consistent lead over the benchmark during a period of tremendous volatility and mood swings in the market. After a strong start to the year, the COVID-19 crisis focused investor expectations on industries and companies that could weather the turmoil or indeed prosper. There were clear winners that thrived during the economic contraction, including health care service companies such as Teledoc (a company we held during the year that we have since sold); critical software vendors whose subscription models proved resilient; and consumer companies exposed to outdoor recreation. The Portfolio made a few adjustments to increase exposure in these stocks while reducing exposure in the most vulnerable industries such as travel and entertainment and energy.
The correction lasted about a month, and then the impact of aggressive fiscal stimulus and monetary accommodation turned sentiment around quickly. The rally was led by the stocks hit the hardest during the correction, and then a tug of war ensued over the balance of the year between defensive COVID-19 beneficiaries versus a reopening recovery trade. The challenge for the Portfolio was to maintain the significant outperformance generated prior to the bottom. By year end only a small portion of that gain had been forfeited. The two leading sectors for the Portfolio during the measurement period were the two largest weighted positions, information technology and health care.
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Information technology was a significant contributor to Portfolio performance during the year as the sector handily beat the index and stock selection nicely outpaced sector returns. As the world lurched into lockdown in March, the digital transformation theme of the past decade suddenly accelerated as the necessity to work remotely impacted all types of organizations worldwide. Many technology companies became immediate beneficiaries as reliance on software, communications, technology and digital tools became mission critical. The Portfolio has historically been overweight information technology because the market, over a full market cycle, tends to reward strong, enduring business models operating in large, exploitable markets. This year was turbocharged as software, semiconductors and information technology services were key contributing industries, bolstered by strong stock selection leading to significant returns in excess of the benchmark. Notable performance came from Five9, Inc., a provider of crucial cloud call center software; Enphase Energy, Inc., a company delivering solar inverters and batteries to the U.S. residential market, and Monolithic Power Systems, Inc., a leading analog semiconductor company. In the year ahead, we believe demand for these technologies will remain robust and expect to retain an overweight sector stance devoted to strong growth companies. Still, we are conscientious of elevated valuations and continue to evaluate position sizes and seek for new opportunities of innovative companies well positioned for sustained growth and profitability.
Health care produced the strongest return of any sector during the measurement period and, as the largest weighted sector in the benchmark, created a significant performance hurdle to keep up with. The coronavirus was the obvious key focal point that created many direct impacts such as minimal capacity for non-emergency procedures, lower private pay from rising unemployment, massive vaccine and treatment funding, and significant stress on staffing. Another incremental aspect of the pandemic was the rapid development and acceptance of novel technologies that could make health care delivery more efficient, more effective and more customized, such as genetic testing, vaccine technologies and gene editing. Biotechnology was the greatest contributor to the segment. Biotechnology produced a 53% annual return in the benchmark on the back of accelerated adoption of technologies along with low interest rates, easy credit and an accommodating U.S. Food and Drug Administration (FDA). Despite the tough performance hurdle, we outperformed within the health care sector due to strong stock selection including multiple names that more than doubled in the period. Although we remained underweight the sector to avoid much of biotechnology’s more binary risk profiles, stock selection more than offset the weighting headwind. Looking forward, demand for more efficiency and individualized treatments along with available funding for development keeps the fundamental outlook bright for the more novel niches in health care, likely at the expense of outdated facilities and invasive therapies. As a result, we continue to gravitate toward innovation and services that facilitate value-based health care in more cost-effective settings.
The balance of the Portfolio was a net drag on performance for the measurement period. As the market migrated to a recovery-oriented environment in the latter half of 2020, the cyclical, value-oriented portion of the benchmark led the way. Stocks in the areas of energy, machinery and materials were the outperformers and these areas tend to hold underweight positions in the Portfolio. The consumer discretionary sector was a strong absolute performer and the Portfolio performed in line with the benchmark. The shortfall in the industrials sector was primarily due to the cyclical phenomena mentioned above, and a bit of a speculative flurry of performance in solar stocks. Finally, the financials sector was a drag on performance due to disappointing stock returns from a few names such as EHealth and Houlihan Lokey, Inc. Our position in EHealth has been sold.
Outlook
As unpredictable as 2020 was, we believe the lesson learned was to maintain the Portfolio’s core stock selection discipline, which has proven over the years to be a successful strategy. The market ultimately rewards small-cap growth companies that can deliver the sales and earnings growth and returns on capital that merit the high valuations often achieved. The pandemic in some cases validated and accelerated the adoption of innovative growth models that the Portfolio is always pursuing. We believe the outlook for 2021 seems brighter with the rollout of the vaccine but there will undoubtedly be the unexpected turn of events that lead to market volatility. Innovation is in full stride, which we think is an ideal environment to invest in small-cap growth companies.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
The Portfolio may invest in derivative instruments, primarily total return swaps, futures on domestic equity indexes and options, both written and purchased, in an attempt to increase exposure to various equity sectors and markets or to hedge market risk on individual equity securities.
Investing in small-cap stocks may carry more risk than investing in stocks of larger more well-established companies. Prices of growth stocks may be more sensitive to changes in current and expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. The
2020 | ANNUAL REPORT | 89 |
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Portfolio may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Portfolio’s performance that may not be replicated in the future. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the Portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Small Cap Growth.
90 | ANNUAL REPORT | 2020 |
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PORTFOLIO HIGHLIGHTS | SMALL CAP GROWTH |
ALL DATA AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 95.7% | |||
Information Technology | 28.5% | |||
Health Care | 27.7% | |||
Industrials | 15.4% | |||
Consumer Discretionary | 14.8% | |||
Financials | 4.2% | |||
Communication Services | 3.2% | |||
Consumer Staples | 1.9% | |||
Purchased Options | 0.0% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 4.3% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
Five9, Inc. | Information Technology | Application Software | ||
CareDx, Inc. | Health Care | Biotechnology | ||
Varonis Systems, Inc. | Information Technology | Systems Software | ||
PetIQ, Inc. | Health Care | Health Care Distributors | ||
Monolithic Power Systems, Inc. | Information Technology | Semiconductors | ||
Brink’s Co. (The) | Industrials | Security & Alarm Services | ||
Mercury Computer Systems, Inc. | Industrials | Aerospace & Defense | ||
Vericel Corp. | Health Care | Biotechnology | ||
Q2 Holdings, Inc. | Information Technology | Application Software | ||
Globant S.A. | Information Technology | IT Consulting & Other Services |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 91 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | SMALL CAP GROWTH |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class I | Class II | ||||||
1-year period ended 12-31-20 | 38.01% | 37.66% | ||||||
5-year period ended 12-31-20 | — | 15.59% | ||||||
10-year period ended 12-31-20 | — | 11.15% | ||||||
Since Inception of Class through 12-31-20(3) | 20.55% | — |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 11-5-18 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
92 | ANNUAL REPORT | 2020 |
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SCHEDULE OF INVESTMENTS | SMALL CAP GROWTH (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Alternative Carriers – 0.8% |
| |||||||
Bandwidth, Inc., Class A (A) | 25 | $ | 3,770 | |||||
|
| |||||||
Broadcasting – 2.4% |
| |||||||
Gray Television, Inc. (A) | 131 | 2,346 | ||||||
Nexstar Broadcasting Group, Inc. | 80 | 8,753 | ||||||
|
| |||||||
11,099 | ||||||||
|
| |||||||
Total Communication Services – 3.2% |
| 14,869 | ||||||
Consumer Discretionary |
| |||||||
Auto Parts & Equipment – 3.0% |
| |||||||
Fox Factory Holding Corp. (A) | 66 | 6,965 | ||||||
Visteon Corp. (A) | 56 | 7,059 | ||||||
|
| |||||||
14,024 | ||||||||
|
| |||||||
Automotive Retail – 1.4% |
| |||||||
Lithia Motors, Inc. | 21 | 6,240 | ||||||
|
| |||||||
Casinos & Gaming – 2.5% |
| |||||||
Churchill Downs, Inc. | 40 | 7,740 | ||||||
Monarch Casino & Resort, Inc. (A) | 66 | 4,034 | ||||||
|
| |||||||
11,774 | ||||||||
|
| |||||||
Footwear – 1.2% |
| |||||||
Deckers Outdoor Corp. (A) | 18 | 5,298 | ||||||
|
| |||||||
Homebuilding – 2.7% |
| |||||||
Installed Building Products, Inc. (A) | 63 | 6,403 | ||||||
TopBuild Corp. (A) | 34 | 6,303 | ||||||
|
| |||||||
12,706 | ||||||||
|
| |||||||
Hotels, Resorts & Cruise Lines – 0.8% |
| |||||||
Wyndham Destinations, Inc. | 63 | 3,759 | ||||||
|
| |||||||
Leisure Products – 1.4% |
| |||||||
Malibu Boats, Inc., Class A (A) | 105 | 6,564 | ||||||
|
| |||||||
Restaurants – 1.8% |
| |||||||
Texas Roadhouse, Inc., Class A | 66 | 5,124 | ||||||
Wingstop, Inc. | 24 | 3,177 | ||||||
|
| |||||||
8,301 | ||||||||
|
| |||||||
Total Consumer Discretionary – 14.8% |
| 68,666 | ||||||
Consumer Staples |
| |||||||
Hypermarkets & Super Centers – 0.8% |
| |||||||
BJ’s Wholesale Club, Inc. (A) | 94 | 3,514 | ||||||
|
| |||||||
Packaged Foods & Meats – 1.1% |
| |||||||
Nomad Foods Ltd. (A) | 207 | 5,274 | ||||||
|
| |||||||
Total Consumer Staples – 1.9% |
| 8,788 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 1.1% |
| |||||||
Focus Financial Partners, Inc., Class A (A) | 40 | $ | 1,728 | |||||
Hamilton Lane, Inc., Class A | 46 | 3,603 | ||||||
|
| |||||||
5,331 | ||||||||
|
| |||||||
Insurance Brokers – 0.2% |
| |||||||
SelectQuote, Inc. (A) | 33 | 693 | ||||||
|
| |||||||
Investment Banking & Brokerage – 2.1% |
| |||||||
Houlihan Lokey, Inc. | 84 | 5,673 | ||||||
LPL Investment Holdings, Inc. | 38 | 3,948 | ||||||
|
| |||||||
9,621 | ||||||||
|
| |||||||
Regional Banks – 0.8% |
| |||||||
Pinnacle Financial Partners, Inc. | 18 | 1,151 | ||||||
Seacoast Banking Corp. of Florida (A) | 88 | 2,580 | ||||||
|
| |||||||
3,731 | ||||||||
|
| |||||||
Total Financials – 4.2% |
| 19,376 | ||||||
Health Care |
| |||||||
Biotechnology – 8.3% |
| |||||||
Amicus Therapeutics, Inc. (A) | 108 | 2,483 | ||||||
CareDx, Inc. (A) | 196 | 14,203 | ||||||
Halozyme Therapeutics, Inc. (A) | 67 | 2,840 | ||||||
Insmed, Inc. (A) | 73 | 2,438 | ||||||
Novavax, Inc. (A) | 10 | 1,096 | ||||||
Veracyte, Inc. (A) | 118 | 5,760 | ||||||
Vericel Corp. (A) | 312 | 9,622 | ||||||
|
| |||||||
38,442 | ||||||||
|
| |||||||
Health Care Distributors – 2.3% |
| |||||||
PetIQ, Inc. (A) | 277 | 10,660 | ||||||
|
| |||||||
Health Care Equipment – 7.1% |
| |||||||
Acutus Medical, Inc. (A)(B) | 63 | 1,826 | ||||||
Axonics Modulation Technologies, Inc. (A)(B) | 136 | 6,796 | ||||||
iRhythm Technologies, Inc. (A) | 31 | 7,431 | ||||||
Penumbra, Inc. (A)(B) | 24 | 4,138 | ||||||
Tactile Systems Technology, Inc. (A) | 137 | 6,146 | ||||||
Tandem Diabetes Care, Inc. (A) | 73 | 6,970 | ||||||
|
| |||||||
33,307 | ||||||||
|
| |||||||
Health Care Services – 4.0% |
| |||||||
1Life Healthcare, Inc. (A) | 144 | 6,301 | ||||||
AMN Healthcare Services, Inc. (A) | 88 | 5,991 | ||||||
LHC Group, Inc. (A) | 31 | 6,550 | ||||||
|
| |||||||
18,842 | ||||||||
|
| |||||||
Health Care Supplies – 2.5% |
| |||||||
Haemonetics Corp. (A) | 67 | 7,973 | ||||||
OraSure Technologies, Inc. (A) | 346 | 3,663 | ||||||
|
| |||||||
11,636 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Health Care Technology – 2.1% |
| |||||||
Omnicell, Inc. (A) | 68 | $ | 8,118 | |||||
Simulations Plus, Inc. | 21 | 1,546 | ||||||
|
| |||||||
9,664 | ||||||||
|
| |||||||
Life Sciences Tools & Services – 1.4% |
| |||||||
NeoGenomics, Inc. (A) | 119 | 6,382 | ||||||
|
| |||||||
Total Health Care – 27.7% |
| 128,933 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 2.1% |
| |||||||
Mercury Computer Systems, Inc. (A) | 111 | 9,812 | ||||||
|
| |||||||
Air Freight & Logistics – 1.3% |
| |||||||
Air Transport Services Group, Inc. (A) | 196 | 6,151 | ||||||
|
| |||||||
Building Products – 0.9% |
| |||||||
Simpson Manufacturing Co., Inc. | 43 | 3,992 | ||||||
|
| |||||||
Electrical Components & Equipment – 3.0% |
| |||||||
EnerSys | 67 | 5,577 | ||||||
Plug Power, Inc. (A) | 241 | 8,164 | ||||||
|
| |||||||
13,741 | ||||||||
|
| |||||||
Environmental & Facilities Services – 1.1% |
| |||||||
Clean Harbors, Inc. (A) | 70 | 5,303 | ||||||
|
| |||||||
Industrial Machinery – 2.9% |
| |||||||
John Bean Technologies Corp. | 33 | 3,763 | ||||||
Kennametal, Inc. | 144 | 5,220 | ||||||
RBC Bearings, Inc. (A) | 26 | 4,597 | ||||||
|
| |||||||
13,580 | ||||||||
|
| |||||||
Security & Alarm Services – 2.2% |
| |||||||
Brink’s Co. (The) | 140 | 10,066 | ||||||
|
| |||||||
Trucking – 1.9% |
| |||||||
Knight Transportation, Inc. | 210 | 8,792 | ||||||
|
| |||||||
Total Industrials – 15.4% |
| 71,437 | ||||||
Information Technology |
| |||||||
Application Software – 10.2% |
| |||||||
Envestnet, Inc. (A) | 60 | 4,915 | ||||||
Five9, Inc. (A) | 93 | 16,283 | ||||||
LivePerson, Inc. (A) | 99 | 6,169 | ||||||
Mimecast Ltd. (A) | 114 | 6,454 | ||||||
Q2 Holdings, Inc. (A) | 73 | 9,257 | ||||||
Smartsheet, Inc., Class A (A) | 61 | 4,222 | ||||||
|
| |||||||
47,300 | ||||||||
|
| |||||||
Communications Equipment – 1.1% |
| |||||||
Viavi Solutions, Inc. (A) | 358 | 5,362 | ||||||
|
| |||||||
Data Processing & Outsourced Services – 2.8% |
| |||||||
EVO Payments, Inc., Class A (A) | 161 | 4,350 | ||||||
Shift4 Payments, Inc., Class A (A) | 113 | 8,518 | ||||||
|
| |||||||
12,868 | ||||||||
|
|
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SCHEDULE OF INVESTMENTS | SMALL CAP GROWTH (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS (Continued) | Shares | Value | ||||||
Electronic Equipment & Instruments – 1.5% |
| |||||||
Coherent, Inc. (A) | 36 | $ | 5,382 | |||||
Hydrofarm Holdings Group, Inc. (A) | 28 | 1,483 | ||||||
|
| |||||||
6,865 | ||||||||
|
| |||||||
Internet Services & Infrastructure – 1.0% |
| |||||||
Switch, Inc., Class A | 278 | 4,559 | ||||||
|
| |||||||
IT Consulting & Other Services – 2.7% |
| |||||||
Booz Allen Hamilton Holding Corp. | 44 | 3,827 | ||||||
Globant S.A. (A) | 41 | 8,862 | ||||||
|
| |||||||
12,689 | ||||||||
|
| |||||||
Semiconductor Equipment – 1.9% |
| |||||||
Enphase Energy, Inc. (A) | 49 | 8,682 | ||||||
|
| |||||||
Semiconductors – 2.8% |
| |||||||
Monolithic Power Systems, Inc. | 28 | 10,119 | ||||||
SiTime Corp. (A) | 29 | 3,203 | ||||||
|
| |||||||
13,322 | ||||||||
|
| |||||||
Systems Software – 4.5% |
| |||||||
Proofpoint, Inc. (A) | 41 | 5,541 | ||||||
SailPoint Technologies Holdings, Inc. (A) | 74 | 3,965 | ||||||
Varonis Systems, Inc. (A) | 70 | 11,403 | ||||||
|
| |||||||
20,909 | ||||||||
|
| |||||||
Total Information Technology – 28.5% |
| 132,556 | ||||||
TOTAL COMMON STOCKS – 95.7% |
| $ | 444,625 | |||||
(Cost: $282,962) |
PURCHASED OPTIONS | Number of Contracts (Unrounded) | Notional Amount | ||||||||||
iRhythm Technologies, Inc., | 210 | 21 | 95 | |||||||||
|
| |||||||||||
TOTAL PURCHASED OPTIONS – 0.0% |
| $ | 95 | |||||||||
(Cost: $335) |
|
SHORT-TERM SECURITIES | Shares | Value | ||||||
Money Market Funds (D) – 4.2% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares, 0.030% (C) | 1,014 | $ | 1,014 | |||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, 0.030% | 18,492 | 18,492 | ||||||
|
| |||||||
19,506 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 4.2% | $19,506 | |||||||
(Cost: $19,506) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.9% |
| $ | 464,226 | |||||
(Cost: $302,803) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% |
| 311 | ||||||
NET ASSETS – 100.0% |
| $ | 464,537 |
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Table of Contents
SCHEDULE OF INVESTMENTS | SMALL CAP GROWTH (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | No dividends were paid during the preceding 12 months. |
(B) | All or a portion of securities with an aggregate value of $6,306 are on loan. |
(C) | Investment made with cash collateral received from securities on loan. |
(D) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following total return swap agreements were outstanding at December 31, 2020:
Underlying Security | Long/Short | Counterparty | Maturity Date | Notional Amount | Financing Fee(1)(2) | Value | Upfront Payments/ (Receipts) | Unrealized Depreciation | ||||||||||||||||||||||||
Biotech Custom Index | Long | JPMorgan Chase Bank N.A. | 07/01/2021 | $ | 18,926 | 1-Month LIBOR minus 0.2 bps | $ | (155 | ) | $ | — | $ | (155 | ) | ||||||||||||||||||
|
|
(1) | The Portfolio pays the financing fee multiplied by the notional amount if long on the swap agreement. If the Portfolio is short on the swap agreement, the Portfolio receives the financing fee multiplied by the notional amount. |
(2) | At the termination date, a net cash flow is exchanged where the market-linked total return is equivalent to the return of the underlying security less a financing rate, if any. If the Portfolio is long on the swap agreement, the Portfolio would receive payments on any net positive total return, and would owe payments in the event of a negative total return. If the Portfolio is short on the swap agreement, the Portfolio would owe payments on any net positive total return, and would receive payments in the event of a negative total return. |
The following table represents security positions within the total return basket swap as of December 31, 2020:
Reference Entity | Shares | Notional Amount | Value | % of Value | ||||||||||||
Mirati Therapeutics, Inc. | — | * | $ | 833 | $ | (7 | ) | 4.4 | % | |||||||
Ultragenyx Pharmaceutical, Inc. | — | * | 830 | (7 | ) | 4.4 | ||||||||||
Arrowhead Pharmaceuticals, Inc. | — | * | 808 | (7 | ) | 4.3 | ||||||||||
Natera, Inc. | — | * | 674 | (5 | ) | 3.6 | ||||||||||
Blueprint Medicines Corp. | — | * | 627 | (5 | ) | 3.3 | ||||||||||
Amicus Therapeutics, Inc. | — | * | 606 | (5 | ) | 3.2 | ||||||||||
Fate Therapeutics, Inc. | — | * | 602 | (5 | ) | 3.2 | ||||||||||
Halozyme Therapeutics, Inc. | — | * | 600 | (5 | ) | 3.2 | ||||||||||
Denali Therapeutics, Inc. | — | * | 546 | (4 | ) | 2.9 | ||||||||||
Bridgebio Pharma, Inc. | — | * | 541 | (4 | ) | 2.9 | ||||||||||
Invitae Corp. | — | * | 512 | (4 | ) | 2.7 | ||||||||||
TG Therapeutics, Inc. | — | * | 445 | (4 | ) | 2.3 | ||||||||||
Kodiak Sciences, Inc. | — | * | 436 | (4 | ) | 2.3 | ||||||||||
Twist Bioscience Corp. | — | * | 436 | (4 | ) | 2.3 | ||||||||||
Biohaven Pharmaceutical Holding Co. Ltd. | — | * | 425 | (3 | ) | 2.2 | ||||||||||
Emergent BioSolutions, Inc. | — | * | 415 | (3 | ) | 2.2 | ||||||||||
PTC Therapeutics, Inc. | — | * | 405 | (3 | ) | 2.1 | ||||||||||
Editas Medicine, Inc. | — | * | 401 | (3 | ) | 2.1 | ||||||||||
Medpace Holdings, Inc. | — | * | 393 | (3 | ) | 2.1 | ||||||||||
Allakos, Inc. | — | * | 353 | (3 | ) | 1.9 | ||||||||||
Apellis Pharmaceuticals, Inc. | — | * | 350 | (3 | ) | 1.8 | ||||||||||
Insmed, Inc. | — | * | 346 | (3 | ) | 1.8 | ||||||||||
Turning Point Therapeutics, Inc. | — | * | 323 | (3 | ) | 1.7 | ||||||||||
Heron Therapeutics, Inc. | — | * | 295 | (2 | ) | 1.6 | ||||||||||
ChemoCentryx, Inc. | — | * | 284 | (2 | ) | 1.5 | ||||||||||
FibroGen, Inc. | — | * | 275 | (2 | ) | 1.5 | ||||||||||
Arvinas, Inc. | — | * | 267 | (2 | ) | 1.4 |
Reference Entity | Shares | Notional Amount | Value | % of Value | ||||||||||||
Corcept Therapeutics, Inc. | — | * | $ | 259 | $ | (2 | ) | 1.4 | % | |||||||
Veracyte, Inc. | — | * | 252 | (2 | ) | 1.3 | ||||||||||
Axsome Therapeutics, Inc. | — | * | 247 | (2 | ) | 1.3 | ||||||||||
Intellia Therapeutics, Inc. | — | * | 247 | (2 | ) | 1.2 | ||||||||||
Xencor, Inc. | — | * | 234 | (2 | ) | 1.2 | ||||||||||
NanoString Technologies, Inc. | — | * | 225 | (2 | ) | 1.2 | ||||||||||
Pacira BioSciences, Inc. | — | * | 222 | (2 | ) | 1.2 | ||||||||||
Deciphera Pharmaceuticals, Inc. | — | * | 219 | (2 | ) | 1.2 | ||||||||||
Ironwood Pharmaceuticals, Inc. | — | * | 188 | (2 | ) | 1.0 | ||||||||||
Sangamo Therapeutics, Inc. | — | * | 187 | (2 | ) | 1.0 | ||||||||||
Kura Oncology, Inc. | — | * | 177 | (1 | ) | 0.9 | ||||||||||
Novavax, Inc. | — | * | 174 | (1 | ) | 0.9 | ||||||||||
Karuna Therapeutics, Inc. | — | * | 167 | (1 | ) | 0.9 | ||||||||||
REGENXBIO, Inc. | — | * | 163 | (1 | ) | 0.9 | ||||||||||
SpringWorks Therapeutics, Inc. | — | * | 156 | (1 | ) | 0.8 | ||||||||||
Y-mAbs Therapeutics, Inc. | — | * | 155 | (1 | ) | 0.8 | ||||||||||
Dicerna Pharmaceuticals, Inc. | — | * | 149 | (1 | ) | 0.8 | ||||||||||
Ligand Pharmaceuticals, Inc. | — | * | 148 | (1 | ) | 0.8 | ||||||||||
Inovio Pharmaceuticals, Inc. | — | * | 138 | (1 | ) | 0.7 | ||||||||||
Vir Biotechnology, Inc. | — | * | 135 | (1 | ) | 0.7 | ||||||||||
Allogene Therapeutics, Inc. | — | * | 127 | (1 | ) | 0.7 |
Reference Entity | Shares | Notional Amount | Value | % of Value | ||||||||||||
Revance Therapeutics, Inc. | — | * | $ | 126 | $ | (1 | ) | 0.7 | % | |||||||
Mersana Therapeutics, Inc. | — | * | 125 | (1 | ) | 0.7 | ||||||||||
Sorrento Therapeutics, Inc. | — | * | 124 | (1 | ) | 0.7 | ||||||||||
Travere Therapeutics, Inc. | — | * | 117 | (1 | ) | 0.6 | ||||||||||
Zogenix, Inc. | — | * | 114 | (1 | ) | 0.6 | ||||||||||
Karyopharm Therapeutics, Inc. | — | * | 114 | (1 | ) | 0.6 | ||||||||||
Madrigal Pharmaceuticals, Inc. | — | * | 110 | (1 | ) | 0.6 | ||||||||||
Intercept Pharmaceuticals, Inc. | — | * | 108 | (1 | ) | 0.6 | ||||||||||
Cytokinetics, Inc. | — | * | 106 | (1 | ) | 0.6 | ||||||||||
Coherus Biosciences, Inc. | — | * | 104 | (1 | ) | 0.5 | ||||||||||
Translate Bio, Inc. | — | * | 95 | (1 | ) | 0.5 | ||||||||||
Athenex, Inc. | — | * | 83 | (1 | ) | 0.4 | ||||||||||
Innoviva, Inc. | — | * | 81 | (1 | ) | 0.4 | ||||||||||
Alector, Inc. | — | * | 73 | (1 | ) | 0.4 | ||||||||||
Viela Bio, Inc. | — | * | 73 | (1 | ) | 0.4 | ||||||||||
Theravance Biopharma, Inc. | — | * | 72 | (1 | ) | 0.4 | ||||||||||
Kadmon Holdings, Inc. | — | * | 70 | (1 | ) | 0.4 | ||||||||||
Esperion Therapeutics, Inc. | — | * | 70 | (1 | ) | 0.3 | ||||||||||
Adverum Biotechnologies, Inc. | — | * | 68 | (1 | ) | 0.3 | ||||||||||
Epizyme, Inc. | — | * | 60 | — | * | 0.3 | ||||||||||
Akebia Therapeutics, Inc. | — | * | 36 | — | * | 0.2 | ||||||||||
|
| |||||||||||||||
$ | (155 | ) | ||||||||||||||
|
|
2020 | ANNUAL REPORT | 95 |
Table of Contents
SCHEDULE OF INVESTMENTS | SMALL CAP GROWTH (in thousands) |
DECEMBER 31, 2020
The following written options were outstanding at December 31, 2020 (contracts and exercise prices unrounded):
Underlying Security | Counterparty, if OTC | Type | Number of Contracts | Notional Amount | Expiration Month | Exercise Price | Premium Received | Value | ||||||||||||||||||||
iRhythm Technologies, Inc. | JPMorgan Chase Bank N.A. | Put | 210 | 21 | February 2021 | $ | 110.00 | $ | 42 | $ | (52 | ) | ||||||||||||||||
JPMorgan Chase Bank N.A. | Call | 210 | 21 | February 2021 | 280.00 | 169 | (188 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | 211 | $ | (240 | ) | ||||||||||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 444,625 | $ | — | $ | — | ||||||
Purchased Options | — | 95 | — | |||||||||
Short-Term Securities | 19,506 | — | — | |||||||||
Total | $ | 464,131 | $ | 95 | $ | — | ||||||
Liabilities | ||||||||||||
Total Return Swaps | $ | — | $ | 155 | $ | — | ||||||
Written Options | $ | — | $ | 240 | $ | — |
The following acronym is used throughout this schedule:
OTC = Over the Counter
See Accompanying Notes to Financial Statements.
96 | ANNUAL REPORT | 2020 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES | IVY VIP |
AS OF DECEMBER 31, 2020
(In thousands, except per share amounts) | Asset Strategy(1) | Balanced | Energy | Growth | High Income | International Core Equity | Mid Cap Growth | ||||||||||||||||||||||||||||
ASSETS |
| ||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities at value+^ | $ | 718,705 | $ | 341,483 | $ | 43,759 | $ | 896,498 | $ | 891,008 | $ | 648,702 | $ | 693,543 | |||||||||||||||||||||
Investments in affiliated securities at value+ | — | — | — | — | 352 | — | — | ||||||||||||||||||||||||||||
Bullion at value+ | 44,036 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Investments at Value | 762,741 | 341,483 | 43,759 | 896,498 | 891,360 | 648,702 | 693,543 | ||||||||||||||||||||||||||||
Cash | 239 | — | — | — | 1,128 | 2 | — | ||||||||||||||||||||||||||||
Cash denominated in foreign currencies at value+ | — | — | — | — | — | 1,086 | — | ||||||||||||||||||||||||||||
Investment securities sold receivable | — | 1,796 | 403 | — | 867 | 14 | — | ||||||||||||||||||||||||||||
Dividends and interest receivable | 2,831 | 848 | 41 | 262 | 10,800 | 2,611 | 68 | ||||||||||||||||||||||||||||
Capital shares sold receivable | 100 | 42 | 128 | 21 | 133 | 3 | 637 | ||||||||||||||||||||||||||||
Receivable from affiliates | — | — | — | — | — | — | 147 | ||||||||||||||||||||||||||||
Unrealized appreciation on forward foreign currency contracts | — | — | — | — | — | 685 | — | ||||||||||||||||||||||||||||
Swap agreements, at value | 382 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Receivable from securities lending income — net | 3 | 2 | 1 | — | 5 | 6 | 4 | ||||||||||||||||||||||||||||
Prepaid and other assets | 10 | 4 | — | * | 7 | 12 | 4 | 4 | |||||||||||||||||||||||||||
Total Assets | 766,306 | 344,175 | 44,332 | 896,788 | 904,305 | 653,113 | 694,403 | ||||||||||||||||||||||||||||
LIABILITIES | |||||||||||||||||||||||||||||||||||
Cash collateral on securities loaned at value | 665 | 71 | 2 | — | 6,310 | 2,601 | 4,040 | ||||||||||||||||||||||||||||
Investment securities purchased payable | — | — | 738 | — | 18,145 | 306 | 424 | ||||||||||||||||||||||||||||
Capital shares redeemed payable | 813 | 181 | 31 | 365 | 243 | 258 | 183 | ||||||||||||||||||||||||||||
Independent Trustees and Chief Compliance Officer fees payable | 158 | 74 | 9 | 173 | 70 | 91 | 38 | ||||||||||||||||||||||||||||
Overdraft due to custodian | — | 91 | — | — | — | — | — | ||||||||||||||||||||||||||||
Distribution and service fees payable | 5 | 2 | — | * | 6 | 6 | 5 | 3 | |||||||||||||||||||||||||||
Investment management fee payable | 15 | 7 | 1 | 17 | 15 | 15 | 16 | ||||||||||||||||||||||||||||
Accounting services fee payable | 29 | 16 | 5 | 35 | 35 | 27 | 28 | ||||||||||||||||||||||||||||
Written options at value+ | 29 | — | — | — | — | — | 104 | ||||||||||||||||||||||||||||
Other liabilities | 18 | 7 | 4 | 11 | 12 | 392 | 8 | ||||||||||||||||||||||||||||
Total Liabilities | 1,732 | 449 | 790 | 607 | 24,836 | 3,695 | 4,844 | ||||||||||||||||||||||||||||
Commitments and Contingencies | |||||||||||||||||||||||||||||||||||
Total Net Assets | $ | 764,574 | $ | 343,726 | $ | 43,542 | $ | 896,181 | $ | 879,469 | $ | 649,418 | $ | 689,559 | |||||||||||||||||||||
NET ASSETS | |||||||||||||||||||||||||||||||||||
Capital paid in (shares authorized — unlimited) | $ | 627,681 | $ | 257,267 | $ | 105,416 | $ | 427,042 | $ | 947,213 | $ | 614,934 | $ | 313,205 | |||||||||||||||||||||
Accumulated earnings gain (loss) | 136,893 | 86,459 | (61,874 | ) | 469,139 | (67,744 | ) | 34,484 | 376,354 | ||||||||||||||||||||||||||
Total Net Assets | $ | 764,574 | $ | 343,726 | $ | 43,542 | $ | 896,181 | $ | 879,469 | $ | 649,418 | $ | 689,559 | |||||||||||||||||||||
CAPITAL SHARES OUTSTANDING: | |||||||||||||||||||||||||||||||||||
Class I | 37 | N/A | 81 | N/A | 5,940 | N/A | 13,945 | ||||||||||||||||||||||||||||
Class II | 73,182 | 39,466 | 17,470 | 70,554 | 253,076 | 39,730 | 25,398 | ||||||||||||||||||||||||||||
NET ASSET VALUE PER SHARE: | |||||||||||||||||||||||||||||||||||
Class I | $ | 10.45 | N/A | $ | 2.48 | N/A | $ | 3.41 | N/A | $ | 17.60 | ||||||||||||||||||||||||
Class II | $ | 10.44 | $ | 8.71 | $ | 2.48 | $ | 12.70 | $ | 3.40 | $ | 16.35 | $ | 17.48 | |||||||||||||||||||||
+COST | |||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities at cost | $ | 606,743 | $ | 280,292 | $ | 53,923 | $ | 525,425 | $ | 917,024 | $ | 580,856 | $ | 399,718 | |||||||||||||||||||||
Investments in affiliated securities at cost | — | — | — | — | 1,113 | — | — | ||||||||||||||||||||||||||||
Bullion at cost | 28,369 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Cash denominated in foreign currencies at cost | — | — | — | — | — | 1,072 | — | ||||||||||||||||||||||||||||
Written options premiums received at cost | 33 | — | — | — | — | — | 437 | ||||||||||||||||||||||||||||
^Securities loaned at value | 649 | 195 | 492 | — | 8,521 | 20,940 | 7,018 |
* | Not shown due to rounding. |
(1) | Consolidated Statement of Assets and Liabilities (See Note 5 in Notes to Financial Statements). |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 97 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES | IVY VIP |
AS OF DECEMBER 31, 2020
(In thousands, except per share amounts) | Natural Resources | Science and Technology | Small Cap Core | Small Cap Growth | ||||||||||||||||
ASSETS |
| |||||||||||||||||||
Investments in unaffiliated securities at value+^ | $ | 75,231 | $ | 682,205 | $ | 182,160 | $ | 464,226 | ||||||||||||
Investments at Value | 75,231 | 682,205 | 182,160 | 464,226 | ||||||||||||||||
Cash | — | — | — | 1,874 | ||||||||||||||||
Cash denominated in foreign currencies at value+ | — | * | — | — | — | |||||||||||||||
Restricted cash | 310 | — | — | — | ||||||||||||||||
Investment securities sold receivable | — | 644 | 1,552 | 240 | ||||||||||||||||
Dividends and interest receivable | 96 | 320 | 89 | 53 | ||||||||||||||||
Capital shares sold receivable | 57 | 257 | 15 | 59 | ||||||||||||||||
Receivable from affiliates | — | — | — | 50 | ||||||||||||||||
Receivable from securities lending income — net | — | * | 19 | — | * | 2 | ||||||||||||||
Prepaid and other assets | 1 | 8 | 2 | 4 | ||||||||||||||||
Total Assets | 75,695 | 683,453 | 183,818 | 466,508 | ||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Cash collateral on securities loaned at value | — | 4,387 | — | 1,014 | ||||||||||||||||
Investment securities purchased payable | — | — | 726 | 295 | ||||||||||||||||
Capital shares redeemed payable | 53 | 541 | 161 | 141 | ||||||||||||||||
Independent Trustees and Chief Compliance Officer fees payable | 20 | 67 | 36 | 84 | ||||||||||||||||
Overdraft due to custodian | 270 | — | — | — | ||||||||||||||||
Distribution and service fees payable | — | * | 5 | 1 | 3 | |||||||||||||||
Investment management fee payable | 2 | 16 | 4 | 11 | ||||||||||||||||
Accounting services fee payable | 7 | 28 | 11 | 22 | ||||||||||||||||
Unrealized depreciation on forward foreign currency contracts | 472 | — | — | — | ||||||||||||||||
Swap agreements, at value | — | — | — | 155 | ||||||||||||||||
Written options at value+ | — | 34 | — | 240 | ||||||||||||||||
Other liabilities | 49 | 8 | 9 | 6 | ||||||||||||||||
Total Liabilities | 873 | 5,086 | 948 | 1,971 | ||||||||||||||||
Commitments and Contingencies | ||||||||||||||||||||
Total Net Assets | $ | 74,822 | $ | 678,367 | $ | 182,870 | $ | 464,537 | ||||||||||||
NET ASSETS | ||||||||||||||||||||
Capital paid in (shares authorized — unlimited) | $ | 146,832 | $ | 273,775 | $ | 154,359 | $ | 244,993 | ||||||||||||
Accumulated earnings gain (loss) | (72,010 | ) | 404,592 | 28,511 | 219,544 | |||||||||||||||
Total Net Assets | $ | 74,822 | $ | 678,367 | $ | 182,870 | $ | 464,537 | ||||||||||||
CAPITAL SHARES OUTSTANDING: | ||||||||||||||||||||
Class I | N/A | 59 | N/A | 4,821 | ||||||||||||||||
Class II | 22,671 | 18,851 | 13,204 | 33,607 | ||||||||||||||||
NET ASSET VALUE PER SHARE: | ||||||||||||||||||||
Class I | N/A | $ | 36.13 | N/A | $ | 12.15 | ||||||||||||||
Class II | $ | 3.30 | $ | 35.87 | $ | 13.85 | $ | 12.08 | ||||||||||||
+COST | ||||||||||||||||||||
Investments in unaffiliated securities at cost | $ | 78,735 | $ | 285,394 | $ | 152,318 | $ | 302,803 | ||||||||||||
Cash denominated in foreign currencies at cost | — | * | — | — | — | |||||||||||||||
Written options premiums received at cost | — | 378 | — | 211 | ||||||||||||||||
^ Securities loaned at value | — | 4,279 | — | 6,306 |
* Not shown due to rounding.
See Accompanying Notes to Financial Statements.
98 | ANNUAL REPORT | 2020 |
Table of Contents
STATEMENTS OF OPERATIONS | IVY VIP |
FOR THE YEAR ENDED DECEMBER 31, 2020
(In thousands) | Asset Strategy(1) | Balanced | Energy | Growth | High Income | International Core Equity | Mid Cap Growth | ||||||||||||||||||||||||||||
INVESTMENT INCOME |
| ||||||||||||||||||||||||||||||||||
Dividends from unaffiliated securities | $ | 7,820 | $ | 3,592 | $ | 961 | $ | 6,577 | $ | 2,176 | $ | 14,605 | $ | 3,111 | |||||||||||||||||||||
Foreign dividend withholding tax | (572 | ) | (37 | ) | (18 | ) | (14 | ) | — | (1,169 | ) | — | |||||||||||||||||||||||
Interest and amortization from unaffiliated securities | 11,358 | 3,243 | 5 | 30 | 56,949 | 169 | 48 | ||||||||||||||||||||||||||||
Interest and amortization from affiliated securities | — | — | — | — | 70 | — | — | ||||||||||||||||||||||||||||
Securities lending income — net | 51 | 13 | 6 | — | * | 148 | 72 | 29 | |||||||||||||||||||||||||||
Total Investment Income | 18,657 | 6,811 | 954 | 6,593 | 59,343 | 13,677 | 3,188 | ||||||||||||||||||||||||||||
EXPENSES | |||||||||||||||||||||||||||||||||||
Investment management fee | 4,994 | 2,218 | 278 | 5,730 | 5,071 | 5,139 | 4,737 | ||||||||||||||||||||||||||||
Distribution and service fees: | |||||||||||||||||||||||||||||||||||
Class II | 1,782 | 792 | 81 | 2,046 | 2,010 | 1,511 | 843 | ||||||||||||||||||||||||||||
Shareholder servicing: | |||||||||||||||||||||||||||||||||||
Class I | — | * | N/A | — | * | N/A | — | * | N/A | — | * | ||||||||||||||||||||||||
Class II | — | * | — | * | — | * | 51 | — | * | — | * | — | * | ||||||||||||||||||||||
Custodian fees | 45 | 6 | 7 | 11 | 15 | 70 | 15 | ||||||||||||||||||||||||||||
Independent Trustees and Chief Compliance Officer fees | 82 | 46 | 4 | 113 | 69 | 56 | 37 | ||||||||||||||||||||||||||||
Accounting services fee | 175 | 95 | 25 | 200 | 205 | 155 | 150 | ||||||||||||||||||||||||||||
Professional fees | 103 | 49 | 37 | 55 | 167 | 57 | 41 | ||||||||||||||||||||||||||||
Third-party valuation service fees | 14 | — | — | — | — | 14 | — | * | |||||||||||||||||||||||||||
Commitment and interest expense for borrowing | — | — | — | — | 55 | — | — | ||||||||||||||||||||||||||||
Other | 98 | 27 | 15 | 42 | 79 | 48 | 35 | ||||||||||||||||||||||||||||
Total Expenses | 7,293 | 3,233 | 447 | 8,248 | 7,671 | 7,050 | 5,858 | ||||||||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||||||||
Expenses in excess of limit | — | — | (21 | ) | — | — | — | (301 | ) | ||||||||||||||||||||||||||
Total Net Expenses | 7,293 | 3,233 | 426 | 8,248 | 7,671 | 7,050 | 5,557 | ||||||||||||||||||||||||||||
Net Investment Income (Loss) | 11,364 | 3,578 | 528 | (1,655 | ) | 51,672 | 6,627 | (2,369 | ) | ||||||||||||||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | |||||||||||||||||||||||||||||||||||
Net realized gain (loss) on: | |||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities | 22,244 | 21,721 | (13,526 | ) | 100,050 | (18,616 | ) | (40,328 | ) | 85,008 | |||||||||||||||||||||||||
Written options | 2,754 | 12 | — | — | — | 24 | (248 | ) | |||||||||||||||||||||||||||
Swap agreements | — | * | — | — | — | — | — | — | |||||||||||||||||||||||||||
Forward foreign currency contracts | — | — | — | — | — | 20 | — | ||||||||||||||||||||||||||||
Foreign currency exchange transactions | (64 | ) | — | — | — | — | 168 | (2 | ) | ||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities | 55,687 | 16,478 | 2,711 | 124,851 | 15,081 | 73,033 | 149,292 | ||||||||||||||||||||||||||||
Investments in affiliated securities | — | — | — | — | (620 | ) | — | — | |||||||||||||||||||||||||||
Written options | 4 | — | — | — | — | — | 333 | ||||||||||||||||||||||||||||
Swap Agreements | 382 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Forward foreign currency contracts | — | — | — | — | — | 1,518 | — | ||||||||||||||||||||||||||||
Foreign currency exchange transactions | 26 | — | — | — | — | 110 | — | * | |||||||||||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 81,033 | 38,211 | (10,815 | ) | 224,901 | (4,155 | ) | 34,545 | 234,383 | ||||||||||||||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 92,397 | $ | 41,789 | $ | (10,287 | ) | $ | 223,246 | $ | 47,517 | $ | 41,172 | $ | 232,014 |
* | Not shown due to rounding. |
(1) | Consolidated Statement of Operations (See Note 5 in Notes to Financial Statements). |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 99 |
Table of Contents
STATEMENTS OF OPERATIONS | IVY VIP |
FOR YEAR ENDED DECEMBER 31, 2020
(In thousands) | Natural Resources | Science and Technology | Small Cap Core | Small Cap Growth | ||||||||||||||||
INVESTMENT INCOME |
| |||||||||||||||||||
Dividends from unaffiliated securities | $ | 1,970 | $ | 2,862 | $ | 1,681 | $ | 1,568 | ||||||||||||
Foreign dividend withholding tax | (64 | ) | (128 | ) | — | — | ||||||||||||||
Interest and amortization from unaffiliated securities | 11 | 72 | 17 | 64 | ||||||||||||||||
Securities lending income — net | 2 | 40 | 2 | 19 | ||||||||||||||||
Total Investment Income | 1,919 | 2,846 | 1,700 | 1,651 | ||||||||||||||||
EXPENSES | ||||||||||||||||||||
Investment management fee | 604 | 4,927 | 1,366 | 3,231 | ||||||||||||||||
Distribution and service fees: | ||||||||||||||||||||
Class II | 177 | 1,445 | 402 | 816 | ||||||||||||||||
Shareholder servicing: | ||||||||||||||||||||
Class I | N/A | — | * | N/A | — | * | ||||||||||||||
Class II | — | * | — | * | — | * | — | * | ||||||||||||
Custodian fees | 8 | 15 | 20 | 6 | ||||||||||||||||
Independent Trustees and Chief Compliance Officer fees | 10 | 53 | 18 | 52 | ||||||||||||||||
Accounting services fee | 42 | 153 | 65 | 118 | ||||||||||||||||
Professional fees | 53 | 57 | 41 | 44 | ||||||||||||||||
Third-party valuation service fees | 2 | 1 | — | — | ||||||||||||||||
Other | 31 | 49 | 19 | 48 | ||||||||||||||||
Total Expenses | 927 | 6,700 | 1,931 | 4,315 | ||||||||||||||||
Less: | ||||||||||||||||||||
Expenses in excess of limit | — | — | — | (114 | ) | |||||||||||||||
Total Net Expenses | 927 | 6,700 | 1,931 | 4,201 | ||||||||||||||||
Net Investment Income (Loss) | 992 | �� | (3,854 | ) | (231 | ) | (2,550 | ) | ||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||
Investments in unaffiliated securities | (16,540 | ) | 56,593 | (1,117 | ) | 54,104 | ||||||||||||||
Written options | — | — | — | 4 | ||||||||||||||||
Swap agreements | — | — | — | 7,888 | ||||||||||||||||
Forward foreign currency contracts | (742 | ) | — | — | — | |||||||||||||||
Foreign currency exchange transactions | (4 | ) | — | * | — | — | ||||||||||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||
Investments in unaffiliated securities | 6,024 | 131,682 | 12,595 | 73,393 | ||||||||||||||||
Written options | — | 344 | — | (29 | ) | |||||||||||||||
Swap agreements | — | — | — | (781 | ) | |||||||||||||||
Forward foreign currency contracts | 429 | — | — | — | ||||||||||||||||
Foreign currency exchange transactions | — | * | 2 | — | — | |||||||||||||||
Net Realized and Unrealized Gain (Loss) | (10,833 | ) | 188,621 | 11,478 | 134,579 | |||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | (9,841 | ) | $ | 184,767 | $ | 11,247 | $ | 132,029 |
* Not shown due to rounding.
See Accompanying Notes to Financial Statements.
100 | ANNUAL REPORT | 2020 |
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STATEMENTS OF CHANGES IN NET ASSETS | IVY VIP |
Asset Strategy(1) | Balanced | Energy | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income | $ | 11,364 | $ | 14,981 | $ | 3,578 | $ | 4,555 | $ | 528 | $ | 177 | ||||||||||||||||||
Net realized gain (loss) on investments | 24,934 | 32,609 | 21,733 | 17,335 | (13,526 | ) | (7,223 | ) | ||||||||||||||||||||||
Net change in unrealized appreciation | 56,099 | 104,156 | 16,478 | 43,391 | 2,711 | 8,632 | ||||||||||||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 92,397 | 151,746 | 41,789 | 65,281 | (10,287 | ) | 1,586 | |||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class I | (14 | ) | (20 | ) | N/A | N/A | (4 | ) | — | |||||||||||||||||||||
Class II | (25,939 | ) | (45,846 | ) | (21,608 | ) | (31,681 | ) | (710 | ) | — | |||||||||||||||||||
Total Distributions to Shareholders | (25,953 | ) | (45,866 | ) | (21,608 | ) | (31,681 | ) | (714 | ) | — | |||||||||||||||||||
Capital Share Transactions | (74,478 | ) | (86,614 | ) | (17,294 | ) | (3,079 | ) | 12,886 | 873 | ||||||||||||||||||||
Net Increase (Decrease) in Net Assets | (8,034 | ) | 19,266 | 2,887 | 30,521 | 1,885 | 2,459 | |||||||||||||||||||||||
Net Assets, Beginning of Period | 772,608 | 753,342 | 340,839 | 310,318 | 41,657 | 39,198 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 764,574 | $ | 772,608 | $ | 343,726 | $ | 340,839 | $ | 43,542 | $ | 41,657 | ||||||||||||||||||
Growth | High Income | International Core Equity | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | $ | (1,655 | ) | $ | (392 | ) | $ | 51,672 | $ | 58,517 | $ | 6,627 | $ | 13,679 | ||||||||||||||||
Net realized gain (loss) on investments | 100,050 | 112,843 | (18,616 | ) | (1,766 | ) | (40,116 | ) | 645 | |||||||||||||||||||||
Net change in unrealized appreciation | 124,851 | 118,696 | 14,461 | 36,407 | 74,661 | 105,350 | ||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 223,246 | 231,147 | 47,517 | 93,158 | 41,172 | 119,674 | ||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class I | N/A | N/A | (1,439 | ) | (3,156 | ) | N/A | N/A | ||||||||||||||||||||||
Class II | (112,472 | ) | (186,937 | ) | (57,105 | ) | (55,287 | ) | (14,682 | ) | (70,370 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (112,472 | ) | (186,937 | ) | (58,544 | ) | (58,443 | ) | (14,682 | ) | (70,370 | ) | ||||||||||||||||||
Capital Share Transactions | (5,293 | ) | 77,299 | 4,623 | 4,104 | (76,149 | ) | (26,103 | ) | |||||||||||||||||||||
Net Increase (Decrease) in Net Assets | 105,481 | 121,509 | (6,404 | ) | 38,819 | (49,659 | ) | 23,201 | ||||||||||||||||||||||
Net Assets, Beginning of Period | 790,700 | 669,191 | 885,873 | 847,054 | 699,077 | 675,876 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 896,181 | $ | 790,700 | $ | 879,469 | $ | 885,873 | $ | 649,418 | $ | 699,077 |
(1) Consolidated Statements of Changes in Net Assets (See Note 5 in Notes to Financial Statements).
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 101 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS | IVY VIP |
Mid Cap Growth | Natural Resources | Science and Technology | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income (loss) | $ | (2,369 | ) | $ | (1,716 | ) | $ | 992 | $ | 1,676 | $ | (3,854 | ) | $ | (2,507 | ) | ||||||||||||||
Net realized gain (loss) on investments | 84,758 | 41,235 | (17,286 | ) | (8,446 | ) | 56,593 | 74,933 | ||||||||||||||||||||||
Net change in unrealized appreciation | 149,625 | 114,679 | 6,453 | 15,165 | 132,028 | 130,323 | ||||||||||||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 232,014 | 154,198 | (9,841 | ) | 8,395 | 184,767 | 202,749 | |||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class I | (16,218 | ) | (35,378 | ) | N/A | N/A | (191 | ) | (80 | ) | ||||||||||||||||||||
Class II | (23,025 | ) | (46,820 | ) | (1,678 | ) | (870 | ) | (71,179 | ) | (49,737 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (39,243 | ) | (82,198 | ) | (1,678 | ) | (870 | ) | (71,370 | ) | (49,817 | ) | ||||||||||||||||||
Capital Share Transactions | (50,778 | ) | 61,552 | (1,267 | ) | (8,357 | ) | (15,453 | ) | (2,175 | ) | |||||||||||||||||||
Net Increase (Decrease) in Net Assets | 141,993 | 133,552 | (12,786 | ) | (832 | ) | 97,944 | 150,757 | ||||||||||||||||||||||
Net Assets, Beginning of Period | 547,566 | 414,014 | 87,608 | 88,440 | 580,423 | 429,666 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 689,559 | $ | 547,566 | $ | 74,822 | $ | 87,608 | $ | 678,367 | $ | 580,423 | ||||||||||||||||||
Small Cap Core | Small Cap Growth | |||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment loss | $ | (231 | ) | $ | (89 | ) | $ | (2,550 | ) | $ | (3,127 | ) | ||||||||||||||||||
Net realized gain (loss) on investments | (1,117 | ) | 9,076 | 61,996 | 23,488 | |||||||||||||||||||||||||
Net change in unrealized appreciation | 12,595 | 32,388 | 72,583 | 60,210 | ||||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 11,247 | 41,375 | 132,029 | 80,571 | ||||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class I | N/A | N/A | — | (4,305 | ) | |||||||||||||||||||||||||
Class II | (8,738 | ) | (36,690 | ) | — | (24,945 | ) | |||||||||||||||||||||||
Total Distributions to Shareholders | (8,738 | ) | (36,690 | ) | — | (29,250 | ) | |||||||||||||||||||||||
Capital Share Transactions | (7,655 | ) | 7,974 | (56,435 | ) | (14,405 | ) | |||||||||||||||||||||||
Net Increase (Decrease) in Net Assets | (5,146 | ) | 12,659 | 75,594 | 36,916 | |||||||||||||||||||||||||
Net Assets, Beginning of Period | 188,016 | 175,357 | 388,943 | 352,027 | ||||||||||||||||||||||||||
Net Assets, End of Period | $ | 182,870 | $ | 188,016 | $ | 464,537 | $ | 388,943 |
See Accompanying Notes to Financial Statements.
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2020 | ANNUAL REPORT | 103 |
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FINANCIAL HIGHLIGHTS | IVY VIP |
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Distributions From Net Investment Income | Distributions From Net Realized Gains | Total Distributions | |||||||||||||||||||||||||||||
Asset Strategy | |||||||||||||||||||||||||||||||||||
Class I Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 9.50 | $ | 0.17 | $ | 1.16 | $ | 1.33 | $ | (0.22 | ) | $ | (0.16 | ) | $ | (0.38 | ) | ||||||||||||||||||
Year ended 12-31-2019 | 8.29 | 0.20 | 1.63 | 1.83 | (0.23 | ) | (0.39 | ) | (0.62 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 9.37 | 0.18 | (0.67 | ) | (0.49 | ) | (0.20 | ) | (0.39 | ) | (0.59 | ) | |||||||||||||||||||||||
Year ended 12-31-2017(4) | 8.57 | 0.08 | 0.88 | 0.96 | (0.16 | ) | — | (0.16 | ) | ||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 9.50 | 0.15 | 1.15 | 1.30 | (0.20 | ) | (0.16 | ) | (0.36 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 8.29 | 0.18 | 1.62 | 1.80 | (0.20 | ) | (0.39 | ) | (0.59 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 9.37 | 0.16 | (0.67 | ) | (0.51 | ) | (0.18 | ) | (0.39 | ) | (0.57 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 8.04 | 0.03 | 1.44 | 1.47 | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2016 | 8.30 | 0.06 | (0.27 | ) | (0.21 | ) | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||||||||||
Balanced | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 8.22 | 0.09 | 0.94 | 1.03 | (0.11 | ) | (0.43 | ) | (0.54 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 7.46 | 0.11 | 1.44 | 1.55 | (0.14 | ) | (0.65 | ) | (0.79 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 7.95 | 0.12 | (0.36 | ) | (0.24 | ) | (0.13 | ) | (0.12 | ) | (0.25 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 7.47 | 0.12 | 0.70 | 0.82 | (0.12 | ) | (0.22 | ) | (0.34 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 8.76 | 0.11 | 0.00 | * | 0.11 | (0.12 | ) | (1.28 | ) | (1.40 | ) | ||||||||||||||||||||||||
Energy | |||||||||||||||||||||||||||||||||||
Class I Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 4.02 | 0.04 | (1.52 | ) | (1.48 | ) | (0.06 | ) | — | (0.06 | ) | ||||||||||||||||||||||||
Year ended 12-31-2019 | 3.88 | 0.03 | 0.11 | 0.14 | — | — | — | ||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.87 | 0.00 | * | (1.99 | ) | (1.99 | ) | — | — | — | |||||||||||||||||||||||||
Year ended 12-31-2017(4) | 5.84 | 0.06 | 0.02 | 0.08 | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 4.00 | 0.04 | (1.52 | ) | (1.48 | ) | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||||||||||
Year ended 12-31-2019 | 3.87 | 0.02 | 0.11 | 0.13 | — | — | — | ||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.87 | (0.02 | ) | (1.98 | ) | (2.00 | ) | — | — | — | |||||||||||||||||||||||||
Year ended 12-31-2017 | 6.77 | 0.04 | (0.90 | ) | (0.86 | ) | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||||||||||
Year ended 12-31-2016 | 5.04 | (0.02 | ) | 1.76 | 1.74 | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||||||||||
Growth | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 11.33 | (0.02 | ) | 3.03 | 3.01 | — | (1.64 | ) | (1.64 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 11.02 | (0.01 | ) | 3.58 | 3.57 | — | (3.26 | ) | (3.26 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 12.09 | 0.00 | * | 0.36 | 0.36 | — | * | (1.43 | ) | (1.43 | ) | ||||||||||||||||||||||||
Year ended 12-31-2017 | 10.30 | 0.01 | 2.84 | 2.85 | (0.03 | ) | (1.03 | ) | (1.06 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 11.42 | 0.03 | 0.03 | 0.06 | — | * | (1.18 | ) | (1.18 | ) | |||||||||||||||||||||||||
High Income | |||||||||||||||||||||||||||||||||||
Class I Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.48 | 0.21 | (0.03 | ) | 0.18 | (0.25 | ) | — | (0.25 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 3.35 | 0.24 | 0.13 | 0.37 | (0.24 | ) | — | (0.24 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.65 | 0.23 | (0.29 | ) | (0.06 | ) | (0.24 | ) | — | (0.24 | ) | ||||||||||||||||||||||||
Year ended 12-31-2017(4) | 3.73 | 0.16 | (0.03 | ) | 0.13 | (0.21 | ) | — | (0.21 | ) | |||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.47 | 0.20 | (0.03 | ) | 0.17 | (0.24 | ) | — | (0.24 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 3.34 | 0.23 | 0.13 | 0.36 | (0.23 | ) | — | (0.23 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.64 | 0.22 | (0.29 | ) | (0.07 | ) | (0.23 | ) | — | (0.23 | ) | ||||||||||||||||||||||||
Year ended 12-31-2017 | 3.61 | 0.23 | 0.01 | 0.24 | (0.21 | ) | — | (0.21 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2016 | 3.35 | 0.24 | 0.28 | 0.52 | (0.26 | ) | — | (0.26 | ) | ||||||||||||||||||||||||||
International Core Equity | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 15.65 | 0.16 | 0.88 | 1.04 | (0.34 | ) | — | * | (0.34 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 14.66 | 0.29 | 2.28 | 2.57 | (0.25 | ) | (1.33 | ) | (1.58 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 18.58 | 0.30 | (3.45 | ) | (3.15 | ) | (0.28 | ) | (0.49 | ) | (0.77 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 15.30 | 0.23 | 3.29 | 3.52 | (0.24 | ) | — | (0.24 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2016 | 15.53 | 0.24 | (0.11 | ) | 0.13 | (0.20 | ) | (0.16 | ) | (0.36 | ) |
* | Not shown due to rounding. |
(1) | Based on average weekly shares outstanding. |
(2) | Based on net asset value. Total returns do not reflect a sales charge or contingent deferred sales charge, if applicable. Total returns for periods less than one year are not annualized. |
(3) | Ratios excluding expense waivers are included only for periods in which the class had waived or reimbursed expenses. |
(4) | For the period from April 28, 2017 (commencement of operations of the class) through December 31, 2017. |
(5) | Annualized. |
(6) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the period ended December 31, 2017. |
.
104 | ANNUAL REPORT | 2020 |
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Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (in millions) | Ratio of Expenses to Average Net Assets Including Expense Waiver | Ratio of Net (Loss) to | Ratio of Expenses to Average Net Assets Excluding Expense Waiver(3) | Ratio of Net (Loss) to | Portfolio Turnover Rate | |||||||||||||||||||||||||||||||||
Asset Strategy |
| |||||||||||||||||||||||||||||||||||||||
Class I Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 10.45 | 14.16 | % | $ | — | * | 0.77 | % | 1.83 | % | — | % | — | % | 44 | % | |||||||||||||||||||||||
Year ended 12-31-2019 | 9.50 | 22.08 | 1 | 0.77 | 2.19 | 0.77 | 2.19 | 46 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 8.29 | -5.20 | — | * | 0.78 | 1.91 | 0.78 | 1.91 | 58 | |||||||||||||||||||||||||||||||
Year ended 12-31-2017(4) | 9.37 | 11.16 | — | * | 0.74 | (5) | 1.30 | (5) | — | — | 39 | (6) | ||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 10.44 | 13.88 | 764 | 1.02 | 1.60 | — | — | 44 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 9.50 | 21.78 | 772 | 1.02 | 1.94 | — | — | 46 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 8.29 | -5.44 | 753 | 1.03 | 1.65 | — | — | 58 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 9.37 | 18.27 | 936 | 1.02 | 0.35 | — | — | 39 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 8.04 | -2.57 | 954 | 1.01 | 0.70 | 1.02 | 0.69 | 68 | ||||||||||||||||||||||||||||||||
Balanced |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 8.71 | 14.11 | 344 | 1.02 | 1.13 | — | — | 61 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 8.22 | 22.09 | 341 | 1.01 | 1.38 | — | — | 44 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 7.46 | -3.24 | 310 | 1.01 | 1.55 | — | — | 54 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 7.95 | 11.37 | 362 | 1.01 | 1.54 | — | — | 48 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 7.47 | 2.03 | 361 | 1.01 | 1.53 | — | — | 54 | ||||||||||||||||||||||||||||||||
Energy |
| |||||||||||||||||||||||||||||||||||||||
Class I Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 2.48 | -36.67 | — | * | 1.06 | 1.89 | 1.12 | 1.83 | 54 | |||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 4.02 | 3.74 | — | * | 1.04 | 0.64 | — | — | 21 | |||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.88 | -33.96 | — | * | 0.94 | -0.09 | 0.94 | -0.09 | 37 | |||||||||||||||||||||||||||||||
Year ended 12-31-2017(4) | 5.87 | 1.55 | — | * | 0.92 | (5) | 1.70 | (5) | — | — | 22 | (6) | ||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 2.48 | -36.83 | 44 | 1.31 | 1.62 | 1.37 | 1.56 | 54 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 4.00 | 3.48 | 42 | 1.29 | 0.42 | — | — | 21 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.87 | -34.14 | 39 | 1.19 | -0.41 | — | — | 37 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.87 | -12.64 | 169 | 1.19 | 0.75 | — | — | 22 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 6.77 | 34.55 | 196 | 1.19 | -0.27 | — | — | 31 | ||||||||||||||||||||||||||||||||
Growth |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 12.70 | 30.55 | 896 | 1.01 | -0.20 | — | — | 29 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 11.33 | 36.59 | 791 | 1.00 | -0.05 | — | — | 30 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 11.02 | 2.28 | 669 | 1.00 | -0.02 | — | — | 37 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 12.09 | 29.34 | 883 | 0.99 | 0.05 | — | — | 41 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 10.30 | 1.22 | 835 | 0.98 | 0.26 | 1.00 | 0.24 | 53 | ||||||||||||||||||||||||||||||||
High Income |
| |||||||||||||||||||||||||||||||||||||||
Class I Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.41 | 6.30 | 20 | 0.69 | 6.54 | — | — | 52 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 3.48 | 11.49 | 27 | 0.67 | 6.82 | — | — | 35 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.35 | -1.86 | 44 | 0.66 | 6.50 | 0.66 | 6.50 | 42 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017(4) | 3.65 | 3.42 | 56 | 0.66 | (5) | 6.53 | (5) | — | — | 52 | (6) | |||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.40 | 6.03 | 859 | 0.94 | 6.28 | — | — | 52 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 3.47 | 11.19 | 859 | 0.92 | 6.57 | — | — | 35 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.34 | -2.11 | 803 | 0.91 | 6.27 | — | — | 42 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 3.64 | 6.68 | 887 | 0.91 | 6.22 | — | — | 52 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 3.61 | 16.19 | 845 | 0.89 | 6.97 | 0.92 | 6.94 | 36 | ||||||||||||||||||||||||||||||||
International Core Equity |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 16.35 | 7.19 | 649 | 1.17 | 1.10 | — | — | 82 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 15.65 | 18.69 | 699 | 1.16 | 1.93 | — | — | 69 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 14.66 | -17.81 | 676 | 1.16 | 1.70 | — | — | 51 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 18.58 | 23.16 | �� | 835 | 1.16 | 1.33 | — | — | 59 | |||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 15.30 | 1.08 | 736 | 1.17 | 1.60 | — | — | 77 |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 105 |
Table of Contents
FINANCIAL HIGHLIGHTS | IVY VIP |
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Distributions From Net Investment Income | Distributions From Net Realized Gains | Total Distributions | |||||||||||||||||||||||||||||
Mid Cap Growth | |||||||||||||||||||||||||||||||||||
Class I Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 12.77 | $ | (0.04 | ) | $ | 5.89 | $ | 5.85 | $ | — | $ | (1.02 | ) | $ | (1.02 | ) | ||||||||||||||||||
Year ended 12-31-2019 | 11.10 | (0.02 | ) | 3.95 | 3.93 | — | (2.26 | ) | (2.26 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 11.63 | (0.02 | ) | 0.09 | 0.07 | — | (0.60 | ) | (0.60 | ) | |||||||||||||||||||||||||
Year ended 12-31-2017(4) | 10.30 | 0.00 | * | 1.64 | 1.64 | — | (0.31 | ) | (0.31 | ) | |||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 12.69 | (0.07 | ) | 5.85 | 5.78 | — | (0.99 | ) | (0.99 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 11.07 | (0.06 | ) | 3.94 | 3.88 | — | (2.26 | ) | (2.26 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 11.61 | (0.05 | ) | 0.09 | 0.04 | — | (0.58 | ) | (0.58 | ) | |||||||||||||||||||||||||
Year ended 12-31-2017 | 9.44 | (0.04 | ) | 2.52 | 2.48 | — | (0.31 | ) | (0.31 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 9.42 | (0.01 | ) | 0.55 | 0.54 | — | (0.52 | ) | �� | (0.52 | ) | ||||||||||||||||||||||||
Natural Resources | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.84 | 0.04 | (0.51 | ) | (0.47 | ) | (0.07 | ) | — | (0.07 | ) | ||||||||||||||||||||||||
Year ended 12-31-2019 | 3.55 | 0.07 | 0.26 | 0.33 | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.63 | 0.03 | (1.10 | ) | (1.07 | ) | (0.01 | ) | — | (0.01 | ) | ||||||||||||||||||||||||
Year ended 12-31-2017 | 4.50 | 0.00 | * | 0.14 | 0.14 | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 3.66 | 0.01 | 0.86 | 0.87 | (0.03 | ) | — | (0.03 | ) | ||||||||||||||||||||||||||
Science and Technology | |||||||||||||||||||||||||||||||||||
Class I Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 29.94 | (0.14 | ) | 10.31 | 10.17 | — | (3.98 | ) | (3.98 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 21.91 | (0.06 | ) | 10.95 | 10.89 | — | (2.86 | ) | (2.86 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 27.04 | (0.03 | ) | (1.24 | ) | (1.27 | ) | — | (3.86 | ) | (3.86 | ) | |||||||||||||||||||||||
Year ended 12-31-2017(4) | 25.22 | (0.04 | ) | 4.16 | 4.12 | — | (2.30 | ) | (2.30 | ) | |||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 29.82 | (0.21 | ) | 10.24 | 10.03 | — | (3.98 | ) | (3.98 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 21.84 | (0.13 | ) | 10.90 | 10.77 | — | (2.79 | ) | (2.79 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 27.04 | (0.11 | ) | (1.23 | ) | (1.34 | ) | — | (3.86 | ) | (3.86 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 22.34 | (0.13 | ) | 7.08 | 6.95 | — | (2.25 | ) | (2.25 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 22.96 | (0.11 | ) | 0.34 | 0.23 | — | (0.85 | ) | (0.85 | ) | |||||||||||||||||||||||||
Small Cap Core | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 13.71 | (0.02 | ) | 0.80 | 0.78 | — | (0.64 | ) | (0.64 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 13.51 | 0.00 | * | 3.12 | 3.12 | — | (2.92 | ) | (2.92 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 18.32 | (0.06 | ) | (1.37 | ) | (1.43 | ) | (0.02 | ) | (3.36 | ) | (3.38 | ) | ||||||||||||||||||||||
Year ended 12-31-2017 | 18.34 | 0.00 | * | 2.21 | 2.21 | — | (2.23 | ) | (2.23 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 15.66 | 0.01 | 4.17 | 4.18 | (0.07 | ) | (1.43 | ) | (1.50 | ) | |||||||||||||||||||||||||
Small Cap Growth | |||||||||||||||||||||||||||||||||||
Class I Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 8.80 | (0.04 | ) | 3.39 | 3.35 | — | — | — | |||||||||||||||||||||||||||
Year ended 12-31-2019 | 7.69 | (0.05 | ) | 1.85 | 1.80 | — | (0.69 | ) | (0.69 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018(5) | 8.76 | 0.00 | * | (1.07 | ) | (1.07 | ) | — | — | — | |||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 8.77 | (0.06 | ) | 3.37 | 3.31 | — | — | — | |||||||||||||||||||||||||||
Year ended 12-31-2019 | 7.68 | (0.07 | ) | 1.85 | 1.78 | — | (0.69 | ) | (0.69 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 11.63 | (0.06 | ) | 0.03 | (0.03 | ) | (0.05 | ) | (3.87 | ) | (3.92 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 9.69 | (0.07 | ) | 2.27 | 2.20 | — | (0.26 | ) | (0.26 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 10.60 | (0.07 | ) | 0.23 | 0.16 | — | (1.07 | ) | (1.07 | ) |
* | Not shown due to rounding. |
(1) | Based on average weekly shares outstanding. |
(2) | Based on net asset value. Total returns do not reflect a sales charge or contingent deferred sales charge, if applicable. Total returns for periods less than one year are not annualized. |
(3) | Ratios excluding expense waivers are included only for periods in which the class had waived or reimbursed expenses. |
(4) | For the period from April 28, 2017 (commencement of operations of the class) through December 31, 2017. |
(5) | For the period from November 5, 2018 (commencement of operations of the class) through December 31, 2018. |
(6) | Annualized. |
(7) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the period ended December 31, 2017. |
(8) | Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the period ended December 31, 2018. |
(9) | Expense ratio based on the period excluding reorganization expenses was 0.89%. |
(10) | Expense ratio based on the period excluding reorganization expenses was 1.14%. |
106 | ANNUAL REPORT | 2020 |
Table of Contents
Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (in millions) | Ratio of Expenses to Average Net Assets Including Expense Waiver | Ratio of Net Investment Income (Loss) to Average Net Assets Including Expense Waiver | Ratio of Expenses to Average Net Assets Excluding Expense Waiver(3) | Ratio of Net Investment Income (Loss) to Average Net Assets Excluding Expense Waiver(3) | Portfolio Turnover Rate | |||||||||||||||||||||||||||||||||
Mid Cap Growth | ||||||||||||||||||||||||||||||||||||||||
Class I Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 17.60 | 49.37 | % | $ | 246 | 0.85 | % | -0.27 | % | 0.90 | % | -0.32 | % | 25 | % | ||||||||||||||||||||||||
Year ended 12-31-2019 | 12.77 | 38.28 | 233 | 0.85 | -0.20 | 0.90 | -0.25 | 20 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 11.10 | 0.20 | 184 | 0.85 | -0.14 | 0.90 | -0.19 | 53 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017(4) | 11.63 | 16.44 | 131 | 0.856 | (6) | 0.05 | (6) | 0.89 | (6) | 0.01 | (6) | 25 | (7) | |||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 17.48 | 49.00 | 444 | 1.10 | -0.53 | 1.15 | -0.58 | 25 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 12.69 | 37.94 | 315 | 1.10 | -0.45 | 1.15 | -0.50 | 20 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 11.07 | -0.06 | 230 | 1.10 | -0.42 | 1.15 | -0.47 | 53 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 11.61 | 26.89 | 585 | 1.11 | -0.39 | 1.15 | -0.43 | 25 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 9.44 | 6.12 | 615 | 1.10 | -0.09 | 1.15 | -0.14 | 33 | ||||||||||||||||||||||||||||||||
Natural Resources |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.30 | -11.99 | 75 | 1.31 | 1.40 | — | — | 71 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 3.84 | 9.46 | 88 | 1.24 | 1.88 | — | — | 36 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 3.55 | -23.23 | 88 | 1.21 | 0.72 | — | — | 33 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 4.63 | 2.97 | 131 | 1.36 | 0.11 | — | — | 44 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.50 | 23.81 | 144 | 1.36 | 0.20 | — | — | 67 | ||||||||||||||||||||||||||||||||
Science and Technology |
| |||||||||||||||||||||||||||||||||||||||
Class I Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 36.13 | 35.70 | 2 | 0.91 | -0.44 | — | — | 8 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 29.94 | 49.86 | 1 | 0.90 | -0.23 | — | — | 31 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 21.91 | -5.00 | 1 | 0.91 | -0.11 | 0.91 | -0.11 | 17 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017(4) | 27.04 | 17.24 | — | * | 0.90 | (6) | -0.25 | (6) | — | — | 27 | (7) | ||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 35.87 | 35.36 | 676 | 1.16 | -0.67 | — | — | 8 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 29.82 | 49.48 | 579 | 1.15 | -0.48 | — | — | 31 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 21.84 | -5.23 | 429 | 1.16 | -0.38 | — | — | 17 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 27.04 | 32.12 | 645 | 1.15 | -0.51 | — | — | 27 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 22.34 | 1.54 | 514 | 1.15 | -0.52 | 1.17 | -0.54 | 16 | ||||||||||||||||||||||||||||||||
Small Cap Core |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 13.85 | 7.03 | 183 | 1.20 | -0.14 | — | — | 145 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 13.71 | 24.33 | 188 | 1.18 | -0.05 | — | — | 126 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 13.51 | -10.49 | 175 | 1.17 | -0.34 | — | — | 112 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 18.32 | 13.73 | 316 | 1.15 | 0.01 | — | — | 112 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 18.34 | 28.88 | 348 | 1.16 | 0.08 | — | — | 182 | ||||||||||||||||||||||||||||||||
Small Cap Growth |
| |||||||||||||||||||||||||||||||||||||||
Class I Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 12.15 | 38.01 | 59 | 0.89 | -0.46 | 0.92 | -0.49 | 50 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 8.80 | 23.68 | 58 | 0.89 | -0.60 | 0.91 | -0.62 | 41 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018(5) | 7.69 | -12.24 | 52 | 1.05 | (6)(9) | 0.15 | (6) | 1.07 | (6) | 0.13 | (6) | 52 | (8) | |||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 12.08 | 37.66 | 406 | 1.14 | -0.71 | 1.17 | -0.74 | 50 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 8.77 | 23.37 | 331 | 1.14 | -0.84 | 1.17 | -0.87 | 41 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 7.68 | -4.11 | 300 | 1.16 | (10) | -0.52 | 1.18 | -0.54 | 52 | |||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 11.63 | 23.12 | 377 | 1.15 | -0.69 | 1.17 | -0.71 | 55 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 9.69 | 2.92 | 426 | 1.14 | -0.79 | 1.16 | -0.81 | 107 |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 107 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS | IVY VIP |
DECEMBER 31, 2020
1. | ORGANIZATION |
Ivy Variable Insurance Portfolios, a Delaware statutory trust (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Asset Strategy, Balanced, Energy, Growth, High Income, International Core Equity, Mid Cap Growth, Natural Resources, Science and Technology, Small Cap Core and Small Cap Growth (each, a “Portfolio”) are eleven series of the Trust and are the only series of the Trust included in these financial statements. The assets belonging to each Portfolio are held separately by the custodian. The investment objective, policies and risk factors of each Portfolio are described more fully in the Prospectus and Statement of Additional Information (“SAI”). Each Portfolio’s investment adviser is Ivy Investment Management Company (“IICO”).
Each Portfolio offers Class II shares. Asset Strategy, Energy, High Income, Mid Cap Growth, Science and Technology and Small Cap Growth also offer Class I shares. All classes of shares have identical rights and voting privileges with respect to the Portfolio in general and exclusive voting rights on matters that affect that class alone. Net investment income, net assets and net asset value per share (“NAV”) may differ due to each class having its own expenses, such as transfer agent and shareholder servicing fees, directly attributable to that class. Class II shares have a distribution and service plan. Class I shares are not included in the plan.
2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies consistently followed by each Portfolio.
Security Transactions and Related Investment Income. Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Portfolio is informed of the ex-dividend date. All or a portion of the distributions received from a real estate investment trust or publicly traded partnership may be designated as a reduction of cost of the related investment or realized gain.
Foreign Currency Translation. Each Portfolio’s accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily, using foreign exchange rates obtained from an independent pricing service approved by the Board of Trustees of the Trust (the “Board”). Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. Each Portfolio combines fluctuations from currency exchange rates and fluctuations in value when computing net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments. Foreign exchange rates are typically valued as of the close of the New York Stock Exchange (“NYSE”), normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than those attributable to a specific class), gains and losses are allocated on a daily basis to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class.
Dividends and Distributions to Shareholders. Dividends and distributions to shareholders are recorded by each Portfolio on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America (“U.S. GAAP”). If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital.
Income Taxes. It is the policy of each Portfolio to distribute all of its taxable income and capital gains to its shareholders and to otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, each Portfolio intends to pay distributions as required to avoid imposition of excise tax. Accordingly, no provision has been made for Federal income taxes. The Portfolios file income tax returns in U.S. federal and applicable state jurisdictions. The Portfolios’ tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax returns. Management of the Trust periodically reviews all tax positions to assess whether it is more likely than not that the position would be sustained upon examination by the relevant tax authority based on the technical merits of each position. As of the date of these financial statements, management believes that no liability for unrecognized tax positions is required.
Segregation and Collateralization. In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”), the Dodd Frank Wall Street Reform and Consumer Protection Act, or the interpretive rules and regulations of the U.S. Commodities Futures Trading Commission require that a Portfolio either deliver collateral or
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segregate assets in connection with certain investments (e.g., dollar rolls, financial futures contracts, foreign currency exchange contracts, options written, securities with extended settlement periods, and swaps), the Portfolio will segregate collateral or designate on its books and records, cash or other liquid securities having a value at least equal to the amount that is required to be physically segregated for the benefit of the counterparty. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party has requirements to deliver/deposit cash or securities as collateral for certain investments. Certain countries require that cash reserves be held while investing in companies incorporated in that country. These cash reserves and cash collateral that has been pledged to cover obligations of the Portfolios under derivative contracts, if any, will be reported separately on the Statements of Assets and Liabilities as “Restricted cash”. Securities collateral pledged for the same purpose, if any, is noted on the Schedule of Investments.
Concentration of Market and Credit Risk. In the normal course of business, the Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Portfolios; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Portfolios may be exposed to counterparty credit risk, or the risk that an entity with which the Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The Portfolios manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Portfolios to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Portfolios’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded on the Portfolios’ Statements of Assets and Liabilities, less any collateral held by the Portfolios.
Certain Portfolios may hold high-yield or non-investment-grade bonds, that may be subject to a greater degree of credit risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. The Portfolios may acquire securities in default and are not obligated to dispose of securities whose issuers subsequently default.
Certain Portfolios may enter into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument, as reflected on the Statements of Assets and Liabilities.
If a Portfolio invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in financial derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Portfolio, or, in the case of hedging positions, that the Portfolio’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
The London Interbank Offered Rate “LIBOR” is an indicative measure of the average interest rate at which major global banks could borrow from one another. LIBOR is quoted in multiple currencies and multiple time frames using data reported by private-sector banks. LIBOR is used extensively in the United States and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives.
It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market.
Management believes that, with respect to any significant investments by a Portfolio in instruments linked to LIBOR, the impact on investments and discontinuation of LIBOR may represent a significant risk.
However, management acknowledges that the anticipated transition away from LIBOR will occur after 2021 and certain of the current investments will mature prior to that time. Furthermore, the ways in which LIBOR’s discontinuation potentially could impact the Portfolios’ investments is not fully known. The extent of that impact may vary depending on various factors, which include, but are not limited to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry participants develop and adopt new successor reference rates and/or fallbacks for both legacy and new instruments.
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In addition, the transition to a successor rate could potentially cause (i) increased volatility or illiquidity in markets for instruments that currently rely on LIBOR, (ii) a reduction in the value of certain instruments held by a Portfolio, or (iii) reduced effectiveness of related Portfolio transactions, such as hedging.
As the impacts of the transition become clearer during the next year, management will be evaluating the impacts of these changes.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
The individual Portfolios herein have adopted a Liquidity Risk Management Program (the “Program”). The Portfolio’s board has designated a Liquidity Risk Management Committee (the “Committee”) as the administrator of the Program. The Committee or delegates of the Committee conduct the day-to-day operation of the Program. Under the Program, the Committee manages the Portfolio’s liquidity risk, which is the risk that any Portfolio could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Portfolio. This risk is managed by monitoring the degree of liquidity of the Portfolio’s investments, limiting the amount of the Portfolio’s illiquid investments, and utilizing various risk management tools and facilities available to the Portfolio for meeting shareholder redemptions, among other means. The Committee’s process of determining the degree of liquidity of the Portfolio’s investments is supported by one or more third-party liquidity assessment vendors. The Portfolio’s board reviewed a report prepared by a designee of the Committee regarding the operation, adequacy and effectiveness of the Program from the period June 1, 2019, through March 31, 2020. The report described the Program’s liquidity classification methodology and the methodology in establishing a Portfolio’s Highly Liquid Investment Minimum (“HLIM”), if necessary. The Committee reported that during the period covered by the report, there were no material changes to the Program and no significant liquidity events impacting the Portfolio or its ability to timely meet redemptions without dilution to existing shareholders. In addition, the Committee provided its assessment that the Program, including the operation of each Portfolio’s HLIM, where applicable, had been effective in managing the Portfolio’s liquidity risk.
Inflation-Indexed Bonds. Certain Portfolios may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond will be included as interest income on the Statements of Operations, even though investors do not receive their principal until maturity.
Interest Only Obligations. These securities entitle the owner to receive only the interest portion from a bond, Treasury note or pool of mortgages. These securities are generally created by a third party separating a bond or pool of mortgages into distinct interest-only and principal-only securities. As the principal (par) amount of a bond or pool of mortgages is paid down, the amount of interest income earned by the owner will decline as well.
Loans. Certain Portfolios may invest in loans, the interest rates of which float or adjust periodically based upon a specified adjustment schedule, benchmark indicator, or prevailing interest rates, the debtor of which may be a domestic or foreign corporation, partnership or other entity (“Borrower”). Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates generally include prime rates of one or more major U.S. banks, the LIBOR or certificates of deposit rates. Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to which Borrowers repay cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturities. Loans are exempt from registration under the Securities Act of 1933, as amended, may contain certain restrictions on resale, and cannot be sold publicly. A Portfolio’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties.
When a Portfolio purchases assignments, it acquires all the rights and obligations under the loan agreement of the assigning lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than those held by the assigning lender. When a Portfolio purchases a participation of a loan interest, the Portfolio typically enters into a contractual agreement with the lender or other third party selling the participation. A participation interest in loans includes the right to receive payments of principal, interest and any fees to which it is entitled from the lender and
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only upon receipt by the lender of payments from the Borrower, but not from the Borrower directly. When investing in a participation interest, if a Borrower is unable to meet its obligations under a loan agreement, a Portfolio generally has no direct right to enforce compliance with the terms of the loan agreement. As a result, the Portfolio assumes the credit risk of the Borrower, the selling participant, and any other persons that are interpositioned between the Portfolio and the Borrower. If the lead lender in a typical lending syndicate becomes insolvent, enters Federal Deposit Insurance Corporation (“FDIC”) receivership or, if not FDIC insured, enters into bankruptcy, the Portfolio may incur certain costs and delays in receiving payment or may suffer a loss of principal and interest.
Payment In-Kind Securities. Certain Portfolios may invest in payment in-kind securities (“PIKs”). PIKs give the issuer the option at each interest payment date of making interest payments in cash or in additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro-rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statements of Assets and Liabilities.
Securities on a When-Issued or Delayed Delivery Basis. Certain Portfolios may purchase securities on a “when-issued” basis, and may purchase or sell securities on a “delayed delivery” basis. “When-issued” or “delayed delivery” refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. Delivery and payment for securities that have been purchased by a Portfolio on a when-issued basis normally take place within six months and possibly as long as two years or more after the trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The purchase of securities on a when-issued basis may increase the volatility of a Portfolio’s NAV to the extent the Portfolio executes such transactions while remaining substantially fully invested. When a Portfolio engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Portfolio to lose the opportunity to obtain or dispose of the security at a price and yield IICO, or the Portfolio’s investment subadviser, as applicable, consider advantageous. The Portfolio maintains internally designated assets with a value equal to or greater than the amount of its purchase commitments. The Portfolio may also sell securities that it purchased on a when-issued or delayed delivery basis prior to settlement of the original purchase.
Custodian Fees. “Custodian fees” on the Statements of Operations may include interest expense incurred by a Portfolio on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. A Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by that Portfolio. The “Earnings credit” line item, if shown, represents earnings on cash balances maintained by that Portfolio during the period. Such interest expense and other custodian fees may be paid with these earnings.
Indemnification. The Trust’s organizational documents provide current and former Trustees and Officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Trust. In the normal course of business, the Trust may also enter into contracts that provide general indemnification. The Trust’s maximum exposure under these arrangements is unknown and is dependent on future claims that may be made against the Trust. The risk of material loss from such claims is considered remote.
Basis of Preparation. Each Portfolio is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). The accompanying financial statements were prepared in accordance with U.S. GAAP, including but not limited to ASC 946. U.S. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Notice of Acquisition. On December 2, 2020, Waddell & Reed Financial, Inc. (“Waddell & Reed Financial”), the parent company of Ivy Investment Management Company (“IICO”), and Macquarie Group Limited, including its asset management division Macquarie Asset Management (together, “Macquarie”), announced that they had entered into an agreement whereby Macquarie will acquire Waddell & Reed Financial (the “Transaction”). The Transaction is subject to approval by Waddell & Reed Financial’s shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of certain other conditions, the Transaction is expected to close by mid-2021. This is subject to change.
Under the Investment Company Act of 1940, as amended, closing of the Transaction will result in the automatic termination of each Portfolio’s investment advisory agreement with IICO, and any related sub-advisory contract(s), where applicable. Each Portfolio’s Board recently approved a new investment advisory agreement (and new sub-advisory agreement(s)). The new investment advisory agreement (and new sub-advisory agreement(s)) approved by each Portfolio’s Board is expected to be presented to Portfolio shareholders for approval, and, if approved, would take effect upon the closing of the Transaction. Ivy Portfolios’ shareholders will receive proxy materials pertaining to this and other matters relating to the Transaction in the first quarter of 2021.
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Subsequent Events. Management has performed a review for subsequent events through the date this report was issued.
3. | INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS |
Each Portfolio’s investments are reported at fair value. Fair value is defined as the price that each Portfolio would receive upon selling an asset or would pay upon satisfying a liability in an orderly transaction between market participants at the measurement date. Each Portfolio calculates the NAV of its shares as of the close of the NYSE, normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
For purposes of calculating the NAV, the portfolio securities and financial instruments are valued on each business day using pricing and valuation methods as adopted by the Board. Where market quotes are readily available, fair value is generally determined on the basis of the last reported sales price, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services.
Prices for fixed-income securities are typically based on quotes that are obtained from an independent pricing service approved by the Board. To determine values of fixed-income securities, the independent pricing service utilizes such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Securities that cannot be valued by the independent pricing service may be valued using quotes obtained from dealers that make markets in the securities.
Short-term securities with maturities of 60 days or less are valued based on quotes that are obtained from an independent pricing service approved by the Board as described in the preceding paragraph above.
Because many foreign markets close before the NYSE, events may occur between the close of the foreign market and the close of the NYSE that could have a material impact on the valuation of foreign securities. Waddell & Reed Services Company (“WRSCO”), pursuant to procedures adopted by the Board, evaluates the impact of these events and may adjust the valuation of foreign securities to reflect the fair value as of the close of the NYSE. In addition, all securities for which values are not readily available or are deemed unreliable are appraised at fair value as determined in good faith under the supervision of the Board.
Where market quotes are not readily available, portfolio securities or financial instruments are valued at fair value, as determined in good faith by the Board or Valuation Committee pursuant to procedures approved by the Board.
Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes), including where events occur after the close of the relevant market, but prior to the NYSE close, that materially affect the values of a Portfolio’s securities or financial instruments. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available.
The Board has delegated to WRSCO the responsibility for monitoring significant events that may materially affect the values of a Portfolio’s securities or financial instruments and for determining whether the value of the applicable securities or financial instruments should be re-evaluated in light of such significant events. IICO, pursuant to authority delegated by the Board, has established a Valuation Committee to administer and oversee the valuation process, including the use of third party pricing vendors.
The Board has adopted methods for valuing securities and financial instruments in circumstances where market quotes are not readily available. For instances in which daily market quotes are not readily available, investments may be valued, pursuant to procedures established by the Board, with reference to other securities or indices. In the event that the security or financial instrument cannot be valued pursuant to one of the valuation methods established by the Board, the value of the security or financial instrument will be determined in good faith by the Valuation Committee in accordance with the procedures adopted by the Board.
When a Portfolio uses these fair valuation methods applied by WRSCO that use significant unobservable inputs to determine its NAV, securities will be priced by a method that the Board or persons acting at its direction believe accurately reflects fair value and are categorized as Level 3 of the fair value hierarchy. These methods may require subjective determinations about the value of a security. The prices used by a Portfolio may differ from the value that will ultimately be realized at the time the securities are sold.
WRSCO is responsible for monitoring the implementation of the pricing and valuation policies through a series of activities to provide reasonable comfort of the accuracy of prices including: 1) periodic vendor due diligence meetings to review methodologies, new developments, and process at vendors, 2) daily and monthly multi-source pricing comparisons reviewed and submitted to the Valuation Committee, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by management and the Valuation Committee.
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Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the factors that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs which are significant to the overall valuation.
The three-tier hierarchy of inputs is summarized as follows:
• | Level 1 — Observable inputs such as quoted prices, available in active markets, for identical assets or liabilities. |
• | Level 2 — Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs. |
• | Level 3 — Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at its direction that are used in determining the fair value of investments. |
A description of the valuation techniques applied to the Portfolios’ major classes of assets and liabilities measured at fair value on a recurring basis follows:
Asset-Backed Securities and Mortgage-Backed Securities. The fair value of asset-backed securities and mortgage-backed securities are estimated using recently executed transactions and based on models that consider the estimated cash flows of each debt tranche of the issuer, establish a benchmark yield, and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche including, but not limited to, the prepayment speed assumptions and attributes of the collateral. To the extent the inputs are observable and timely, the values would be categorized in Level 2 of the fair value hierarchy, and otherwise they would be categorized as Level 3.
Bullion. The fair value of bullion is at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded and are categorized in Level 1 of the fair value hierarchy.
Corporate Bonds. The fair value of corporate bonds, as obtained from an independent pricing service, is estimated using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads adjusted for any basis difference between cash and derivative instruments. While most corporate bonds are categorized in Level 2 of the fair value hierarchy, in instances where lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they are categorized in Level 3 of the fair value hierarchy.
Derivative Instruments. Forward foreign currency contracts are valued based upon the closing prices of the forward currency rates determined at the close of the NYSE, which are provided by an independent pricing service. Swaps derive their value from underlying asset prices, indices, reference rates and other inputs or a combination of these factors. Swaps are valued by an independent pricing service unless the price is unavailable, in which case they are valued at the price provided by a dealer in that security. Exchange-traded futures contracts are generally valued at the settlement price. Listed options are ordinarily valued at the mean of the last bid and ask price provided by an independent pricing service unless the price is unavailable, in which case they are valued at a quotation obtained from a broker-dealer. Over the counter (“OTC”) options are ordinarily valued at the mean of the last bid and ask price for a comparable listed option provided by an independent pricing service unless such a price is unavailable, in which case they are valued at a quotation obtained from a broker-dealer.
Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. OTC derivative contracts include forward foreign currency contracts, swap agreements, and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices, or commodity prices. Depending on the product and the terms of the transaction, the fair value of the OTC derivative products are modeled taking into account the counterparties’ creditworthiness and using a series of techniques, including simulation models. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgments and the pricing inputs are observed from actively quoted markets, as is the case with interest rate swap and option contracts. OTC derivative products valued using pricing models with significant observable inputs are categorized within Level 2 of the fair value hierarchy.
Equity Securities. Equity securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day unless otherwise stated below. OTC equity securities and listed securities for which no price is readily available are valued at the average of the last bid and ask prices.
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Mutual funds, including investment funds, typically are valued at the NAV reported as of the valuation date.
Securities that are stated at the last reported sales price or closing price on the day of valuation taken from the primary exchange where the security is principally traded and to the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Foreign securities, for which the primary trading market closes at the same time or after the NYSE, are valued based on quotations from the primary market in which they are traded and categorized in Level 1. Because many foreign securities markets and exchanges close prior to the close of the NYSE, closing prices for foreign securities in those markets or on those exchanges do not reflect the events that occur after that close. Certain foreign securities may be fair valued using a pricing service that considers the correlation of the trading patterns of the foreign security to the intra-day trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, exchange-traded funds, and the movement of certain indices of securities based on a statistical analysis of their historical relationship; such valuations generally are categorized in Level 2.
Preferred stock, repurchase agreements, and other equities traded on inactive markets or valued by reference to similar instruments are also generally categorized in Level 2.
Loans. Loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3.
Municipal Bonds. Municipal bonds are fair valued based on pricing models used by and obtained from an independent pricing service that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-wants lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable and timely, the fair values of municipal bonds would be categorized as Level 2; otherwise the fair values would be categorized as Level 3.
Overdraft due to custodian. Due to the short-term nature of overdraft due to custodian, the carrying value approximates fair value and the liability is categorized as Level 2 in the fair value hierarchy.
Restricted Securities. Restricted securities that are deemed to be Rule 144A securities and illiquid, as well as restricted securities held in non-public entities, are included in Level 3 of the fair value hierarchy to the extent that significant inputs to valuation are unobservable, because they trade infrequently, if at all and, therefore, the inputs are unobservable. Restricted securities that are valued at a discount to similar publicly traded securities may be categorized as Level 2 of the fair value hierarchy to the extent that the discount is considered to be insignificant to the fair value measurement in its entirety; otherwise they may be categorized as Level 3.
U.S. Government and Agency Securities. U.S. government and agency securities are normally valued using a model that incorporates market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, quoted market prices, and reference data. Accordingly, U.S. government and agency securities are normally categorized in Level 2 of the fair value hierarchy depending on the liquidity and transparency of the market.
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information.
For fair valuations using unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. In accordance with the requirements of U.S. GAAP, a fair value hierarchy and Level 3 reconciliation, if any, have been included in the Notes to the Schedule of Investments for each respective Portfolio.
Net realized gain (loss) and net unrealized appreciation (depreciation), shown on the reconciliation of Level 3 investments, if applicable, are included on the Statements of Operations in net realized gain (loss) on investments in unaffiliated and/or affiliated securities and in net change in unrealized appreciation (depreciation) on investments in unaffiliated and/or affiliated securities, respectively.
4. | DERIVATIVE INSTRUMENTS ($ amounts in thousands unless indicated otherwise) |
The following disclosures contain information on why and how the Portfolios use derivative instruments, the associated risks of investing in derivative instruments, and how derivative instruments affect the Portfolios’ financial positions and results of operations.
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Forward Foreign Currency Contracts. All Portfolios are authorized to enter into forward foreign currency contracts (“forward contracts”) for the purchase or sale of a foreign currency at a negotiated rate at a future date. Forward contracts are reported on a schedule following the Schedule of Investments. Forward contracts are valued daily based upon the closing prices of the forward currency rates provided by an independent pricing service determined at the close of the NYSE. The resulting unrealized appreciation and depreciation is reported on the Statements of Assets and Liabilities as a receivable or payable and on the Statements of Operations within the change in unrealized appreciation (depreciation). At contract close, the difference between the original cost of the contract and the value at the close date is recorded as a realized gain (loss) on the Statements of Operations.
Risks to a Portfolio related to the use of such contracts include both market and credit risk. Market risk is the risk that the value of the forward contract will depreciate due to unfavorable changes in the exchange rates. Credit risk arises from the possibility that the counterparty will default. If the counterparty defaults, a Portfolio’s maximum loss will consist of the aggregate unrealized gain on appreciated contracts that is not collateralized.
International Core Equity and Natural Resources enter into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from foreign currencies (foreign currency exchange rate risk).
Option Contracts. Options purchased by a Portfolio are accounted for in the same manner as portfolio securities. The cost of the underlying instruments acquired through the exercise of call options is increased by the premium paid to purchase the call. The proceeds from instruments sold through the exercise of put options are decreased by the premium paid to purchase the put.
When a Portfolio writes (sells) an option, an amount equal to the premium received by the Portfolio is recorded as a liability. The amount of the liability is subsequently adjusted to reflect the current value of the option written. When an option expires on its stipulated expiration date or a Portfolio enters into a closing purchase transaction, the Portfolio realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the call option was sold), and the liability related to such option is extinguished. When a written call option is exercised, the premium is added to the proceeds from the sale of the underlying instrument in determining whether a Portfolio has realized a gain or loss. When a written put is exercised, the cost basis of the instruments purchased by a Portfolio is reduced by the amount of the premium received.
Investments in options, whether purchased or written, involve certain risks. Writing put options and purchasing call options may increase a Portfolio’s exposure to the underlying instrument. With written options, there may be times when a Portfolio will be required to purchase or sell instruments to meet its obligation under the option contract where the required action is not beneficial to the Portfolio, due to unfavorable movement of the market price of the underlying instrument.
Option contracts can be traded on a regulated exchange or traded OTC. Unlike the trades on a regulated exchange where the clearinghouse guarantees the performances of both the buyer and the seller, to the extent a Portfolio enters into OTC option transactions with counterparties, the Portfolio will be exposed to the risk that counterparties to these OTC transactions will be unable to meet their obligations under the terms of the transaction.
Asset Strategy, Balanced, International Core Equity, Mid Cap Growth, Science and Technology and Small Cap Growth purchase and write call and put options to increase or decrease hedging exposure to underlying instruments (which include credit risk, equity risk, foreign currency exchange rate risk, event risk and/or interest rate risk), increase exposure to various equity markets or certain sectors, gain exposure to or facilitate trading in certain securities and/or, in the case of options written, to generate returns from options premiums.
Swap Agreements. All Portfolios are authorized to invest in swap agreements. Swap agreements are bilaterally negotiated agreements between a Portfolio and counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements are privately negotiated in the over-the-counter market (“OTC swaps”). If the OTC swap entered is one of the swaps identified by a relevant regulator as a swap that is required to be cleared, then it will be cleared through a third party, known as a central counterparty or derivatives clearing organization (“centrally cleared swaps”).
Swaps are marked to market daily and changes in value are recorded as unrealized appreciation (depreciation) on the Statements of Operations. Payments received or made by the Portfolio are recorded as realized gain or loss on the Statements of Operations. Any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown as swap premiums paid and swap premiums received, respectively, if any, on the Statements of Assets and Liabilities and amortized over the term of the swap. An early termination payment received or made at an early termination or a final payment made at the maturity of the swap is recorded as realized gain or loss on the Statements of Operations.
After a centrally cleared swap is accepted for clearing, a Portfolio may be required to deposit initial margin with a Clearing Member in the form of cash or securities. Securities deposited as initial margin, if any, are designated on the Schedule of Investments. Cash deposited as initial margin is identified on the Schedule of Investments and is recorded as restricted cash on the Statements of Assets and Liabilities.
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Total return swaps involve a commitment of one party to pay periodic interest payments in exchange for a market-linked return based on a security or a basket of securities including a variety of securities or representing a particular index. To the extent the total return of the security, a basket of securities, or an index exceeds or falls short of the offsetting interest rate obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
Asset Strategy and Small Cap Growth enter into total return swaps to hedge exposure to a security or market.
The creditworthiness of the counterparty with which a Portfolio enters into a swap agreement is monitored by IICO. If a counterparty creditworthiness declines, the value of the agreement would likely decline, potentially resulting in losses. If a default occurs by the counterparty to such a transaction, the Portfolio will have contractual remedies pursuant to the agreement related to the transaction. The maximum loss a Portfolio may incur consists of the aggregate unrealized gain on appreciated contracts that is not collateralized due to facts specific to certain situations (i.e., collateral may not have been posted by the counterparty due to the required collateral amount being less than the pre-agreed thresholds. Additionally, regulatory developments called stay resolutions and the ensuing required contractual amendments to the transactional documentation, including derivatives, permit the relevant regulators to preclude parties to a transaction from terminating trades, among other rights it may have in the trade agreements should a counterparty that it regulates experience financial distress. A relevant regulator also has the authority to reduce the value of certain liabilities owed by the counterparty to a Fund and/or convert cash liabilities of a regulated entity into equity holdings. The power given to the relevant regulators includes the ability to amend transactional agreements unilaterally, modify the maturity of eligible liabilities, reduce the amount of interest payable or change the date on which interest becomes payable, among other powers.
To prevent incurring losses due to the counterparty credit risk, IICO actively monitors the creditworthiness of the counterparties with which it has entered financial transactions. IICO consistently and frequently risk manages the credit risk of the counterparties it faces in transactions.
Collateral and rights of offset. A Portfolio mitigates credit risk with respect to OTC derivative counterparties through credit support annexes (“CSA”) included with an International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreement which is the standard contract governing all OTC derivative transactions between the Portfolio and each of its counterparties. Although it is not possible to eliminate credit risk entirely, the CSA allows the Portfolio and its counterparty to reduce their exposure to the risk of payment default by the other party by holding an amount in collateral equivalent to the realized and unrealized amount of exposure to the counterparty, which is generally held by the Portfolio’s custodian. An amount of collateral is moved to/from applicable counterparties only if the amount of collateral required to be posted surpasses both the threshold and the minimum transfer amount pre-agreed in the CSA between the Portfolio and the counterparty. See Note 2 “Segregation and Collateralization” for additional information with respect to collateral practices.
Offsetting of Assets and Liabilities. The following tables present financial instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement or similar agreement as of December 31, 2020:
Assets
Gross Amounts Not Offset on the Statements of Assets and Liabilities | ||||||||||||||||||||||||||||
Portfolio | Gross Amounts of Recognized Assets | Gross Amounts Offset on the Statements of Assets and Liabilities | Net Amounts of Assets Presented on the Statements of Assets and Liabilities | Financial Instruments and Derivatives Available for Offset | Non-Cash Collateral Received | Cash Collateral Received | Net Amount Receivable | |||||||||||||||||||||
Asset Strategy | ||||||||||||||||||||||||||||
Swap agreements, at value | $ | 382 | $ | — | $ | 382 | $ | — | $ | — | $ | — | $ | 382 | ||||||||||||||
International Core Equity | ||||||||||||||||||||||||||||
Unrealized appreciation on forward foreign currency contracts(1) | $ | 699 | $ | — | $ | 699 | $ | — | $ | — | $ | (620 | ) | $ | 79 | |||||||||||||
Mid Cap Growth | ||||||||||||||||||||||||||||
Investments in unaffiliated securities at value* | $ | 1,274 | $ | — | $ | 1,274 | $ | (104 | ) | $ | (1,170 | ) | $ | — | $ | — | ||||||||||||
Small Cap Growth | ||||||||||||||||||||||||||||
Investments in unaffiliated securities at value* | $ | 95 | $ | — | $ | 95 | $ | (95 | ) | $ | — | $ | — | $ | — |
* | Purchased options are reported as investments in unaffiliated securities on the Statements of Assets and Liabilities. |
(1) | Amounts include forward contracts that have an offset to an open and close contract, but have not settled. These amounts are included on the Statements of Assets and Liabilities line item for Investment securities sold receivable. |
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Liabilities
Gross Amounts Not Offset on the Statements of Assets and Liabilities | ||||||||||||||||||||||||||||
Portfolio | Gross Amounts of Recognized Liabilities | Gross Amounts Offset on the Statements of Assets and Liabilities | Net Amounts of Liabilities Presented on the Statements of Assets and Liabilities | Financial Instruments and Derivatives Available for Offset | Non-Cash Collateral Pledged | Cash Collateral Pledged | Net Amount Payable | |||||||||||||||||||||
Mid Cap Growth | ||||||||||||||||||||||||||||
Written options at value | $ | 104 | $ | — | $ | 104 | $ | (104 | ) | $ | — | $ | — | $ | — | |||||||||||||
Natural Resources | ||||||||||||||||||||||||||||
Unrealized depreciation on forward foreign currency contracts | $ | 472 | $ | — | $ | 472 | $ | — | $ | — | $ | (310 | ) | $ | 162 | |||||||||||||
Science and Technology | ||||||||||||||||||||||||||||
Written options at value | $ | 23 | $ | — | $ | 23 | $ | — | $ | (23 | ) | $ | — | $ | — | |||||||||||||
Small Cap Growth | ||||||||||||||||||||||||||||
Swap agreements, at value | $ | 155 | $ | — | $ | 155 | $ | — | $ | — | $ | — | $ | 155 | ||||||||||||||
Written options at value | 240 | — | 240 | (95 | ) | — | — | 145 | ||||||||||||||||||||
Total | $ | 395 | $ | — | $ | 395 | $ | (95 | ) | $ | — | $ | — | $ | 300 |
Additional | Disclosure Related to Derivative Instruments |
Fair values of derivative instruments as of December 31, 2020:
Assets | Liabilities | |||||||||||||||||
Portfolio | Type of Risk Exposure | Statements of Assets & Liabilities Location | Value | Statements of Assets & Liabilities Location | Value | |||||||||||||
Asset Strategy | Equity | Investments in unaffiliated securities at value* | $ | 141 | Written options at value | $ | 29 | |||||||||||
Interest rate | Swap agreements, at value | 382 | — | |||||||||||||||
International Core Equity | Foreign currency | Unrealized appreciation on forward foreign currency contracts | 685 | — | ||||||||||||||
Mid Cap Growth | Equity | Investments in unaffiliated securities at value* | 1,274 | Written options at value | 104 | |||||||||||||
Natural Resources | Foreign currency | — | Unrealized depreciation on forward foreign currency contracts | 472 | ||||||||||||||
Science and Technology | Equity | — | Written options at value | 34 | ||||||||||||||
Small Cap Growth | Equity | Investments in unaffiliated securities at value* | 95 | Swap agreements, at value | 155 | |||||||||||||
— | Written options at value | 240 |
* | Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments. |
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Amount of realized gain (loss) on derivatives recognized on the Statements of Operations for the year ended December 31, 2020:
Net realized gain (loss) on: | ||||||||||||||||||||||||||
Portfolio | Type of Risk Exposure | Investments in unaffiliated securities* | Swap agreements | Futures contracts | Written options | Forward foreign currency contracts | Total | |||||||||||||||||||
Asset Strategy | Equity | $ | (1,425 | ) | $ | — | ** | $ | — | $ | 2,754 | $ | — | $ | 1,329 | |||||||||||
Balanced | Equity | — | — | — | 12 | — | 12 | |||||||||||||||||||
International Core Equity | Equity | 151 | — | — | 24 | — | 175 | |||||||||||||||||||
Foreign currency | — | — | — | — | 20 | 20 | ||||||||||||||||||||
Mid Cap Growth | Equity | (2,505 | ) | — | — | (248 | ) | — | (2,753 | ) | ||||||||||||||||
Natural Resources | Foreign currency | — | — | — | — | (742 | ) | (742 | ) | |||||||||||||||||
Small Cap Growth | Equity | 3 | 7,888 | — | 4 | — | 7,895 |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
** Not shown due to rounding.
Change in unrealized appreciation (depreciation) on derivatives recognized on the Statements of Operations for the year ended December 31, 2020:
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||||
Portfolio | Type of Risk Exposure | Investments in unaffiliated securities* | Swap agreements | Futures contracts | Written options | Forward foreign currency contracts | Total | |||||||||||||||||||
Asset Strategy | Equity | $ | 28 | $ | 382 | $ | — | $ | 4 | $ | — | $ | 414 | |||||||||||||
International Core Equity | Foreign currency | — | — | — | — | 1,518 | 1,518 | |||||||||||||||||||
Mid Cap Growth | Equity | (1,017 | ) | — | — | 333 | — | (684 | ) | |||||||||||||||||
Natural Resources | Foreign currency | — | — | — | — | 429 | 429 | |||||||||||||||||||
Science and Technology | Equity | — | — | — | 344 | — | 344 | |||||||||||||||||||
Small Cap Growth | Equity | (240 | ) | (781 | ) | — | (29 | ) | — | (1,050 | ) |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
During the year ended December 31, 2020, the average derivative volume was as follows:
Portfolio | Forward foreign currency contracts(1) | Long futures contracts(2) | Short futures contracts(2) | Swap agreements(3) | Purchased options(2) | Written options(2) | ||||||||||||||||||
Asset Strategy | $ | — | $ | — | $ | — | $ | 1,720 | $ | 95 | $ | 308 | ||||||||||||
Balanced | — | — | — | — | — | 3 | ||||||||||||||||||
International Core Equity | 315 | — | — | — | — | — | ||||||||||||||||||
Mid Cap Growth | — | — | — | — | 163 | 594 | ||||||||||||||||||
Natural Resources | 230 | — | — | — | — | — | ||||||||||||||||||
Science and Technology | — | — | — | — | — | 3 | ||||||||||||||||||
Small Cap Growth | — | — | — | 11,564 | 24 | 53 |
(1) | Average absolute value of unrealized appreciation/depreciation during the period. |
(2) | Average value outstanding during the period. |
(3) | Average notional amount outstanding during the period. |
5. | BASIS FOR CONSOLIDATION OF THE ASSET STRATEGY PORTFOLIO |
Ivy VIP ASF II, Ltd. (the “Subsidiary”), a Cayman Islands exempted company, was incorporated as a wholly owned subsidiary acting as an investment vehicle for Ivy VIP Asset Strategy (referred to as “the Portfolio” in this subsection). VIP ASF III (SBP), LLC (the “Company”), a Delaware limited liability company, was incorporated as a wholly owned company acting as an investment vehicle for the Portfolio. The Subsidiary and the Company act as investment vehicles for the Portfolio, in order to affect certain investments for the Portfolio consistent with the Portfolio’s investment objectives and policies as specified in its prospectus and SAI.
The Portfolio’s investment portfolio has been consolidated and includes the portfolio holdings of the Portfolio, its Subsidiary and the Company. The consolidated financial statements include the accounts of the Portfolio, its Subsidiary
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and the Company. All inter-company transactions and balances have been eliminated. A subscription agreement was entered into between the Portfolio and its Subsidiary and the Company comprising the entire issued share capital of the Subsidiary and the Company with the intent that the Portfolio will remain the sole shareholder and retain all rights. Under the Articles of Association, shares issued by the Subsidiary and the Company confer upon a shareholder the right to receive notice of, to attend and to vote at general meetings of the Subsidiary and the Company and shall confer upon the shareholder rights in a winding-up or repayment of capital and the right to participate in the profits or assets of the Subsidiary and the Company.
See the table below for details regarding the structure, incorporation and relationship as of December 31, 2020 of the Subsidiary and the Company to the Portfolio (amounts in thousands).
Subsidiary/Company | Date of Incorporation | Subscription Agreement | Portfolio Net Assets | Subsidiary/Company Net Assets | Percentage of Portfolio Net Assets | ||||||||||||||||||||
Ivy VIP ASF II, Ltd. | 1-31-13 | 4-10-13 | $ | 764,574 | $ | 44,234 | 5.79 | % | |||||||||||||||||
VIP ASF III (SBP), LLC | 4-9-13 | 4-23-13 | 764,574 | 26 | 0.00 |
6. | INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS ($ amounts in thousands unless indicated otherwise) |
Management Fees. IICO serves as each Portfolio’s investment adviser. The management fee is accrued daily by each Portfolio at the following annual rates as a percentage of average daily net assets:
Portfolio (M – Millions) | $0 to $500M | $500 to $1,000M | $1,000 to $1,500M | $1,500 to $2,000M | $2,000 to $3,000M | $3,000 to $5,000M | $5,000 to $10,000M | Over $10,000M | ||||||||||||||||||||||||||||||||
Asset Strategy | 0.700 | 0.700 | 0.650 | 0.650 | 0.600 | 0.550 | 0.550 | 0.550 | ||||||||||||||||||||||||||||||||
Balanced | 0.700 | 0.700 | 0.650 | 0.650 | 0.600 | 0.550 | 0.550 | 0.550 | ||||||||||||||||||||||||||||||||
Energy | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.760 | 0.760 | ||||||||||||||||||||||||||||||||
Growth | 0.700 | 0.700 | 0.650 | 0.650 | 0.600 | 0.550 | 0.550 | 0.550 | ||||||||||||||||||||||||||||||||
High Income | 0.625 | 0.600 | 0.550 | 0.500 | 0.500 | 0.500 | 0.500 | 0.500 | ||||||||||||||||||||||||||||||||
International Core Equity | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.760 | 0.760 | ||||||||||||||||||||||||||||||||
Mid Cap Growth | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.760 | 0.760 | ||||||||||||||||||||||||||||||||
Natural Resources | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.730 | 0.700 | ||||||||||||||||||||||||||||||||
Science and Technology | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.760 | 0.760 | ||||||||||||||||||||||||||||||||
Small Cap Core | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.760 | 0.760 | ||||||||||||||||||||||||||||||||
Small Cap Growth | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | 0.760 | 0.760 |
IICO has voluntarily agreed to waive a Portfolio’s investment management fee on any Portfolio that is not subadvised on any day that the Portfolio’s net assets are less than $25 million, subject to IICO’s right to change or modify this waiver. See Expense Reimbursements and/or Waivers for more information.
Independent Trustees and Chief Compliance Officer Fees. Fees paid to the Independent Trustees can be paid in cash or deferred to a later date, at the election of the Trustees according to the Deferred Fee Agreement entered into between the Trust and the Trustee(s). Each Portfolio records its portion of the deferred fees as a liability on the Statements of Assets and Liabilities. All fees paid in cash plus any appreciation (depreciation) in the underlying deferred plan are shown on the Statements of Operations. Additionally, fees paid to the Chief Compliance Officer of the Portfolios are shown on the Statements of Operations.
Accounting Services Fees. The Trust has an Accounting and Administrative Services Agreement with Waddell & Reed Services Company (“WRSCO”), doing business as WI Services Company (“WISC”). Under the agreement, WISC acts as the agent in providing bookkeeping and accounting services and assistance to the Trust, including maintenance of Portfolio records, pricing of Portfolio shares and preparation of certain shareholder reports. For these services, each Portfolio pays WISC a monthly fee of one-twelfth of the annual fee based on the average net asset levels shown in the following table:
(M – Millions) | $0 to $10M | $10 to $25M | $25 to $50M | $50 to $100M | $100 to $200M | $200 to $350M | $350 to $550M | $550 to $750M | $750 to $1,000M | Over $1,000M | ||||||||||||||||||||||||||||||
Annual Fee Rate | $ | 0.00 | $ | 11.50 | $ | 23.10 | $ | 35.50 | $ | 48.40 | $ | 63.20 | $ | 82.50 | $ | 96.30 | $ | 121.60 | $ | 148.50 |
Each Portfolio also pays WISC a monthly administrative fee at the annual rate of 0.01%, or one basis point, for the first $1 billion of net assets with no fee charged for net assets in excess of $1 billion. This fee is voluntarily waived by WISC until a Portfolio’s net assets are at least $10 million and is included in “Accounting services fee” on the Statements of Operations.
Shareholder Servicing. Under the Transfer Agency Agreement between the Trust and WISC, each Portfolio reimburses WISC for certain out-of-pocket costs.
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Service Plan. Class II. Under a Service Plan adopted by the Trust pursuant to Rule 12b–1 under the 1940 Act, each Portfolio may pay a service fee to Ivy Distributors, Inc. (“IDI”) for Class II shares in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate IDI for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.
Expense Reimbursements and/or Waivers. IICO, the Portfolios’ investment manager, IDI, the Portfolios’ distributor, and/or Waddell & Reed Services Company, doing business as WISC, the Portfolios’ transfer agent, have contractually agreed to reimburse sufficient management fees, 12b-1 fees and/or shareholder servicing fees to cap the total annual ordinary fund operating expenses (which would exclude interest, taxes, brokerage commissions, acquired fund fees and expenses, and extraordinary expenses, if any). Portfolio and class expense limitations and related waivers/reimbursements for the year ended December 31, 2020 were as follows:
Fund Name | Share Class Name | Type of Expense Limit | Commencement Date | End Date | Expense Limit | Amount of Expense Waiver/ Reimbursement | Expense Reduced | |||||||||||||
Asset Strategy | Class I | Contractual | | 4-28-2017 | | | 4-30-2021 | | Class II less 0.25% | $ | — | | N/A | |||||||
Energy | All Classes | Voluntary | | N/A | | | N/A | | N/A | $ | 21 | (1) | Investment Management Fee | |||||||
Class I | Contractual | 4-28-2017 | 4-30-2021 | Class II less 0.25% | $ | — | N/A | |||||||||||||
High Income | Class I | Contractual | 4-28-2017 | 4-30-2021 | Class II less 0.25% | $ | — | N/A | ||||||||||||
Mid Cap Growth | All Classes | Contractual | 4-28-2017 | 4-30-2021 | N/A | $ | 297 | (2) | Investment Management Fee | |||||||||||
Class I | Contractual | 4-28-2017 | 4-30-2021 | 0.85% | $ | — | * | Shareholder Servicing | ||||||||||||
Class I | Contractual | 4-28-2017 | 4-30-2021 | Class II less 0.25% | $ | — | N/A | |||||||||||||
Class II | Contractual | 5-1-2012 | 4-30-2021 | 1.10% | $ | 4 | 12b-1 Fees and/or Shareholder Servicing | |||||||||||||
Science and Technology | Class I | Contractual | 4-28-2017 | 4-30-2021 | Class II less 0.25% | $ | — | N/A | ||||||||||||
Small Cap Growth | All Classes | Contractual | 4-28-2017 | 4-30-2021 | N/A | $ | 111 | (2) | Investment Management Fee | |||||||||||
Class I | Contractual | 11-5-2018 | 4-30-2021 | Class II less 0.25% | $ | — | * | Shareholder Servicing | ||||||||||||
Class II | Contractual | 10-1-2016 | 4-30-2021 | 1.14% | $ | 3 | 12b-1 Fees and/or Shareholder Servicing |
* | Not shown due to rounding. |
(1) | For Portfolios managed solely by IICO, IICO has voluntarily agreed to waive its management fee for any day that a portfolio’s net assets are less than $25 million, subject to IICO’s right to change or modify this waiver. |
(2) | Due to Class I and/or Class II contractual expense limits, investment management fees were waived for all share classes. |
Any amounts due to the Portfolios as a reimbursement but not paid as of December 31, 2020 are shown as a receivable from affiliates on the Statements of Assets and Liabilities.
7. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the SEC (“Order”), the Ivy Funds, Ivy Variable Insurance Portfolios and InvestEd Portfolios (collectively, the “Funds” only for purposes of this footnote 7) have the ability to lend money to, and borrow money from, each other pursuant to a master interfund lending agreement (“Interfund Lending Program”). Under the Interfund Lending Program, the Funds may lend or borrow money for temporary purposes directly to or from one another (each an “Interfund Loan”), subject to meeting the conditions of the Order. The interest rate to be charged on an Interfund Loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The Funds made no Interfund Loans under the Interfund Lending Program during the year ended December 31, 2020.
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8. | AFFILIATED COMPANY TRANSACTIONS (All amounts in thousands) |
A summary of the transactions in affiliated companies during the year ended December 31, 2020 follows:
Portfolio | 12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Depreciation | 12-31-20 Value | Distributions Received | Capital Gain Distributions | ||||||||||||||||||||||||
High Income | ||||||||||||||||||||||||||||||||
Larchmont Resources LLC(1)(2(3) | $252 | $— | $ | — | $— | $(212) | $ | 40 | $ | — | $ | — | ||||||||||||||||||||
12-31-19 Value | Net Change in Unrealized Depreciation | Interest Received | ||||||||||||||||||||||||||||||
Larchmont Resources LLC (8.000% Cash or 8.000% PIK), 11.000%, 8-9-21(2)(4) | $ | 697 | $ | 23 | $ | — | $— | $ | (408) | $ | 312 | $ | 70 | $ | — |
*Not shown due to rounding.
(1) No dividends were paid during the preceding 12 months.
(2) Securities whose value was determined using significant unobservable inputs.
(3) Restricted security.
(4) Payment-in-kind bond.
9. | INVESTMENT SECURITIES TRANSACTIONS ($ amounts in thousands) |
The cost of purchases and the proceeds from maturities and sales of investment securities (excluding short-term securities) for the year ended December 31, 2020, were as follows:
Purchases | Sales | |||||||||||||||
U.S. Government | Other Issuers | U.S. Government | Other Issuers | |||||||||||||
Asset Strategy | $ | 2,286 | $ | 283,749 | $ | 17,294 | $ | 332,564 | ||||||||
Balanced | 45,443 | 144,248 | 69,560 | 156,030 | ||||||||||||
Energy | — | 30,190 | — | 16,932 | ||||||||||||
Growth | — | 234,989 | — | 352,339 | ||||||||||||
High Income | — | 446,053 | — | 397,012 | ||||||||||||
International Core Equity | — | 475,432 | — | 542,740 | ||||||||||||
Mid Cap Growth | — | 136,933 | — | 232,456 | ||||||||||||
Natural Resources | — | 48,262 | — | 48,354 | ||||||||||||
Science and Technology | — | 42,689 | — | 120,304 | ||||||||||||
Small Cap Core | — | 230,015 | — | 244,756 | ||||||||||||
Small Cap Growth | — | 180,862 | — | 234,561 |
10. | LOANS OF PORTFOLIO SECURITIES ($ amounts in thousands) |
Each Portfolio may lend their portfolio securities only to borrowers that are approved by the Portfolio’s securities lending agent, The Bank of New York Mellon (“BNYM”). The borrower pledges and maintains with the Portfolio collateral consisting of cash or securities issued or guaranteed by the U.S. government. The collateral received by the Portfolio is required to have a value of at least 102% of the market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% of the market value for all other securities, except in the case of loans of foreign securities which are denominated and payable in U.S. dollars, in which case the collateral is required to have a value of at least 102% of the market value of the loaned securities. The market value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Portfolio and any excess collateral is returned by the Portfolio on the next business day. During the term of the loan, the Portfolio is entitled to all distributions made on or in respect of the loaned securities but does not receive interest income on securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
Cash received as collateral for securities on loan may be reinvested in the Dreyfus Institutional Preferred Government Money Market Fund—Institutional Shares or certain other registered money market funds and are disclosed in the Portfolio’s Schedule of Investments and are reflected in the Statements of Assets and Liabilities as cash collateral on securities loaned at value. Non-cash collateral, in the form of securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, is not disclosed in the Portfolio’s Statements of Assets and Liabilities as it is held by the lending agent on behalf of the Portfolio and the Portfolio does not have the ability to re-hypothecate these securities. The
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securities on loan for each Portfolio are also disclosed in its Schedule of Investments. The total value of any securities on loan as of December 31, 2020 and the total value of the related cash collateral are disclosed in the Statements of Assets and Liabilities. Income earned by the Portfolios from securities lending activity is disclosed in the Statements of Operations.
The following is a summary of each Portfolio’s securities lending positions and related cash and non-cash collateral received as of December 31, 2020:
Portfolio | Value of Loan | Cash Collateral Received | Non-Cash Collateral Received | Total Collateral Received | ||||||||||||
Asset Strategy | $ | 649 | $ | 665 | $ | — | $ | 665 | ||||||||
Balanced | 195 | 71 | 128 | 199 | ||||||||||||
Energy | 492 | 2 | 503 | 505 | ||||||||||||
High Income | 8,521 | 6,310 | 2,425 | 8,735 | ||||||||||||
International Core Equity | 20,940 | 2,601 | 19,508 | 22,109 | ||||||||||||
Mid Cap Growth | 7,018 | 4,027 | 3,144 | 7,171 | ||||||||||||
Science and Technology | 4,279 | 4,387 | — | 4,387 | ||||||||||||
Small Cap Growth | 6,306 | 1,014 | 5,429 | 6,443 |
The cash collateral received amounts presented in the table above are transactions accounted for as secured borrowings and have an overnight and continuous maturity. The proceeds from the cash collateral received is invested in registered money market funds.
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Portfolios benefit from a borrower indemnity provided by BNYM. BNYM’s indemnity allows for full replacement of securities lent wherein BNYM will purchase the unreturned loaned securities on the open market by applying the proceeds of the collateral or to the extent such proceeds are insufficient or the collateral is unavailable, BNYM will purchase the unreturned loan securities at BNYM’s expense. However, the Portfolio could suffer a loss if the value of the investments purchased with cash collateral falls below the value of the cash collateral received.
11. BORROWINGS
On July 1, 2019 the Trust, on behalf of High Income, along with certain other funds managed by the investment adviser (“Participating Funds”), entered into a 364-day senior unsecured revolving credit facility with Bank of New York Mellon and a group of financial institutions to be utilized to temporarily finance the repurchase or redemption of Fund shares and for other temporary or emergency purposes. The Participating Funds can borrow up to an aggregate commitment amount of $130 million at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The credit facility has the following terms: a commitment fee of 0.15% per annum of the daily amount of unused commitment amounts and interest at a rate equal to the higher of (a) the federal funds effective rate (but not below 0.0%) plus 1.00% per annum or (b) the one-month LIBOR rate (but not below 0.0%) plus 1.00% per annum on amounts borrowed. The agreement expires in June 2021 unless extended or renewed. As of December 31, 2020, if applicable, any outstanding borrowings would be disclosed as a payable for borrowing on the Statements of Assets and Liabilities. Commitment and interest fees, if any, paid by the Participating Funds are disclosed as part of commitment and interest expense for borrowing on the Statements of Operations. During the year ended December 31, 2020, the Participating Funds did not borrow under the credit facility.
122 | ANNUAL REPORT | 2020 |
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12. CAPITAL SHARE TRANSACTIONS (All amounts in thousands)
The Trust has authorized an unlimited number of no par value shares of beneficial interest. Transactions in shares of beneficial interest were as follows:
Asset Strategy | Balanced | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class I | 2 | $ | 18 | — | $ | — | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||
Class II | 2,297 | 20,591 | 1,784 | 16,459 | 1,388 | $ | 10,666 | 1,682 | $ | 13,146 | ||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class I | 1 | 14 | 2 | 20 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||
Class II | 2,592 | 25,939 | 4,849 | 45,846 | 3,038 | 21,608 | 4,279 | 31,681 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class I | (1 | ) | (10 | ) | — | * | — | * | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class II | (12,999 | ) | (121,030 | ) | (16,162 | ) | (148,939 | ) | (6,423 | ) | (49,568 | ) | (6,122 | ) | (47,906 | ) | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Net decrease | (8,108 | ) | $ | (74,478 | ) | (9,527 | ) | $ | (86,614 | ) | (1,997 | ) | $ | (17,294 | ) | (161 | ) | $ | (3,079 | ) | ||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||
Energy | Growth | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class I | 42 | $ | 90 | 5 | $ | 21 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||
Class II | 17,805 | 36,300 | 4,050 | 16,320 | 6,048 | $ | 65,529 | 936 | $ | 10,589 | ||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class I | 2 | 4 | — | — | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||
Class II | 297 | 710 | — | — | 11,225 | 112,472 | 18,896 | 186,937 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class I | (10 | ) | (21 | ) | (9 | ) | (34 | ) | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class II | (11,000 | ) | (24,197 | ) | (3,772 | ) | (15,434 | ) | (16,529 | ) | (183,294 | ) | (10,740 | ) | (120,227 | ) | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Net increase (decrease) | 7,136 | $ | 12,886 | 274 | $ | 873 | 744 | $ | (5,293 | ) | 9,092 | $ | 77,299 | |||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
High Income | International Core Equity | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class I | 1,120 | $ | 3,427 | 765 | $ | 2,711 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||
Class II | 34,522 | 108,828 | 26,909 | 92,614 | 5,497 | $ | 68,946 | 2,003 | $ | 30,385 | ||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class I | 501 | 1,439 | 936 | 3,156 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||
Class II | 19,910 | 57,105 | 16,418 | 55,287 | 1,149 | 14,682 | 4,945 | 70,370 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class I | (3,508 | ) | (11,691 | ) | (7,167 | ) | (24,449 | ) | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class II | (48,887 | ) | (154,485 | ) | (36,409 | ) | (125,215 | ) | (11,578 | ) | (159,777 | ) | (8,396 | ) | (126,858 | ) | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Net increase (decrease) | 3,658 | $ | 4,623 | 1,452 | $ | 4,104 | (4,932 | ) | $ | (76,149 | ) | (1,448 | ) | $ | (26,103 | ) | ||||||||||||||||||||
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|
|
* Not shown due to rounding.
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Mid Cap Growth | Natural Resources | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class I | 2,196 | $ | 24,761 | 1,304 | $ | 16,178 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||
Class II | 5,890 | 83,518 | 5,186 | 64,074 | 4,623 | $ | 13,178 | 3,518 | $ | 13,191 | ||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class I | 1,323 | 16,218 | 3,171 | 35,378 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||
Class II | 1,888 | 23,025 | 4,217 | 46,820 | 586 | 1,678 | 229 | 870 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class I | (7,828 | ) | (102,324 | ) | (2,828 | ) | (34,889 | ) | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class II | (7,174 | ) | (95,976 | ) | (5,347 | ) | (66,009 | ) | (5,335 | ) | (16,123 | ) | (5,896 | ) | (22,418 | ) | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) | (3,705 | ) | $ | (50,778 | ) | 5,703 | $ | 61,552 | (126 | ) | $ | (1,267 | ) | (2,149 | ) | $ | (8,357 | ) | ||||||||||||||||||
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| |||||||||||||||||||||
Science and Technology | Small Cap Core | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class I | 44 | $ | 1,383 | 5 | $ | 144 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||
Class II | 2,488 | 74,399 | 2,087 | 58,421 | 1,325 | $ | 14,216 | 564 | $ | 7,839 | ||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class I | 6 | 191 | 3 | 80 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||
Class II | 2,181 | 71,179 | 1,692 | 49,737 | 823 | 8,738 | 2,817 | 36,690 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class I | (24 | ) | (802 | ) | — | * | (17 | ) | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class II | (5,252 | ) | (161,803 | ) | (3,995 | ) | (110,540 | ) | (2,654 | ) | (30,609 | ) | (2,655 | ) | (36,555 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) | (557 | ) | $ | (15,453 | ) | (208 | ) | $ | (2,175 | ) | (506 | ) | $ | (7,655 | ) | 726 | $ | 7,974 | ||||||||||||||||||
|
|
|
|
|
|
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|
|
|
|
|
|
| |||||||||||||||||||||
Small Cap Growth | ||||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | |||||||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class I | 1,175 | $ | 8,471 | 477 | $ | 4,296 | ||||||||||||||||||||||||||||||
Class II | 1,993 | 17,717 | 2,202 | 19,523 | ||||||||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class I | — | — | 489 | 4,305 | ||||||||||||||||||||||||||||||||
Class II | — | — | 2,841 | 24,945 | ||||||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class I | (2,900 | ) | (26,285 | ) | (1,198 | ) | (10,725 | ) | ||||||||||||||||||||||||||||
Class II | (6,144 | ) | (56,338 | ) | (6,327 | ) | (56,749 | ) | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net decrease | (5,876 | ) | $ | (56,435 | ) | (1,516 | ) | $ | (14,405 | ) | ||||||||||||||||||||||||||
|
|
*Not shown due to rounding.
13. | COMMITMENTS |
Bridge loan commitments may obligate a Portfolio to furnish temporary financing to a borrower until permanent financing can be arranged. In connection with these commitments, the Portfolio earns a commitment fee, typically set as a percentage of the commitment amount. Such fee income is included in interest income on the Statements of Operations. At December 31, 2020, there were no outstanding bridge loan commitments.
124 | ANNUAL REPORT | 2020 |
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14. | FEDERAL INCOME TAX MATTERS ($ amounts in thousands) |
For Federal income tax purposes, cost of investments owned at December 31, 2020 and the related unrealized appreciation (depreciation) were as follows:
Fund | Cost of Investments | �� | Gross Appreciation | Gross Depreciation | Net Unrealized Appreciation (Depreciation) | |||||||||||
Asset Strategy | $ | 665,066 | $ | 162,419 | $ | 64,550 | $ | 97,869 | ||||||||
Balanced | 279,954 | 66,441 | 4,912 | 61,529 | ||||||||||||
Energy | 54,576 | 3,978 | 14,795 | (10,817 | ) | |||||||||||
Growth | 525,439 | 371,371 | 312 | 371,059 | ||||||||||||
High Income | 931,436 | 35,283 | 75,359 | (40,076 | ) | |||||||||||
International Core Equity | 583,062 | 98,750 | 33,110 | 65,640 | ||||||||||||
Mid Cap Growth | 399,720 | 299,664 | 5,945 | 293,719 | ||||||||||||
Natural Resources | 78,904 | 9,949 | 13,622 | (3,673 | ) | |||||||||||
Science and Technology | 286,794 | 399,227 | 3,851 | 395,376 | ||||||||||||
Small Cap Core | 153,517 | 31,742 | 3,099 | 28,643 | ||||||||||||
Small Cap Growth | 302,972 | 163,517 | 2,504 | 161,013 |
For Federal income tax purposes, the Portfolios’ undistributed earnings and profit for the year ended December 31, 2020 and the post-October and late-year ordinary activity updated with information available through the date of this report were as follows:
Fund | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Tax Return of Capital | Post- October Capital Losses Deferred | Late-Year Ordinary Losses Deferred | |||||||||||||||
Asset Strategy | $ | 1,209 | $ | 12,943 | $ | — | $ | — | $ | — | ||||||||||
Balanced | 3,797 | 21,206 | — | — | — | |||||||||||||||
Energy | 7 | — | — | — | — | |||||||||||||||
Growth | 14,989 | 83,262 | — | — | — | |||||||||||||||
High Income | 53,438 | — | — | — | — | |||||||||||||||
International Core Equity | 6,907 | — | — | — | — | |||||||||||||||
Mid Cap Growth | 8,450 | 74,222 | — | — | — | |||||||||||||||
Natural Resources | 788 | — | — | — | — | |||||||||||||||
Science and Technology | — | 9,206 | — | — | — | |||||||||||||||
Small Cap Core | — | — | — | — | — | |||||||||||||||
Small Cap Growth | 7,133 | 51,481 | — | — | — |
Internal Revenue Code regulations permit each Portfolio to elect to defer into its next fiscal year capital losses and certain specified ordinary items incurred between each November 1 and the end of its fiscal year. Each Portfolio is also permitted to defer into its next fiscal certain ordinary losses that are generated between January 1 and the end of its fiscal year.
The tax character of dividends and distributions paid during the two fiscal years ended December 31, 2020 and 2019 were as follows:
December 31, 2020 | December 31, 2019 | |||||||||||||||||||
Fund | Distributed Ordinary Income(1) | Distributed Long-Term Capital Gains | Distributed Ordinary Income(1) | Distributed Long-Term Capital Gains | ||||||||||||||||
Asset Strategy | $ | 15,087 | $ | 10,866 | $ | 15,765 | $ | 30,101 | ||||||||||||
Balanced | 4,491 | 17,117 | 6,330 | 25,351 | ||||||||||||||||
Energy | 714 | — | — | — | ||||||||||||||||
Growth | 13,693 | 98,779 | 4,140 | 182,797 | ||||||||||||||||
High Income | 58,544 | — | 58,443 | — | ||||||||||||||||
International Core Equity | 14,571 | 111 | 13,997 | 56,373 | ||||||||||||||||
Mid Cap Growth | 5,368 | 33,875 | — | 82,198 | ||||||||||||||||
Natural Resources | 1,678 | — | 870 | — | ||||||||||||||||
Science and Technology | 992 | 70,378 | 1,227 | 48,590 | ||||||||||||||||
Small Cap Core | 2,001 | 6,737 | 12,737 | 23,953 | ||||||||||||||||
Small Cap Growth | — | — | — | 29,250 |
(1) | Includes short-term capital gains, if any. |
2020 | ANNUAL REPORT | 125 |
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Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes.
Accumulated capital losses represent net capital loss carryovers as of December 31, 2020 that may be available to offset future realized capital gains and thereby reduce future capital gains distributions. As of December 31, 2020, the capital loss carryovers were as follows:
Fund | Short-Term Capital Loss Carryover | Long-Term Capital Loss Carryover | ||||||
Asset Strategy | $ | — | $ | — | ||||
Balanced | — | — | ||||||
Energy | 10,567 | (1) | 40,488 | (1) | ||||
Growth | — | — | ||||||
High Income | — | 80,991 | ||||||
International Core Equity | — | 37,778 | ||||||
Mid Cap Growth | — | — | ||||||
Natural Resources | 10,471 | 58,592 | ||||||
Science and Technology | — | — | ||||||
Small Cap Core | — | 98 | ||||||
Small Cap Growth | — | — |
(1) | $28,772 of these Capital Loss Carryovers are subject to an annual limitation of $3,708 plus any unused limitation from prior years. |
Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations Which may differ from U.S. GAAP. These differences are due to differing treatments for items such as deferral of wash sales, post- October losses, late-year ordinary losses, foreign currency transactions, net operating losses, income from passive foreign investment companies (PFICs), investments held within the wholly-owned subsidiary and companies and partnership transactions. At December 31, 2020, the following reclassifications were made:
Fund | Accumulated Earnings Gain (Loss) | Paid-In Capital | ||||||
Asset Strategy | $ | 1 | $ | (1 | ) | |||
Balanced | 1 | (1 | ) | |||||
Energy | — | * | — | * | ||||
Growth | — | — | ||||||
High Income | — | * | — | * | ||||
International Core Equity | — | — | ||||||
Mid Cap Growth | — | — | ||||||
Natural Resources | 1 | (1 | ) | |||||
Science and Technology | 3,885 | (3,885 | ) | |||||
Small Cap Core | 187 | (187 | ) | |||||
Small Cap Growth | — | — |
* Not shown due to rounding.
126 | ANNUAL REPORT | 2020 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | IVY VIP |
To the Shareholders and Board of Trustees of Ivy Variable Insurance Portfolios:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of Ivy VIP Asset Strategy, Ivy VIP Balanced, Ivy VIP Energy, Ivy VIP Growth, Ivy VIP High Income, Ivy VIP International Core Equity, Ivy VIP Mid Cap Growth, Ivy VIP Natural Resources, Ivy VIP Science and Technology, Ivy VIP Small Cap Core, and Ivy VIP Small Cap Growth, eleven of the series constituting the Ivy Variable Insurance Portfolios (the “Funds”), including the schedules of investments, as of December 31, 2020, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of December 31, 2020, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian, agent banks, and brokers; when replies were not received from brokers or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Kansas City, Missouri
February 12, 2021
We have served as the auditor of one or more Waddell & Reed investment companies since 1997.
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INCOME TAX INFORMATION | IVY VIP |
AMOUNTS NOT ROUNDED (UNAUDITED)
The Portfolios hereby designate the following amounts of dividends paid from net ordinary income as dividends qualifying for the 70% dividends received deduction for corporations for the tax period ended December 31, 2020:
Dividends Received Deduction for Corporations | ||||
Asset Strategy | $ | 2,546,941 | ||
Balanced | 3,939,954 | |||
Energy | 714,044 | |||
Growth | 6,637,984 | |||
High Income | — | |||
International Core Equity | — | |||
Mid Cap Growth | 2,788,239 | |||
Natural Resources | 1,217,997 | |||
Science and Technology | 991,798 | |||
Small Cap Core | 1,576,810 | |||
Small Cap Growth | — |
The Portfolios hereby designate the following amounts as distributions of long-term capital gains:
Asset Strategy | $ | 10,866,177 | ||
Balanced | 17,117,192 | |||
Energy | — | |||
Growth | 98,778,669 | |||
High Income | — | |||
International Core Equity | 110,592 | |||
Mid Cap Growth | 33,875,175 | |||
Natural Resources | — | |||
Science and Technology | 70,377,771 | |||
Small Cap Core | 6,737,848 | |||
Small Cap Growth | — |
Internal Revenue Code regulations permit each qualifying Portfolio to elect to pass through a foreign tax credit to shareholders with respect to foreign taxes paid by the Portfolio. Each Portfolio elected to pass the following amounts of creditable foreign taxes through to their shareholders:
Foreign Tax Credit | Foreign Derived Income | |||||||
International Core Equity | $ | 813,641 | $ | 12,314,636 |
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BOARD OF TRUSTEES AND OFFICERS | IVY VIP |
Each of the individuals listed below serves as a trustee for the Trust (28 portfolios), and for the rest of the funds within the Fund Complex, which also includes, in addition to the Trust, the Ivy Funds (45 portfolios), the Ivy High Income Opportunities Fund (a closed-end fund) (“IVH”) and InvestEd Portfolios (“InvestEd”) (10 portfolios).
Board members who are not “interested persons” of the Funds as defined in Section 2(a)(19) of the 1940 Act (Disinterested Trustees) constitute at least 75% of the Board.
Joseph Harroz, Jr. serves as the Independent Chairman of the Trust’s Board and of the Board of Trustees of the other funds in the Fund Complex. Subject to the Trustee Emeritus and Retirement Policy, a Trustee serves until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
The Statement of Additional Information (the “SAI”) for the Trust includes additional information about the Trust’s trustees. The SAI is available without charge, upon request, by calling 1.888.923.3355. It is also available on the Ivy Investments website, www.ivyinvestments.com.
Disinterested Trustees
Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
James M. Concannon 6300 Lamar Avenue Overland Park, KS 66202 1947 | Trustee | 1997 | Emeritus Dean and Professor of Law, Washburn University School of Law (1973 to present). | Director, Kansas Legal Services for Prisoners, Inc. (non-profit community service); Director, U.S. Alliance Corporation and wholly-owned subsidiaries: U.S. Alliance Life and Security Company—Montana and Dakota Capital Life Insurance Company (Insurance) (2009 to present); Director, Kansas Appleseed, Inc. (non-profit community service) (2007 to present); Trustee, WRA Funds (1997-2018); Trustee, Ivy NextShares (2017-2019); Trustee, InvestEd (2001 to present) (10 portfolios overseen); Trustee, Ivy Funds (2017 to present) (45 portfolios overseen); Trustee, IVH (2017 to present) (1 portfolio overseen). | ||||
H. Jeffrey Dobbs 6300 Lamar Avenue Overland Park, KS 66202 1955 | Trustee | 2019 | Global Sector Chairman, Industrial Manufacturing, KPMG LLP (2010-2015). | Director, Valparaiso University (2012 to present); Director, TechAccel LLC (2015 to present) (Tech R&D); Board Member, Kansas City Repertory Theatre (2015 to present); Board Member, PatientsVoices, Inc. (technology) (2018 to present); Board Member, Kansas City Campus for Animal Care (2018 to present); Director, National Association of Manufacturers (2010-2015); Director, The Children’s Center (2003-2015); Director, Metropolitan Affairs Coalition (2003-2015); Director, Michigan Roundtable for Diversity and Inclusion (2003-2015); Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). | ||||
James D. Gressett 6300 Lamar Avenue Overland Park, KS 66202 1950 | Trustee | 2017
| Chief Executive Officer (CEO) of CalPac Pizza LLC (2011 to present); CEO of CalPac Pizza II LLC (2012 to present); CEO of PacPizza LLC (Pizza Hut franchise) (2000 to present); Member/CEO, Southern Pac Pizza LLC (2013 to present); Partner, Century Bridge Partners (real estate investments) (2007 to present); Manager, Hartley Ranch Angus Beef, LLC (2013 to present); President, Penn Capital Corp. (1995 to present); Partner, Penn Capital Partners (1999 to present); Partner, 1788 Chicken, LLC (food franchise) (2016 to present). | Member/Secretary, The Metochoi Group LLC (1999 to present); Member/Chairman, Idea Homes LLC (homebuilding and development) (2013 to present); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee; IVH (2013 to present) (1 portfolio overseen). |
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Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Joseph Harroz, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1967 | Trustee
Independent Chairman | 1998
2015 | President (2020 to present), Interim President (2019-2020), Vice President (2010-2019) and Dean (2010-2019), College of Law, University of Oklahoma; Managing Member, Harroz Investments, LLC, (commercial enterprises) (1998 to present). | Director and Shareholder, Valliance Bank (2007 to present); Director, Foundation Healthcare (formerly Graymark HealthCare) (2008-2017); Trustee, The Mewbourne Family Support Organization (2006 to present) (non-profit); Independent Director, LSQ Manager, Inc. (real estate) (2007-2016); Director, Oklahoma Foundation for Excellence (non-profit) (2008 to present); Director, University of Oklahoma Medical, Inc. (2020 to present) (non-profit); Independent Chairman and Trustee, WRA Funds (Independent Chairman: 2015-2018; Trustee: 1998-2018); Independent Chairman and Trustee, Ivy NextShares (2016-2019); Independent Chairman and Trustee, InvestEd (Independent Chairman: 2015 to present; Trustee: 2001 to present) (10 portfolios overseen); Independent Chairman and Trustee, Ivy Funds (Independent Chairman: 2006 to present; Trustee: 1998 to present) (45 portfolios overseen); Independent Chairman and Trustee, IVH (Independent Chairman and Trustee (2013 to present) (1 portfolio overseen). | ||||
Glendon E. Johnson, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1951 | Trustee | 2017
| Of Counsel, Lee & Smith, PC (law firm, emphasis on finance, securities, mergers and acquisitions law) (1996 to 2020); Owner and Manager, Castle Valley Ranches, LLC (ranching) and Castle Valley Outdoors, LLC (outdoor recreation) (1995 to present); Formerly, Partner, Kelly, Drye & Warren LLP (law firm) (1989-1996); Partner, Lane & Edson PC (law firm) (1987-1989). | Director, Thomas Foundation for Cancer Research (non-profit) (2005 to present); Director, Warriors Afield Legacy Foundation (non-profit) (2014 to present); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee, IVH (2013 to present) (1 portfolio overseen). | ||||
Sandra A.J. Lawrence 6300 Lamar Avenue Overland Park, KS 66202 1957 | Trustee | 2019
| Retired, formerly, Chief Administrative Officer, Children’s Mercy Hospitals and Clinics (2016-2019); CFO, Children’s Mercy Hospitals and Clinics (2005-2016). | Director, Hall Family Foundation (1993 to present); Director, Westar Energy (2004-2018); Trustee, Nelson-Atkins Museum of Art (non-profit) (2007 to present); Director, Turn the Page KC (non-profit) (2012-2016); Director, Kansas Metropolitan Business and Healthcare Coalition (non-profit) (2017-2019); Director, National Association of Corporate Directors (non-profit) (2017 to present); Director, American Shared Hospital Services (2017 to present); Director, Evergy, Inc., Kansas City Power & Light Company, KCP&L Greater Missouri Operations Company, Westar Energy, Inc. and Kansas Gas and Electric Company (related utility companies) (2018 to present); Director, Stowers (research) (2018); Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). | ||||
Frank J. Ross, Jr. Polsinelli PC 900 West 48th Place, Suite 900 Kansas City, MO 64112 1953 | Trustee | 1996
| Shareholder/Director, Polsinelli PC (law firm) (1980 to present). | Trustee, WRA Funds (1996-2018); Trustee, Ivy NextShares (2017-2019); Trustee, InvestEd (2001 to present) (10 portfolios overseen); Trustee, Ivy Funds (2017 to present) (45 portfolios overseen); Trustee, IVH (2017 to present) (1 portfolio overseen). |
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Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Michael G. Smith 6300 Lamar Avenue Overland Park, KS 66202 1944 | Trustee | 2017 | Retired; formerly, with Merrill Lynch as Managing Director of Global Investor Client Strategy (1996-1998), Head of Regional Institutional Sales (1995-1996) and of U.S. Central Region (1986-1995, 1999). | Director, Executive Board, Cox Business School, Southern Methodist University (1998-2019); Lead Director, Northwestern Mutual Funds (2003-2017) (29 portfolios overseen); Director, CTMG, Inc. (clinical testing) (2008-2015); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee, IVH (2013 to present) (1 portfolio overseen). |
Interested Trustee
Mr. Sanders is “interested” by virtue of his current or former engagement as an officer of Waddell & Reed Financial, Inc. (“WDR”) or its wholly-owned subsidiaries, including each Fund’s investment manager, Ivy Investment Management Company (“IICO”), each Fund’s principal underwriter, Ivy Distributors, Inc. (“IDI”), and each Fund’s shareholder servicing and accounting services agent, Waddell & Reed Services Company, doing business as WI Services Company (“WISC”), a subsidiary of Waddell & Reed, Inc. (“Waddell & Reed”), as well as by virtue of his personal ownership of shares of WDR. The address for the Interested Trustee and each of the officers in the following tables is 6300 Lamar Avenue, Overland Park, KS 66202.
Name and Year of Birth | Position(s) Held with the Trust | Trustee/Officer Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Philip J. Sanders 1959 | Trustee | 2019 | CEO, WDR (2016 to present); President, CEO and Chairman, IICO (2016 to present); President of each of the funds in the Fund Complex (2016 to present); CIO, WDR (2011-2019); CIO, IICO (2010-2019). | Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). |
Officers
The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. The Trust’s principal officers are:
Name and Year of Birth | Position(s) Held with the Trust and Fund Complex | Officer of Trust Since | Officer of Fund Complex Since* | Principal Occupation(s) During Past 5 Years | ||||
Jennifer K. Dulski 1980 | Secretary | 2017 | 2017 | Secretary for each of the funds in the Fund Complex (2017 to present); Senior Vice President and Associate General Counsel of Waddell & Reed, IICO and IDI (2018 to present). | ||||
Joseph W. Kauten 1969 | Vice President
Treasurer
Principal Financial Officer | 2009
2009
2009 | 2006
2006
2007 | Principal Financial Officer of each of the funds in the Fund Complex (2007 to present); Vice President and Treasurer of each of the funds in the Fund Complex (2006 to present); Principal Accounting Officer of each of the funds in the Fund Complex (2006-2017); Assistant Treasurer of each of the funds in the Fund Complex (2003-2006); Senior Vice President of Waddell & Reed Services Company (WRSCO) (2014 to present). | ||||
Philip J. Sanders** 1959 | President | 2016 | 2016 | CEO of WDR (2016 to present); President, CEO and Chairman of IICO (2016 to present) and WRIMCO (2016-2018); President of each of the funds in the Fund Complex (2016 to present); CIO of WDR (2011-2019); CIO of IICO (2010-2019) and WRIMCO (2010-2018). | ||||
Scott J. Schneider 1968 | Vice President
Chief Compliance Officer | 2009
2009 | 2006
2004 | Chief Compliance Officer (2004 to present) and Vice President (2006 to present) of each of the funds in the Fund Complex; Vice President of IICO (2006 to present) and WRIMCO (2006-2018). | ||||
Philip A. Shipp 1969 | Assistant Secretary | 2012 | 2012 | Assistant Secretary of each of the funds in the Fund Complex (2012 to present); Vice President of Waddell & Reed and IDI (2010-present). |
* This is the date when the Officer first became an officer of one or more of the funds that are the predecessors to current funds within the Fund Complex (if applicable).
** Mr. Sanders was Vice President of the Trust since 1998, until his appointment as President in 2016.
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RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT | IVY VIP |
At a meeting of the Board of Trustees (the “Board”) of Ivy Variable Insurance Portfolios (the “Trust”) held on August 11th and 12th, 2020, the Board, including all of the trustees who are not “interested persons” (the “Independent Trustees”), as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”), unanimously approved the continuance of the Investment Management Agreement (the “Management Agreement”) between Ivy Investment Management Company (“IICO”) and the Trust, and the continuance of the Investment Subadvisory Agreement between IICO and Securian Asset Management, Inc. (the “Subadviser”) with respect to Ivy VIP Securian Real Estate Securities, Ivy VIP Pathfinder Moderate – Managed Volatility, Ivy VIP Pathfinder Moderately Aggressive – Managed Volatility and Ivy VIP Pathfinder Moderately Conservative – Managed Volatility. The Management Agreement and the Investment Subadvisory Agreement are referred to collectively herein as the “Agreements.”
The Board’s Independent Trustees were assisted in their review by independent legal counsel and met with such counsel separately from representatives of IICO and the Subadviser. Independent legal counsel explained the factors that the Board should consider as part of its review of the Agreements, all as outlined in a memorandum it had provided to the Board prior to the meeting, including, among other things, the nature and the quality of the services provided by IICO and the Subadviser, profitability (including any fall-out benefits) from IICO’s and the Subadviser’s relationships with each series of the Trust (each, a “Fund” and together, the “Funds”), economies of scale, the role played by the Independent Trustees, and information on comparative fees and expenses. The Independent Trustees also considered the written responses and materials produced by IICO and the Subadviser in response to 15(c) due diligence request lists submitted by the Independent Trustees’ legal counsel prior to the meeting, as well as materials produced in response to a follow-up request list sent to IICO by independent legal counsel on behalf of the Independent Trustees. Included in those responses, which had been provided to the Board prior to the meeting, was a Fund-by-Fund profitability analysis prepared by IICO, as well as an explanation of the methodology by which the profitability analysis was calculated. The Board also received extensive materials on performance, expenses and comparable fund information from an independent mutual fund rating service. Finally, the Independent Trustees received and reviewed a considerable amount of information that their independent fee consultant had provided to them. The Independent Trustees previously had reviewed and discussed these materials during a telephonic meeting in July 2020. They further reviewed these materials among themselves, with their independent legal counsel and the independent fee consultant, and with the other Board members at executive sessions of the Independent Trustees at the August 11-12, 2020 Board meeting, during which the Board considered various factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Board’s determination to approve the Agreements are discussed separately below.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of services provided to the Funds by IICO and the Subadviser, taking into account the large amount of materials produced by IICO and the Subadviser in response to the 15(c) due diligence requests submitted on its behalf by independent legal counsel to the Independent Trustees.
The Board also took into account the review that its Investment Oversight Committee (the “IOC”) had conducted, in light of that committee’s duties to assist the Board in the 15(c) process. The IOC had reported to the Board on its review of the performance of the Funds, IICO’s investment risk management function, and the changes IICO and its affiliates have been undertaking for the Trust and the overall fund complex. As such, the Board examined all of IICO’s activities in light of performance and expense structure, as well as the overall rationalization of the Ivy Funds complex, which is designed to provide economies of scale to the shareholders, reduce the Funds’ expenses and enhance the performance of the Funds, particularly in the context of substantial industry change and regulatory developments.
The Board likewise considered the knowledge it had received from its regular meetings, including from the materials provided in connection with those meetings, such as the resources and key personnel of IICO and the Subadviser, as well as the other services provided to the Funds by IICO and the Subadviser, as applicable (e.g., managing the quality of execution of portfolio transactions and the selection of broker-dealers for those transactions, monitoring adherence to each Fund’s investment restrictions, producing reports, providing support services for the Board and its committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various Fund policies and procedures and with applicable laws and regulations). The Board also took into account the compliance environment at IICO and the Subadviser, noting the resources that each has dedicated towards compliance. The Board concluded that the nature and extent of the services provided by IICO and the Subadviser were appropriate, that the quality of those services had been consistent with quality norms in the industry and that the Funds were likely to benefit from the continued provision of those services.
Benefits from the Relationship with the Funds
The Board next discussed whether IICO or the Subadviser derives any other direct or indirect benefit from serving the Funds. In that regard, the Board discussed the transfer agency and shareholder servicing fees that Waddell & Reed Services Company (“WISC”), an affiliate of IICO, has provided the Funds. The Board took note of the caps that management previously had agreed to on shareholder servicing costs. The Board also considered the benefits that accrue to each service
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provider organization from its respective relationship with the Funds, including the fact that a variety of services are provided by affiliates of IICO, including distribution, administrative and Fund accounting services, and, as discussed above, shareholder servicing. The Board also considered that WISC has outsourced certain of its transactional processing operations to a sub-agent, which is designed to promote, and has achieved, greater efficiencies and savings for Fund shareholders over time. After full consideration of these and other factors, the Board concluded that none of IICO, the Subadviser or any of their affiliates receives any additional direct or indirect benefits that would preclude the Board from approving the continuation of the Management Agreement with IICO or the Investment Subadvisory Agreement with the Subadviser.
Economies of Scale
The Board discussed whether economies of scale are being realized by the Funds and whether fee levels reflect those economies of scale for the benefit of the Funds’ shareholders. The Board considered the fact that as a Fund’s assets have grown, the expenses of that Fund generally have fallen. Additionally, in that regard, the Board considered the various initiatives that IICO has recently undertaken, and continues to implement, in seeking to rationalize the Ivy Funds complex, including the Trust, as well as to reduce expenses and enhance performance.
Performance of the Funds and Costs of Services Provided
The Board considered the performance of each Fund and the costs of the services provided, focusing in particular on a number of Funds that the independent fee consultant had identified. Specifically, the Board examined the investment performance of each Fund, including the percentile ranking of each Fund over various periods of time. The Board also examined the performance of each Fund against its respective benchmark index and peer funds for the same periods. After extensively reviewing all of the performance information provided, the Board concluded that the Funds’ performance in each asset class was acceptable. Although the performance of some of the focus Funds identified by the independent fee consultant lagged that of their peers or respective benchmark index, the Board recognized that IICO, or the Subadviser, had taken, or was taking, steps to address that underperformance, and determined to continue to monitor closely the performance of those Funds.
The Board also considered the expenses and expense ratio of each Fund, and the expense limitation and fee reduction arrangements entered into by IICO in light of the services provided by IICO and the Subadviser. The Board also compared each Fund’s expenses, including advisory, distribution and shareholder servicing fees, with the expenses and advisory fees of other investment advisers managing similarly situated funds, as well as the advisory fees that IICO charges for providing advisory services to other accounts in the same asset class for certain Funds. In that regard, the Board noted that IICO performs significant additional services for the Funds as compared to those other accounts. The Board also took into account the information on IICO’s profitability in managing the Funds, including the methodology used to calculate profitability. The Board finally considered the amount of assets in each Fund, each Fund’s average account size and how those factors affect the Funds’ expense ratios, noting that, as the Funds’ assets have increased or decreased over time, the expense ratios of the Funds generally have fallen or risen, respectively. After completing this examination, the Board concluded that each Fund’s expenses are appropriate at the current time.
Independent Fee Consultant Review
Independent legal counsel, on behalf of the Independent Trustees, engaged an independent fee consultant to assist them in evaluating the reasonableness of the management fees charged by IICO to all funds within the Ivy Funds complex. The independent fee consultant’s review addressed the following fee-related factors:
1. | The nature, extent and quality of IICO’s services to the Funds; |
2. | Management fees and expenses in the context of performance; |
3. | Product category expenses, including peers; |
4. | Profit margins of IICO’s parent from supplying such services; |
5. | Subadviser and institutional fee analyses; and |
6. | Possible economies of scale as a Fund grows larger. |
The following summarizes the findings of the independent fee consultant retained by the Independent Trustees.
Summary Findings
The report stated that IICO delivered reasonable levels of performance in the longer-term periods and reasonable levels of service to the Funds in relation to its management fees as compared to the investment advisers of comparable funds. For the 36 months ended March 31, 2020, approximately 23% of the funds within the Ivy Funds complex were in the top quartile of performance and 55% of the Funds were in the top two quartiles of performance and that short-term performance of such
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funds were showing signs of improvement. Specifically, the report noted that 50% of the funds within the Ivy Funds complex were in the top two quartiles in the one-year period. The independent fee consultant noted that the funds’ performance appeared to be grounded in a number of institutional competitive advantages at IICO, including investment management depth, ability to attract top talent, proactive management, performance-focused culture, economic analysis and an effective trading infrastructure.
The report further indicated that total expenses of the funds in the complex, on average, were reasonable in relation to the average total expenses of their respective group of peer funds and that their net management fees were reasonable in relation to the average net management fees of their respective groups of peer funds. The report also stated that the management fees IICO charges to the funds are reasonable in relation to the management fees it charges to its institutional account clients. The report noted that these institutional account clients have different service and infrastructure needs and in addition, the average spread between management fees IICO charged to the funds and those it charges to institutional account clients is reasonable relative to the average fee spreads computed from industry surveys.
The report stated that while it was difficult to confirm overall economies of scale, it was clear that the Funds’ shareholders generally are benefitting from lower expenses as the funds’ assets grow.
The report also noted that the overall profitability of IICO’s parent relative to other complexes is reasonable.
Finally, the report also examined the fees that IICO retains on funds that are subadvised by unaffiliated subadvisers and indicated that those fees are reasonable relative to the industry. The report also stated that the subadvisory fees that IICO earns for serving as a subadviser to an unaffiliated fund when compared to fees of similar funds likewise are reasonable relative to the industry.
Conclusions
The independent fee consultant’s report concluded that it believes that the services provided by IICO and its affiliates and expenses incurred by the funds within the Ivy Funds complex in the previous 12 months are reasonable and provide adequate justification for renewal of the Funds’ existing Agreements.
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ANNUAL PRIVACY NOTICE | IVY VIP |
(UNAUDITED)
FACTS | What does Ivy Variable Insurance Portfolios do with your personal information? | |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do. | |
What? | The types of personal information we collect and share depend on the product or service you have with us. The information can include: | |
• Social Security Number and income, | ||
• Assets and transaction history, and | ||
• Checking account information and wire transfer instructions. | ||
When you are no longer our customer, we continue to share your information as described in this notice. | ||
How? | All financial companies need to share customers’ personal information to conduct everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information, the reasons Ivy Variable Insurance Portfolios chooses to share, and whether you can limit this sharing. |
Reasons we can share your personal information | Does Ivy Variable Insurance Portfolios share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your accounts, respond to court orders and legal investigations or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | Yes | No | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | Yes | No | ||
For our affiliates everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For our affiliates to market to you | No | We don’t share | ||
For non-affiliates to market to you | No | We don’t share |
Questions? | Call 1(800) 777-6472 with questions about this notice. Client service representatives are available Monday through Friday from 7:30 am to 7:00 pm CST. You may also go to www.ivyinvestments.com/privacy_policy. | |
If we serve you through an investment professional, such as a registered representative of a broker-dealer or an investment adviser representative (each, a “financial advisor”), please contact them directly. Specific internet addresses, mailing addresses and telephone numbers are listed on your statements and other correspondence. |
Who we are | ||
Who is providing this notice? | Ivy Variable Insurance Portfolios | |
What we do | ||
How does Ivy Variable Insurance Portfolios protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | |
How does Ivy Variable Insurance Portfolios collect my personal information? | We collect your personal information, for example, when you: | |
• Give us your contact information or other personal information, | ||
• Open an account, or | ||
• Make deposits to an account or withdrawals from an account. | ||
We also collect your personal information from our affiliates. | ||
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What we do | ||
Why can’t I limit all sharing? | Federal law gives you the right to limit only: | |
• Sharing for affiliates’ everyday business purposes – information about your creditworthiness, | ||
• Affiliates from using your information to market to you, and | ||
• Sharing for non-affiliates to market to you. | ||
State laws and individual companies may give you additional rights to limit sharing. | ||
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. | |
• Affiliates of Ivy Funds include Waddell & Reed Services Company, Ivy Distributors, Inc., and Ivy Investment Management Company. | ||
Non-affiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. | |
• Ivy Funds does not share your personal information with non-affiliates so they can market to you. | ||
Joint marketing | A formal agreement between non-affiliated financial companies that together market financial products or services to you. | |
• Ivy Funds does not jointly market. | ||
| ||
Other important information | ||
If you own shares of Ivy Variable Insurance Portfolios in the name of a third party, such as a bank or a broker-dealer, the third party’s privacy policy may apply to you in addition to ours. | ||
If you are working with a financial advisor, and the financial advisor leaves their firm and joins another non-affiliated broker-dealer or registered investment adviser, then the financial advisor may be permitted to use limited information to contact you. The information that the financial advisor may use is comprised of your name, address, email address, telephone number and account title. |
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PROXY VOTING INFORMATION | IVY VIP |
(UNAUDITED)
Proxy Voting Guidelines
A description of the policies and procedures Ivy Variable Insurance Portfolios uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1.888.923-3355 and (ii) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Proxy Voting Records
Information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on Form N-PX at www.ivyinvestments.com and on the SEC’s website at www.sec.gov.
2020 | ANNUAL REPORT | 137 |
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QUARTERLY PORTFOLIO SCHEDULE INFORMATION | IVY VIP |
(UNAUDITED)
Portfolio holdings can be found on the Trust’s website at www.ivyinvestments.com. Alternatively, a complete schedule of portfolio holdings of each Portfolio for the first and third quarters of each fiscal year is filed with the SEC and can be found as an exhibit to the Trust’s Form N-PORT. These holdings may be viewed in the following ways:
• | On the SEC’s website at www.sec.gov. |
• | For review and copy at the SEC’s Public Reference Room in Washington, DC. Information on the operations of the Public Reference Room may be obtained by calling 1.800.SEC.0330. |
138 | ANNUAL REPORT | 2020 |
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THE IVY VARIABLE INSURANCE PORTFOLIOS FAMILY |
Global/International Portfolios
Global Equity Income
Global Growth
International Core Equity
Domestic Equity Portfolios
Core Equity
Growth
Mid Cap Growth
Small Cap Core
Small Cap Growth
Value
Fixed Income Portfolios
Corporate Bond
Global Bond
High Income
Limited-Term Bond
Money Market Portfolio
Government Money Market
Specialty Portfolios
Asset Strategy
Balanced
Energy
Natural Resources
Pathfinder Aggressive
Pathfinder Conservative
Pathfinder Moderate
Pathfinder Moderately Aggressive
Pathfinder Moderately Conservative
Pathfinder Moderate — Managed Volatility
Pathfinder Moderately Aggressive — Managed Volatility
Pathfinder Moderately Conservative — Managed Volatility
Science and Technology
Securian Real Estate Securities
The underlying portfolios discussed in this report are only available as investment options in variable annuity and variable life insurance contracts issued by life insurance companies. They are not offered or made available directly to the general public.
This report is submitted for the general information of the shareholders of Ivy Variable Insurance Portfolios. It is not authorized for distribution to prospective investors in a Portfolio unless accompanied with or preceded by the current Portfolio prospectus as well as the variable product prospectus.
2020 | ANNUAL REPORT | 139 |
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ANN-VIP1 (12/20)
Table of Contents
VARIABLE INSURANCE PORTFOLIOS |
Annual Report
DECEMBER 31, 2020 |
Ivy Variable Insurance Portfolios | ||||
Core Equity | Class II | |||
Corporate Bond | Class II | |||
Global Bond | Class II | |||
Global Equity Income | Class II | |||
Global Growth | Class II | |||
Limited-Term Bond | Class II | |||
Securian Real Estate Securities | Class II | |||
Value | Class II |
Table of Contents
CONTENTS | IVY VIP |
3 | ||||
4 | ||||
Management Discussion, Portfolio Highlights and Schedule of Investments: | ||||
6 | ||||
12 | ||||
24 | ||||
33 | ||||
41 | ||||
47 | ||||
57 | ||||
63 | ||||
69 | ||||
70 | ||||
71 | ||||
74 | ||||
76 | ||||
91 | ||||
92 | ||||
93 | ||||
97 | ||||
100 | ||||
102 | ||||
103 |
2 | ANNUAL REPORT | 2020 |
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PRESIDENT’S LETTER | IVY VIP |
DECEMBER 31, 2020 (UNAUDITED) | ||
Philip J. Sanders, CFA |
Dear Shareholder,
Markets in 2020 were, to use an overused word, unprecedented. In a matter of months, we witnessed economic and market moves that typically take an entire market cycle of many years to unfold. To start the fiscal year, financial markets had been positive as political conflicts, trade uncertainty and global economic growth concerns waned. However, that upward trajectory suddenly reversed in late February and markets declined in response to two exogenous shocks: the COVID-19 pandemic and the collapse in energy markets. The COVID-19 pandemic caused one of the most rapid and dramatic global economic downturns in history. The U.S. stock markets dropped approximately 35% from peak in February to trough in late March. Global economic activity hit a full stop around the world, as countries and businesses implemented plans to isolate and protect each other. Remarkably, within about 30 days, we moved from a relatively strong domestic economy with financial market indexes hitting record highs, to a global recession.
Governments and central banks took strong steps to mitigate the economic blow of social distancing. Monetary policy response was broader and more rapid than at any other time in history. Global central banks enacted aggressive stimulus through lower interest rates, quantitative easing (QE) and liquidity provisions, with some developing countries implementing QE for the first time. The U.S. Federal Reserve’s (Fed) response included a broad array of policy measures and an unprecedented pace of QE. Fourth quarter 2020 economic data showed the global economy had a very strong rebound. Since the March 23 trough, the S&P 500 Index stabilized and experienced a rapid bounce back. As of fiscal year end, the Index was up 18.40%.
Going forward, we believe there are reasons for optimism as we enter 2021. COVID-19 vaccines are being distributed around the world and record amounts of stimulus continue to support the global economic recovery. This optimism is reflected in our outlook for global growth in 2021, which we believe will return to pre-pandemic levels sooner than expected, driven in part by pent-up demand. We anticipate 2021 U.S. economic GDP growth will average 6.2%, fueled in part by a resurgence in consumption as pandemic-related constraints wane. With President Joe Biden and his administration taking the reins of power in Washington, we anticipate policy changes on several fronts. We expect an additional stimulus package that includes additional checks to individuals, an extension of emergency unemployment benefits and help for state and local governments. Later in the year, we anticipate broader legislation to pass that could include a number of spending initiatives, including an infrastructure plan with a focus on
green initiatives. We also expect the legislation to include higher taxes for businesses and high-income earners.
As we examine the investment landscape, we continue to put greater emphasis on the fundamentals and quality of asset classes and sectors. We believe it is important to stay focused on the merits of individual market sectors, industries and company business models when making investment decisions. Those fundamentals historically have tended to outweigh external factors. In today’s environment, we believe there are many high-quality businesses offering attractive entry points and cyclicals that will likely be key beneficiaries as economies continue to recover. Importantly, through this uncertain time, we remain focused on the innovation and management skill within individual companies, the ultimate drivers of long-term stock prices.
Economic Snapshot
12/31/2020 | 12/31/2019 | |||||||
S&P 500 Index | 3,756.07 | 3,230.78 | ||||||
MSCI EAFE Index | 2,147.53 | 2,036.94 | ||||||
10-Year Treasury Yield | 0.93 | % | 1.92 | % | ||||
U.S. unemployment rate | 6.7 | % | 3.6 | % | ||||
30-year fixed mortgage rate | 2.67 | % | 3.74 | % | ||||
Oil price per barrel | $48.52 | $61.14 |
Sources: Bloomberg, U.S. Department of Labor, MBA, CME
All government statistics shown are subject to periodic revision. The S&P 500 Index is an unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies. MSCI EAFE Index is an unmanaged index comprised of securities that represent the securities markets in Europe, Australasia and the Far East. It is not possible to invest directly in any of these indexes. Mortgage rates are from BankRate and reflect the overnight national average rate on a conventional 30-year fixed loan. Oil prices reflect the market price of West Texas intermediate grade crude.
Respectfully,
Philip J. Sanders, CFA
President
The opinions expressed in this letter are those of the President of the Ivy Variable Insurance Portfolios and are current only through the end of the period of the report, as stated on the cover. The President’s views are subject to change at any time, based on market and other conditions, and no forecasts can be guaranteed.
2020 | ANNUAL REPORT | 3 |
Table of Contents
ILLUSTRATION OF PORTFOLIO EXPENSES | IVY VIP |
(UNAUDITED)
Expense Example
As a shareholder of a Portfolio, you incur ongoing costs, including management fees, distribution and service fees, and other Portfolio expenses. The following table is intended to help you understand your ongoing costs (in dollars) of investing in a Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six-month period ended December 31, 2020.
Actual Expenses
The first section in the following table provides information about actual investment values and actual expenses for each share class. You may use the information in this section, together with your initial investment in Portfolio shares, to estimate the expenses that you paid over the period. Simply divide the value of that investment by $1,000 (for example, a $7,500 initial investment divided by $1,000 = 7.5), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your investment during this period. In addition, there are fees and expenses imposed under the variable annuity or variable life insurance contract through which shares of the Portfolio are held. Additional fees have the effect of reducing investment returns.
Hypothetical Example for Comparison Purposes
The second section in the following table provides information about hypothetical investment values and hypothetical expenses for each share class based on the Portfolio’s actual expense ratio and an assumed rate of return of five percent per year before expenses, which is not the Portfolio’s actual return. The hypothetical investment values and expenses may not be used to estimate the actual investment value at the end of the period or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this five percent hypothetical example with the five percent hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs as a shareholder of the Portfolio and do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contract through which shares of the Portfolio are held.
Expenses paid may be impacted by expense reduction arrangements. If those arrangements had not been in place, expenses paid would have been higher. See Note 5 in Notes to Financial Statements for further information.
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ILLUSTRATION OF PORTFOLIO EXPENSES | IVY VIP |
(UNAUDITED)
Actual(1) | Hypothetical(2) | |||||||||||||||||||||||||||
Portfolio | Beginning Account Value 6-30-20 | Ending Account Value 12-31-20 | Expenses Paid During Period* | Beginning Account Value 6-30-20 | Ending Account Value 12-31-20 | Expenses Paid During Period* | Annualized Expense Ratio Based on the Six-Month Period | |||||||||||||||||||||
Core Equity | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,230.40 | $ | 5.35 | $ | 1,000 | $ | 1,020.34 | $ | 4.85 | 0.95% | |||||||||||||||
Corporate Bond | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,042.60 | $ | 3.98 | $ | 1,000 | $ | 1,021.24 | $ | 3.94 | 0.77% | |||||||||||||||
Global Bond | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,063.70 | $ | 2.79 | $ | 1,000 | $ | 1,022.43 | $ | 2.73 | 0.54% | |||||||||||||||
Global Equity Income | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,194.30 | $ | 5.71 | $ | 1,000 | $ | 1,019.97 | $ | 5.25 | 1.03% | |||||||||||||||
Global Growth | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,240.20 | $ | 6.38 | $ | 1,000 | $ | 1,019.39 | $ | 5.76 | 1.13% | |||||||||||||||
Limited-Term Bond | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,011.20 | $ | 4.02 | $ | 1,000 | $ | 1,021.09 | $ | 4.04 | 0.81% | |||||||||||||||
Securian Real Estate Securities | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,116.80 | $ | 6.99 | $ | 1,000 | $ | 1,018.57 | $ | 6.66 | 1.31% | |||||||||||||||
Value | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,235.20 | $ | 5.70 | $ | 1,000 | $ | 1,020.07 | $ | 5.15 | 1.01% |
* | Portfolio expenses are equal to the Portfolio’s annualized expense ratio (provided in the table), multiplied by the average account value over the period, multiplied by 184 days in the six-month period ended December 31, 2020, and divided by 366. |
(1) | This section uses the Portfolio’s actual total return and actual Portfolio expenses. It is a guide to the actual expenses paid by the Portfolio in the period. The “Ending Account Value” shown is computed using the Portfolio’s actual return and the “Expenses Paid During Period” column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Portfolio. A shareholder may use the information here, together with the dollar amount invested, to estimate the expenses that were paid over the period. For every thousand dollars a shareholder has invested, the expenses are listed in the last column of this section. |
(2) | This section uses a hypothetical five percent annual return and actual Portfolio expenses. It helps to compare the Portfolio’s ongoing costs with other mutual funds. A shareholder can compare the Portfolio’s ongoing costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other Portfolios. |
The above illustrations are based on ongoing costs only.
2020 | ANNUAL REPORT | 5 |
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MANAGEMENT DISCUSSION | CORE EQUITY |
(UNAUDITED)
Erik R. Becker |
Erik R. Becker, CFA, portfolio manager of Ivy VIP Core Equity, discusses positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Becker has managed the Portfolio since 2006 and has 22 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Core Equity (Class II shares at net asset value) | 21.52% | |||
Benchmark and Morningstar Category | ||||
S&P 500 Index | 18.40% | |||
(generally reflects the performance of large- and medium-sized U.S. stocks) | ||||
Morningstar Large Growth Category Average | 35.86% | |||
(generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Key factors
2020 proved to be a surprisingly strong year in the equity market with the S&P 500 Index, the Portfolio’s benchmark, increasing over 18% despite significant early year volatility caused by the COVID-19 pandemic. Quarterly gross domestic product (GDP) growth was erratic, again due to the pandemic. GDP in the U.S. decreased 5% quarter over quarter at a seasonally adjusted rate in the first quarter, followed by -31% in second quarter, and +33% in the third quarter. While fourth quarter has yet to be reported, we expect full year GDP to have contracted 3.6%. Current expectations suggest that the full year drop in GDP led to a 16% contraction in S&P 500 Index earnings. The strong equity market returns suggest market participants were willing to look through 2020 earnings weakness given unprecedented support offered to consumers/businesses through the Coronavirus Aid, Relief, and Economic Security (CARES) Act ($2.2 billion economic stimulus bill signed into law on March 27) and subsequent legislation in the fourth quarter for an additional $900 billion in stimulus. Fiscal stimulus appears to have been highly effective as the U.S. unemployment rate has declined to below 7% in December after peaking above 13% in June as pandemic-related business closures were at their peak.
Information technology stocks led the market in 2020 with gains of nearly 44%. Consumer discretionary followed with gains over 33% while communications services (where many large internet names reside) and materials stocks also beat the market averages. The year’s worst performing groups included energy (-33%), real estate (-2%) and financials (-2%).
Contributors and detractors
During the measurement period, Ivy VIP Core Equity meaningfully outperformed its benchmark as the result of strong performance from the Portfolio’s holdings in financials, consumer staples and utilities, offsetting weaker stock selection within information technology and a modest drag from cash. The vast majority of outperformance for the year (over 90%) was due to individual stock selection as opposed to overweight and underweight positions of particular market sectors. From an individual security standpoint, Microsoft Corp. led the contribution to total return for the year followed by Amazon.com, Inc., Apple, Inc., Discover Financial Services and Union Pacific Corp. Standouts on the downside included Citigroup, Anthem and Comcast. All three companies are no longer held in the Portfolio. Overall, we are pleased with the Portfolio’s relative performance for the year in addition to improving longer-run performance metrics that proved the value of strong active management through long market cycles.
The Portfolio remains focused on finding competitively advantaged businesses that are likely to exceed longer-run earnings and cash flow projections, with a keen interest on investing in areas where we see significant competitive change. We benefit from taking advantage of opportunities presented by the market to buy good businesses at reasonable valuations where our fundamental analysis suggests earnings power is underappreciated.
Over the past nine months, the market provided significant opportunity in strong businesses undergoing transitory earnings disruption as the result of the pandemic and related economic effects. To that end, we made several adjustments during the year based on opportunity to add or increase certain holdings in financials (Discover Financial Services, JPMorgan Chase & Co. and Fiserv, Inc.). We believe the earnings of these companies are temporarily depressed based on increased reserves taken in 2020, as well as weakness in payment revenue streams due to restricted travel and
6 | ANNUAL REPORT | 2020 |
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entertainment. Temporary earnings disruptions also significantly impacted the consumer discretionary and health care sectors, with consumers unwilling or unable to eat out or schedule certain medical procedures. The Portfolio capitalized on attractive valuations in HCA Holdings, Inc. during 2020 and more recently added Sysco Corp. as the leading food distributor to restaurants and institutions. Other recent additions to the Portfolio were more idiosyncratic in nature. The Portfolio significantly added to the position in UnitedHealth Group, Inc. at a time when election uncertainty made the valuation of this strong organic grower and vital piece of the nation’s healthcare system more attractive. We added D.R. Horton, Inc. based on our belief in significant pent-up demand for new, affordable single-family homes as millennials move into active home-buying mode. Already well-positioned for entry-level and first-time move-up buyers, the company is also transitioning to an “asset-light” model (less land ownership) that we believe will yield structural improvement in returns.
Outlook
Two critical events occurred in the fourth quarter that we believe are likely to have lasting repercussions on the state of the U.S. economy. Success in the development of a highly effective vaccine was clearly the most important development in terms of understanding a path to economic recovery. Ivy’s economist believes the U.S. economy can expand 6% in 2021, largely the result of substantial anticipated re-opening activity toward the middle of the year. On a bottom-up basis, forecasters suggest this will result in earnings growth for the market of greater than 20%. Our experience over several market cycles suggests companies are far more adaptable during periods of revenue weakness and opt to rationalize cost structures aggressively to protect profits at these times. Over the past nine months, companies have reduced workforces, found more efficient ways to conduct businesses (Zoom and lack of travel), and invested in technology (cloud adoption, etc.) all to protect the downside and prepare for the eventual upturn. This usually results in greater operating leverage (the ability of bottom-line profits to expand faster than revenues) during an upturn than investors expect. We anticipate this leverage to be most pronounced in companies that were forced to be most cost conscious over the previous nine months and as such we have increased the cyclicality of the Portfolio to take advantage.
The other obvious development is the transition of power in Washington with Joe Biden’s presidential victory and the democratic capture of the Senate (for all practical purposes). While the margin of the democratic majority is slim in both houses of Congress, we anticipate this will result in meaningful policy changes that will provide the underpinning of growth in several areas. Most broadly, we would expect that fiscal stimulus efforts will increase, all else equal, under the current power structure. More stimulus is likely to lead to more short-term economic growth and a stronger consumer recovery, while relieving the onus on monetary policy (federal bond purchasing and low interest rates) as the dominant policy measures to expand growth. It is widely expected that fiscal stimulus will expand beyond direct payments to include spending on infrastructure, clean energy investment, and state/local funding to offset budget shortfalls that otherwise would detract from growth
Between vaccine success and pro-growth fiscal policies that already supplement highly stimulative monetary policy, short-term growth expectations seem robust. We think there still exists an element of risk; however, because the ultimate path of COVID-19 is far from certain. Longer-run ramifications of increased stimulus and the ultimate path of long-term interest rates and inflation also give us pause in extrapolating robust market gains well into the future. As has been discussed in previous letters, certain pockets of the market have become prohibitively expensive, such as high-growth technology, pandemic beneficiaries, clean energy (Tesla), and even alternative asset classes for which there are no valuation paradigms (Bitcoin). Tesla and Bitcoin are not held in the Portfolio. It appears speculative fervor is alive and well. The Portfolio will seek to participate in emerging themes to the extent we are able to uncover competitively advantaged and fairly valued companies that produce solid earnings and free cash flow. We will continue to monitor portfolio risk levels, seeking to ensure the strategy is protected from violent swings in expectations around the direction of monetary policy, the future path of inflation, and the resulting impact both could have on the price levels of highly valued companies. As always, we look forward to updating you in the future. Thank you for your continued investment in Ivy.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Because the Portfolio is generally invested in a small number of stocks, the performance of any one security held by the Portfolio will have a greater impact than if the Portfolio were invested in a larger number of securities. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large capitalization companies could trail the returns on investments in securities of smaller companies. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Core Equity.
2020 | ANNUAL REPORT | 7 |
Table of Contents
PORTFOLIO HIGHLIGHTS | CORE EQUITY |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 99.6% | |||
Information Technology | 28.0% | |||
Financials | 17.6% | |||
Health Care | 12.6% | |||
Consumer Discretionary | 10.7% | |||
Communication Services | 9.9% | |||
Industrials | 8.0% | |||
Consumer Staples | 6.3% | |||
Materials | 2.8% | |||
Utilities | 2.6% | |||
Real Estate | 1.1% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.4% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
Microsoft Corp. | Information Technology | Systems Software | ||
Apple, Inc. | Information Technology | Technology Hardware, Storage & Peripherals | ||
Fiserv, Inc. | Information Technology | Data Processing & Outsourced Services | ||
Amazon.com, Inc. | Consumer Discretionary | Internet & Direct Marketing Retail | ||
JPMorgan Chase & Co. | Financials | Other Diversified Financial Services | ||
UnitedHealth Group, Inc. | Health Care | Managed Health Care | ||
Morgan Stanley | Financials | Investment Banking & Brokerage | ||
Union Pacific Corp. | Industrials | Railroads | ||
Alphabet, Inc., Class A | Communication Services | Interactive Media & Services | ||
NextEra Energy, Inc. | Utilities | Electric Utilities |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
8 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | CORE EQUITY |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 21.52% | |||
5-year period ended 12-31-20 | 13.76% | |||
10-year period ended 12-31-20 | 12.82% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
2020 | ANNUAL REPORT | 9 |
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SCHEDULE OF INVESTMENTS | CORE EQUITY (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Cable & Satellite – 1.8% |
| |||||||
Charter Communications, Inc., Class A (A) | 20 | $ | 12,980 | |||||
|
| |||||||
Interactive Home Entertainment – 1.3% |
| |||||||
Take-Two Interactive Software, Inc. (A) | 48 | 10,006 | ||||||
|
| |||||||
Interactive Media & Services – 5.1% |
| |||||||
Alphabet, Inc., Class A (A) | 11 | 19,256 | ||||||
Facebook, Inc., Class A (A) | 68 | 18,635 | ||||||
|
| |||||||
37,891 | ||||||||
|
| |||||||
Movies & Entertainment – 1.7% |
| |||||||
Netflix, Inc. (A) | 23 | 12,438 | ||||||
|
| |||||||
Total Communication Services – 9.9% |
| 73,315 | ||||||
Consumer Discretionary |
| |||||||
Auto Parts & Equipment – 2.5% |
| |||||||
Aptiv plc | 141 | 18,343 | ||||||
|
| |||||||
Automotive Retail – 1.9% |
| |||||||
AutoZone, Inc. (A) | 12 | 13,910 | ||||||
|
| |||||||
Footwear – 1.8% |
| |||||||
NIKE, Inc., Class B | 93 | 13,133 | ||||||
|
| |||||||
Homebuilding – 1.0% |
| |||||||
D.R. Horton, Inc. | 106 | 7,304 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 3.5% |
| |||||||
Amazon.com, Inc. (A) | 8 | 25,954 | ||||||
|
| |||||||
Total Consumer Discretionary – 10.7% |
| 78,644 | ||||||
Consumer Staples |
| |||||||
Food Distributors – 1.5% |
| |||||||
Sysco Corp. | 148 | 10,988 | ||||||
|
| |||||||
Household Products – 1.4% |
| |||||||
Procter & Gamble Co. (The) | 76 | 10,539 | ||||||
|
| |||||||
Hypermarkets & Super Centers – 3.4% |
| |||||||
Costco Wholesale Corp. | 35 | 13,026 | ||||||
Wal-Mart Stores, Inc. | 80 | 11,546 | ||||||
|
| |||||||
24,572 | ||||||||
|
| |||||||
Total Consumer Staples – 6.3% | 46,099 | |||||||
Financials |
| |||||||
Asset Management & Custody Banks – 4.3% |
| |||||||
Artisan Partners Asset Management, Inc. | 148 | 7,455 | ||||||
Blackstone Group, Inc. (The), Class A | 181 | 11,758 | ||||||
KKR & Co. | 313 | 12,669 | ||||||
|
| |||||||
31,882 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Consumer Finance – 2.6% |
| |||||||
Discover Financial Services | 209 | $ | 18,937 | |||||
|
| |||||||
Financial Exchanges & Data – 1.9% |
| |||||||
CME Group, Inc. | 80 | 14,500 | ||||||
|
| |||||||
Insurance Brokers – 2.5% |
| |||||||
Aon plc | 86 | 18,258 | ||||||
|
| |||||||
Investment Banking & Brokerage – 2.9% |
| |||||||
Morgan Stanley | 313 | 21,441 | ||||||
|
| |||||||
Other Diversified Financial Services – 3.4% |
| |||||||
JPMorgan Chase & Co. | 196 | 24,843 | ||||||
|
| |||||||
Total Financials – 17.6% |
| 129,861 | ||||||
Health Care |
| |||||||
Health Care Equipment – 4.2% |
| |||||||
Danaher Corp. | 57 | 12,557 | ||||||
Zimmer Holdings, Inc. | 120 | 18,493 | ||||||
|
| |||||||
31,050 | ||||||||
|
| |||||||
Health Care Facilities – 1.7% |
| |||||||
HCA Holdings, Inc. | 76 | 12,495 | ||||||
|
| |||||||
Managed Health Care – 3.0% |
| |||||||
UnitedHealth Group, Inc. | 63 | 22,233 | ||||||
|
| |||||||
Pharmaceuticals – 3.7% |
| |||||||
Eli Lilly and Co. | 82 | 13,843 | ||||||
Zoetis, Inc. | 79 | 13,036 | ||||||
|
| |||||||
26,879 | ||||||||
|
| |||||||
Total Health Care – 12.6% | 92,657 | |||||||
Industrials |
| |||||||
Aerospace & Defense – 1.0% |
| |||||||
Airbus SE ADR | 259 | 7,063 | ||||||
|
| |||||||
Agricultural & Farm Machinery – 1.3% |
| |||||||
Deere & Co. | 36 | 9,631 | ||||||
|
| |||||||
Industrial Machinery – 1.3% |
| |||||||
Stanley Black & Decker, Inc. | 55 | 9,773 | ||||||
|
| |||||||
Railroads – 2.7% |
| |||||||
Union Pacific Corp. | 95 | 19,821 | ||||||
|
| |||||||
Trading Companies & Distributors – 1.7% |
| |||||||
United Rentals, Inc. (A) | 54 | 12,625 | ||||||
|
| |||||||
Total Industrials – 8.0% |
| 58,913 | ||||||
Information Technology |
| |||||||
Application Software – 1.0% |
| |||||||
Intuit, Inc. | 19 | 7,276 | ||||||
|
| |||||||
Data Processing & Outsourced Services – 7.6% |
| |||||||
Fiserv, Inc. (A) | 263 | 29,923 | ||||||
MasterCard, Inc., Class A | 53 | 18,953 | ||||||
PayPal, Inc. (A) | 31 | 7,311 | ||||||
|
| |||||||
56,187 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Electronic Manufacturing Services – 2.4% |
| |||||||
TE Connectivity Ltd. | 144 | $ | 17,435 | |||||
|
| |||||||
Semiconductors – 4.8% |
| |||||||
Analog Devices, Inc. | 91 | 13,381 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 103 | 11,243 | ||||||
Texas Instruments, Inc. | 64 | 10,580 | ||||||
|
| |||||||
35,204 | ||||||||
|
| |||||||
Systems Software – 7.0% |
| |||||||
Microsoft Corp. | 232 | 51,553 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 5.2% |
| |||||||
Apple, Inc. | 291 | 38,641 | ||||||
|
| |||||||
Total Information Technology – 28.0% |
| 206,296 | ||||||
Materials |
| |||||||
Industrial Gases – 1.0% |
| |||||||
Linde plc | 27 | 7,057 | ||||||
|
| |||||||
Specialty Chemicals – 1.8% |
| |||||||
Sherwin-Williams Co. (The) | 18 | 13,413 | ||||||
|
| |||||||
Total Materials – 2.8% |
| 20,470 | ||||||
Real Estate |
| |||||||
Health Care REITs – 1.1% |
| |||||||
Welltower, Inc. | 130 | 8,383 | ||||||
|
| |||||||
Total Real Estate – 1.1% |
| 8,383 | ||||||
Utilities |
| |||||||
Electric Utilities – 2.6% |
| |||||||
NextEra Energy, Inc. | 247 | 19,093 | ||||||
|
| |||||||
Total Utilities – 2.6% |
| 19,093 | ||||||
TOTAL COMMON STOCKS – 99.6% |
| $ | 733,731 | |||||
(Cost: $528,429) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (B) – 0.2% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class | ||||||||
0.030% | 1,404 | 1,404 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.2% |
| $ | 1,404 | |||||
(Cost: $1,404) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.8% |
| $ | 735,135 | |||||
(Cost: $529,833) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.2% |
| 1,540 | ||||||
NET ASSETS – 100.0% | $ | 736,675 |
10 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORE EQUITY (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 733,731 | $ | — | $ | — | ||||||
Short-Term Securities | 1,404 | — | — | |||||||||
Total | $ | 735,135 | $ | — | $ | — |
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 11 |
Table of Contents
MANAGEMENT DISCUSSION | CORPORATE BOND |
(UNAUDITED)
Mark G. Beischel
|
Susan Regan |
Below, Mark G. Beischel, CFA and Susan Regan, co-portfolio managers of Ivy VIP Corporate Bond, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Beischel has managed the Portfolio since April 2018 and has 27 years of industry experience. Ms. Regan has managed the Portfolio since April 2018 and has 33 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Corporate Bond (Class II shares at net asset value) | 10.97% | |||
Benchmark and Morningstar Category | ||||
Bloomberg Barclays U.S. Credit Index | 9.35% | |||
(generally reflects the performance of securities representing the U.S. credit market) | ||||
Morningstar Corporate Bond Category Average | 9.24% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Portfolio Performance
The Portfolio had a double-digit return and outperformed its benchmark and Morningstar peer group category average for the year. The return was primarily driven by falling U.S. Treasury yields and coupon income, while the spread on the benchmark remained relatively flat.
Market Update
Calendar year 2020 ushered in a black swan event that hasn’t occurred in more than 100 years – the COVID-19 pandemic. This worldwide virus outbreak resulted in the worst quarter of economic growth in the post-WWII era. The pandemic was met with a simply epic response from both monetary and fiscal authorities in the U.S. and around the world. The unprecedented responses alleviated pressure on declining asset prices as the crisis unfolded but created an odd dynamic of solid risk asset performance in the face of an economically devastating event. The S&P 500 Index returned more than 18% for the fiscal year, despite being down over 30% at one point.
As the Federal Reserve (Fed) responded by cutting rates to zero and embarking on quantitative easing again, rates fell during the fiscal year with the 10-year U.S. Treasury yield falling 101 basis points (bps) from 1.92% to 0.91%. The 2-year U.S. Treasury fell from 1.57% to a mere 0.12% during the year, while the yield curve steepened over the course of the period as the difference between the 10-year U.S. Treasury and the 2-year U.S. Treasury rose 45 bps to 79 bps for the year.
The spread on the Portfolio’s benchmark, the Bloomberg Barclays U.S. Credit Index, widened from 90 bps to 92 bps during the year; it reached a peak of 341 bps in March. Also, the Fed announced its intent to begin purchasing corporate bonds for the first time ever, which sparked the rally in credit asset classes. High yield delivered gains of more than 7% for the period. However, much like the investment-grade market, the returns were driven by carry and rates as high yield spreads widened from 336 bps to 360 bps on the year, as measured by the Bloomberg Barclays U.S. Corporate High Yield Index.
Debt growth and leverage increased at an accelerated rate in the year with debt rising 9.2% through the third quarter of the fiscal year. While this continued the long trend of debt growth in the market, the main drivers this year were bolstering liquidity and balance sheets versus mergers and acquisitions and shareholder returns previously seen. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) also declined by 6% year over year through the third quarter, resulting in leverage metrics of 3.3-times versus 2.9-times at the start of 2020. Ten years ago, this figure was around 2.0-times.
For the year, gross issuance was $2.1 trillion, a staggering 62% increase over the prior year and 43% higher than the prior record year in 2017. The Fed’s support for the market allowed corporations to bolster their balance sheets in the face of the COVID-19-driven uncertainty. Issuance, net of maturities, has been even more dramatic with net issuance of $1.07 trillion in 2020 versus $356 billion of net issuance for all of 2019. Issuance was slightly longer maturity than historical averages. When coupled with duration in the market being extended from the fall in rates, the overall duration of the investment grade market rose to 8.55 versus 7.65 at the start of the year. This adds more risk and potential volatility to the market.
12 | ANNUAL REPORT | 2020 |
Table of Contents
Portfolio Positioning
The Portfolio’s duration rose moderately during the year, but not to the degree of the benchmark. The Portfolio remained moderately below the benchmark’s duration of 8.55 years at fiscal year-end. Higher duration means higher price volatility for a given change in spreads as well as interest rates.
During the year, the Portfolio increased its allocation primarily to BB and BBB-rated credits, at the expense of the Portfolio’s exposure to AA and A rated credits. The largest changes in sector positioning were increases in the communications and consumer-cyclical sectors and decreases in the consumer non-cyclical and industrial sectors.
Outlook
As odd as it was, after one of the most volatile years in credit market history, the year ended very close to where it started with a path no one could have predicted. The immense response from fiscal and monetary authorities will continue to impact markets going forward and cannot be ignored. Nor can one ignore the fundamentals, which we have often talked about, and which remain incredibly weak for corporate credit markets. Particularly after the Fed backstop of the credit markets was eliminated during the quarter.
We believe the future has numerous material risks that will likely impact markets going forward. We remain in a pandemic, a situation that has been de-risked with the arrival of the vaccines, but plenty of uncertainty remains on the timing, uptake and efficacy on variants of the virus.
We have a weak but strengthening economy, and significant policy uncertainty remains after the recent elections. Regarding fixed income markets, the recent stimulus and additional future stimulus are not as positive as they are for equities. The stimulus leads to a greater degree of duration supply that the market may struggle to absorb, particularly given the already upward pressure on rates from resurging inflation expectations.
We believe there is significant excess risk taking in the marketplace, a situation that in the past has brought meaningful volatility without the need for material macro deterioration. It is during these times of euphoria that credit markets become impacted by increases in financial engineering and mergers and acquisitions (M&A). Lagging equities likely feel obliged either under their own volition or under pressure of activists to borrow at 2% for a 10-year bond to repurchase stock, pay dividends or embark on M&A. While such activity impacts specific credits, it also has macro implications for the market by creating an increased risk premium for re-leveraging conditions, as well worsening the supply and demand technicals.
Investment-grade fundamentals continue to be extremely weak with leverage remaining at record highs and duration in the market being near a record high. However, credit spreads sit at 92 bps for investment grade, well below their 20-year average of 145 bps. The reason for this disconnect between the fundamentals and valuations is the favorable technical picture and the search for yield driven by the Fed’s actions.
The technical backdrop continued to be favorable as supply in the quarter fell from the record pace of the prior two quarters and fund flows and foreign demand largely continued to be strong. Market forecasters largely believe that supply going forward is likely to be supportive. In aggregate, companies issued more than enough debt to shore up liquidity and subsequently refinanced a great deal of debt which suggests low issuance in the coming year. However, the wildcard remains the activity we mentioned above, M&A and re-leveraging, which we believe may surprise to the upside resulting in supply which is likely to exceed expectations.
Going forward, we believe there are likely to be more frequent periods of volatility that prevent spreads from rallying materially in the coming year. Our conservative positioning is designed to allow us to opportunistically take incremental risk to capitalize on the volatility as it presents itself. In environments like these the cost of being defensive is very low. For instance, the breakeven spread on the investment-grade market, which means the amount of spread widening that will wipe away a year’s worth of spread carry, is roughly 11 bps. Calendar year 2020 saw the index widen by 11 bps or more in a single day nine times. While 2021 is unlikely to be quite as volatile as 2020, we believe there will be plenty of volatility. We believe the best offense is a good defense to achieve sustained and attractive relative performance with current valuations.
We believe credit selection will be paramount, and we continue to find many mispriced credit situations as the pandemic continues to drive vastly different results from companies across the investment-grade universe.
2020 | ANNUAL REPORT | 13 |
Table of Contents
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Certain U.S. government securities in which the Portfolio may invest, such as Treasury securities and securities issued by the Government National Mortgage Association (Ginnie Mae), are backed by the full faith and credit of the U.S. government. However, other U.S. government securities in which the Portfolio may invest, such as securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB), are not backed by the full faith and credit of the U.S. government, are not insured or guaranteed by the U.S. government and, instead, may be supported only by the right of the issuer to borrow from the U.S. Treasury or by the credit of the issuer.
Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Corporate Bond.
14 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | CORPORATE BOND |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Bonds | 97.7% | |||
Corporate Debt Securities | 94.6% | |||
Asset-Backed Securities | 1.3% | |||
Municipal Bonds – Taxable | 1.0% | |||
Other Government Securities | 0.5% | |||
United States Government and Government Agency Obligations | 0.2% | |||
Mortgage-Backed Securities | 0.1% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 2.3% |
Quality Weightings
Investment Grade | 94.0% | |||
AAA | 2.0% | |||
AA | 9.4% | |||
A | 33.6% | |||
BBB | 49.0% | |||
Non-Investment Grade | 3.7% | |||
BB | 3.2% | |||
B | 0.4% | |||
Non-rated | 0.1% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 2.3% |
Our preference is to always use ratings obtained from Standard & Poor’s, Moody’s, and Fitch. It is each Portfolio’s general policy to classify such security at the lower rating level if only two ratings are available. If more than two ratings are available and a median exists, the median is used. If more than two ratings exist without a median, the lower of the two middle ratings is used. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 15 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | CORPORATE BOND |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 10.97% | |||
5-year period ended 12-31-20 | 5.73% | |||
10-year period ended 12-31-20 | 4.38% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
16 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
ASSET-BACKED SECURITIES | Principal | Value | ||||||
AerCap Ireland Capital Ltd. and AerCap Global Aviation Trust, | ||||||||
3.500%, 5-26-22 | $ | 296 | $ | 306 | ||||
Air Canada Enhanced Equipment Trust, Series 2015-2, Class AA, | ||||||||
3.750%, 12-15-27 (A) | 783 | 775 | ||||||
American Airlines Class AA Pass-Through Certificates, Series 2016-2, | ||||||||
3.200%, 6-15-28 | 1,530 | 1,492 | ||||||
American Airlines, Inc. Pass-Through Certificates, Series 2016-1, Class AA, | ||||||||
3.575%, 1-15-28 | 809 | 802 | ||||||
American Airlines, Inc. Pass-Through Certificates, Series 2017-1, Class AA, | ||||||||
3.650%, 2-15-29 | 2,072 | 2,088 | ||||||
Delta Air Lines, Inc. Pass-Through Certificates, Series 2020AA, Class B, | ||||||||
2.000%, 6-10-28 | 1,479 | 1,476 | ||||||
United Airlines Pass-Through Certificates, Series 2016-AA, | ||||||||
3.100%, 7-7-28 | 2,483 | 2,513 | ||||||
|
| |||||||
TOTAL ASSET-BACKED SECURITIES – 1.3% |
| $ | 9,452 | |||||
(Cost: $9,351) | ||||||||
CORPORATE DEBT SECURITIES | ||||||||
Communication Services |
| |||||||
Alternative Carriers – 0.6% |
| |||||||
Bell Canada (GTD by BCE, Inc.), | ||||||||
4.300%, 7-29-49 | 3,263 | 4,266 | ||||||
|
| |||||||
Cable & Satellite – 2.0% |
| |||||||
Charter Communications Operating LLC and Charter Communications Operating Capital Corp.: | ||||||||
4.464%, 7-23-22 | 1,800 | 1,898 | ||||||
4.500%, 2-1-24 | 931 | 1,032 | ||||||
Comcast Corp. (GTD by Comcast Cable Communications and NBCUniversal): | ||||||||
3.900%, 3-1-38 | 500 | 611 | ||||||
4.600%, 10-15-38 | 1,125 | 1,481 | ||||||
Comcast Corp. (GTD by Comcast Cable Communications LLC and NBCUniversal Media LLC), | ||||||||
3.250%, 11-1-39 | 3,875 | 4,392 | ||||||
Cox Communications, Inc.: | ||||||||
1.800%, 10-1-30 (A) | 850 | 849 | ||||||
2.950%, 10-1-50 (A) | 850 | 867 | ||||||
Viacom, Inc., | ||||||||
4.750%, 5-15-25 | 2,000 | 2,321 | ||||||
|
| |||||||
13,451 | ||||||||
|
| |||||||
Integrated Telecommunication Services – 2.6% |
| |||||||
AT&T, Inc.: | ||||||||
2.550%, 12-1-33 (A) | 2,212 | 2,274 | ||||||
3.650%, 6-1-51 | 2,600 | 2,718 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Integrated Telecommunication Services (Continued) |
| |||||||
3.300%, 2-1-52 | $ | 1,584 | $ | 1,567 | ||||
3.500%, 9-15-53 (A) | 800 | 797 | ||||||
3.550%, 9-15-55 (A) | 942 | 937 | ||||||
Verizon Communications, Inc.: | ||||||||
4.500%, 8-10-33 | 3,500 | 4,410 | ||||||
4.812%, 3-15-39 | 1,684 | 2,194 | ||||||
2.650%, 11-20-40 | 1,250 | 1,262 | ||||||
2.987%, 10-30-56 (A) | 1,492 | 1,499 | ||||||
|
| |||||||
17,658 | ||||||||
|
| |||||||
Interactive Media & Services – 0.2% |
| |||||||
Alphabet, Inc., | ||||||||
2.050%, 8-15-50 | 1,696 | 1,615 | ||||||
|
| |||||||
Movies & Entertainment – 1.0% |
| |||||||
Netflix, Inc., | ||||||||
5.500%, 2-15-22 | 3,185 | 3,332 | ||||||
Walt Disney Co. (The): | ||||||||
4.125%, 6-1-44 | 1,724 | 2,206 | ||||||
3.600%, 1-13-51 | 1,175 | 1,424 | ||||||
|
| |||||||
6,962 | ||||||||
|
| |||||||
Publishing – 0.7% |
| |||||||
Lamar Media Corp., | ||||||||
4.875%, 1-15-29 | 1,350 | 1,434 | ||||||
Thomson Reuters Corp.: | ||||||||
3.350%, 5-15-26 | 1,090 | 1,223 | ||||||
5.850%, 4-15-40 | 1,500 | 2,096 | ||||||
5.650%, 11-23-43 | 117 | 158 | ||||||
|
| |||||||
4,911 | ||||||||
|
| |||||||
Wireless Telecommunication Service – 1.5% |
| |||||||
Crown Castle Towers LLC, | ||||||||
3.663%, 5-15-25 (A) | 2,450 | 2,639 | ||||||
Sprint Spectrum L.P., | ||||||||
3.360%, 9-20-21 (A) | 656 | 662 | ||||||
T-Mobile USA, Inc.: | ||||||||
3.500%, 4-15-25 (A) | 4,805 | 5,310 | ||||||
4.375%, 4-15-40 (A) | 1,025 | 1,251 | ||||||
3.300%, 2-15-51 (A) | 425 | 437 | ||||||
|
| |||||||
10,299 | ||||||||
|
| |||||||
Total Communication Services – 8.6% |
| 59,162 | ||||||
Consumer Discretionary |
| |||||||
Apparel Retail – 0.3% |
| |||||||
TJX Cos., Inc. (The), | ||||||||
3.500%, 4-15-25 | 1,600 | 1,786 | ||||||
|
| |||||||
Apparel, Accessories & Luxury Goods – 0.5% |
| |||||||
PVH Corp., | ||||||||
4.625%, 7-10-25 | 1,050 | 1,183 | ||||||
Ralph Lauren Corp., | ||||||||
2.950%, 6-15-30 | 2,025 | 2,200 | ||||||
|
| |||||||
3,383 | ||||||||
|
| |||||||
Automobile Manufacturers – 0.1% |
| |||||||
Nissan Motor Co. Ltd., | ||||||||
3.522%, 9-17-25 (A) | 850 | 911 | ||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Automotive Retail – 0.3% |
| |||||||
AutoNation, Inc., | ||||||||
4.750%, 6-1-30 | $ | 1,700 | $ | 2,045 | ||||
|
| |||||||
Casinos & Gaming – 0.2% |
| |||||||
GLP Capital L.P. and GLP Financing II, Inc., | ||||||||
5.375%, 4-15-26 | 425 | 488 | ||||||
Las Vegas Sands Corp., | ||||||||
3.500%, 8-18-26 | 595 | 636 | ||||||
|
| |||||||
1,124 | ||||||||
|
| |||||||
Education Services – 0.1% |
| |||||||
University of Southern California, | ||||||||
3.028%, 10-1-39 | 500 | 543 | ||||||
|
| |||||||
Footwear – 0.6% |
| |||||||
NIKE, Inc.: | ||||||||
3.250%, 3-27-40 | 2,900 | 3,368 | ||||||
3.375%, 3-27-50 | 925 | 1,136 | ||||||
|
| |||||||
4,504 | ||||||||
|
| |||||||
General Merchandise Stores – 0.4% |
| |||||||
Dollar General Corp., | ||||||||
4.125%, 4-3-50 | 2,000 | 2,527 | ||||||
|
| |||||||
Home Improvement Retail – 0.7% |
| |||||||
Home Depot, Inc. (The): | ||||||||
4.200%, 4-1-43 | 1,670 | 2,169 | ||||||
3.350%, 4-15-50 | 2,105 | 2,501 | ||||||
|
| |||||||
4,670 | ||||||||
|
| |||||||
Homebuilding – 1.7% |
| |||||||
D.R. Horton, Inc., | ||||||||
2.600%, 10-15-25 | 3,080 | 3,321 | ||||||
Lennar Corp.: | ||||||||
4.125%, 1-15-22 | 1,250 | 1,280 | ||||||
4.750%, 11-15-22 (B) | 2,720 | 2,869 | ||||||
NVR, Inc., | ||||||||
3.000%, 5-15-30 | 4,022 | 4,400 | ||||||
|
| |||||||
11,870 | ||||||||
|
| |||||||
Hotels, Resorts & Cruise Lines – 0.4% |
| |||||||
Royal Caribbean Cruises Ltd., | ||||||||
3.700%, 3-15-28 | 3,500 | 3,103 | ||||||
|
| |||||||
Internet & Direct Marketing Retail – 1.4% |
| |||||||
Amazon.com, Inc.: | ||||||||
3.875%, 8-22-37 | 4,027 | 5,018 | ||||||
2.500%, 6-3-50 | 1,250 | 1,294 | ||||||
Booking Holdings, Inc., | ||||||||
4.625%, 4-13-30 | 2,255 | 2,800 | ||||||
Expedia Group, Inc., | ||||||||
6.250%, 5-1-25 (A) | 415 | 481 | ||||||
|
| |||||||
9,593 | ||||||||
|
|
2020 | ANNUAL REPORT | 17 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Restaurants – 0.5% |
| |||||||
Darden Restaurants, Inc.: | ||||||||
3.850%, 5-1-27 | $ | 1,100 | $ | 1,206 | ||||
4.550%, 2-15-48 | 2,000 | 2,200 | ||||||
|
| |||||||
3,406 | ||||||||
|
| |||||||
Total Consumer Discretionary – 7.2% |
| 49,465 | ||||||
Consumer Staples |
| |||||||
Agricultural Products – 0.3% |
| |||||||
Cargill, Inc.: | ||||||||
3.250%, 5-23-29 (A) | 1,400 | 1,582 | ||||||
3.875%, 5-23-49 (A) | 500 | 610 | ||||||
|
| |||||||
2,192 | ||||||||
|
| |||||||
Brewers – 0.6% |
| |||||||
Anheuser-Busch Inbev Finance, Inc. (GTD by AB INBEV/BBR/COB), | ||||||||
4.700%, 2-1-36 | 2,850 | 3,615 | ||||||
Anheuser-Busch InBev Worldwide, Inc. (GTD by AB INBEV/BBR/COB), | ||||||||
4.750%, 1-23-29 | 113 | 139 | ||||||
|
| |||||||
3,754 | ||||||||
|
| |||||||
Drug Retail – 0.5% |
| |||||||
CVS Health Corp.: | ||||||||
4.100%, 3-25-25 | 1,613 | 1,826 | ||||||
4.780%, 3-25-38 | 1,175 | 1,483 | ||||||
|
| |||||||
3,309 | ||||||||
|
| |||||||
Food Distributors – 0.5% |
| |||||||
McCormick & Co., Inc., | ||||||||
3.500%, 9-1-23 | 771 | 824 | ||||||
Sysco Corp., | ||||||||
6.600%, 4-1-40 | 1,730 | 2,528 | ||||||
|
| |||||||
3,352 | ||||||||
|
| |||||||
Food Retail – 0.3% |
| |||||||
Alimentation Couche-Tard, Inc.: | ||||||||
2.700%, 7-26-22 (A) | 570 | 589 | ||||||
2.950%, 1-25-30 (A) | 1,600 | 1,748 | ||||||
|
| |||||||
2,337 | ||||||||
|
| |||||||
Hypermarkets & Super Centers – 1.0% |
| |||||||
Costco Wholesale Corp., | ||||||||
1.600%, 4-20-30 | 1,000 | 1,024 | ||||||
Walmart, Inc., | ||||||||
4.050%, 6-29-48 | 4,385 | 5,940 | ||||||
|
| |||||||
6,964 | ||||||||
|
| |||||||
Packaged Foods & Meats – 1.7% |
| |||||||
Hormel Foods Corp., | ||||||||
1.800%, 6-11-30 | 2,645 | 2,734 | ||||||
Mars, Inc., | ||||||||
2.375%, 7-16-40 (A) | 2,520 | 2,577 | ||||||
Nestle Holdings, Inc.: | ||||||||
3.900%, 9-24-38 (A) | 980 | 1,227 | ||||||
4.000%, 9-24-48 (A) | 1,485 | 1,972 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Packaged Foods & Meats (Continued) |
| |||||||
Smithfield Foods, Inc.: | ||||||||
2.650%, 10-3-21 (A) | $ | 1,250 | $ | 1,261 | ||||
3.350%, 2-1-22 (A) | 1,500 | 1,521 | ||||||
|
| |||||||
11,292 | ||||||||
|
| |||||||
Personal Products – 0.4% |
| |||||||
Estee Lauder Co., Inc. (The), | ||||||||
4.150%, 3-15-47 | 1,875 | 2,456 | ||||||
|
| |||||||
Soft Drinks – 1.1% |
| |||||||
Coca-Cola Co. (The): | ||||||||
1.375%, 3-15-31 | 1,325 | 1,322 | ||||||
2.500%, 3-15-51 | 350 | 360 | ||||||
PepsiCo, Inc.: | ||||||||
3.450%, 10-6-46 | 1,500 | 1,811 | ||||||
3.375%, 7-29-49 | 2,175 | 2,639 | ||||||
3.625%, 3-19-50 | 1,275 | 1,615 | ||||||
|
| |||||||
7,747 | ||||||||
|
| |||||||
Tobacco – 1.4% |
| |||||||
Altria Group, Inc. (GTD by Philip Morris USA, Inc.): | ||||||||
3.490%, 2-14-22 | 1,830 | 1,892 | ||||||
2.850%, 8-9-22 | 2,550 | 2,648 | ||||||
Imperial Brands Finance plc, | ||||||||
3.125%, 7-26-24 (A) | 4,200 | 4,497 | ||||||
Philip Morris International, Inc., | ||||||||
2.875%, 5-1-24 | 585 | 630 | ||||||
|
| |||||||
9,667 | ||||||||
|
| |||||||
Total Consumer Staples – 7.8% |
| 53,070 | ||||||
Energy |
| |||||||
Integrated Oil & Gas – 0.3% |
| |||||||
National Fuel Gas Co., | ||||||||
5.500%, 1-15-26 | 1,875 | 2,162 | ||||||
|
| |||||||
Oil & Gas Equipment & Services – 0.4% |
| |||||||
Baker Hughes, a GE Co. LLC and Baker Hughes Co-Obligor, Inc., | ||||||||
2.773%, 12-15-22 | 3,000 | 3,133 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 1.8% |
| |||||||
BP Capital Markets plc (GTD by BP plc): | ||||||||
3.216%, 11-28-23 | 1,000 | 1,072 | ||||||
3.814%, 2-10-24 | 3,000 | 3,294 | ||||||
Canadian Natural Resources Ltd., | ||||||||
3.850%, 6-1-27 | 4,950 | 5,552 | ||||||
ConocoPhillips Co. (GTD by ConocoPhillips), | ||||||||
4.150%, 11-15-34 | 218 | 253 | ||||||
EQT Corp.: | ||||||||
3.000%, 10-1-22 | 1,450 | 1,461 | ||||||
7.875%, 2-1-25 (B) | 650 | 740 | ||||||
|
| |||||||
12,372 | ||||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Oil & Gas Refining & Marketing – 0.3% |
| |||||||
Phillips 66 (GTD by Phillips 66 Co.) (3-Month U.S. LIBOR plus 60 bps), | ||||||||
0.833%, 2-26-21 (C) | $ | 2,000 | $ | 2,000 | ||||
|
| |||||||
Oil & Gas Storage & Transportation – 4.7% |
| |||||||
Boardwalk Pipelines L.P. (GTD by Boardwalk Pipeline Partners L.P.), | ||||||||
4.450%, 7-15-27 | 2,000 | 2,238 | ||||||
Cheniere Corpus Christi Holdings LLC, | ||||||||
7.000%, 6-30-24 | 1,075 | 1,255 | ||||||
Colonial Pipeline Co., | ||||||||
4.250%, 4-15-48 (A) | 1,000 | 1,179 | ||||||
Colorado Interstate Gas Co., | ||||||||
4.150%, 8-15-26 (A) | 1,000 | 1,136 | ||||||
Energy Transfer Partners L.P.: | ||||||||
4.200%, 4-15-27 | 500 | 551 | ||||||
6.000%, 6-15-48 | 1,000 | 1,188 | ||||||
EQT Midstream Partners L.P., | ||||||||
4.750%, 7-15-23 | 1,000 | 1,052 | ||||||
Kinder Morgan, Inc., | ||||||||
5.550%, 6-1-45 | 1,000 | 1,283 | ||||||
Midwest Connector Capital Co. LLC, | ||||||||
4.625%, 4-1-29 (A) | 2,409 | 2,524 | ||||||
Plains All American Pipeline L.P. and PAA Finance Corp.: | ||||||||
3.600%, 11-1-24 | 1,031 | 1,098 | ||||||
4.500%, 12-15-26 | 1,750 | 1,960 | ||||||
Sabal Trail Transmission LLC, | ||||||||
4.246%, 5-1-28 (A) | 2,500 | 2,868 | ||||||
Sabine Pass Liquefaction LLC, | ||||||||
4.200%, 3-15-28 | 2,150 | 2,467 | ||||||
Sunoco Logistics Partners Operations L.P. (GTD by Energy Transfer Partners L.P.), | ||||||||
4.000%, 10-1-27 | 1,500 | 1,641 | ||||||
Sunoco Logistics Partners Operations L.P. (GTD by Sunoco Logistics Partners L.P.), | ||||||||
4.400%, 4-1-21 | 500 | 503 | ||||||
Tennessee Gas Pipeline Co., | ||||||||
7.000%, 3-15-27 | 2,000 | 2,496 | ||||||
Transcontinental Gas Pipe Line Co. LLC: | ||||||||
3.250%, 5-15-30 | 1,225 | 1,372 | ||||||
4.600%, 3-15-48 | 1,000 | 1,212 | ||||||
Williams Partners L.P., | ||||||||
4.850%, 3-1-48 | 3,250 | 3,989 | ||||||
|
| |||||||
32,012 | ||||||||
|
| |||||||
Total Energy – 7.5% |
| 51,679 | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 2.8% |
| |||||||
Apollo Management Holdings L.P., | ||||||||
2.650%, 6-5-30 (A) | 4,850 | 4,955 | ||||||
Blackstone Holdings Finance Co. LLC, | ||||||||
3.500%, 9-10-49 (A) | 1,058 | 1,220 |
18 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Asset Management & Custody Banks (Continued) |
| |||||||
Brookfield Finance LLC (GTD by Brookfield Asset Management, Inc.), | ||||||||
3.450%, 4-15-50 | $ | 1,150 | $ | 1,219 | ||||
JAB Holdings B.V., | ||||||||
2.200%, 11-23-30 (A) | 1,495 | 1,502 | ||||||
KKR Group Finance Co. III LLC, | ||||||||
5.125%, 6-1-44 (A) | 2,085 | 2,733 | ||||||
KKR Group Finance Co. VIII LLC (GTD by KKR & Co., Inc. and KKR Group Partnership L.P.), | ||||||||
3.500%, 8-25-50 (A) | 210 | 233 | ||||||
National Securities Clearing Corp., | ||||||||
1.500%, 4-23-25 (A) | 5,000 | 5,175 | ||||||
Owl Rock Capital Corp.: | ||||||||
5.250%, 4-15-24 | 675 | 730 | ||||||
4.000%, 3-30-25 | 1,025 | 1,070 | ||||||
|
| |||||||
18,837 | ||||||||
|
| |||||||
Consumer Finance – 0.5% |
| |||||||
Ford Motor Credit Co. LLC: | ||||||||
5.875%, 8-2-21 | 1,500 | 1,535 | ||||||
3.810%, 1-9-24 | 1,500 | 1,538 | ||||||
General Motors Financial Co., Inc. (GTD by AmeriCredit Financial Services, Inc.), | ||||||||
3.200%, 7-6-21 | 500 | 505 | ||||||
|
| |||||||
3,578 | ||||||||
|
| |||||||
Diversified Banks – 7.8% |
| |||||||
Banco Santander S.A., | ||||||||
3.500%, 4-11-22 | 1,250 | 1,298 | ||||||
Bank of America Corp.: | ||||||||
2.503%, 10-21-22 | 4,000 | 4,071 | ||||||
3.974%, 2-7-30 | 2,500 | 2,943 | ||||||
2.496%, 2-13-31 | 2,000 | 2,123 | ||||||
1.898%, 7-23-31 | 1,200 | 1,212 | ||||||
Bank of America Corp. (3-Month U.S. LIBOR plus 77 bps), | ||||||||
0.995%, 2-5-26 (C) | 4,000 | 4,024 | ||||||
Bank of New York Mellon Corp. (The), | ||||||||
3.550%, 9-23-21 | 1,250 | 1,277 | ||||||
BB&T Corp., | ||||||||
2.750%, 4-1-22 | 3,500 | 3,601 | ||||||
Citizens Bank N.A., | ||||||||
3.250%, 2-14-22 | 1,050 | 1,081 | ||||||
Commonwealth Bank of Australia, | ||||||||
2.000%, 9-6-21 (A)(D) | 1,500 | 1,518 | ||||||
Danske Bank A.S., | ||||||||
2.700%, 3-2-22 (A) | 1,300 | 1,333 | ||||||
Fifth Third Bank N.A.: | ||||||||
2.250%, 6-14-21 | 500 | 503 | ||||||
3.350%, 7-26-21 | 1,500 | 1,522 | ||||||
ING Groep N.V., | ||||||||
3.550%, 4-9-24 | 1,325 | 1,447 | ||||||
Korea Development Bank, | ||||||||
3.000%, 3-19-22 | 1,125 | 1,159 | ||||||
Mitsubishi UFJ Financial Group, Inc.: | ||||||||
2.998%, 2-22-22 | 500 | 515 | ||||||
3.218%, 3-7-22 | 2,000 | 2,068 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Diversified Banks (Continued) |
| |||||||
Mizuho Financial Group, Inc., | ||||||||
2.953%, 2-28-22 | $ | 3,000 | $ | 3,090 | ||||
Toronto-Dominion Bank, | ||||||||
3.250%, 3-11-24 | 1,275 | 1,384 | ||||||
U.S. Bancorp, | ||||||||
3.375%, 2-5-24 | 704 | 766 | ||||||
U.S. Bank N.A., | ||||||||
3.450%, 11-16-21 | 3,500 | 3,590 | ||||||
Wells Fargo & Co.: | ||||||||
2.100%, 7-26-21 | 1,000 | 1,010 | ||||||
3.069%, 1-24-23 | 1,500 | 1,543 | ||||||
2.393%, 6-2-28 | 2,500 | 2,660 | ||||||
4.150%, 1-24-29 | 1,000 | 1,187 | ||||||
2.879%, 10-30-30 | 4,080 | 4,449 | ||||||
2.572%, 2-11-31 | 400 | 423 | ||||||
5.013%, 4-4-51 | 650 | 923 | ||||||
Westpac Banking Corp., | ||||||||
2.000%, 8-19-21 | 1,000 | 1,011 | ||||||
|
| |||||||
53,731 | ||||||||
|
| |||||||
Diversified Capital Markets – 0.3% |
| |||||||
Credit Suisse Group AG, | ||||||||
3.574%, 1-9-23 (A) | 2,000 | 2,061 | ||||||
|
| |||||||
Financial Exchanges & Data – 0.4% |
| |||||||
Intercontinental Exchange, Inc., | ||||||||
2.650%, 9-15-40 | 2,475 | 2,537 | ||||||
|
| |||||||
Insurance Brokers – 1.2% |
| |||||||
Brown & Brown, Inc., | ||||||||
4.200%, 9-15-24 | 2,754 | 3,066 | ||||||
Marsh & McLennan Cos., Inc., | ||||||||
2.750%, 1-30-22 | 2,000 | 2,047 | ||||||
Willis North America, Inc., | ||||||||
2.950%, 9-15-29 | 3,105 | 3,396 | ||||||
|
| |||||||
8,509 | ||||||||
|
| |||||||
Investment Banking & Brokerage – 4.9% |
| |||||||
Charles Schwab Corp. (The), | ||||||||
1.650%, 3-11-31 | 2,150 | 2,169 | ||||||
Daiwa Securities Group, Inc., | ||||||||
3.129%, 4-19-22 (A) | 1,000 | 1,032 | ||||||
Goldman Sachs Group, Inc. (The): | ||||||||
3.000%, 4-26-22 | 1,000 | 1,008 | ||||||
2.905%, 7-24-23 | 1,000 | 1,039 | ||||||
4.250%, 10-21-25 | 3,250 | 3,727 | ||||||
3.500%, 11-16-26 | 2,000 | 2,245 | ||||||
4.223%, 5-1-29 | 3,500 | 4,150 | ||||||
4.017%, 10-31-38 | 2,700 | 3,291 | ||||||
Morgan Stanley: | ||||||||
4.875%, 11-1-22 | 2,931 | 3,157 | ||||||
5.000%, 11-24-25 | 2,150 | 2,571 | ||||||
3.875%, 1-27-26 | 3,850 | 4,415 | ||||||
1.794%, 2-13-32 | 2,125 | 2,137 | ||||||
3.971%, 7-22-38 | 800 | 985 | ||||||
Morgan Stanley (3-Month U.S. LIBOR plus 140 bps), | ||||||||
1.615%, 10-24-23 (C) | 1,500 | 1,529 | ||||||
|
| |||||||
33,455 | ||||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Life & Health Insurance – 2.7% |
| |||||||
Aflac, Inc., | ||||||||
4.750%, 1-15-49 | $ | 2,250 | $ | 3,135 | ||||
MetLife Global Funding I, | ||||||||
1.950%, 9-15-21 (A)(D) | 2,000 | 2,024 | ||||||
Metropolitan Life Insurance Co., | ||||||||
3.450%, 10-9-21 (A) | 3,000 | 3,071 | ||||||
New York Life Global Funding, | ||||||||
2.900%, 1-17-24 (A) | 5,500 | 5,899 | ||||||
Northwestern Mutual Life Insurance Co. (The), | ||||||||
3.850%, 9-30-47 (A) | 3,000 | 3,527 | ||||||
Principal Life Global Funding II, | ||||||||
3.000%, 4-18-26 (A) | 1,000 | 1,112 | ||||||
|
| |||||||
18,768 | ||||||||
|
| |||||||
Other Diversified Financial Services – 4.7% |
| |||||||
Citigroup, Inc.: | ||||||||
3.500%, 5-15-23 | 2,260 | 2,421 | ||||||
3.875%, 3-26-25 | 2,000 | 2,232 | ||||||
3.520%, 10-27-28 | 1,750 | 1,978 | ||||||
2.666%, 1-29-31 | 1,925 | 2,064 | ||||||
4.412%, 3-31-31 | 2,735 | 3,314 | ||||||
4.700%, 7-30-68 | 850 | 874 | ||||||
5.000%, 3-12-69 | 2,500 | 2,598 | ||||||
JPMorgan Chase & Co.: | ||||||||
3.875%, 9-10-24 | 1,424 | 1,594 | ||||||
3.220%, 3-1-25 | 6,000 | 6,476 | ||||||
4.493%, 3-24-31 | 3,000 | 3,688 | ||||||
2.522%, 4-22-31 | 2,000 | 2,149 | ||||||
4.000%, 10-1-68 | 1,650 | 1,677 | ||||||
5.000%, 2-1-69 | 1,000 | 1,052 | ||||||
|
| |||||||
32,117 | ||||||||
|
| |||||||
Regional Banks – 0.6% |
| |||||||
PNC Bank N.A., | ||||||||
3.300%, 10-30-24 | 1,000 | 1,102 | ||||||
SunTrust Banks, Inc., | ||||||||
3.200%, 4-1-24 | 2,500 | 2,713 | ||||||
|
| |||||||
3,815 | ||||||||
|
| |||||||
Specialized Finance – 0.6% |
| |||||||
Fidelity National Financial, Inc.: | ||||||||
5.500%, 9-1-22 | 1,730 | 1,864 | ||||||
3.400%, 6-15-30 | 1,850 | 2,030 | ||||||
|
| |||||||
3,894 | ||||||||
|
| |||||||
Total Financials – 26.5% |
| 181,302 | ||||||
Health Care |
| |||||||
Biotechnology – 0.4% |
| |||||||
Amgen, Inc., | ||||||||
4.950%, 10-1-41 | 2,250 | 3,040 | ||||||
|
| |||||||
Health Care Equipment – 0.9% |
| |||||||
Becton Dickinson & Co., | ||||||||
2.894%, 6-6-22 | 2,559 | 2,645 | ||||||
Boston Scientific Corp., | ||||||||
4.550%, 3-1-39 | 1,875 | 2,388 |
2020 | ANNUAL REPORT | 19 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Health Care Equipment (Continued) |
| |||||||
Zimmer Biomet Holdings, Inc., | ||||||||
5.750%, 11-30-39 | $ | 725 | $ | 951 | ||||
|
| |||||||
5,984 | ||||||||
|
| |||||||
Health Care Facilities – 0.8% |
| |||||||
HCA, Inc. (GTD by HCA Holdings, Inc.), | ||||||||
4.750%, 5-1-23 | 2,935 | 3,201 | ||||||
Universal Health Services, Inc., | ||||||||
2.650%, 10-15-30 (A) | 1,925 | 1,998 | ||||||
|
| |||||||
5,199 | ||||||||
|
| |||||||
Health Care Services – 0.6% |
| |||||||
Cigna Corp., | ||||||||
3.400%, 9-17-21 | 2,500 | 2,554 | ||||||
CVS Caremark Corp., | ||||||||
3.875%, 7-20-25 | 1,250 | 1,416 | ||||||
|
| |||||||
3,970 | ||||||||
|
| |||||||
Health Care Supplies – 0.6% |
| |||||||
Abbott Laboratories, | ||||||||
4.750%, 11-30-36 | 1,315 | 1,810 | ||||||
Dentsply Sirona, Inc., | ||||||||
3.250%, 6-1-30 | 1,923 | 2,140 | ||||||
Shire Acquisitions Investments Ireland Designated Activity Co., | ||||||||
2.400%, 9-23-21 | 274 | 278 | ||||||
|
| |||||||
4,228 | ||||||||
|
| |||||||
Managed Health Care – 1.6% |
| |||||||
Humana, Inc., | ||||||||
2.900%, 12-15-22 | 5,000 | 5,224 | ||||||
UnitedHealth Group, Inc.: | ||||||||
3.500%, 2-15-24 | 2,500 | 2,735 | ||||||
2.750%, 5-15-40 | 1,400 | 1,516 | ||||||
3.700%, 8-15-49 | 1,000 | 1,252 | ||||||
|
| |||||||
10,727 | ||||||||
|
| |||||||
Pharmaceuticals – 1.7% |
| |||||||
Bayer U.S. Finance II LLC, | ||||||||
2.850%, 4-15-25 (A) | 1,490 | 1,580 | ||||||
Bayer U.S. Finance LLC, | ||||||||
3.000%, 10-8-21 (A) | 1,500 | 1,526 | ||||||
Elanco Animal Health, Inc.: | ||||||||
4.912%, 8-27-21 (B) | 1,250 | 1,278 | ||||||
5.022%, 8-28-23 (B) | 1,500 | 1,639 | ||||||
Merck & Co., Inc., | ||||||||
2.350%, 6-24-40 | 1,250 | 1,291 | ||||||
Novartis Capital Corp. (GTD by Novartis AG), | ||||||||
2.750%, 8-14-50 | 1,850 | 2,023 | ||||||
Royalty Pharma plc (GTD by Royalty Pharma Holdings Ltd.): | ||||||||
1.200%, 9-2-25 (A) | 1,500 | 1,523 | ||||||
2.200%, 9-2-30 (A) | 750 | 770 | ||||||
3.300%, 9-2-40 (A) | 325 | 341 | ||||||
|
| |||||||
11,971 | ||||||||
|
| |||||||
Total Health Care – 6.6% |
| 45,119 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Industrials |
| |||||||
Aerospace & Defense – 2.0% |
| |||||||
BAE Systems Holdings, Inc., | ||||||||
3.850%, 12-15-25 (A) | $ | 1,500 | $ | 1,701 | ||||
Boeing Co. (The): | ||||||||
2.950%, 2-1-30 | 2,000 | 2,069 | ||||||
5.150%, 5-1-30 | 1,000 | 1,210 | ||||||
3.750%, 2-1-50 | 3,375 | 3,543 | ||||||
Harris Corp., | ||||||||
5.054%, 4-27-45 | 1,500 | 2,071 | ||||||
Raytheon Technologies Corp., | ||||||||
3.125%, 7-1-50 | 1,075 | 1,183 | ||||||
Rockwell Collins, Inc., | ||||||||
2.800%, 3-15-22 | 1,500 | 1,543 | ||||||
United Technologies Corp., | ||||||||
4.625%, 11-16-48 | 400 | 542 | ||||||
|
| |||||||
13,862 | ||||||||
|
| |||||||
Agricultural & Farm Machinery – 0.3% |
| |||||||
CNH Industrial Capital LLC (GTD by CNH Industrial Capital America LLC and New Holland Credit Co. LLC), | ||||||||
1.950%, 7-2-23 | 1,850 | 1,904 | ||||||
|
| |||||||
Airlines – 0.7% |
| |||||||
Aviation Capital Group Corp., | ||||||||
2.875%, 1-20-22 (A) | 3,000 | 3,038 | ||||||
Aviation Capital Group LLC, | ||||||||
3.500%, 11-1-27 (A) | 465 | 465 | ||||||
Sydney Airport Finance, | ||||||||
3.625%, 4-28-26 (A) | 1,000 | 1,098 | ||||||
|
| |||||||
4,601 | ||||||||
|
| |||||||
Building Products – 0.4% |
| |||||||
Lennox International, Inc., | ||||||||
1.350%, 8-1-25 | 2,500 | 2,557 | ||||||
|
| |||||||
Diversified Support Services – 0.2% |
| |||||||
Genpact Luxembourg S.a.r.l. (GTD by Genpact Ltd.), | ||||||||
3.375%, 12-1-24 | 1,500 | 1,633 | ||||||
|
| |||||||
Environmental & Facilities Services – 1.3% |
| |||||||
Republic Services, Inc.: | ||||||||
2.300%, 3-1-30 | 387 | 409 | ||||||
3.050%, 3-1-50 | 1,560 | 1,702 | ||||||
Waste Connections, Inc., | ||||||||
3.500%, 5-1-29 | 3,049 | 3,476 | ||||||
Waste Management, Inc. (GTD by Waste Management Holdings, Inc.), | ||||||||
4.100%, 3-1-45 | 2,500 | 3,131 | ||||||
|
| |||||||
8,718 | ||||||||
|
| |||||||
Industrial Machinery – 0.3% |
| |||||||
Roper Technologies, Inc., | ||||||||
2.950%, 9-15-29 | 1,721 | 1,890 | ||||||
|
| |||||||
Railroads – 0.8% |
| |||||||
Burlington Northern Santa Fe LLC, | ||||||||
4.550%, 9-1-44 | 1,000 | 1,349 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Railroads (Continued) |
| |||||||
Kansas City Southern, | ||||||||
4.300%, 5-15-43 | $ | 1,475 | $ | 1,732 | ||||
Union Pacific Corp., | ||||||||
3.550%, 8-15-39 | 1,875 | 2,167 | ||||||
|
| |||||||
5,248 | ||||||||
|
| |||||||
Research & Consulting Services – 1.2% |
| |||||||
CoStar Group, Inc., | ||||||||
2.800%, 7-15-30 (A) | 3,431 | 3,563 | ||||||
IHS Markit Ltd., | ||||||||
5.000%, 11-1-22 (A) | 2,840 | 3,037 | ||||||
Verisk Analytics, Inc., | ||||||||
3.625%, 5-15-50 | 1,735 | 2,018 | ||||||
|
| |||||||
8,618 | ||||||||
|
| |||||||
Total Industrials – 7.2% |
| 49,031 | ||||||
Information Technology |
| |||||||
Application Software – 1.5% |
| |||||||
Autodesk, Inc., | ||||||||
2.850%, 1-15-30 | 3,500 | 3,885 | ||||||
Infor, Inc.: | ||||||||
1.450%, 7-15-23 (A) | 425 | 432 | ||||||
1.750%, 7-15-25 (A) | 3,270 | 3,396 | ||||||
NXP B.V. and NXP Funding LLC, | ||||||||
4.625%, 6-1-23 (A) | 2,595 | 2,836 | ||||||
|
| |||||||
10,549 | ||||||||
|
| |||||||
Communications Equipment – 0.3% |
| |||||||
Motorola Solutions, Inc., | ||||||||
5.500%, 9-1-44 | 1,415 | 1,799 | ||||||
|
| |||||||
Data Processing & Outsourced Services – 2.1% |
| |||||||
Global Payments, Inc., | ||||||||
2.650%, 2-15-25 | 3,000 | 3,212 | ||||||
PayPal Holdings, Inc.: | ||||||||
2.650%, 10-1-26 | 2,050 | 2,253 | ||||||
2.300%, 6-1-30 | 2,600 | 2,783 | ||||||
3.250%, 6-1-50 | 1,100 | 1,266 | ||||||
Visa, Inc., | ||||||||
2.700%, 4-15-40 | 4,397 | 4,793 | ||||||
|
| |||||||
14,307 | ||||||||
|
| |||||||
Electronic Components – 0.3% |
| |||||||
Maxim Integrated Products, Inc.: | ||||||||
3.375%, 3-15-23 | 375 | 395 | ||||||
3.450%, 6-15-27 | 1,700 | 1,906 | ||||||
|
| |||||||
2,301 | ||||||||
|
| |||||||
Internet Services & Infrastructure – 0.1% |
| |||||||
Baidu, Inc., | ||||||||
1.720%, 4-9-26 | 609 | 617 | ||||||
|
| |||||||
IT Consulting & Other Services – 0.3% |
| |||||||
Leidos, Inc. (GTD by Leidos Holdings, Inc.), | ||||||||
2.950%, 5-15-23 (A) | 2,213 | 2,328 | ||||||
|
|
20 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Semiconductor Equipment – 0.3% |
| |||||||
Lam Research Corp.: | ||||||||
3.750%, 3-15-26 | $ | 1,275 | $ | 1,457 | ||||
2.875%, 6-15-50 | 415 | 446 | ||||||
|
| |||||||
1,903 | ||||||||
|
| |||||||
Semiconductors – 4.5% |
| |||||||
Broadcom, Inc.: | ||||||||
3.625%, 10-15-24 | 2,443 | 2,684 | ||||||
4.700%, 4-15-25 | 2,500 | 2,864 | ||||||
Intel Corp.: | ||||||||
4.000%, 12-15-32 | 1,500 | 1,866 | ||||||
4.100%, 5-19-46 | 4,000 | 5,083 | ||||||
Microchip Technology, Inc., | ||||||||
3.922%, 6-1-21 | 2,750 | 2,789 | ||||||
QUALCOMM, Inc.: | ||||||||
4.800%, 5-20-45 | 500 | 710 | ||||||
4.300%, 5-20-47 | 1,500 | 2,031 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd., | ||||||||
1.375%, 9-28-30 (A) | 5,000 | 4,906 | ||||||
Texas Instruments, Inc.: | ||||||||
3.875%, 3-15-39 | 3,500 | 4,359 | ||||||
4.150%, 5-15-48 | 400 | 534 | ||||||
Xilinx, Inc., | ||||||||
2.375%, 6-1-30 | 2,625 | 2,754 | ||||||
|
| |||||||
30,580 | ||||||||
|
| |||||||
Systems Software – 1.1% |
| |||||||
Microsoft Corp., | ||||||||
3.700%, 8-8-46 | 3,000 | 3,798 | ||||||
ServiceNow, Inc., | ||||||||
1.400%, 9-1-30 | 4,010 | 3,910 | ||||||
|
| |||||||
7,708 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 1.6% |
| |||||||
Apple, Inc.: | ||||||||
2.400%, 5-3-23 | 2,895 | 3,036 | ||||||
3.850%, 5-4-43 | 1,350 | 1,703 | ||||||
4.650%, 2-23-46 | 1,739 | 2,468 | ||||||
3.850%, 8-4-46 | 1,800 | 2,311 | ||||||
2.950%, 9-11-49 | 725 | 808 | ||||||
Seagate HDD Cayman (GTD by Seagate Technology plc), | ||||||||
5.750%, 12-1-34 | 387 | 456 | ||||||
|
| |||||||
10,782 | ||||||||
|
| |||||||
Total Information Technology – 12.1% |
| 82,874 | ||||||
Materials |
| |||||||
Construction Materials – 0.3% |
| |||||||
Martin Marietta Materials, Inc., | ||||||||
3.500%, 12-15-27 | 1,371 | 1,553 | ||||||
Vulcan Materials Co., | ||||||||
3.900%, 4-1-27 | 425 | 495 | ||||||
|
| |||||||
2,048 | ||||||||
|
| |||||||
Diversified Chemicals – 0.2% |
| |||||||
DowDuPont, Inc., | ||||||||
4.205%, 11-15-23 | 1,300 | 1,434 | ||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Fertilizers & Agricultural Chemicals – 0.5% |
| |||||||
Mosaic Co. (The): | ||||||||
3.250%, 11-15-22 | $ | 1,333 | $ | 1,393 | ||||
4.250%, 11-15-23 | 400 | 437 | ||||||
Nutrien Ltd., | ||||||||
5.250%, 1-15-45 | 1,320 | 1,795 | ||||||
|
| |||||||
3,625 | ||||||||
|
| |||||||
Metal & Glass Containers – 0.1% |
| |||||||
Colonial Enterprises, Inc., | ||||||||
3.250%, 5-15-30 (A) | 700 | 792 | ||||||
|
| |||||||
Specialty Chemicals – 0.2% |
| |||||||
Ecolab, Inc., | ||||||||
4.800%, 3-24-30 | 850 | 1,084 | ||||||
|
| |||||||
Total Materials – 1.3% |
| 8,983 | ||||||
Real Estate |
| |||||||
Health Care REITs – 0.3% |
| |||||||
HCP, Inc., | ||||||||
4.250%, 11-15-23 | 230 | 252 | ||||||
Healthpeak Properties, Inc.: | ||||||||
3.875%, 8-15-24 | 582 | 644 | ||||||
2.875%, 1-15-31 | 1,025 | 1,104 | ||||||
|
| |||||||
2,000 | ||||||||
|
| |||||||
Industrial REITs – 0.2% |
| |||||||
Aircastle Ltd., | ||||||||
5.500%, 2-15-22 | 598 | 623 | ||||||
Avolon Holdings Funding Ltd.: | ||||||||
3.625%, 5-1-22 (A) | 160 | 163 | ||||||
3.250%, 2-15-27 (A) | 1,000 | 1,020 | ||||||
|
| |||||||
1,806 | ||||||||
|
| |||||||
Specialized REITs – 2.9% |
| |||||||
American Tower Corp.: | ||||||||
3.070%, 3-15-23 (A) | 1,500 | 1,529 | ||||||
3.000%, 6-15-23 | 2,500 | 2,649 | ||||||
4.400%, 2-15-26 | 1,000 | 1,158 | ||||||
American Tower Trust I, | ||||||||
3.652%, 3-23-28 (A) | 1,000 | 1,099 | ||||||
Crown Castle International Corp.: | ||||||||
5.250%, 1-15-23 | 2,317 | 2,535 | ||||||
3.150%, 7-15-23 | 175 | 186 | ||||||
3.200%, 9-1-24 | 1,250 | 1,358 | ||||||
4.000%, 3-1-27 | 2,000 | 2,296 | ||||||
CubeSmart L.P. (GTD by CubeSmart), | ||||||||
4.375%, 2-15-29 | 1,615 | 1,908 | ||||||
CyrusOne L.P. and CyrusOne Finance Corp. (GTD by CyrusOne, Inc.): | ||||||||
2.900%, 11-15-24 | 1,639 | 1,750 | ||||||
3.450%, 11-15-29 | 1,505 | 1,619 | ||||||
EPR Properties, | ||||||||
4.950%, 4-15-28 | 720 | 724 | ||||||
Public Storage, Inc., | ||||||||
3.385%, 5-1-29 | 700 | 801 | ||||||
|
| |||||||
19,612 | ||||||||
|
| |||||||
Total Real Estate – 3.4% |
| 23,418 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Utilities |
| |||||||
Electric Utilities – 3.5% |
| |||||||
American Transmission Systems, Inc., | ||||||||
5.250%, 1-15-22 (A) | $ | 450 | $ | 469 | ||||
Appalachian Power Co., | ||||||||
4.500%, 3-1-49 | 1,500 | 1,955 | ||||||
CenterPoint Energy, Inc.: | ||||||||
4.250%, 11-1-28 | 1,683 | 1,993 | ||||||
2.950%, 3-1-30 | 750 | 816 | ||||||
Commonwealth Edison Co., | ||||||||
3.650%, 6-15-46 | 3,000 | 3,560 | ||||||
Duke Energy Indiana LLC, | ||||||||
3.750%, 5-15-46 | 1,430 | 1,712 | ||||||
Duke Energy Ohio, Inc., | ||||||||
4.300%, 2-1-49 | 410 | 529 | ||||||
Entergy Corp.: | ||||||||
0.900%, 9-15-25 | 1,300 | 1,299 | ||||||
3.750%, 6-15-50 | 1,200 | 1,388 | ||||||
FirstEnergy Corp.: | ||||||||
2.850%, 7-15-22 | 1,306 | 1,327 | ||||||
3.400%, 3-1-50 | 215 | 206 | ||||||
National Rural Utilities Cooperative Finance Corp., | ||||||||
4.400%, 11-1-48 | 2,000 | 2,658 | ||||||
Southern California Edison Co., | ||||||||
4.125%, 3-1-48 | 1,525 | 1,816 | ||||||
Virginia Electric and Power Co., Series B, | ||||||||
4.600%, 12-1-48 | 1,736 | 2,435 | ||||||
Wisconsin Electric Power Co.: | ||||||||
4.250%, 6-1-44 | 250 | 309 | ||||||
4.300%, 10-15-48 | 1,250 | 1,683 | ||||||
|
| |||||||
24,155 | ||||||||
|
| |||||||
Gas Utilities – 0.5% |
| |||||||
Southern California Gas Co., | ||||||||
4.300%, 1-15-49 | 2,505 | 3,285 | ||||||
|
| |||||||
Independent Power Producers & Energy Traders – 0.3% |
| |||||||
Black Hills Corp., | ||||||||
4.350%, 5-1-33 | 2,000 | 2,421 | ||||||
|
| |||||||
Multi-Utilities – 1.6% |
| |||||||
Baltimore Gas and Electric Co., | ||||||||
4.250%, 9-15-48 | 1,500 | 1,954 | ||||||
Dominion Energy, Inc.: | ||||||||
3.600%, 3-15-27 | 2,000 | 2,272 | ||||||
4.600%, 3-15-49 | 1,200 | 1,607 | ||||||
Dominion Resources, Inc., | ||||||||
2.750%, 1-15-22 | 3,000 | 3,065 | ||||||
Public Service Electric and Gas Co., | ||||||||
1.900%, 3-15-21 | 2,000 | 2,004 | ||||||
|
| |||||||
10,902 | ||||||||
|
| |||||||
Water Utilities – 0.5% |
| |||||||
American Water Capital Corp., | ||||||||
4.150%, 6-1-49 | 2,500 | 3,292 | ||||||
|
| |||||||
Total Utilities – 6.4% |
| 44,055 | ||||||
TOTAL CORPORATE DEBT SECURITIES – 94.6% |
| $ | 648,158 | |||||
(Cost: $606,035) |
|
2020 | ANNUAL REPORT | 21 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
MORTGAGE-BACKED SECURITIES | Principal | Value | ||||||
Non-Agency REMIC/CMO – 0.1% |
| |||||||
MASTR Adjustable Rate Mortgages Trust, Series 2005-1, Class B1 (Mortgage spread to 10-year U.S. Treasury index), | ||||||||
3.206%, 3-25-35 (C) | $ | 839 | $ | 677 | ||||
|
| |||||||
TOTAL MORTGAGE-BACKED SECURITIES – 0.1% |
| $ | 677 | |||||
(Cost: $836) | ||||||||
MUNICIPAL BONDS – TAXABLE | ||||||||
New York – 0.6% |
| |||||||
NYC Indl Dev Agy, Rental Rev Bonds (Yankee Stadium Proj), Ser 2009, | ||||||||
11.000%, 3-1-29 (A) | 2,805 | 3,848 | ||||||
|
| |||||||
Ohio – 0.4% |
| |||||||
OH State Univ, Gen Receipts Bonds (Multiyear Debt Issuance Prog), Ser 2016A, | ||||||||
3.798%, 12-1-46 | 2,000 | 2,453 | ||||||
|
| |||||||
TOTAL MUNICIPAL BONDS – |
| $ | 6,301 | |||||
(Cost: $4,805) |
OTHER GOVERNMENT SECURITIES (E) | Principal | Value | ||||||
Canada – 0.5% |
| |||||||
Province de Quebec, | ||||||||
7.140%, 2-27-26 | $ | 2,500 | $ | 3,277 | ||||
|
| |||||||
TOTAL OTHER GOVERNMENT |
| $ | 3,277 | |||||
(Cost: $2,667) | ||||||||
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS | ||||||||
Agency Obligations – 0.2% |
| |||||||
Tennessee Valley Authority, | ||||||||
2.875%, 2-1-27 | 1,000 | 1,126 | ||||||
|
| |||||||
Mortgage-Backed Obligations – 0.0% |
| |||||||
Government National Mortgage Association Agency REMIC/CMO, | ||||||||
0.004%, 6-17-45 (A)(C)(F) | 11 | — | * | |||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 0.2% |
| $ | 1,126 | |||||
(Cost: $1,001) |
SHORT-TERM SECURITIES | Shares | Value | ||||||
Money Market Funds (H) – 1.6% |
| |||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares, | ||||||||
0.030% (G) | 761 | $ | 761 | |||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, | ||||||||
0.030% | 10,279 | 10,279 | ||||||
|
| |||||||
11,040 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 1.6% |
| $ | 11,040 | |||||
(Cost: $11,040) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.3% |
| $ | 680,031 | |||||
(Cost: $635,735) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES (I) – 0.7% | 4,781 | |||||||
NET ASSETS – 100.0% | $ | 684,812 |
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $125,833 or 18.4% of net assets. |
(B) | Step bond that pays an initial coupon rate for the first period and then a higher or lower coupon rate for the following periods. Interest rate disclosed is that which is in effect at December 31, 2020. |
(C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Description of the reference rate and spread, if applicable, are included in the security description. |
(D) | All or a portion of securities with an aggregate value of $745 are on loan. |
(E) | Other Government Securities may include emerging markets sovereign, quasi-sovereign, corporate and supranational agency and organization debt securities. |
(F) | Interest-only security. Amount shown as principal represents notional amount for computation of interest. |
(G) | Investment made with cash collateral received from securities on loan. |
(H) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(I) | Cash of $410 has been pledged as collateral on open futures contracts. |
The following futures contracts were outstanding at December 31, 2020 (contracts unrounded):
Description | Type | Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Depreciation | ||||||||||||||||||||||
U.S. 10-Year Treasury Note | Short | 65 | 3-20-21 | 6,500 | $ | (8,975 | ) | $ | (17 | ) | ||||||||||||||||||
U.S. Treasury Long Bond | Short | 76 | 3-22-21 | 7,600 | (13,162 | ) | (48 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (22,137 | ) | $ | (65 | ) | |||||||||||||||||||||||
|
|
22 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | CORPORATE BOND (in thousands) |
DECEMBER 31, 2020
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Asset-Backed Securities | $ | — | $ | 9,452 | $ | — | ||||||
Corporate Debt Securities | — | 648,158 | — | |||||||||
Mortgage-Backed Securities | — | 677 | — | |||||||||
Municipal Bonds | — | 6,301 | — | |||||||||
Other Government Securities | — | 3,277 | — | |||||||||
United States Government Agency Obligations | — | 1,126 | — | |||||||||
Short-Term Securities | 11,040 | — | — | |||||||||
Total | $ | 11,040 | $ | 668,991 | $ | — | ||||||
Liabilities | ||||||||||||
Futures Contracts | $ | 65 | $ | — | $ | — |
The following acronyms are used throughout this schedule:
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
LIBOR = London Interbank Offered Rate
REIT = Real Estate Investment Trust
REMIC = Real Estate Mortgage Investment Conduit
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 23 |
Table of Contents
MANAGEMENT DISCUSSION | GLOBAL BOND |
(UNAUDITED)
Mark G. Beischel
Below, Mark G. Beischel, CFA, portfolio manager of Ivy VIP Global Bond, discusses positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Beischel has managed the Portfolio since its inception in 2010 and has 27 years of industry experience.
Fiscal Year Performance
For the 12 months ended December 31, 2020 | ||||
Ivy VIP Global Bond (Class II shares at net asset value) | 8.15% | |||
Benchmark and Morningstar Category | ||||
Bloomberg Barclays U.S. Universal Index | 7.58% | |||
(Generally reflects performance of U.S. dollar-denominated taxable bonds that are rated either investment-grade or high yield; includes U.S. Treasury bonds, investment-grade and high yield U.S. corporate bonds, mortgage-backed securities, and Eurodollar bonds) | ||||
Bloomberg Barclays Global Credit 1-10 Year Hedged Index | 5.74% | |||
(generally reflects the performance of the global investment grade local currency corporate and government-related bond markets with a maturity greater than 1 year and less than 10 years) | ||||
Morningstar World Bond Category Average | 8.35% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that the Portfolio returns include applicable fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
One full credit cycle in one quarter
The first two months in calendar year 2020 were strong as the U.S.-China trade deal was finally signed in January. Business confidence was improving and optimistic, while job growth was solid – beating expectations. Also, the unemployment rate was at a historical low. The stock market made new records with consumer confidence elevated. The outlook for calendar year 2020 was for stable global growth.
Unfortunately, the rise of COVID-19 that began in late November 2019 and spread throughout China, Asia, Europe, and ultimately the U.S. in early March, dramatically impacted the overall picture for global growth, capital markets and financial stability. This led to an immediate decline in global gross domestic product output, massive job losses and enormous reductions of wealth. The fiscal and monetary responses were massive with the Federal Reserve (Fed) cutting rates to zero, providing U.S. dollar liquidity to other central banks, money market funds and corporate credit. The Fed also started unlimited quantitative easing with large purchases of U.S. Treasuries and mortgage-backed securities – the Fed’s balance increased by $1 trillion in one week. Most central banks indicated they would respond as needed to maintain operations and avoid dysfunctional financial markets during the crisis, and they kept policies extremely accommodative as their economies recovered. The monetary response was just as impressive. A spending bill of more than $2.0 trillion passed the U.S. Senate and House of the Representatives after last minute negotiations; ultimately bridging the effects of “social distancing.”
In effect, the market witnessed a full credit cycle in one quarter. Credit spreads compressed back to pre-COVID-19 levels after widening in March. We have never seen a health crisis morph into an economic crisis by virtue of a government mandated full-stop shutdown. The National Bureau of Economic Research recently declared that the recession began in February. A clean V-shaped U.S. economic recovery was hopeful at best as credit continued to be at the mercy of COVID-19-related news; both negative and positive.
The U.S. Treasury curve steepened slightly after Fed Chair Jerome Powell used his speech at the Jackson Hole Symposium at the end of August 2020 to signal sustained looser monetary conditions. Specifically, he indicated that the Fed would change its interpretation of its price-stability mandate to target “inflation that averages 2% over time,” which we believe allows for “inflation moderately above 2%” after periods of low inflation.
The global credit market renewed its grind tighter in the final quarter of the year after pausing in September. The credit spread on the Bloomberg Barclays U.S. Universal Index, the Portfolio’s benchmark, ended the year at 81 basis points (bps), which is 125 bps tighter than the widest levels reached in March and just 8 bps wider than the year’s tightest level in January 2020.
24 | ANNUAL REPORT | 2020 |
Table of Contents
In December, the Organization for Economic Cooperation and Development (OECD) again upgraded its forecast for global economic growth in 2020 to a decline of 4.2%, up from September’s estimate of negative 4.5%. China, with expected growth of 1.8%, remains the only G20 country that the OECD forecasts to have grown in 2020. The OECD does expect global growth to rebound in 2021 to 4.2%, although the rebound will be very uneven across the globe.
Fixed-income investment returns generally remained positive for the year, despite the U.S. Treasury yield rising steadily over the fourth quarter to end the year at 0.91% after falling near 0.5% multiple times earlier in the year. The U.S. Treasury curve steepened during the quarter as market-implied inflation metrics rose on optimism over an economic recovery and the election of Joe Biden as the 46th president of the United States. Growth in U.S. consumer spending slowed towards the end of the fiscal year as a new wave of COVID-19 cases swept the country and Congress failed to pass further stimulus measures until the end of December.
Performance and seeking low volatility positioning
The Portfolio changed its benchmark during the fiscal year. It outperformed both its old and new benchmarks during the period but underperformed its Morningstar peer group. The underperformance relative to the Morningstar peer group was attributed to the Portfolio’s lack of exposure to foreign currencies, as the U.S. dollar underperformed all other G10 currencies. The Portfolio had a 100% weighting in the U.S. dollar and its lack of exposure in the euro, British pound and yen detracted from performance, as those currencies appreciated 8.9%, 3.1%, and 5.2% against the U.S. dollar, respectively.
At the beginning of the fiscal year we upgraded the quality profile of the Portfolio. We shifted up the credit quality with the expectation that the Fed’s policy of normalizing interest rates would lead to increased volatility in the credit markets. The Portfolio was defensively positioned to take advantage of market volatility that dramatically increased credit spreads as COVID-19 led to a shutdown of the U.S. economy. The Portfolio opportunistically added to its emerging market and high yield exposures, capitalizing on tremendous widening of credit spreads during the March and June timeframes.
Amid the volatility, we are maintaining low duration in the Portfolio, and believe we have plenty of liquidity. We believe shorter duration will enable the Portfolio to focus on higher yielding corporate bonds, while greater liquidity will allow us to be more responsive to changing market environments. We continue to focus on maintaining proper diversification for the Portfolio by investing in different securities, sectors, countries and currencies. This flexibility allows us to seek less volatility with a reasonable yield that we believe should reward investors over the longer term.
We continue to search for value in emerging market and domestic high-yield corporate bonds and senior loans. Some of the best returns have been from those sectors, which we believe should continue. We think there will be more opportunities to redeploy liquidity due to the volatility associated with the U.S. political climate and the Fed’s normalization of interest rates.
Looking ahead
We believe short-term interest rates will stay near zero for the foreseeable future. We also believe that inflation will remain low due to growth constraints, although it is likely to be higher than we had previously anticipated due to the Democrats gaining control of the Senate along with the House of Representatives.
The U.S.’s sizable fiscal packages provided much needed income support for sidelined workers and financial support for businesses facing interrupted product demand and cash flows. However, we do not believe that the stimulus packages passed thus far are fiscal stimulus that will generate sustained stronger growth. The federal government finally passed another fiscal stimulus bill at the end of December, while states look to fill gaps in their budgets. We think the outlook is good for additional stimulus as Democrats have stated it is one of their first priorities in the new term.
Demand for corporate credit remains intact. Across the globe, fixed-income yields are staggeringly low, leaving investors few alternatives. The Fed has indicated it will continue to support markets beyond the point at which the COVID-19 virus is contained, which we believe is likely to support current spread levels.
China has contained COVID-19 more effectively than most countries and is now the closest of the major countries to be operating at “business-as-usual.” This has been a major support to global resource demand. While Chinese authorities are unlikely to tighten policy for the foreseeable future, we think that momentum in its credit cycle is likely to have peaked, which could weigh on global resource demand later in 2021.
The economies of many emerging market countries have been supported by surprisingly aggressive fiscal stimulus. With ballooning fiscal deficits, however, governments will likely have less room to respond as COVID-19 cases hit record highs across much of the world.
2020 | ANNUAL REPORT | 25 |
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West Texas Intermediate crude began to rise in mid-November as COVID-19 vaccine trials showed positive results. The crude benchmark rose from $36 per barrel at the end of October to $48 per barrel at the end of the year. Saudi Arabia has committed to cutting supply during the first quarter of 2021 which should provide further support for higher oil prices as well as the finances of countries that depend on oil exports. Meanwhile, China’s economic strength continues to support the prices of many industrial metals.
Finally, the tilt away from globalization that has been underway for about half of the decade is likely to be reinforced. We believe new factors stemming from COVID-19 and heightened geopolitical tension between the U.S. and China will fuel the move further away from globalization, which will change complex international supply chains, and lead to higher tariffs and potentially increased barriers to immigration.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Certain U.S. government securities in which the Portfolio may invest, such as Treasury securities and securities issued by the Government National Mortgage Association (GinnieMae), are backed by the full faith and credit of the U.S. government. However, other U.S. government securities in which the Portfolio may invest, such as securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB), are not backed by the full faith and credit of the U.S. government, are not insured or guaranteed by the U.S. government and, instead, may be supported only by the right of the issuer to borrow from the U.S. Treasury or by the credit of the issuer.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting a foreign country, and differences in accounting standards and foreign regulations. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. These and other risks are more fully described in the Portfolio’s prospectus.
Diversification and asset allocation are investment strategies that attempt to manage risk within the Portfolio but they do not guarantee profits or protect against loss in declining markets.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged, and includes reinvested dividends and does not include fees. One cannot invest directly in an index, nor is an index representative of Ivy VIP Global Bond.
26 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | GLOBAL BOND |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Bonds | 96.6% | |||
Corporate Debt Securities | 74.9% | |||
United States Government Obligations | 12.9% | |||
Other Government Securities | 8.8% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 3.4% |
Quality Weightings
Investment Grade | 71.5% | |||
AAA | 2.8% | |||
AA | 14.1% | |||
A | 16.9% | |||
BBB | 37.7% | |||
Non-Investment Grade | 25.1% | |||
BB | 19.5% | |||
B | 4.3% | |||
CCC | 1.3% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 3.4% |
Our preference is to always use ratings obtained from Standard & Poor’s, Moody’s, and Fitch. It is each Portfolio’s general policy to classify such security at the lower rating level if only two ratings are available. If more than two ratings are available and a median exists, the median is used. If more than two ratings exist without a median, the lower of the two middle ratings is used. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
Country Weightings
North America | 34.2% | |||
United States | 24.9% | |||
Mexico | 7.5% | |||
Other North America | 1.8% | |||
South America | 18.4% | |||
Chile | 4.7% | |||
Brazil | 4.2% | |||
Other South America | 9.5% | |||
Europe | 14.8% | |||
United Kingdom | 4.8% | |||
Other Europe | 10.0% | |||
Pacific Basin | 16.3% | |||
China | 4.1% | |||
Other Pacific Basin | 12.2% | |||
Bahamas/Caribbean | 6.7% | |||
Middle East | 5.2% | |||
Africa | 1.0% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 3.4% |
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 27 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | GLOBAL BOND |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 8.15% | |||
5-year period ended 12-31-20 | 5.68% | |||
10-year period ended 12-31-20 | 3.37% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
(a) | Effective August 24, 2020, the Portfolio’s new benchmark is the Bloomberg Barclays U.S. Universal Index. IICO believes that this index is more reflective of the types of securities that the Portfolio invests in. Both the new benchmark and the Portfolio’s previous benchmark noted above are included for comparison purposes. |
28 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES | Principal | Value | ||||||
Argentina | ||||||||
Energy – 0.8% |
| |||||||
Pampa Energia S.A. | ||||||||
7.500%, 1-24-27 (A) | $ | 150 | $ | 133 | ||||
Pan American Energy LLC | ||||||||
7.875%, 5-7-21 | 33 | 34 | ||||||
|
| |||||||
167 | ||||||||
|
| |||||||
Total Argentina – 0.8% |
| $ | 167 | |||||
Australia | ||||||||
Industrials – 0.3% |
| |||||||
Transurban Finance Co. Pty Ltd. | ||||||||
2.450%, 3-16-31 (A) | 70 | 73 | ||||||
|
| |||||||
Utilities – 1.0% |
| |||||||
Ausgrid Finance Pty Ltd. | ||||||||
3.850%, 5-1-23 (A) | 200 | 211 | ||||||
|
| |||||||
Total Australia – 1.3% |
| $ | 284 | |||||
Austria | ||||||||
Consumer Staples – 1.0% |
| |||||||
JBS Investments II GmbH (GTD by JBS S.A.) | ||||||||
5.750%, 1-15-28 (A) | 200 | 214 | ||||||
|
| |||||||
Total Austria – 1.0% |
| $ | 214 | |||||
Bermuda | ||||||||
Consumer Staples – 0.5% |
| |||||||
Bacardi Ltd. | ||||||||
4.450%, 5-15-25 (A) | 100 | 112 | ||||||
|
| |||||||
Total Bermuda – 0.5% |
| $ | 112 | |||||
Brazil | ||||||||
Industrials – 1.1% |
| |||||||
Cosan Ltd. | ||||||||
5.500%, 9-20-29 (A)(B) | 200 | 219 | ||||||
|
| |||||||
Materials – 2.1% |
| |||||||
Nexa Resources S.A. | ||||||||
6.500%, 1-18-28 (A) | 200 | 236 | ||||||
Vale Overseas Ltd. | ||||||||
6.250%, 8-10-26 | 150 | 186 | ||||||
|
| |||||||
422 | ||||||||
|
| |||||||
Utilities – 1.0% |
| |||||||
Aegea Finance S.a.r.l. | ||||||||
5.750%, 10-10-24 (A) | 200 | 209 | ||||||
|
| |||||||
Total Brazil – 4.2% |
| $ | 850 | |||||
British Virgin Islands | ||||||||
Information Technology – 1.0% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | ||||||||
1.000%, 9-28-27 (A) | 200 | 198 | ||||||
|
| |||||||
Total British Virgin Islands – 1.0% |
| $ | 198 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Canada | ||||||||
Consumer Staples – 0.3% |
| |||||||
Alimentation Couche-Tard, Inc. | ||||||||
2.700%, 7-26-22 (A) | $ | 60 | $ | 62 | ||||
|
| |||||||
Energy – 0.6% |
| |||||||
TransCanada PipeLines Ltd. | ||||||||
4.250%, 5-15-28 | 100 | 118 | ||||||
|
| |||||||
Financials – 0.9% |
| |||||||
Brookfield Finance, Inc. (GTD by Brookfield Asset Management, Inc.) | ||||||||
4.350%, 4-15-30 | 100 | 120 | ||||||
Royal Bank of Canada | ||||||||
4.650%, 1-27-26 | 50 | 59 | ||||||
|
| |||||||
179 | ||||||||
|
| |||||||
Total Canada – 1.8% |
| $ | 359 | |||||
Cayman Islands | ||||||||
Consumer Discretionary – 1.0% |
| |||||||
Meituan | ||||||||
3.050%, 10-28-30 (A) | 200 | 208 | ||||||
|
| |||||||
Financials – 1.0% |
| |||||||
Three Gorges Finance I Ltd. | ||||||||
1.300%, 9-22-25 (A)(B) | 200 | 198 | ||||||
|
| |||||||
Total Cayman Islands – 2.0% |
| $ | 406 | |||||
Chile | ||||||||
Energy – 1.0% |
| |||||||
GeoPark Ltd. | ||||||||
6.500%, 9-21-24 (A) | 200 | 207 | ||||||
|
| |||||||
Financials – 1.0% |
| |||||||
Banco del Estado de Chile | ||||||||
2.704%, 1-9-25 (A) | 200 | 211 | ||||||
|
| |||||||
Industrials – 1.1% |
| |||||||
Empresa de Transporte de Pasajeros Metro S.A. | ||||||||
3.650%, 5-7-30 (A) | 200 | 225 | ||||||
|
| |||||||
Materials – 1.1% |
| |||||||
Celulosa Arauco y Constitucion S.A. | ||||||||
4.500%, 8-1-24 | 200 | 220 | ||||||
|
| |||||||
Utilities – 0.5% |
| |||||||
Enel Chile S.A. | ||||||||
4.875%, 6-12-28 | 80 | 94 | ||||||
|
| |||||||
Total Chile – 4.7% |
| $ | 957 | |||||
China | ||||||||
Communication Services – 2.0% |
| |||||||
Tencent Holdings Ltd. | ||||||||
2.985%, 1-19-23 (A) | 200 | 208 | ||||||
Weibo Corp. | ||||||||
3.500%, 7-5-24 | 200 | 210 | ||||||
|
| |||||||
418 | ||||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Consumer Discretionary – 1.1% |
| |||||||
Alibaba Group Holding Ltd. | ||||||||
3.400%, 12-6-27 | $ | 200 | $ | 223 | ||||
|
| |||||||
Information Technology – 1.0% |
| |||||||
Lenovo Group Ltd. | ||||||||
3.421%, 11-2-30 (A) | 200 | 210 | ||||||
|
| |||||||
Total China – 4.1% |
| $ | 851 | |||||
Columbia | ||||||||
Financials – 1.0% |
| |||||||
Banco de Bogota S.A. | ||||||||
5.375%, 2-19-23 (A) | 200 | 214 | ||||||
|
| |||||||
Utilities – 1.5% |
| |||||||
Emgesa S.A. E.S.P. | ||||||||
8.750%, 1-25-21 (C) | COP | 302,000 | 89 | |||||
Empresas Publicas de Medellin E.S.P. | ||||||||
4.250%, 7-18-29 (A) | $ | 200 | 215 | |||||
|
| |||||||
304 | ||||||||
|
| |||||||
Total Columbia – 2.5% |
| $ | 518 | |||||
France | ||||||||
Financials – 1.0% |
| |||||||
BNP Paribas S.A. | ||||||||
7.625%, 12-29-49 (A) | 200 | 203 | ||||||
|
| |||||||
Total France – 1.0% |
| $ | 203 | |||||
Hong Kong | ||||||||
Financials – 1.1% |
| |||||||
Bangkok Bank Public Co. Ltd. | ||||||||
4.050%, 3-19-24 (A) | 200 | 217 | ||||||
|
| |||||||
Total Hong Kong – 1.1% |
| $ | 217 | |||||
India | ||||||||
Utilities – 2.1% |
| |||||||
Adani Electricity Mumbai Ltd. | ||||||||
3.949%, 2-12-30 (A) | 200 | 212 | ||||||
Adani Green Energy (UP) Ltd., Parampujya Solar Energy Private Ltd. and Prayatna Developers Private Ltd. | ||||||||
6.250%, 12-10-24 (A) | 200 | 222 | ||||||
|
| |||||||
434 | ||||||||
|
| |||||||
Total India – 2.1% |
| $ | 434 | |||||
Indonesia |
| |||||||
Utilities – 2.4% |
| |||||||
Perusahaan Listrik Negara: | ||||||||
5.450%, 5-21-28 (A) | 200 | 239 | ||||||
5.375%, 1-25-29 (A) | 200 | 241 | ||||||
|
| |||||||
480 | ||||||||
|
| |||||||
Total Indonesia – 2.4% |
| $ | 480 |
2020 | ANNUAL REPORT | 29 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Isle of Man |
| |||||||
Consumer Discretionary – 1.0% |
| |||||||
GOHL Capital Ltd. | ||||||||
4.250%, 1-24-27 | $ | 200 | $ | 212 | ||||
|
| |||||||
Total Isle of Man – 1.0% |
| $ | 212 | |||||
Japan |
| |||||||
Financials – 1.1% |
| |||||||
Mitsubishi UFJ Financial Group, Inc. | ||||||||
3.287%, 7-25-27 | 100 | 113 | ||||||
Sumitomo Mitsui Financial Group, Inc. | ||||||||
3.748%, 7-19-23 | 110 | 119 | ||||||
|
| |||||||
232 | ||||||||
|
| |||||||
Total Japan – 1.1% |
| $ | 232 | |||||
Luxembourg |
| |||||||
Consumer Staples – 1.1% |
| |||||||
Minerva Luxembourg S.A. | ||||||||
5.875%, 1-19-28 (A)(B) | 200 | 216 | ||||||
|
| |||||||
Financials – 1.1% |
| |||||||
JSM Global S.a.r.l. | ||||||||
4.750%, 10-20-30 (A)(B) | 200 | 215 | ||||||
|
| |||||||
Industrials – 1.0% |
| |||||||
Rumo Luxembourg S.a.r.l. | ||||||||
7.375%, 2-9-24 (A) | 200 | 208 | ||||||
|
| |||||||
Total Luxembourg – 3.2% |
| $ | 639 | |||||
Mexico |
| |||||||
Consumer Staples – 1.1% |
| |||||||
Grupo Bimbo S.A.B. de C.V. | ||||||||
3.875%, 6-27-24 (A) | 200 | 219 | ||||||
|
| |||||||
Energy – 0.4% |
| |||||||
Petroleos Mexicanos | ||||||||
6.490%, 1-23-27 | 80 | 84 | ||||||
|
| |||||||
Financials – 1.8% |
| |||||||
Banco Santander S.A. | ||||||||
4.125%, 11-9-22 (A) | 150 | 158 | ||||||
Credito Real S.A. de C.V. SOFOM E.N.R. | ||||||||
7.250%, 7-20-23 (A) | 200 | 202 | ||||||
|
| |||||||
360 | ||||||||
|
| |||||||
Industrials – 2.1% |
| |||||||
Alfa S.A.B. de C.V. | ||||||||
5.250%, 3-25-24 (A) | 200 | 221 | ||||||
Grupo Kuo S.A.B. de C.V. | ||||||||
5.750%, 7-7-27 (A) | 200 | 210 | ||||||
|
| |||||||
431 | ||||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Materials – 1.0% |
| |||||||
CEMEX S.A.B. de C.V. | ||||||||
7.750%, 4-16-26 (A) | $ | 200 | $ | 211 | ||||
|
| |||||||
Total Mexico – 6.4% |
| $ | 1,305 | |||||
Netherlands |
| |||||||
Financials – 1.0% |
| |||||||
Syngenta Finance N.V. | ||||||||
5.182%, 4-24-28 (A) | 200 | 214 | ||||||
|
| |||||||
Health Care – 1.1% |
| |||||||
Teva Pharmaceutical Finance Netherlands III B.V. (GTD by Teva Pharmaceutical Industries Ltd.) | ||||||||
6.750%, 3-1-28 (B) | 200 | 226 | ||||||
|
| |||||||
Total Netherlands – 2.1% |
| $ | 440 | |||||
Nigeria |
| |||||||
Financials – 1.0% |
| |||||||
Africa Finance Corp. | ||||||||
4.375%, 4-17-26 (A) | 200 | 218 | ||||||
|
| |||||||
Total Nigeria – 1.0% |
| $ | 218 | |||||
Norway |
| |||||||
Energy – 0.7% |
| |||||||
Aker BP ASA | ||||||||
4.750%, 6-15-24 (A) | 150 | 155 | ||||||
|
| |||||||
Total Norway – 0.7% |
| $ | 155 | |||||
Panama |
| |||||||
Financials – 1.0% |
| |||||||
Banco Latinoamericanco de Comercio Exterior S.A. | ||||||||
2.375%, 9-14-25 (A) | 200 | 205 | ||||||
|
| |||||||
Total Panama – 1.0% |
| $ | 205 | |||||
Peru |
| |||||||
Financials – 1.8% |
| |||||||
Banco de Credito del Peru | ||||||||
4.250%, 4-1-23 (A) | 150 | 160 | ||||||
Corporacion Financiera de Desarrolla S.A. | ||||||||
2.400%, 9-28-27 (A) | 200 | 203 | ||||||
|
| |||||||
363 | ||||||||
|
| |||||||
Utilities – 0.9% |
| |||||||
Fenix Power Peru S.A. | ||||||||
4.317%, 9-20-27 | 179 | 188 | ||||||
|
| |||||||
Total Peru – 2.7% |
| $ | 551 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Saudi Arabia |
| |||||||
Energy – 1.0% |
| |||||||
Saudi Arabian Oil Co. | ||||||||
1.250%, 11-24-23 (A) | $ | 200 | $ | 203 | ||||
|
| |||||||
Total Saudi Arabia – 1.0% |
| $ | 203 | |||||
South Korea |
| |||||||
Financials – 2.1% |
| |||||||
Hyundai Capital Services, Inc. | ||||||||
2.983%, 8-29-22 (A) | 210 | 218 | ||||||
Korea Development Bank | ||||||||
3.250%, 2-19-24 | 200 | 216 | ||||||
|
| |||||||
434 | ||||||||
|
| |||||||
Total South Korea – 2.1% |
| $ | 434 | |||||
Spain |
| |||||||
Financials – 1.0% |
| |||||||
Banco Santander S.A. | ||||||||
2.706%, 6-27-24 | 200 | 214 | ||||||
|
| |||||||
Utilities – 1.0% |
| |||||||
EnfraGen Energia Sur S.A.U. | ||||||||
5.375%, 12-30-30 (A) | 200 | 207 | ||||||
|
| |||||||
Total Spain – 2.0% |
| $ | 421 | |||||
United Arab Emirates |
| |||||||
Consumer Discretionary – 1.0% |
| |||||||
GEMS MENASA Cayman Ltd. and GEMS Education Delaware LLC | ||||||||
7.125%, 7-31-26 (A) | 200 | 210 | ||||||
|
| |||||||
Energy – 1.0% |
| |||||||
Galaxy Pipeline Assets BidCo Ltd. | ||||||||
1.750%, 9-30-27 (A) | 200 | 203 | ||||||
|
| |||||||
Total United Arab Emirates – 2.0% |
| $ | 413 | |||||
United Kingdom |
| |||||||
Communication Services – 1.0% |
| |||||||
Liquid Telecommunications Financing plc (GTD by Liquid Telecommunications Holdings Ltd.) | ||||||||
8.500%, 7-13-22 (A) | 200 | 204 | ||||||
|
| |||||||
Consumer Staples – 1.0% |
| |||||||
Imperial Tobacco Finance plc | ||||||||
3.750%, 7-21-22 (A) | 200 | 208 | ||||||
|
| |||||||
Financials – 2.8% |
| |||||||
ANZ New Zealand International Ltd. | ||||||||
3.450%, 1-21-28 (A) | 200 | 228 | ||||||
Royal Bank of Scotland Group plc (The) | ||||||||
6.000%, 12-19-23 | 100 | 114 |
30 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Financials (Continued) |
| |||||||
State Bank of India | ||||||||
4.875%, 4-17-24 (A) | $ | 200 | $ | 221 | ||||
|
| |||||||
563 | ||||||||
|
| |||||||
Total United Kingdom – 4.8% |
| $ | 975 | |||||
United States |
| |||||||
Communication Services – 1.1% |
| |||||||
T-Mobile USA, Inc. | ||||||||
6.000%, 3-1-23 | 230 | 230 | ||||||
|
| |||||||
Consumer Discretionary – 1.1% |
| |||||||
Volkswagen Group of America, Inc. | ||||||||
4.250%, 11-13-23 (A) | 200 | 220 | ||||||
|
| |||||||
Consumer Staples – 1.3% |
| |||||||
Keurig Dr Pepper, Inc. | ||||||||
4.597%, 5-25-28 | 125 | 152 | ||||||
Reynolds American, Inc. | ||||||||
4.450%, 6-12-25 | 100 | 114 | ||||||
|
| |||||||
266 | ||||||||
|
| |||||||
Financials – 4.9% |
| |||||||
Bank of America Corp. | ||||||||
3.593%, 7-21-28 | 125 | 142 | ||||||
BBVA Bancomer S.A. | ||||||||
5.875%, 9-13-34 (A) | 200 | 228 | ||||||
Citigroup, Inc. | ||||||||
3.520%, 10-27-28 | 125 | 141 | ||||||
Goldman Sachs Group, Inc. (The) | ||||||||
3.814%, 4-23-29 | 100 | 116 | ||||||
JPMorgan Chase & Co.: | ||||||||
3.540%, 5-1-28 | 118 | 135 | ||||||
4.000%, 10-1-68 | 50 | 51 | ||||||
TerraForm Global Operating LLC (GTD by TerraForm Global LLC) | ||||||||
6.125%, 3-1-26 (A) | 50 | 51 | ||||||
Wells Fargo & Co. | ||||||||
4.300%, 7-22-27 | 125 | 146 | ||||||
|
| |||||||
1,010 | ||||||||
|
| |||||||
Health Care – 1.9% |
| |||||||
Bayer U.S. Finance II LLC | ||||||||
2.850%, 4-15-25 (A) | 200 | 212 | ||||||
Fresenius U.S. Finance II, Inc.: | ||||||||
4.250%, 2-1-21 (A) | 100 | 100 | ||||||
4.500%, 1-15-23 (A) | 75 | 80 | ||||||
|
| |||||||
392 | ||||||||
|
| |||||||
Industrials – 0.7% |
| |||||||
BAE Systems Holdings, Inc. | ||||||||
3.800%, 10-7-24 (A) | 75 | 83 | ||||||
Boeing Co. (The) | ||||||||
4.508%, 5-1-23 | 50 | 54 | ||||||
|
| |||||||
137 | ||||||||
|
| |||||||
Real Estate – 1.0% |
| |||||||
Aircastle Ltd. | ||||||||
4.400%, 9-25-23 | 100 | 106 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Real Estate (Continued) |
| |||||||
CyrusOne L.P. and CyrusOne Finance Corp. (GTD by CyrusOne, Inc.) | ||||||||
2.900%, 11-15-24 | $ | 100 | $ | 107 | ||||
|
| |||||||
213 | ||||||||
|
| |||||||
Total United States – 12.0% |
| $ | 2,468 | |||||
Uruguay |
| |||||||
Industrials – 0.4% |
| |||||||
Navios South American Logistics, Inc. and Navios Logistics Finance (U.S.), Inc. | ||||||||
10.750%, 7-1-25 (A) | 70 | 75 | ||||||
|
| |||||||
Total Uruguay – 0.4% |
| $ | 75 | |||||
Venezuela |
| |||||||
Financials – 0.9% |
| |||||||
Corporacion Andina de Fomento: | ||||||||
3.250%, 2-11-22 | 150 | 154 | ||||||
2.375%, 5-12-23 | 30 | 31 | ||||||
|
| |||||||
185 | ||||||||
�� |
| |||||||
Total Venezuela – 0.9% |
| $ | 185 | |||||
TOTAL CORPORATE DEBT SECURITIES – 74.9% |
| $ | 15,381 | |||||
(Cost: $14,359) |
| |||||||
OTHER GOVERNMENT SECURITIES (D) | ||||||||
Argentina – 0.5% |
| |||||||
Republic of Argentina: | ||||||||
1.000%, 7-9-29 | 12 | 6 | ||||||
0.125%, 7-9-30 | 243 | 98 | ||||||
|
| |||||||
104 | ||||||||
|
| |||||||
Bahamas – 1.1% |
| |||||||
Commonwealth of Bahamas | ||||||||
8.950%, 10-15-32 (A) | 200 | 218 | ||||||
|
| |||||||
Costa Rica – 0.9% |
| |||||||
Costa Rica Government Bond | ||||||||
4.250%, 1-26-23 (A) | 200 | 192 | ||||||
|
| |||||||
Mexico – 1.1% |
| |||||||
United Mexican States | ||||||||
3.250%, 4-16-30 (B) | 200 | 216 | ||||||
|
| |||||||
Panama – 1.1% |
| |||||||
Republic of Panama | ||||||||
3.750%, 4-17-26 | 200 | 218 | ||||||
|
| |||||||
Peru – 0.5% |
| |||||||
Republic of Peru | ||||||||
1.862%, 12-1-32 | 100 | 101 | ||||||
|
| |||||||
Qatar – 1.0% |
| |||||||
Qatar Government Bond | ||||||||
3.875%, 4-23-23 | 200 | 215 | ||||||
|
|
OTHER GOVERNMENT SECURITIES (D) (Continued) | Principal | Value | ||||||
Saudi Arabia – 1.2% |
| |||||||
Saudi Arabia Government Bond | ||||||||
2.375%, 10-26-21 (A) | $ | 250 | $ | 254 | ||||
|
| |||||||
Uruguay – 0.3% |
| |||||||
Republica Orient Uruguay | ||||||||
4.500%, 8-14-24 | 50 | 55 | ||||||
|
| |||||||
Vietnam – 1.1% |
| |||||||
Vietnam Government Bond | ||||||||
4.800%, 11-19-24 (A) | 200 | 224 | ||||||
|
| |||||||
TOTAL OTHER GOVERNMENT SECURITIES – 8.8% |
| $ | 1,797 | |||||
(Cost: $1,729) |
| |||||||
UNITED STATES GOVERNMENT OBLIGATIONS | ||||||||
United States – 12.9% |
| |||||||
U.S. Treasury Notes: | ||||||||
1.500%, 1-15-23 | 150 | 154 | ||||||
2.125%, 9-30-24 | 100 | 107 | ||||||
0.250%, 10-31-25 | 400 | 398 | ||||||
2.250%, 11-15-25 | 150 | 164 | ||||||
0.375%, 11-30-25 | 700 | 701 | ||||||
2.375%, 5-15-27 | 125 | 139 | ||||||
0.375%, 7-31-27 | 300 | 296 | ||||||
0.375%, 9-30-27 | 400 | 394 | ||||||
0.500%, 10-31-27 | 200 | 198 | ||||||
0.625%, 11-30-27 | 100 | 100 | ||||||
|
| |||||||
2,651 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS – 12.9% |
| $ | 2,651 | |||||
(Cost: $2,616) |
| |||||||
SHORT-TERM SECURITIES | Shares | |||||||
Money Market Funds (E) – 6.9% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class | ||||||||
0.030% | 501 | 501 | ||||||
Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares | ||||||||
0.030% (F) | 926 | 926 | ||||||
|
| |||||||
1,427 | ||||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 6.9% |
| $ | 1,427 | |||||
(Cost: $1,427) |
| |||||||
TOTAL INVESTMENT SECURITIES – 103.5% | $ | 21,256 | ||||||
(Cost: $20,131) |
| |||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – (3.5)% |
| (714 | ) | |||||
NET ASSETS – 100.0% |
| $ | 20,542 |
2020 | ANNUAL REPORT | 31 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL BOND (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $11,751 or 57.2% of net assets. |
(B) | All or a portion of securities with an aggregate value of $903 are on loan. |
(C) | Principal amounts are denominated in the indicated foreign currency, where applicable (COP—Columbian Peso). |
(D) | Other Government Securities may include emerging markets sovereign, quasi-sovereign, corporate and supranational agency and organization debt securities. |
(E) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(F) | Investment made with cash collateral received from securities on loan. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Corporate Debt Securities | $ | — | $ | 15,381 | $ | — | ||||||
Other Government Securities | — | 1,797 | — | |||||||||
United States Government Obligations | — | 2,651 | — | |||||||||
Short-Term Securities | 1,427 | — | — | |||||||||
Total | $ | 1,427 | $ | 19,829 | $ | — |
The following acronym is used throughout this schedule:
GTD = Guaranteed
Country Diversification
(as a % of net assets) |
| |||
United States | 24.9% | |||
Mexico | 7.5% | |||
United Kingdom | 4.8% | |||
Chile | 4.7% | |||
Brazil | 4.2% | |||
China | 4.1% | |||
Peru | 3.2% | |||
Luxembourg | 3.2% | |||
Columbia | 2.5% | |||
Indonesia | 2.4% | |||
Saudi Arabia | 2.2% | |||
Netherlands | 2.1% | |||
South Korea | 2.1% | |||
India | 2.1% | |||
Panama | 2.1% | |||
Spain | 2.0% |
Country Diversification (Continued)
United Arab Emirates | 2.0% | |||
Cayman Islands | 2.0% | |||
Canada | 1.8% | |||
Australia | 1.3% | |||
Argentina | 1.3% | |||
Japan | 1.1% | |||
Vietnam | 1.1% | |||
Bahamas | 1.1% | |||
Hong Kong | 1.1% | |||
Nigeria | 1.0% | |||
Qatar | 1.0% | |||
Austria | 1.0% | |||
Isle of Man | 1.0% | |||
France | 1.0% | |||
British Virgin Islands | 1.0% | |||
Other Countries | 3.7% | |||
Other+ | 3.4% |
+Includes liabilities (net of cash and other assets), and cash equivalents
See Accompanying Notes to Financial Statements.
32 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | GLOBAL EQUITY INCOME |
(UNAUDITED)
Christopher J. Parker
Robert E. Nightingale
Below, Christopher Parker, CFA, and Robert E. Nightingale, portfolio managers of Ivy VIP Global Equity Income, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Parker has managed the Portfolio since 2014 and has 25 years of industry experience. Mr. Nightingale has managed the Portfolio in since 2018 and has 25 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Global Equity Income (Class II shares at net asset value) | 3.15% | |||
Benchmark and Morningstar Category | ||||
FTSE All-World High Dividend Yield Index | -0.32% | |||
(generally reflects the performance of securities with higher-than-average dividend yields in the global market) | ||||
Morningstar World Large Stock Category Average | 17.67% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
A year in review
2020 is a year that many of us want to forget, and we are happy the calendar has turned to another year. However, 2020 was such an extraordinary period that it is likely to be remembered perhaps more vividly than most years. The word “unprecedented” is probably one of the more misused words in the lexicon of financial commentators. In the case of 2020, much of what we all experienced was genuinely unprecedented or certainly nearly so. While COVID-19 was not the first pandemic, it was the first to spread in such a rapid fashion around the globe. Additionally, the global response was certainly unprecedented both in terms of markets and in the real economy. In order to slow the spread of COVID-19, global leaders effectively shut down large portions of their economies, leading to some of the sharpest declines in economic output and employment on record. The depth of uncertainty regarding the future led to the fastest bear market in the history of U.S. markets.
The response to the economic distress in much of the world was equally unprecedented. Central banks unleashed their full arsenal of tools to ease stress in certain corners of the financial markets. Within weeks, central banks around the world had taken rates to zero if they were not there already, ramped up buying activity in financial markets to provide a stabilizing bid, and had either dusted off or developed credit facilities to inject credit and liquidity into the real economy. On the fiscal side, the action was equally rapid and awe-inspiring in terms of its scale. Stimulus packages were in the trillions as billions were simply insufficient. This type of massive mobilization of resources was not completely unprecedented, though outside of war-time it certainly seems to be so. In response to the blast of adrenaline and defibrillation provided by this combination of monetary and fiscal policy, financial markets roared to life off the March bottoms. After the quickest bear market in history, we experienced the fastest return to a new bull market in history. After this quick return to life, most markets have been on a solid upward march, occasionally interrupted by upticks in the rate of new COVID-19 infections or other short-term obstacles that pervasive optimism simply plowed over. Even toward the end of the year, good news on vaccines was taken as good news, while bad news on infection rates was largely ignored or spun into being a positive as it would simply lead to more fiscal stimulus and greater monetary easing.
The Portfolio’s benchmark index ended up roughly flat for the fiscal year, while many markets and indices were strongly positive. The S&P 500 Index rose by 18%, with much of this being driven by certain sectors and companies that were either substantial beneficiaries of an environment where many people were working from home and making completely different consumption choices compared to normal. Within this, we believe some real areas of speculation have developed, and in some cases, these pockets of excessive optimism are creating a sufficient gravity to pull up valuations in other areas as often occurs during a melt up in markets. We think the coming year, or perhaps longer, might be a period where the reality of broader growth might be rewarded while the hopes, dreams and aspirations of a cohort of highly valued concept stocks might be set to disappoint.
In some ways markets lend themselves to analysis using models for other sciences. Newtown’s First Law states that a body in motion will remain in motion until acted upon by an external force. We highly doubt that markets will remain in motion on the current course for an overly extended period. History has shown that momentum can persist for longer than expected but eventually some force acts and alters the course of markets. It is not clear if this force is something like simply
2020 | ANNUAL REPORT | 33 |
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strong economic growth that broadens the base of winners and restores a normal level of inflation and nominal growth, or some other variable. If one thing has repeated precedent in financial markets, it is that bubbles and manias develop on occasion, typically expanding far beyond what most would view as rational until they become held as a new norm and eventually burst.
Portfolio contributors and detractors
The Portfolio outperformed its benchmark but underperformed is Morningstar peer group average during the fiscal year. Outperformance during the period was primarily driven by positive stock selection. Currency was also a tailwind to relative performance, while sector allocation was roughly neutral.
Seven of eleven sectors outperformed the benchmark during the year. Information technology substantially outperformed the benchmark as stocks in that sector benefitted from strong relative growth during the pandemic-related lockdowns and the ensuing recovery. Several companies within the sector also saw substantial multiple expansion based on improving structural outlooks for their respective industries or businesses. Materials and industrials also outperformed, driven by more resilient-than-expected demand and an improved outlook for future growth due to robust expected economic growth. Energy was the most significant underperforming sector, lagging due to a poor crude price environment for much of the year. However, toward the end of the year, energy rallied significantly based on a brightening demand outlook resulting from vaccine approvals and expectations of future substantial easing of COVID-19 related restrictions. Sector allocation was roughly neutral to performance with positioning in information technology, financials, consumer staples and health care helping performance. Positioning in energy, materials and utilities hurt performance.
From a geographic perspective, the Portfolio was helped by positive stock selection and adversely impacted by regional allocation. The Portfolio’s overweight position in Europe was a drag on performance. However, stock selection in Europe was strongly positive. Additionally, the currency impact of being overweight the euro and U.K. sterling were both positive. Stock selection in North America, Asia and emerging markets were positive, while selection in Japan was a drag on relative performance.
This was a very solid year for stock selection across the Portfolio, with only the consumer discretionary and industrials sectors resulting in a negative impact from stock selection. Stock selection was especially strong in information technology and utilities, and was also solidly favorable in financials, energy, communication services, health care and materials.
From an individual security point of view, the most significant positive contributors were Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), Samsung Electronics Co. Ltd., QUALCOMM, Inc., Morgan Stanley and ENEL S.p.A. The Portfolio no longer holds QUALCOMM, Inc. TSMC benefitted from strong demand driven by strength in mobile demand behind 5G, PC demand due to work-from-home and gaming, as well strong demand from hyperscale. The company’s multiple also expanded significantly as investors increasingly recognize the strength of its competitive position in future semiconductor production nodes. Samsung benefitted from many of the same demand drivers as TSMC. Samsung also saw multiple expansion due to increasing investor confidence that full-cycle profitability in the company’s core memory business has improved due to increased industry consolidation and competitive rationality. Qualcomm benefitted from an ongoing strong 5G handset cycle driving units and improved content, as well as resolution of remaining licensing disputes. Morgan Stanley shares benefitted from a recognition of a continued business mix toward wealth management and due to favorable conditions in investment banking and trading for most of the year. ENEL benefited from continued expansion of its pipeline of renewable energy projects around the world, and further recognition that the world is still early in a migration to carbon neutral sources of power generation. This is providing increased comfort that the duration of attractive growth at reasonable returns in that space can be measured in decades and not in years.
The most significant detractors to relative performance were CNOOC Ltd., Unilever plc, Amgen, Inc., Citigroup, Inc. and Sands China Ltd. The Portfolio no longer holds CNOOC Ltd., which underperformed due to the poor crude price environment during the year and was hit hard in the fourth quarter when the U.S. government was set to put the company on the Defense Department blacklist. Unilever is a recent purchase based on a view that relative growth and operational execution are set to improve. We also believed the stock price was at a discount to peers within consumer staples and companies with similar characteristics outside of consumer staples. Shares in both Unilever and Amgen underperformed due to an especially strong market environment, as opposed to company specific fundamentals. Citigroup shares were a drag due, in large part, to the pressure on financials shares. Shares in Sands China underperformed as a result of the impact of COVID-19 on its gaming operations in Macau.
34 | ANNUAL REPORT | 2020 |
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Positioning
As one would expect, the Portfolio positioning has evolved over the past few quarters in response to a variety of factors. Most notably are 1) a broadly improving environment for economic growth as the global economy recovers from the various impacts related to COVID-19; 2) the tailwind provided by COVID-19 related fiscal stimulus in certain key areas; and 3) the impact that somewhat disparate performance has had on relative valuations.
The Portfolio is currently overweight utilities where we are finding perceived value in several companies that are at the forefront of investing in the unfolding energy transformation from fossil fuels toward wind and solar power generation. The Portfolio is overweight industrials where we anticipate benefits from improving global growth, increased spending in electrification and digitization as well as normalization of spending in areas adversely impacted by the operating conditions in the past year. The Portfolio is modestly overweight health care and consumer discretionary. The Portfolio is underweight consumer staples as we have found more compelling opportunities elsewhere. The Portfolio is underweight communication services as we have found few names in this sector that meet all the key investment criteria we are seeking. The Portfolio is also underweight materials – the sector has performed well during the past year and, as a result, our exposure to companies in that area is lower as we see better opportunities elsewhere. Lastly, the Portfolio is underweight energy. The characteristics of businesses in this sector are such that we are likely to be underweight for long periods of time. However, this is an area where we are spending a considerable amount of effort as improving demand fundamentals, supply restraint and attractive valuations are offering potential here.
Our investment approach remains steadfastly focused on investing in what we believe are quality businesses with favorable near and intermediate fundamentals, generally stable to rising dividends and attractive valuations. This approach is consistent across sectors and geographies. The core of our approach is based on stock selection as the key driver of portfolio inclusion and construction. As such, we do not significantly adjust portfolio positioning based on our short-term economic outlook or other factors that could impact a company’s earnings outlook over the short run. However, a core part of our focus is on finding quality businesses we believe are mispriced due to these shorter-term market dislocations or other factors the market has underappreciated.
Outlook
We are cautiously optimistic on our 2021 outlook for economic growth and corporate earnings. We are fairly balanced with risk and sector weightings and own perceived quality names. Savings rates in many economies have expanded significantly during the pandemic as a result of government support schemes as well as the effect that COVID-19 related restrictions have had on the ability (as opposed to willingness) of consumers to spend. As vaccination programs progress, we see the savings rate as a coiled spring for consumption in numerous areas that have suffered during the pandemic. While many of these areas may take some time to return to normality, and normal will differ from pre-pandemic conditions, we see this as a tailwind for consumption that will drive recovery in employment in key parts of the service economy. To a degree, corporations have also been operating under tighter constraints with respect to investment in several areas. As COVID-19 restrictions unlock and confidence builds in the broader recovery, we also expect a recovery in corporate spending analogous to a typical early stage economic recovery. All these typical recovery dynamics are being boosted by substantial levels of stimulus from governments around the world. While there have been periods in prior recoveries where stimulus aided growth, the sheer magnitude of stimulus globally as well as the combination of both aggressive monetary and fiscal stimulus makes the current outlook more unusual and more favorable in the short-term.
While much ink has been spilled recently on extreme valuations in certain segments of financial markets, our view of valuation within our universe is more balanced. Valuations in certain segments and stocks are no longer as compelling after the strong rally in broader equities over the past several months. However, we believe more robust and broader economic growth is creating a more favorable investment backdrop in numerous more economically sensitive areas that have lagged over the past few years. We have been finding attractive opportunities in these sectors that fit our key criteria of attractive businesses, sustainable financial structures, attractive valuations and, in particular, improving underlying business fundamentals that are not fully appreciated by other investors. Within this context, we remain focused on businesses that have company specific drivers of improved performance in addition to having the wind at their backs. As such, portfolio positioning has migrated in this direction recently and may continue to do so as due-diligence progresses on new investment opportunities – seeking to take advantage of dips and pauses to build or add to positions.
2020 | ANNUAL REPORT | 35 |
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Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. The value of the Portfolio’s investments, as measured in U.S. dollars, may be unfavorably affected by changes in foreign currency exchange rates and exchange control regulations. Focusing on a single geographic region involves increased currency, political, regulatory and other risks. These risks are magnified in emerging markets.
Dividend-paying stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole. In addition, dividend-paying companies may not pay dividends in the future; such dividends, if declared, may not remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. Dividend-paying stocks can decline in value when interest rates rise; this risk may be greater during the current period of historically low interest rates. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged, and includes reinvested dividends and does not include fees. One cannot invest directly in an index, nor is an index representative of Ivy VIP Global Equity Income
36 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | GLOBAL EQUITY INCOME |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 99.3% | |||
Financials | 23.0% | |||
Health Care | 12.6% | |||
Information Technology | 12.5% | |||
Industrials | 11.7% | |||
Utilities | 10.8% | |||
Consumer Staples | 9.9% | |||
Consumer Discretionary | 5.9% | |||
Communication Services | 4.4% | |||
Energy | 4.3% | |||
Materials | 4.2% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.7% |
Country Weightings
North America | 39.2% | |||
United States | 37.7% | |||
Other North America | 1.5% | |||
Europe | 36.4% | |||
United Kingdom | 9.8% | |||
Germany | 9.6% | |||
France | 9.0% | |||
Switzerland | 3.8% | |||
Other Europe | 4.2% | |||
Pacific Basin | 23.7% | |||
Japan | 6.6% | |||
South Korea | 5.2% | |||
Taiwan | 5.0% | |||
Other Pacific Basin | 6.9% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.7% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
Samsung Electronics Co. Ltd. | Information Technology | Technology Hardware, Storage & Peripherals | ||
Taiwan Semiconductor Manufacturing Co. Ltd. | Information Technology | Semiconductors | ||
Procter & Gamble Co. (The) | Consumer Staples | Household Products | ||
Morgan Stanley | Financials | Investment Banking & Brokerage | ||
ENEL S.p.A. | Utilities | Electric Utilities | ||
Verizon Communications, Inc. | Communication Services | Integrated Telecommunication Services | ||
Schneider Electric S.A. | Industrials | Electrical Components & Equipment | ||
Citigroup, Inc. | Financials | Other Diversified Financial Services | ||
Unilever plc | Consumer Staples | Personal Products | ||
Philip Morris International, Inc. | Consumer Staples | Tobacco |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 37 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | GLOBAL EQUITY INCOME |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 3.15% | |||
5-year period ended 12-31-20 | 6.76% | |||
10-year period ended 12-31-20 | 7.63% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
38 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL EQUITY INCOME (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Canada |
| |||||||
Financials – 1.5% |
| |||||||
Bank of Montreal | 62 | $ | 4,729 | |||||
|
| |||||||
Total Canada – 1.5% |
| $ | 4,729 | |||||
France |
| |||||||
Energy – 2.3% |
| |||||||
Total S.A. (A) | 167 | 7,210 | ||||||
|
| |||||||
Financials – 2.2% |
| |||||||
Axa S.A. | 293 | 7,024 | ||||||
|
| |||||||
Health Care – 1.7% |
| |||||||
Sanofi-Aventis | 56 | 5,385 | ||||||
|
| |||||||
Industrials – 2.8% |
| |||||||
Schneider Electric S.A. | 62 | 8,890 | ||||||
|
| |||||||
Total France – 9.0% |
| $ | 28,509 | |||||
Germany |
| |||||||
Communication Services – 1.5% |
| |||||||
Deutsche Telekom AG, Registered Shares | 262 | 4,787 | ||||||
|
| |||||||
Financials – 1.5% |
| |||||||
Munchener Ruckversicherungs-Gesellschaft AG, Registered Shares | 16 | 4,873 | ||||||
|
| |||||||
Industrials – 1.8% |
| |||||||
Siemens AG | 40 | 5,776 | ||||||
|
| |||||||
Utilities – 3.2% |
| |||||||
E.ON AG | 393 | 4,351 | ||||||
RWE Aktiengesellschaft | 138 | 5,847 | ||||||
|
| |||||||
10,198 | ||||||||
|
| |||||||
Total Germany – 8.0% |
| $ | 25,634 | |||||
Hong Kong |
| |||||||
Utilities – 1.4% |
| |||||||
Guangdong Investment Ltd. | 2,400 | 4,327 | ||||||
|
| |||||||
Total Hong Kong – 1.4% |
| $ | 4,327 | |||||
Indonesia |
| |||||||
Financials – 1.8% |
| |||||||
PT Bank Mandiri (Persero) Tbk | 12,799 | 5,775 | ||||||
|
| |||||||
Total Indonesia – 1.8% |
| $ | 5,775 | |||||
Ireland |
| |||||||
Materials – 1.3% |
| |||||||
CRH plc | 98 | 4,181 | ||||||
|
| |||||||
Total Ireland – 1.3% |
| $ | 4,181 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
Italy |
| |||||||
Utilities – 2.9% |
| |||||||
ENEL S.p.A. | 900 | $ | 9,155 | |||||
|
| |||||||
Total Italy – 2.9% |
| $ | 9,155 | |||||
Japan |
| |||||||
Consumer Discretionary – 1.2% |
| |||||||
Subaru Corp. | 190 | 3,800 | ||||||
|
| |||||||
Financials – 3.8% |
| |||||||
ORIX Corp. | 447 | 6,882 | ||||||
Tokio Marine Holdings, Inc. | 97 | 4,972 | ||||||
|
| |||||||
11,854 | ||||||||
|
| |||||||
Industrials – 1.6% |
| |||||||
ITOCHU Corp. | 172 | 4,941 | ||||||
|
| |||||||
Total Japan – 6.6% |
| $ | 20,595 | |||||
Macau |
| |||||||
Consumer Discretionary – 1.8% |
| |||||||
Sands China Ltd. | 1,335 | 5,831 | ||||||
|
| |||||||
Total Macau – 1.8% |
| $ | 5,831 | |||||
Singapore |
| |||||||
Financials – 1.8% |
| |||||||
DBS Group Holdings Ltd. (A) | 294 | 5,564 | ||||||
|
| |||||||
Total Singapore – 1.8% |
| $ | 5,564 | |||||
South Korea |
| |||||||
Information Technology – 5.2% |
| |||||||
Samsung Electronics Co. Ltd. | 218 | 16,263 | ||||||
|
| |||||||
Total South Korea – 5.2% |
| $ | 16,263 | |||||
Switzerland |
| |||||||
Financials – 1.6% |
| |||||||
Zurich Financial Services, Registered Shares | 12 | 5,135 | ||||||
|
| |||||||
Health Care – 2.2% |
| |||||||
Roche Holdings AG, Genusscheine | 20 | 7,084 | ||||||
|
| |||||||
Total Switzerland – 3.8% |
| $ | 12,219 | |||||
Taiwan |
| |||||||
Information Technology – 5.0% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 836 | 15,815 | ||||||
|
| |||||||
Total Taiwan – 5.0% |
| $ | 15,815 | |||||
United Kingdom |
| |||||||
Consumer Staples – 2.7% |
| |||||||
Unilever plc | 139 | 8,314 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Financials – 1.4% |
| |||||||
3i Group plc | 272 | $ | 4,299 | |||||
|
| |||||||
Health Care – 4.1% |
| |||||||
AstraZeneca plc | 75 | 7,439 | ||||||
GlaxoSmithKline plc | 285 | 5,222 | ||||||
|
| |||||||
12,661 | ||||||||
|
| |||||||
Materials – 1.6% |
| |||||||
Anglo American plc | 153 | 5,040 | ||||||
|
| |||||||
Total United Kingdom – 9.8% |
| $ | 30,314 | |||||
United States |
| |||||||
Communication Services – 2.9% |
| |||||||
Verizon Communications, Inc. | 152 | 8,930 | ||||||
|
| |||||||
Consumer Discretionary – 1.3% |
| |||||||
V.F. Corp. | 48 | 4,134 | ||||||
|
| |||||||
Consumer Staples – 7.2% |
| |||||||
Philip Morris International, Inc. | 95 | 7,904 | ||||||
Procter & Gamble Co. (The) | 75 | 10,451 | ||||||
Sysco Corp. | 61 | 4,523 | ||||||
|
| |||||||
22,878 | ||||||||
|
| |||||||
Energy – 2.0% |
| |||||||
ConocoPhillips | 158 | 6,303 | ||||||
|
| |||||||
Financials – 7.4% |
| |||||||
Citigroup, Inc. | 138 | 8,516 | ||||||
KeyCorp | 261 | 4,282 | ||||||
Morgan Stanley | 152 | 10,445 | ||||||
|
| |||||||
23,243 | ||||||||
|
| |||||||
Health Care – 4.6% |
| |||||||
Amgen, Inc. | 32 | 7,283 | ||||||
CVS Caremark Corp. | 107 | 7,335 | ||||||
|
| |||||||
14,618 | ||||||||
|
| |||||||
Industrials – 5.5% |
| |||||||
Eaton Corp. | 56 | 6,699 | ||||||
Lockheed Martin Corp. | 15 | 5,181 | ||||||
Raytheon Technologies Corp. | 75 | 5,370 | ||||||
|
| |||||||
17,250 | ||||||||
|
| |||||||
Information Technology – 2.3% |
| |||||||
Cisco Systems, Inc. | 161 | 7,220 | ||||||
|
| |||||||
Materials – 1.3% |
| |||||||
Eastman Chemical Co. | 40 | 4,045 | ||||||
|
| |||||||
Utilities – 3.3% |
| |||||||
Exelon Corp. | 141 | 5,967 | ||||||
Public Service Enterprise Group, Inc. | 75 | 4,384 | ||||||
|
| |||||||
10,351 | ||||||||
|
| |||||||
Total United States – 37.8% |
| $ | 118,972 | |||||
TOTAL COMMON STOCKS – 97.7% |
| $ | 307,883 | |||||
(Cost: $274,200) |
|
2020 | ANNUAL REPORT | 39 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL EQUITY INCOME (in thousands) |
DECEMBER 31, 2020
PREFERRED STOCKS | Shares | Value | ||||||
Germany |
| |||||||
Consumer Discretionary – 1.6% |
| |||||||
Volkswagen AG, | 27 | $ | 4,954 | |||||
|
| |||||||
Total Germany – 1.6% |
| $ | 4,954 | |||||
TOTAL PREFERRED STOCKS – 1.6% |
| $ | 4,954 | |||||
(Cost: $4,301) |
|
SHORT-TERM SECURITIES | Shares | Value | ||||||
Money Market Funds (B) – 0.5% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class | 1,718 | $ | 1,718 | |||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.5% |
| $ | 1,718 | |||||
(Cost: $1,718) |
| |||||||
TOTAL INVESTMENT SECURITIES – 99.8% |
| $ | 314,555 | |||||
(Cost: $280,219) |
| |||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.2% |
| 685 | ||||||
NET ASSETS – 100.0% |
| $ | 315,240 |
Notes to Schedule of Investments
(A) | All or a portion of securities with an aggregate value of $7,281 are on loan. |
(B) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Communication Services | $ | 8,930 | $ | 4,787 | $ | — | ||||||
Consumer Discretionary | 4,134 | 9,631 | — | |||||||||
Consumer Staples | 22,878 | 8,314 | — | |||||||||
Energy | 6,303 | 7,210 | — | |||||||||
Financials | 27,972 | 44,524 | — | |||||||||
Health Care | 14,618 | 25,130 | — | |||||||||
Industrials | 17,250 | 19,607 | — | |||||||||
Information Technology | 7,220 | 32,078 | — | |||||||||
Materials | 4,045 | 9,221 | — | |||||||||
Utilities | 10,351 | 23,680 | — | |||||||||
Total Common Stocks | $ | 123,701 | $ | 184,182 | $ | — | ||||||
Preferred Stocks | — | 4,954 | — | |||||||||
Short-Term Securities | 1,718 | — | — | |||||||||
Total | $ | 125,419 | $ | 189,136 | $ | — |
Market Sector Diversification
(as a % of net assets) |
| |||
Financials | 23.0% | |||
Health Care | 12.6% | |||
Information Technology | 12.5% | |||
Industrials | 11.7% | |||
Utilities | 10.8% | |||
Consumer Staples | 9.9% |
Market Sector Diversification (Continued)
Consumer Discretionary | 5.9% | |||
Communication Services | 4.4% | |||
Energy | 4.3% | |||
Materials | 4.2% | |||
Other+ | 0.7% |
+Includes cash and other assets (net of liabilities), and cash equivalents
See Accompanying Notes to Financial Statements.
40 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | GLOBAL GROWTH |
(UNAUDITED)
Sarah C. Ross
|
Below, Sarah C. Ross, CFA, portfolio manager of Ivy VIP Global Growth, discusses positioning, performance and results for the fiscal year ended December 31, 2020. Ms. Ross has 25 years of industry experience and has managed the Portfolio since August 2014.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Global Growth (Class II shares at net asset value) | 20.58% | |||
Benchmark and Morningstar Category | ||||
MSCI World Index | 15.90% | |||
(generally reflects the performance of securities markets around the world) | ||||
Morningstar World Large Stock Category Average | 17.67% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
A year in review
Global equity performance for 2020 can be viewed predominantly in terms of the COVID-19 pandemic impact. The year began with an earnings recession caused by pandemic-related economic shutdowns as governments around the world attempted to curb the virus spread. China had the biggest negative impact early, but also recovered more quickly given aggressive social distancing measures and the use of technology to contact trace early on. Economic shut downs were affecting most of the world by mid-March. This global earnings recession was followed by a period of recovery that started with China and ebbed and flowed across global markets as economies partially reopened. Global market enthusiasm took a step up in mid-November and carried through year end after multiple vaccine developers announced COVID-19 vaccine data with better efficacy (over 95%) than expected.
Global equity markets ended the year up almost 16%. Aggressive monetary and fiscal stimulus globally played a significant role in strong equity market returns. In many markets globally, including the U.S., consumers and businesses received direct government payments to partially offset wage hits and economic hardship from the pandemic. The resulting economic impact from the recession (including loan losses in the financial system, consumer demand and industrial production, to name a few) have not been nearly as bad as initially feared in many markets.
During 2020, growth substantially outperformed value, with the outperformance more pronounced early in the year. As global economies began to recover and positive vaccine data was announced, value performance improved. Price/earnings expansion played a role in equity returns as in most markets globally earnings have yet to fully recover from the pandemic hit. Gold was a notable strong performer among a broad range of asset classes as investors viewed it as a store of wealth in uncertain times. During the period, emerging markets outperformed developed markets. The U.S. was one of the stronger developed market performers, handily beating the benchmark and outperforming Japan and most of Europe. The information technology sector continued its strength in 2020, followed by outperformance from consumer discretionary and communication services. The most notable underperformer in the period was energy, down over 30% for the fiscal year. Financials and real estate also had negative absolute returns in a strong market.
Performance for the year
The Portfolio posted strong positive performance and outperformed its benchmark index and Morningstar peer group for the fiscal year. Stock selection was the overwhelming source of outperformance in the period with strong stock picking in energy, financials and consumer discretionary. An additional significant contributor in the fiscal period came from the Portfolio’s overweight to information technology stocks, which continued to perform well. These positives more than offset weak stock selection in industrials. Traditional work-from-home beneficiaries, such as Amazon.com, Inc. and PayPal, Inc., were significant positive contributors to performance. In addition, a range of technology holdings did well in the period, including Taiwan Semiconductor Manufacturing Co. Ltd. ADR, Infineon Technologies AG, Microsoft Corp. and Adobe, Inc. Other contributors included Discover Financial Services, Ferrari N.V. and Thermo Fisher Scientific, Inc. Airbus SE was by far our largest detractor in the year given the abrupt decline in air travel associated with the pandemic. The second largest relative detractor was not owning Tesla, Inc., which contributed almost one percentage point to benchmark returns. Other detractors included Canadian Natural Resources Ltd., Recruit Holdings Co. Ltd. and Prudential Financial, Inc. The Portfolio no longer holds Prudential Financial, Inc.
2020 | ANNUAL REPORT | 41 |
Table of Contents
Outlook
While COVID-19 cases globally remain at relatively high levels, effective vaccines are currently being administered globally as manufacturing production increases. We expect a very strong recovery in global growth for 2021, with global GDP growth approaching 5%. Comparisons will be off a low base following 2020, as many economies around the world were shut down in the first quarter of 2020 and only slowly recovered throughout the year. In addition, we anticipate continued fiscal and monetary stimulus to benefit growth rates in 2021. We expect another round of sizable stimulus in the U.S. following the Democratic wins in the Senate, creating a majority in congress to support President Biden’s initiatives. We have added to positions we believe will benefit from a gradual return to normalcy, with exposure to restaurants, consumer spending and eventually travel. We think 2021 can also be a relatively strong year for emerging markets, and we continue to look for investment ideas that have sustainable competitive advantages that can benefit from improving economic growth in emerging markets and a likely lower U.S. dollar. We currently expect more rapid recovery in the U.S. market relative to other parts of the world. That said, we are tempering our enthusiasm given high U.S. equity valuations and longer-term risks, including rising corporate tax rates given the new Democratic leadership. We continue to focus on investment ideas that we feel have unique competitive barriers to entry with strong long-term tailwinds.
Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged, and includes reinvested dividends and does not include fees. One cannot invest directly in an index, nor is an index representative of Ivy VIP Global Growth.
42 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | GLOBAL GROWTH |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 99.9% | |||
Information Technology | 26.1% | |||
Consumer Discretionary | 17.3% | |||
Industrials | 14.6% | |||
Financials | 14.4% | |||
Health Care | 11.9% | |||
Communication Services | 8.1% | |||
Consumer Staples | 4.2% | |||
Energy | 3.3% | |||
Cash and Other Assets (Net of Liabilities) | 0.1% |
Country Weightings
North America | 59.4% | |||
United States | 55.8% | |||
Canada | 3.6% | |||
Europe | 25.1% | |||
France | 7.7% | |||
United Kingdom | 6.6% | |||
Other Europe | 10.8% | |||
Pacific Basin | 14.6% | |||
China | 7.3% | |||
Japan | 3.5% | |||
Other Pacific Basin | 3.8% | |||
South America | 0.8% | |||
Cash and Other Assets (Net of Liabilities) | 0.1% |
Top 10 Equity Holdings
Company | Country | Sector | Industry | |||
Amazon.com, Inc. | United States | Consumer Discretionary | Internet & Direct Marketing Retail | |||
Microsoft Corp. | United States | Information Technology | Systems Software | |||
Apple, Inc. | United States | Information Technology | Technology Hardware, Storage & Peripherals | |||
Ferrari N.V. | Italy | Consumer Discretionary | Automobile Manufacturers | |||
Discover Financial Services | United States | Financials | Consumer Finance | |||
PayPal, Inc. | United States | Information Technology | Data Processing & Outsourced Services | |||
Airbus SE | France | Industrials | Aerospace & Defense | |||
Schneider Electric S.A. | France | Industrials | Electrical Components & Equipment | |||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | Taiwan | Information Technology | Semiconductors | |||
Ferguson plc | Switzerland | Industrials | Trading Companies & Distributors |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
2020 | ANNUAL REPORT | 43 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | GLOBAL GROWTH |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 20.58% | |||
5-year period ended 12-31-20 | 11.44% | |||
10-year period ended 12-31-20 | 8.87% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
44 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL GROWTH (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Brazil |
| |||||||
Consumer Discretionary – 0.5% |
| |||||||
Magazine Luiza S.A. | 163 | $ | 783 | |||||
|
| |||||||
Financials – 0.3% |
| |||||||
Banco do Brasil S.A. | 61 | 457 | ||||||
|
| |||||||
Total Brazil – 0.8% |
| $ | 1,240 | |||||
Canada |
| |||||||
Consumer Staples – 2.3% |
| |||||||
Alimentation Couche-Tard, Inc., Class B | 107 | 3,653 | ||||||
|
| |||||||
Energy – 1.3% |
| |||||||
Canadian Natural Resources Ltd. | 86 | 2,057 | ||||||
|
| |||||||
Total Canada – 3.6% |
| $ | 5,710 | |||||
China |
| |||||||
Communication Services – 3.5% |
| |||||||
Baidu.com, Inc. ADR (A) | 11 | 2,338 | ||||||
Tencent Holdings Ltd. | 44 | 3,180 | ||||||
|
| |||||||
5,518 | ||||||||
|
| |||||||
Consumer Discretionary – 1.7% |
| |||||||
Alibaba Group Holding Ltd. ADR (A) | 11 | 2,674 | ||||||
|
| |||||||
Financials – 2.1% |
| |||||||
Ping An Insurance (Group) Co. of China Ltd., H Shares | 271 | 3,298 | ||||||
|
| |||||||
Total China – 7.3% |
| $ | 11,490 | |||||
France |
| |||||||
Communication Services – 1.6% |
| |||||||
Ubisoft Entertainment S.A. (A) | 26 | 2,553 | ||||||
|
| |||||||
Consumer Discretionary – 0.8% |
| |||||||
LVMH Moet Hennessy – Louis Vuitton | 2 | 1,210 | ||||||
|
| |||||||
Industrials – 5.3% |
| |||||||
Airbus SE | 37 | 4,095 | ||||||
Schneider Electric S.A. | 28 | 4,066 | ||||||
|
| |||||||
8,161 | ||||||||
|
| |||||||
Total France – 7.7% |
| $ | 11,924 | |||||
Germany |
| |||||||
Financials – 1.3% |
| |||||||
Deutsche Boerse AG | 12 | 1,983 | ||||||
|
| |||||||
Information Technology – 1.4% |
| |||||||
Infineon Technologies AG | 56 | 2,133 | ||||||
|
| |||||||
Total Germany – 2.7% |
| $ | 4,116 |
COMMON STOCKS (Continued) | Shares | Value | ||||||
India |
| |||||||
Energy – 1.3% |
| |||||||
Reliance Industries Ltd. | 77 | $ | 2,107 | |||||
|
| |||||||
Total India – 1.3% |
| $ | 2,107 | |||||
Italy |
| |||||||
Consumer Discretionary – 3.3% |
| |||||||
Ferrari N.V. | 22 | 5,090 | ||||||
|
| |||||||
Total Italy – 3.3% |
| $ | 5,090 | |||||
Japan |
| |||||||
Financials – 1.0% |
| |||||||
ORIX Corp. | 99 | 1,522 | ||||||
|
| |||||||
Industrials – 2.5% |
| |||||||
Daikin Industries Ltd. | 11 | 2,425 | ||||||
Recruit Holdings Co. Ltd. | 35 | 1,453 | ||||||
|
| |||||||
3,878 | ||||||||
|
| |||||||
Total Japan – 3.5% |
| $ | 5,400 | |||||
Netherlands |
| |||||||
Health Care – 1.4% |
| |||||||
Koninklijke Philips Electronics N.V., Ordinary Shares | 40 | 2,161 | ||||||
|
| |||||||
Total Netherlands – 1.4% |
| $ | 2,161 | |||||
Switzerland |
| |||||||
Health Care – 1.0% |
| |||||||
Alcon, Inc. | 24 | 1,566 | ||||||
|
| |||||||
Industrials – 2.4% |
| |||||||
Ferguson plc | 31 | 3,766 | ||||||
|
| |||||||
Total Switzerland – 3.4% |
| $ | 5,332 | |||||
Taiwan |
| |||||||
Information Technology – 2.5% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 35 | 3,866 | ||||||
|
| |||||||
Total Taiwan – 2.5% |
| $ | 3,866 | |||||
United Kingdom |
| |||||||
Communication Services – 1.6% |
| |||||||
WPP Group plc | 223 | 2,420 | ||||||
|
| |||||||
Consumer Discretionary – 1.5% |
| |||||||
Aptiv plc | 18 | 2,397 | ||||||
|
| |||||||
Consumer Staples – 1.9% |
| |||||||
Diageo plc | 38 | 1,486 | ||||||
Unilever plc | 23 | 1,358 | ||||||
|
| |||||||
2,844 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Health Care – 1.6% |
| |||||||
AstraZeneca plc | 16 | $ | 1,611 | |||||
AstraZeneca plc ADR | 18 | 918 | ||||||
|
| |||||||
2,529 | ||||||||
|
| |||||||
Total United Kingdom – 6.6% |
| $ | 10,190 | |||||
United States |
| |||||||
Communication Services – 1.4% |
| |||||||
Facebook, Inc., Class A (A) | 8 | 2,116 | ||||||
|
| |||||||
Consumer Discretionary – 9.5% |
| |||||||
Amazon.com, Inc. (A) | 2 | 7,266 | ||||||
Brinker International, Inc. | 28 | 1,577 | ||||||
Darden Restaurants, Inc. | 27 | 3,243 | ||||||
Dollar General Corp. | 5 | 1,025 | ||||||
Home Depot, Inc. (The) | 6 | 1,678 | ||||||
|
| |||||||
14,789 | ||||||||
|
| |||||||
Energy – 0.7% |
| |||||||
ConocoPhillips | 25 | 1,019 | ||||||
|
| |||||||
Financials – 9.7% |
| |||||||
Citigroup, Inc. | 33 | 2,048 | ||||||
CME Group, Inc. | 6 | 1,089 | ||||||
Discover Financial Services | 54 | 4,928 | ||||||
Goldman Sachs Group, Inc. (The) | 9 | 2,449 | ||||||
JPMorgan Chase & Co. | 14 | 1,777 | ||||||
Morgan Stanley | 41 | 2,808 | ||||||
|
| |||||||
15,099 | ||||||||
|
| |||||||
Health Care – 7.9% |
| |||||||
Abbott Laboratories | 29 | 3,127 | ||||||
HCA Holdings, Inc. | 11 | 1,806 | ||||||
Johnson & Johnson | 19 | 3,041 | ||||||
Thermo Fisher Scientific, Inc. | 5 | 2,464 | ||||||
UnitedHealth Group, Inc. | 5 | 1,897 | ||||||
|
| |||||||
12,335 | ||||||||
|
| |||||||
Industrials – 4.4% |
| |||||||
Eaton Corp. | 21 | 2,510 | ||||||
Northrop Grumman Corp. | 7 | 2,226 | ||||||
Union Pacific Corp. | 11 | 2,200 | ||||||
|
| |||||||
6,936 | ||||||||
|
| |||||||
Information Technology – 22.2% |
| |||||||
Adobe, Inc. (A) | 5 | 2,325 | ||||||
Ambarella, Inc. (A) | 21 | 1,956 | ||||||
Apple, Inc. | 43 | 5,751 | ||||||
Autodesk, Inc. (A) | 3 | 933 | ||||||
Fidelity National Information Services, Inc. | 19 | 2,685 | ||||||
Intuit, Inc. | 9 | 3,422 | ||||||
MasterCard, Inc., Class A | 9 | 3,255 | ||||||
Microsoft Corp. | 26 | 5,775 | ||||||
PayPal, Inc. (A) | 20 | 4,719 |
2020 | ANNUAL REPORT | 45 |
Table of Contents
SCHEDULE OF INVESTMENTS | GLOBAL GROWTH (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS (Continued) | Shares | Value | ||||||
Information Technology (Continued) |
| |||||||
Visa, Inc., Class A | 17 | $ | 3,736 | |||||
|
| |||||||
34,557 | ||||||||
|
| |||||||
Total United States – 55.8% |
| $ | 86,851 | |||||
TOTAL COMMON STOCKS – 99.9% |
| $ | 155,477 | |||||
(Cost: $101,075) |
| |||||||
TOTAL INVESTMENT SECURITIES – 99.9% |
| $ | 155,477 | |||||
(Cost: $101,075) |
| |||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% |
| 193 | ||||||
NET ASSETS – 100.0% |
| $ | 155,670 |
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | ||||||||||||
Communication Services | $ | 4,454 | $ | 8,153 | $ | — | ||||||
Consumer Discretionary | 19,860 | 7,083 | — | |||||||||
Consumer Staples | 3,653 | 2,844 | — | |||||||||
Energy | 3,076 | 2,107 | — | |||||||||
Financials | 15,099 | 7,260 | — | |||||||||
Health Care | 13,253 | 5,338 | — | |||||||||
Industrials | 6,936 | 15,805 | — | |||||||||
Information Technology | 38,423 | 2,133 | — | |||||||||
Total Common Stocks | $ | 104,754 | $ | 50,723 | $ | — | ||||||
Total | $ | 104,754 | $ | 50,723 | $ | — |
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
Market Sector Diversification
(as a % of net assets) |
| |||
Information Technology | 26.1% | |||
Consumer Discretionary | 17.3% | |||
Industrials | 14.6% | |||
Financials | 14.4% | |||
Health Care | 11.9% |
Market Sector Diversification (Continued)
Communication Services | 8.1% | |||
Consumer Staples | 4.2% | |||
Energy | 3.3% | |||
Other+ | 0.1% |
+Includes cash and other assets (net of liabilities)
See Accompanying Notes to Financial Statements.
46 | ANNUAL REPORT | 2020 |
Table of Contents
MANAGEMENT DISCUSSION | LIMITED-TERM BOND |
(UNAUDITED)
Susan Regan
Below, Susan K. Regan, portfolio manager of Ivy VIP Limited-Term Bond, discusses positioning, performance and results for the fiscal year ended December 31, 2020. She has managed the Portfolio since 2014 and has 33 years industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Limited-Term Bond (Class II shares at net asset value) | 4.14% | |||
Benchmark(s) and Morningstar Category | ||||
Bloomberg Barclays 1-3 Year Gov/Credit Index | 3.33% | |||
(generally reflects the performance of securities representing the bond market that have maturities between 1 and 3 years) | ||||
Bloomberg Barclays 1-5 Year U.S. Government/Credit Index | 4.71% | |||
(generally reflects the performance of securities representing the bond market that have maturities between 1 and 5 years) | ||||
Morningstar Short-Term Bond Category Average | 3.81% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Performance
The Portfolio underwent a benchmark change that was effective April 30, 2020. The reason for the benchmark change was to align the Portfolio with the benchmark used by more than 60% of the portfolios in the Morningstar Short-Term Bond category. For the fiscal period ending December 31, 2020, the Portfolio outperformed its new benchmark, the Bloomberg Barclays 1-3 Year Gov/Credit Index and its Morningstar peer group.
Market Review
When the year began, the 2-year U.S. Treasury note yielded 1.57% and the 10-year U.S. Treasury note yielded 1.92%. The Bloomberg Barclays U.S. Credit Index, a good gauge of credit spreads, a subset of which is the Fund’s benchmark, was at a spread of 90 basis points (bps). As the novel coronavirus spread from China to Europe to the U.S., the flight to quality trade in U.S. Treasuries was significant. Equities fell, credit and other products experienced substantial spread widening, and U.S. Treasuries rallied hard, pushing yields lower.
The initial response to the panic was swift. The Federal Reserve (Fed) engaged in an emergency rate cut of 50 bps on March 3 to a federal funds rate range of 1.00-1.25%. Less than two weeks later, the Fed slashed the rate to 0-0.25%. In late March, the spread on the Bloomberg Barclays U.S. Credit Index widened to 341 bps. The Fed announced more programs to help the markets, including another round of quantitative easing (QE4). It began purchasing U.S. Treasuries, including U.S. Treasury Inflation-Indexed Bonds and agency mortgage-backed securities. It also announced a program to purchase corporate bonds, commercial paper and exchange traded funds (ETFs). The Fed, Congress, the U.S. Treasury and President Donald Trump played a role in the initial response to helping the markets and the individuals financially impacted by the virus, which helped ease the markets.
Support from the Fed continued through the year, and it is currently buying $80 billion per month in U.S. Treasuries and $40 billion in agency mortgage-backed securities. It expects to continue the purchases for the foreseeable future. The Fed’s dovish policy framework includes goals to reach maximum employment and to overshoot on inflation, indicating it intends to keep rates at zero for the next several years. The support to the credit markets in the form of purchases of corporate bonds and ETFs expired at the end of the calendar year. However, the market is operating under the assumption that the Fed would come to the rescue again if it were needed.
The spread on the Bloomberg Barclays U.S. Credit Index tightened throughout the year and ended 2020 at 92 bps, just 2 bps wider than a year earlier. Issuance was extremely strong in the initial throes of the pandemic as corporations issued bonds at wide levels to ensure liquidity with the uncertainty brought by the pandemic and the economic shutdowns in much of the country. Investment grade corporate bond issuance hit record levels of more than $2 trillion. Throughout the remainder of the year, corporations continued to issue bonds as the all-in cost of borrowing was so low given the movement in overall interest rates in the country. The primary credit market was wide open as investors scrambled to reach for yield. The fundamentals in the credit market continued to deteriorate in 2020 as corporations rely on more and more debt in this low interest rate world.
2020 | ANNUAL REPORT | 47 |
Table of Contents
|
|
Portfolio Positioning
The portfolio was well-positioned when the pandemic came to our shores and markets in the first quarter of 2020. The allocation to U.S. Treasuries was roughly 50% when 2020 began because we did not feel that we were being compensated for the risks taken in the credit market and had been reducing that exposure.
The 2-year U.S. Treasury note saw its high yield in January at 1.59% and then it rallied hard to end the quarter at a yield of just 25 bps. Yields in the front end of the curve remained anchored throughout the year with the Fed’s commitment to an accommodative policy for the foreseeable future.
The large allocation to U.S. Treasuries gave the Fund plenty of “dry powder” to be opportunistic and add spread product, namely credit, back to the portfolio to increase yield. We increased the Portfolio’s holding of credit to 54% of the Portfolio from 32% in the last three quarters of the year, primarily using the sales proceeds of U.S. Treasuries to fund the purchases.
With spreads ending the year basically back to the tight levels where they started, one could question whether the Portfolio will continue to keep its current overweight in credit. While we are concerned with spreads back near the tights, the fact that U.S. Treasury yields in the front end barely have double-digit yields has kept us from reversing this trade. We still have about 29% of the Portfolio in U.S. Treasuries and currently plan to continue to keep an allocation in the 25-30% area.
We have maintained an allocation to mortgage-backed securities for a while. While it is not an asset class present in the benchmark, it is one in which we are very comfortable. The securitized portion of the Portfolio generated some of the highest returns during the period. Approximately 14% of the Portfolio is in securitized products – while we may add to that allocation, we do not anticipate a higher than a 20% weighting to this non-benchmark security type.
Outlook
The pandemic has taken an awful toll on people throughout the world. Its unprecedented reach has impacted most of America, either by its grip on a family member’s health, the death of a family member or friend, or loss of security of income and work. We are looking forward to the day when our everyday lives will look more like they did before the pandemic hit our country.
Although we are somewhat cautious due to potential volatility and rich valuations, an improving economic environment supported by stimulus and confidence in vaccines balances our view as we look further into 2021. In addition, we believe that the strong technical backdrop helps to offset stretched credit fundamentals for short-dated spread product.
We think the first quarter looks to be especially challenging with respect to COVID-19 and the knock-on economic impacts. While multiple vaccines appear to have taken the extreme tail risk off the table, the virus is out of control in much of the U.S., overwhelming the health care systems in several regions and continuing to depress economic activity. We believe a large degree of uncertainty will remain with us through much of the year until the virus is contained, and even then, we believe there will likely continue to be significant and lasting impacts on consumer behavior, corporate operations and government responses.
President Joe Biden was sworn in as our 46th president on January 20, 2021. A high priority will be the delivery of vaccines across the nation, as well as assistance to states in the vaccination process. It is expected that the new administration will encourage more fiscal stimulus in the form of direct checks, extended unemployment insurance, rent and mortgage forbearance, help to impacted businesses and an infrastructure program. As these policies are announced and implemented, we believe they will have wide-ranging implications for the economy and the various sectors and securities in which we invest.
With the Fed indicating its intention to keep short rates depressed for the foreseeable future, we will continue to look to the ever-changing credit market for yield contribution. The incredible technical appears to be intact and although the Fed facilities have officially ended, the market has seen a paradigm shift in its willingness and ability to provide support which should continue to contribute to the healthy appetite for short-end spread products. Fiscal and monetary policies should further support the economy and businesses in which we invest. However, we remain mindful of some of the risks associated with a world awash in liquidity and will pay careful attention to trends in capital allocation policies, liability management and mergers and acquisitions for our corporate coverage.
Our first responsibility is capital preservation. With that responsibility always in view, we will look for opportunities to invest in securities in which we have high conviction that their addition will positively contribute to the Fund’s total return over the life of the investment.
48 | ANNUAL REPORT | 2020 |
Table of Contents
|
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. Certain U.S. government securities in which the Portfolio may invest, such as Treasury securities and securities issued by the Government National Mortgage Association (Ginnie Mae), are backed by the full faith and credit of the U.S. government. However, other government securities in which the Portfolio may invest, such as securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB), are not backed by the full faith and credit of the U.S. government, are not insured or guaranteed by the U.S. government and, instead, may be supported only by the right of the issuer to borrow from the U.S. Treasury or by the credit of the issuer.
Fixed-income securities are subject to interest rate risk and, as such, the Portfolio’s net asset value may fall as interest rates rise. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Ivy VIP Limited-Term Bond.
2020 | ANNUAL REPORT | 49 |
Table of Contents
PORTFOLIO HIGHLIGHTS | LIMITED-TERM BOND |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Bonds | 98.1% | |||
Corporate Debt Securities | 54.6% | |||
United States Government and Government Agency Obligations | 41.8% | |||
Asset-Backed Securities | 1.3% | |||
Mortgage-Backed Securities | 0.4% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 1.9% |
Quality Weightings
Investment Grade | 91.4% | |||
AAA | 22.9% | |||
AA | 10.9% | |||
A | 15.5% | |||
BBB | 42.1% | |||
Non-Investment Grade | 6.7% | |||
BB | 3.8% | |||
Non-rated | 2.9% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 1.9% |
Our preference is to always use ratings obtained from Standard & Poor’s, Moody’s, and Fitch. It is each Portfolio’s general policy to classify such security at the lower rating level if only two ratings are available. If more than two ratings are available and a median exists, the median is used. If more than two ratings exist without a median, the lower of the two middle ratings is used. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
50 | ANNUAL REPORT | 2020 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | LIMITED-TERM BOND |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 4.14% | |||
5-year period ended 12-31-20 | 2.49% | |||
10-year period ended 12-31-20 | 2.02% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
(a) | Effective April 30, 2020, the Portfolio’s new benchmark is the Bloomberg Barclays 1-3 Year Gov/Credit Index. IICO believes that this index is more reflective of the types of securities that the Portfolio invests in. Both the new benchmark and the Portfolio’s previous benchmark noted above are included for comparison purposes |
2020 | ANNUAL REPORT | 51 |
Table of Contents
SCHEDULE OF INVESTMENTS | LIMITED-TERM BOND (in thousands) |
DECEMBER 31, 2020
ASSET-BACKED SECURITIES | Principal | Value | ||||||
American Airlines Class AA Pass-Through Certificates, Series 2016-2, | ||||||||
3.200%, 6-15-28 | $ | 810 | $ | 789 | ||||
SBA Tower Trust, Series 2014-2 (GTD by SBA Guarantor LLC and SBA Holdings LLC), | ||||||||
3.869%, 10-8-24 (A) | 2,000 | 2,139 | ||||||
SBA Tower Trust, Series 2017-1C (GTD by SBA Guarantor LLC and SBA Holdings LLC), | ||||||||
3.168%, 4-11-22 (A) | 1,250 | 1,260 | ||||||
SBA Tower Trust, Series 2020-1 (GTD by SBA Guarantor LLC and SBA Holdings LLC), | ||||||||
1.884%, 1-15-26 (A) | 1,155 | 1,189 | ||||||
|
| |||||||
TOTAL ASSET-BACKED SECURITIES – 1.3% |
| $ | 5,377 | |||||
(Cost: $5,294) |
| |||||||
CORPORATE DEBT SECURITIES | ||||||||
Communication Services |
| |||||||
Cable & Satellite – 0.8% |
| |||||||
Charter Communications Operating LLC and Charter Communications Operating Capital Corp., | ||||||||
4.464%, 7-23-22 | 1,225 | 1,291 | ||||||
Viacom, Inc., | ||||||||
4.250%, 9-1-23 | 1,750 | 1,905 | ||||||
|
| |||||||
3,196 | ||||||||
|
| |||||||
Integrated Telecommunication Services – 0.8% |
| |||||||
AT&T, Inc., | ||||||||
4.125%, 2-17-26 | 1,500 | 1,736 | ||||||
Qwest Corp., | ||||||||
6.750%, 12-1-21 | 1,386 | 1,450 | ||||||
|
| |||||||
3,186 | ||||||||
|
| |||||||
Movies & Entertainment – 0.6% |
| |||||||
Netflix, Inc., | ||||||||
5.500%, 2-15-22 | 2,560 | 2,678 | ||||||
|
| |||||||
Publishing – 0.3% |
| |||||||
Thomson Reuters Corp., | ||||||||
4.300%, 11-23-23 | 1,269 | 1,391 | ||||||
|
| |||||||
Wireless Telecommunication Service – 1.7% |
| |||||||
Crown Castle Towers LLC: | ||||||||
3.222%, 5-15-22 (A) | 4,300 | 4,346 | ||||||
3.663%, 5-15-25 (A) | 950 | 1,023 | ||||||
Sprint Spectrum L.P., | ||||||||
3.360%, 9-20-21 (A) | 416 | 420 | ||||||
T-Mobile USA, Inc., | ||||||||
3.500%, 4-15-25 (A) | 1,500 | 1,658 | ||||||
|
| |||||||
7,447 | ||||||||
|
| |||||||
Total Communication Services – 4.2% |
| 17,898 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Consumer Discretionary |
| |||||||
Apparel, Accessories & Luxury Goods – 0.6% |
| |||||||
Ralph Lauren Corp., | ||||||||
1.700%, 6-15-22 | $ | 1,292 | $ | 1,316 | ||||
VF Corp., | ||||||||
2.050%, 4-23-22 | 1,225 | 1,251 | ||||||
|
| |||||||
2,567 | ||||||||
|
| |||||||
Automobile Manufacturers – 1.4% |
| |||||||
General Motors Co., | ||||||||
4.875%, 10-2-23 | 1,000 | 1,109 | ||||||
Nissan Motor Co. Ltd., | ||||||||
3.043%, 9-15-23 (A) | 1,250 | 1,307 | ||||||
Volkswagen Group of America, Inc.: | ||||||||
2.500%, 9-24-21 (A) | 1,600 | 1,624 | ||||||
0.875%, 11-22-23 (A) | 1,850 | 1,860 | ||||||
|
| |||||||
5,900 | ||||||||
|
| |||||||
General Merchandise Stores – 1.5% |
| |||||||
Dollar General Corp., | ||||||||
3.250%, 4-15-23 | 3,940 | 4,169 | ||||||
Family Dollar Stores, Inc., | ||||||||
5.000%, 2-1-21 | 2,515 | 2,522 | ||||||
|
| |||||||
6,691 | ||||||||
|
| |||||||
Homebuilding – 0.9% |
| |||||||
D.R. Horton, Inc., | ||||||||
2.600%, 10-15-25 | 625 | 674 | ||||||
Lennar Corp.: | ||||||||
4.125%, 1-15-22 | 1,000 | 1,024 | ||||||
4.750%, 11-15-22 (B) | 2,000 | 2,110 | ||||||
|
| |||||||
3,808 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail – 0.8% |
| |||||||
Amazon.com, Inc., | ||||||||
0.400%, 6-3-23 | 1,750 | 1,760 | ||||||
Expedia Group, Inc.: | ||||||||
3.600%, 12-15-23 (A) | 775 | 826 | ||||||
7.000%, 5-1-25 (A) | 900 | 991 | ||||||
|
| |||||||
3,577 | ||||||||
|
| |||||||
Total Consumer Discretionary – 5.2% |
| 22,543 | ||||||
Consumer Staples |
| |||||||
Agricultural Products – 0.3% |
| |||||||
Cargill, Inc., | ||||||||
1.375%, 7-23-23 (A) | 1,500 | 1,537 | ||||||
|
| |||||||
Distillers & Vintners – 1.2% |
| |||||||
Constellation Brands, Inc.: | ||||||||
3.200%, 2-15-23 | 2,250 | 2,377 | ||||||
4.250%, 5-1-23 | 1,188 | 1,295 | ||||||
Diageo Capital plc (GTD by Diageo plc), | ||||||||
3.500%, 9-18-23 | 1,300 | 1,401 | ||||||
|
| |||||||
5,073 | ||||||||
|
| |||||||
Food Distributors – 0.1% |
| |||||||
McCormick & Co., Inc., | ||||||||
3.500%, 9-1-23 | 475 | 508 | ||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Food Retail – 0.3% |
| |||||||
Alimentation Couche-Tard, Inc., | ||||||||
2.700%, 7-26-22 (A) | $ | 1,166 | $ | 1,205 | ||||
|
| |||||||
Packaged Foods & Meats – 0.3% |
| |||||||
Campbell Soup Co., | ||||||||
3.950%, 3-15-25 | 1,025 | 1,155 | ||||||
|
| |||||||
Soft Drinks – 1.0% |
| |||||||
Coca-Cola Refreshments USA, Inc., | ||||||||
8.000%, 9-15-22 | 2,125 | 2,396 | ||||||
Keurig Dr Pepper, Inc., | ||||||||
4.057%, 5-25-23 | 1,700 | 1,847 | ||||||
|
| |||||||
4,243 | ||||||||
|
| |||||||
Total Consumer Staples – 3.2% |
| 13,721 | ||||||
Energy |
| |||||||
Integrated Oil & Gas – 0.1% |
| |||||||
Chevron USA, Inc. (GTD by Chevron Corp.) (3-Month U.S. LIBOR plus 20 bps), | ||||||||
0.405%, 8-11-23 (C) | 500 | 501 | ||||||
|
| |||||||
Oil & Gas Exploration & Production – 0.6% |
| |||||||
Aker BP ASA, | ||||||||
2.875%, 1-15-26 (A) | 1,325 | 1,352 | ||||||
EQT Corp., | ||||||||
3.000%, 10-1-22 | 1,050 | 1,058 | ||||||
|
| |||||||
2,410 | ||||||||
|
| |||||||
Oil & Gas Refining & Marketing – 0.2% |
| |||||||
HollyFrontier Corp., | ||||||||
2.625%, 10-1-23 | 1,075 | 1,098 | ||||||
|
| |||||||
Oil & Gas Storage & Transportation – 3.4% |
| |||||||
Enbridge, Inc., | ||||||||
2.900%, 7-15-22 | 2,470 | 2,561 | ||||||
EQT Midstream Partners L.P., | ||||||||
4.750%, 7-15-23 | 1,500 | 1,577 | ||||||
Galaxy Pipeline Assets BidCo Ltd., | ||||||||
1.750%, 9-30-27 (A) | 1,500 | 1,523 | ||||||
Kinder Morgan Energy Partners L.P.: | ||||||||
3.500%, 3-1-21 | 1,000 | 1,000 | ||||||
3.450%, 2-15-23 | 1,646 | 1,728 | ||||||
Midwest Connector Capital Co. LLC, | ||||||||
3.625%, 4-1-22 (A) | 1,550 | 1,577 | ||||||
Plains All American Pipeline L.P. and PAA Finance Corp., | ||||||||
3.850%, 10-15-23 | 1,800 | 1,924 | ||||||
Sunoco Logistics Partners Operations L.P. (GTD by Sunoco Logistics Partners L.P.), | ||||||||
4.250%, 4-1-24 | 1,132 | 1,226 | ||||||
Western Gas Partners L.P., | ||||||||
5.375%, 6-1-21 | 1,425 | 1,432 | ||||||
|
| |||||||
14,548 | ||||||||
|
| |||||||
Total Energy – 4.3% |
| 18,557 |
52 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | LIMITED-TERM BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 1.0% |
| |||||||
Ares Capital Corp.: | ||||||||
3.625%, 1-19-22 | $ | 404 | $ | 416 | ||||
3.500%, 2-10-23 | 1,110 | 1,169 | ||||||
Brookfield Finance, Inc. (GTD by Brookfield Asset Management, Inc.), | ||||||||
4.000%, 4-1-24 | 1,150 | 1,262 | ||||||
National Securities Clearing Corp., | ||||||||
1.200%, 4-23-23 (A) | 350 | 357 | ||||||
Owl Rock Capital Corp., | ||||||||
3.400%, 7-15-26 | 1,300 | 1,317 | ||||||
|
| |||||||
4,521 | ||||||||
|
| |||||||
Consumer Finance – 2.2% |
| |||||||
Ally Financial, Inc.: | ||||||||
4.250%, 4-15-21 | 2,589 | 2,616 | ||||||
1.450%, 10-2-23 | 2,100 | 2,143 | ||||||
Caterpillar Financial Services Corp., | ||||||||
0.450%, 9-14-23 | 1,000 | 1,004 | ||||||
Discover Bank, | ||||||||
3.350%, 2-6-23 | 1,830 | 1,931 | ||||||
General Motors Financial Co., Inc. (GTD by AmeriCredit Financial Services, Inc.), | ||||||||
5.200%, 3-20-23 | 1,000 | 1,097 | ||||||
Hyundai Capital America, | ||||||||
1.250%, 9-18-23 (A) | 800 | 809 | ||||||
|
| |||||||
9,600 | ||||||||
|
| |||||||
Diversified Banks – 5.6% |
| |||||||
Bank of America Corp.: | ||||||||
4.100%, 7-24-23 | 2,983 | 3,265 | ||||||
4.125%, 1-22-24 | 1,000 | 1,110 | ||||||
4.200%, 8-26-24 | 1,325 | 1,486 | ||||||
Citizens Bank N.A., | ||||||||
3.250%, 2-14-22 | 1,200 | 1,235 | ||||||
Mitsubishi UFJ Financial Group, Inc., | ||||||||
0.848%, 9-15-24 | 1,500 | 1,509 | ||||||
Mizuho Financial Group, Inc., | ||||||||
0.849%, 9-8-24 | 1,800 | 1,810 | ||||||
National Bank of Canada, | ||||||||
2.100%, 2-1-23 | 1,400 | 1,446 | ||||||
Sumitomo Mitsui Financial Group, Inc., | ||||||||
2.784%, 7-12-22 | 1,710 | 1,773 | ||||||
Sumitomo Mitsui Trust Bank Ltd., | ||||||||
0.800%, 9-12-23 (A) | 1,300 | 1,312 | ||||||
Svenska Handelsbanken AB, | ||||||||
0.625%, 6-30-23 (A) | 1,500 | 1,510 | ||||||
Synchrony Bank, | ||||||||
3.000%, 6-15-22 | 1,500 | 1,549 | ||||||
U.S. Bancorp, | ||||||||
5.125%, 1-15-2168 (D) | 3,380 | 3,371 | ||||||
Wells Fargo & Co., | ||||||||
3.000%, 4-22-26 | 2,300 | 2,531 | ||||||
|
| |||||||
23,907 | ||||||||
|
| |||||||
Financial Exchanges & Data – 1.1% |
| |||||||
Intercontinental Exchange, Inc.: | ||||||||
0.700%, 6-15-23 | 1,300 | 1,310 | ||||||
3.450%, 9-21-23 | 2,080 | 2,242 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Financial Exchanges & Data (Continued) |
| |||||||
Moody’s Corp., | ||||||||
2.625%, 1-15-23 | $ | 1,250 | $ | 1,304 | ||||
|
| |||||||
4,856 | ||||||||
|
| |||||||
Investment Banking & Brokerage – 3.4% |
| |||||||
Charles Schwab Corp. (The), | ||||||||
0.900%, 3-11-26 | 2,600 | 2,634 | ||||||
E*TRADE Financial Corp., | ||||||||
2.950%, 8-24-22 | 1,908 | 1,981 | ||||||
Goldman Sachs Group, Inc. (The): | ||||||||
3.850%, 7-8-24 | 1,500 | 1,658 | ||||||
4.250%, 10-21-25 | 2,500 | 2,867 | ||||||
0.870%, 12-9-26 | 1,300 | 1,307 | ||||||
Morgan Stanley, | ||||||||
4.875%, 11-1-22 | 3,734 | 4,023 | ||||||
Morgan Stanley (3-Month U.S. LIBOR plus 110 bps), | ||||||||
4.000%, 5-31-23 (C) | 300 | 312 | ||||||
|
| |||||||
14,782 | ||||||||
|
| |||||||
Life & Health Insurance – 1.1% |
| |||||||
MassMutual Global Funding II, | ||||||||
2.250%, 7-1-22 (A) | 1,250 | 1,285 | ||||||
Metropolitan Life Global Funding I, | ||||||||
0.900%, 6-8-23 (A) | 1,250 | 1,266 | ||||||
Protective Life Global Funding, | ||||||||
0.631%, 10-13-23 (A) | 750 | 754 | ||||||
Reliance Standard Life Insurance II, | ||||||||
2.150%, 1-21-23 (A) | 1,400 | 1,435 | ||||||
|
| |||||||
4,740 | ||||||||
|
| |||||||
Multi-Line Insurance – 0.4% |
| |||||||
Athene Global Funding, | ||||||||
2.800%, 5-26-23 (A) | 1,500 | 1,566 | ||||||
|
| |||||||
Other Diversified Financial Services – 3.4% |
| |||||||
Citigroup, Inc.: | ||||||||
2.750%, 4-25-22 | 2,000 | 2,060 | ||||||
3.500%, 5-15-23 | 1,510 | 1,618 | ||||||
2.876%, 7-24-23 | 1,400 | 1,454 | ||||||
0.776%, 10-30-24 | 1,300 | 1,308 | ||||||
5.500%, 9-13-25 | 1,000 | 1,202 | ||||||
JPMorgan Chase & Co.: | ||||||||
3.875%, 9-10-24 | 847 | 948 | ||||||
0.653%, 9-16-24 | 1,000 | 1,005 | ||||||
1.045%, 11-19-26 | 3,900 | 3,943 | ||||||
USAA Capital Corp., | ||||||||
1.500%, 5-1-23 (A) | 1,000 | 1,026 | ||||||
|
| |||||||
14,564 | ||||||||
|
| |||||||
Regional Banks – 0.5% |
| |||||||
First Horizon National Corp., | ||||||||
3.550%, 5-26-23 | 2,000 | 2,125 | ||||||
|
| |||||||
Specialized Finance – 0.9% |
| |||||||
AerCap Ireland Capital Ltd. and AerCap Global Aviation Trust: | ||||||||
3.300%, 1-23-23 | 850 | 887 | ||||||
4.500%, 9-15-23 | 1,000 | 1,084 | ||||||
Corporacion Andina de Fomento, | ||||||||
2.375%, 5-12-23 | 500 | 518 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Specialized Finance (Continued) |
| |||||||
Fidelity National Financial, Inc., | ||||||||
5.500%, 9-1-22 | $ | 1,290 | $ | 1,390 | ||||
|
| |||||||
3,879 | ||||||||
|
| |||||||
Total Financials – 19.6% |
| 84,540 | ||||||
Health Care |
| |||||||
Health Care Equipment – 0.2% |
| |||||||
Becton Dickinson & Co., | ||||||||
2.894%, 6-6-22 | 853 | 882 | ||||||
|
| |||||||
Health Care Facilities – 0.5% |
| |||||||
HCA, Inc. (GTD by HCA Holdings, Inc.), | ||||||||
4.750%, 5-1-23 | 1,891 | 2,062 | ||||||
|
| |||||||
Pharmaceuticals – 1.4% |
| |||||||
AbbVie, Inc., | ||||||||
2.300%, 11-21-22 | 1,400 | 1,451 | ||||||
Bayer U.S. Finance II LLC, | ||||||||
2.850%, 4-15-25 (A) | 860 | 912 | ||||||
Elanco Animal Health, Inc., | ||||||||
5.022%, 8-28-23 (B) | 1,700 | 1,857 | ||||||
Royalty Pharma plc (GTD by Royalty Pharma Holdings Ltd.): | ||||||||
0.750%, 9-2-23 (A) | 800 | 804 | ||||||
1.200%, 9-2-25 (A) | 1,000 | 1,015 | ||||||
|
| |||||||
6,039 | ||||||||
|
| |||||||
Total Health Care – 2.1% |
| 8,983 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 2.3% |
| |||||||
BAE Systems plc, | ||||||||
4.750%, 10-11-21 (A) | 1,170 | 1,208 | ||||||
Boeing Co. (The): | ||||||||
2.200%, 10-30-22 | 2,000 | 2,051 | ||||||
2.800%, 3-1-23 | 2,250 | 2,336 | ||||||
Harris Corp., | ||||||||
3.832%, 4-27-25 | 775 | 870 | ||||||
Park Aerospace Holdings Ltd.: | ||||||||
5.250%, 8-15-22 (A) | 250 | 262 | ||||||
5.500%, 2-15-24 (A) | 1,300 | 1,418 | ||||||
Raytheon Technologies Corp., | ||||||||
2.500%, 12-15-22 | 1,500 | 1,554 | ||||||
|
| |||||||
9,699 | ||||||||
|
| |||||||
Agricultural & Farm Machinery – 0.8% |
| |||||||
CNH Industrial Capital LLC (GTD by CNH Industrial Capital America LLC and New Holland Credit Co. LLC), | ||||||||
1.950%, 7-2-23 | 1,550 | 1,595 | ||||||
John Deere Capital Corp.: | ||||||||
0.550%, 7-5-22 | 750 | 754 | ||||||
0.700%, 7-5-23 | 1,250 | 1,263 | ||||||
|
| |||||||
3,612 | ||||||||
|
|
2020 | ANNUAL REPORT | 53 |
Table of Contents
SCHEDULE OF INVESTMENTS | LIMITED-TERM BOND (in thousands) |
DECEMBER 31, 2020
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Airlines – 0.7% |
| |||||||
Aviation Capital Group LLC, | ||||||||
4.375%, 1-30-24 (A) | $ | 1,000 | $ | 1,055 | ||||
Delta Air Lines, Inc., | ||||||||
3.400%, 4-19-21 | 1,800 | 1,812 | ||||||
|
| |||||||
2,867 | ||||||||
|
| |||||||
Environmental & Facilities Services – 1.5% |
| |||||||
Republic Services, Inc., | ||||||||
0.875%, 11-15-25 | 1,800 | 1,813 | ||||||
Waste Management, Inc. (GTD by Waste Management Holdings, Inc.): | ||||||||
2.400%, 5-15-23 | 3,843 | 4,012 | ||||||
0.750%, 11-15-25 | 525 | 527 | ||||||
|
| |||||||
6,352 | ||||||||
|
| |||||||
Industrial Conglomerates – 0.2% |
| |||||||
General Electric Capital Corp., | ||||||||
5.012%, 1-1-24 | 695 | 737 | ||||||
|
| |||||||
Industrial Machinery – 0.2% |
| |||||||
Roper Technologies, Inc., | ||||||||
0.450%, 8-15-22 | 1,000 | 1,002 | ||||||
|
| |||||||
Research & Consulting Services – 0.4% |
| |||||||
IHS Markit Ltd., | ||||||||
5.000%, 11-1-22 (A) | 1,690 | 1,807 | ||||||
|
| |||||||
Total Industrials – 6.1% |
| 26,076 | ||||||
Information Technology |
| |||||||
Application Software – 0.5% |
| |||||||
Infor, Inc., | ||||||||
1.450%, 7-15-23 (A) | 877 | 891 | ||||||
NXP B.V. and NXP Funding LLC, | ||||||||
4.625%, 6-1-23 (A) | 1,300 | 1,421 | ||||||
|
| |||||||
2,312 | ||||||||
|
| |||||||
Communications Equipment – 0.1% |
| |||||||
Motorola Solutions, Inc., | ||||||||
3.500%, 3-1-23 | 312 | 330 | ||||||
|
| |||||||
Data Processing & Outsourced Services – 0.9% |
| |||||||
Global Payments, Inc., | ||||||||
2.650%, 2-15-25 | 1,375 | 1,472 | ||||||
PayPal Holdings, Inc., | ||||||||
1.350%, 6-1-23 | 2,250 | 2,304 | ||||||
|
| |||||||
3,776 | ||||||||
|
| |||||||
Electronic Components – 0.0% |
| |||||||
Maxim Integrated Products, Inc., | ||||||||
3.375%, 3-15-23 | 225 | 237 | ||||||
|
| |||||||
Internet Services & Infrastructure – 0.1% |
| |||||||
Baidu, Inc., | ||||||||
1.720%, 4-9-26 | 379 | 384 | ||||||
|
|
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
IT Consulting & Other Services – 0.5% |
| |||||||
Leidos, Inc. (GTD by Leidos Holdings, Inc.), | ||||||||
2.950%, 5-15-23 (A) | $ | 1,870 | $ | 1,967 | ||||
|
| |||||||
Semiconductors – 1.1% |
| |||||||
Broadcom Corp. and Broadcom Cayman Finance Ltd. (GTD by Broadcom Ltd.), | ||||||||
3.625%, 1-15-24 | 450 | 486 | ||||||
Broadcom, Inc., | ||||||||
3.125%, 10-15-22 | 810 | 848 | ||||||
Microchip Technology, Inc., | ||||||||
3.922%, 6-1-21 | 2,000 | 2,028 | ||||||
Xilinx, Inc., | ||||||||
2.950%, 6-1-24 | 1,325 | 1,425 | ||||||
|
| |||||||
4,787 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals – 0.7% |
| |||||||
Apple, Inc., | ||||||||
3.000%, 2-9-24 | 2,650 | 2,852 | ||||||
|
| |||||||
Total Information Technology – 3.9% |
| 16,645 | ||||||
Materials |
| |||||||
Diversified Chemicals – 0.2% |
| |||||||
DowDuPont, Inc., | ||||||||
4.205%, 11-15-23 | 800 | 883 | ||||||
|
| |||||||
Fertilizers & Agricultural Chemicals – 0.4% |
| |||||||
Mosaic Co. (The): | ||||||||
3.250%, 11-15-22 | 774 | 809 | ||||||
4.250%, 11-15-23 | 250 | 273 | ||||||
Nutrien Ltd., | ||||||||
1.900%, 5-13-23 | 500 | 516 | ||||||
|
| |||||||
1,598 | ||||||||
|
| |||||||
Total Materials – 0.6% |
| 2,481 | ||||||
Real Estate |
| |||||||
Health Care REITs – 0.1% |
| |||||||
HCP, Inc., | ||||||||
4.250%, 11-15-23 | 140 | 153 | ||||||
Healthpeak Properties, Inc., | ||||||||
3.875%, 8-15-24 | 400 | 443 | ||||||
|
| |||||||
596 | ||||||||
|
| |||||||
Industrial REITs – 0.2% |
| |||||||
Avolon Holdings Funding Ltd., | ||||||||
4.250%, 4-15-26 (A) | 800 | 862 | ||||||
|
| |||||||
Specialized REITs – 1.8% |
| |||||||
American Tower Corp.: | ||||||||
3.070%, 3-15-23 (A) | 3,545 | 3,615 | ||||||
0.600%, 1-15-24 | 1,300 | 1,301 | ||||||
Crown Castle International Corp., | ||||||||
3.150%, 7-15-23 | 400 | 425 | ||||||
CyrusOne L.P. and CyrusOne Finance Corp. (GTD by CyrusOne, Inc.), | ||||||||
2.900%, 11-15-24 | 1,000 | 1,068 |
CORPORATE DEBT SECURITIES (Continued) | Principal | Value | ||||||
Specialized REITs (Continued) |
| |||||||
Equinix, Inc., | ||||||||
1.000%, 9-15-25 | $ | 1,325 | $ | 1,328 | ||||
|
| |||||||
7,737 | ||||||||
|
| |||||||
Total Real Estate – 2.1% |
| 9,195 | ||||||
Utilities |
| |||||||
Electric Utilities – 2.7% |
| |||||||
American Transmission Systems, Inc., | ||||||||
5.250%, 1-15-22 (A) | 275 | 287 | ||||||
CenterPoint Energy, Inc., | ||||||||
2.500%, 9-1-22 | 3,000 | 3,101 | ||||||
Edison International, | ||||||||
3.550%, 11-15-24 | 1,300 | 1,400 | ||||||
Evergy, Inc., | ||||||||
5.292%, 6-15-22 (B) | 1,154 | 1,218 | ||||||
FirstEnergy Corp., | ||||||||
2.850%, 7-15-22 | 1,665 | 1,692 | ||||||
MidAmerican Energy Co., | ||||||||
3.700%, 9-15-23 | 1,045 | 1,128 | ||||||
Virginia Electric and Power Co., Series C, | ||||||||
2.750%, 3-15-23 | 2,675 | 2,801 | ||||||
|
| |||||||
11,627 | ||||||||
|
| |||||||
Multi-Utilities – 0.6% |
| |||||||
Dominion Energy Gas Holdings LLC, | ||||||||
3.550%, 11-1-23 | 1,235 | 1,330 | ||||||
Pacific Gas and Electric Co. (3-Month U.S. LIBOR plus 137.50 bps), | ||||||||
1.600%, 11-15-21 (C) | 1,300 | 1,301 | ||||||
|
| |||||||
2,631 | ||||||||
|
| |||||||
Total Utilities – 3.3% |
| 14,258 | ||||||
TOTAL CORPORATE DEBT SECURITIES – 54.6% |
| $ | 234,897 | |||||
(Cost: $230,124) |
| |||||||
MORTGAGE-BACKED SECURITIES | ||||||||
Non-Agency REMIC/CMO – 0.4% |
| |||||||
Credit Suisse Mortgage Trust, Series 2018-RPL8, Class A1 (Mortgage spread to 3-year U.S. Treasury index), | ||||||||
4.125%, 7-25-58 (A)(C) | 912 | 915 | ||||||
Verus Securitization Trust, Series 2018-3, Class B1 (Mortgage spread to 5-year U.S. Treasury index), | ||||||||
5.694%, 10-25-58 (A)(C) | 700 | 709 | ||||||
|
| |||||||
1,624 | ||||||||
|
| |||||||
TOTAL MORTGAGE-BACKED |
| $ | 1,624 | |||||
(Cost: $1,612) |
|
54 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | LIMITED-TERM BOND (in thousands) |
DECEMBER 31, 2020
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS | Principal | Value | ||||||
Agency Obligations – 1.0% |
| |||||||
Federal Home Loan Bank, | ||||||||
2.250%, 7-21-31 | $ | 1,640 | $ | 1,650 | ||||
U.S. Department of Transportation, | ||||||||
6.001%, 12-7-21 (A) | 2,500 | 2,628 | ||||||
|
| |||||||
4,278 | ||||||||
|
| |||||||
Mortgage-Backed Obligations – 11.8% |
| |||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO, | ||||||||
2.500%, 5-15-44 | 414 | 433 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 185 bps), | ||||||||
2.003%, 8-25-25 (A)(C) | 1,320 | 1,267 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 205 bps), | ||||||||
2.203%, 6-25-28 (A)(C) | 611 | 585 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 220 bps), | ||||||||
2.340%, 4-25-29 (A)(C) | 774 | 756 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 225 bps), | ||||||||
2.395%, 12-25-29 (A)(C) | 1,250 | 1,207 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 230 bps), | ||||||||
2.440%, 8-25-29 (A)(C) | 580 | 565 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 250 bps), | ||||||||
2.653%, 11-25-24 (A)(C) | 424 | 423 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 255 bps), | ||||||||
2.703%, 6-25-27 (A)(C) | 415 | 397 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 265 bps), | ||||||||
2.803%, 5-25-27 (A)(C) | 759 | 739 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (1-Month U.S. LIBOR plus 435 bps), | ||||||||
4.503%, 11-25-21 (A)(C) | 2,923 | 2,926 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (Mortgage spread to 1-Month U.S. LIBOR), | ||||||||
4.153%, 9-25-22 (A)(C) | 359 | 358 |
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS (Continued) | Principal | Value | ||||||
Mortgage-Backed Obligations (Continued) |
| |||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (Mortgage spread to 2-year U.S. Treasury index), | ||||||||
3.630%, 11-25-47 (A)(C) | $ | 1,500 | $ | 1,517 | ||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (Mortgage spread to 3-year U.S. Treasury index): | ||||||||
3.393%, 7-25-22 (A)(C) | 1,720 | 1,777 | ||||||
3.972%, 2-25-46 (A)(C) | 70 | 70 | ||||||
3.631%, 7-25-46 (A)(C) | 2,000 | 2,100 | ||||||
3.565%, 11-25-47 (A)(C) | 5,000 | 5,105 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (Mortgage spread to 5-year U.S. Treasury index): | ||||||||
3.485%, 11-25-23 (A)(C) | 600 | 622 | ||||||
3.581%, 11-25-23 (A)(C) | 10,870 | 11,303 | ||||||
3.867%, 5-25-45 (A)(C) | 600 | 623 | ||||||
3.556%, 6-25-45 (A)(C) | 1,000 | 1,052 | ||||||
3.565%, 11-25-47 (A)(C) | 2,724 | 2,834 | ||||||
3.526%, 2-25-48 (A)(C) | 1,000 | 1,023 | ||||||
3.587%, 6-25-48 (A)(C) | 1,170 | 1,270 | ||||||
Federal Home Loan Mortgage Corp. Agency REMIC/CMO (Mortgage spread to 7-year U.S. Treasury index): | ||||||||
3.731%, 6-25-22 (A)(C) | 2,000 | 2,068 | ||||||
4.055%, 5-25-25 (A)(C) | 225 | 249 | ||||||
3.675%, 11-25-49 (A)(C) | 1,900 | 2,047 | ||||||
3.648%, 11-25-50 (A)(C) | 5,650 | 6,075 | ||||||
Federal Home Loan Mortgage Corp. Fixed Rate Participation Certificates, | ||||||||
4.500%, 8-1-30 | 385 | 426 | ||||||
Federal National Mortgage Association Fixed Rate Pass-Through Certificates: | ||||||||
3.680%, 2-1-21 | 50 | 50 | ||||||
4.381%, 6-1-21 | 328 | 328 | ||||||
Government National Mortgage Association Agency REMIC/CMO, | ||||||||
2.000%, 3-16-42 | 525 | 544 | ||||||
|
| |||||||
50,739 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 12.8% |
| $ | 55,017 | |||||
(Cost: $53,371) |
|
UNITED STATES GOVERNMENT OBLIGATIONS | Principal | Value | ||||||
Treasury Obligations – 29.0% |
| |||||||
U.S. Treasury Notes: | ||||||||
1.500%, 11-30-21 | $ | 20,350 | $ | 20,604 | ||||
2.125%, 12-31-21 | 16,000 | 16,319 | ||||||
1.500%, 1-31-22 | 14,750 | 14,969 | ||||||
1.875%, 2-28-22 | 19,000 | 19,386 | ||||||
1.750%, 4-30-22 | 13,000 | 13,282 | ||||||
1.750%, 5-31-22 | 2,250 | 2,302 | ||||||
2.000%, 7-31-22 | 10,000 | 10,294 | ||||||
1.375%, 10-15-22 | 1,000 | 1,022 | ||||||
2.375%, 1-31-23 | 2,250 | 2,355 | ||||||
2.500%, 3-31-23 | 1,000 | 1,053 | ||||||
0.250%, 6-15-23 | 10,000 | 10,025 | ||||||
0.125%, 8-15-23 | 6,300 | 6,296 | ||||||
0.125%, 12-15-23 | 3,000 | 2,996 | ||||||
0.375%, 11-30-25 | 4,000 | 4,005 | ||||||
|
| |||||||
124,908 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS – 29.0% |
| $ | 124,908 | |||||
(Cost: $122,570) |
| |||||||
SHORT-TERM SECURITIES | ||||||||
Commercial Paper (E) – 0.8% |
| |||||||
Duke Energy Corp., | ||||||||
0.210%, 1-4-21 | 500 | 500 | ||||||
J.M. Smucker Co. (The), | ||||||||
0.100%, 1-4-21 | 3,000 | 3,000 | ||||||
|
| |||||||
3,500 | ||||||||
|
| |||||||
Master Note – 0.3% |
| |||||||
Toyota Motor Credit Corp. (1-Week U.S. LIBOR plus 25 bps), | ||||||||
0.350%, 1-7-21 (F) | 1,141 | 1,141 | ||||||
|
| |||||||
Shares | ||||||||
Money Market Funds (G) – 0.3% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, | ||||||||
0.030% | 1,350 | 1,350 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 1.4% |
| $ | 5,991 | |||||
(Cost: $5,991) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.5% |
| $ | 427,814 | |||||
(Cost: $418,962) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.5% |
| 2,159 | ||||||
NET ASSETS – 100.0% |
| $ | 429,973 |
Notes to Schedule of Investments
(A) | Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020 the total value of these securities amounted to $107,891 or 25.1% of net assets. |
(B) | Step bond that pays an initial coupon rate for the first period and then a higher or lower coupon rate for the following periods. Interest rate disclosed is that which is in effect at December 31, 2020. |
2020 | ANNUAL REPORT | 55 |
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SCHEDULE OF INVESTMENTS | LIMITED-TERM BOND (in thousands) |
DECEMBER 31, 2020
(C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Description of the reference rate and spread, if applicable, are included in the security description. |
(D) | All or a portion of securities with an aggregate value of $2,697 are on loan. |
(E) | Rate shown is the yield to maturity at December 31, 2020. |
(F) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Date shown represents the date that the variable rate resets. Description of the reference rate and spread, if applicable, are included in the security description. |
(G) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Asset-Backed Securities | $ | — | $ | 5,377 | $ | — | ||||||
Corporate Debt Securities | — | 234,897 | — | |||||||||
Mortgage-Backed Securities | — | 1,624 | — | |||||||||
United States Government Agency Obligations | — | 55,017 | — | |||||||||
United States Government Obligations | — | 124,908 | — | |||||||||
Short-Term Securities | 1,350 | 4,641 | — | |||||||||
Total | $ | 1,350 | $ | 426,464 | $ | — |
The following acronyms are used throughout this schedule:
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
LIBOR = London Interbank Offered Rate
REIT = Real Estate Investment Trust
REMIC = Real Estate Mortgage Investment Conduit
See Accompanying Notes to Financial Statements.
56 | ANNUAL REPORT | 2020 |
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MANAGEMENT DISCUSSION | SECURIAN REAL ESTATE SECURITIES |
(UNAUDITED)
Matthew K. Richmond
Lowell R. Bolken
Joshua M. Klaetsch
Below, Lowell R. Bolken, CFA, Matthew K. Richmond and Joshua M. Klaetsch, the co-portfolio managers of Ivy VIP Securian Real Estate Securities during the fiscal year ended December 31, 2020, discuss positioning, performance and results for the fiscal year. Mr. Bolken has managed the Portfolio since 2006, and has 30 years of industry experience. Mr. Richmond has co-managed the Portfolio since 2013 and has 26 years of industry experience. Mr. Klaetsch joined the portfolio management team in 2018 and has 14 years of industry experience. Ivy VIP Securian Real Estate Securities is subadvised by Securian Asset Management, Inc.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Securian Real Estate Securities (Class II shares at net asset value) | -3.13% | |||
Benchmark and Morningstar Category | ||||
FTSE Nareit Equity REITs Index | -8.00% | |||
(Generally reflects the performance of securities representing the commercial real estate market) | ||||
Morningstar Real Estate Category Average | | -4.49% | | |
(Generally reflects the performance of the universe of portfolios with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Key Drivers
Real estate stocks delivered negative returns for the year ending December 31, 2020, widely underperforming the S&P 500 Index for the second consecutive year. The COVID-19 pandemic ushered in unprecedented economic strife on main-street America, leading to significant occupancy losses and operating uncertainty across the commercial real estate landscape. The majority of damage was inflicted throughout the first half of the year, with steady improvement in operating conditions being achieved in the second half. With the economy effectively shuttered in the second quarter and job losses exceeding 20 million (as opposed to 8 million in the Global Financial Crisis of 2008) it comes as little surprise that real estate demand suffered wide-reaching effects.
COVID-19 continues to weigh on real estate demand across most property types, but the welcome news of effective vaccines has shifted the outlook for the sector. Relative to earlier in the year, rental collections have improved dramatically, and the sector appears to have stabilized. Significant laggards, including retail and hotels, can now see a light at the end of what has been a very long tunnel. While it will likely take years for demand to return to pre-COVID-19 levels, we think the specter of widespread tenant bankruptcies has faded. Optimism surrounding a return to normal activity levels across the economy and space demand resumption is driving expectations of 5% cash flow growth for real estate investment trusts (REITs) in 2021.
Data centers and cell tower owners were the standouts among the property types, while retail and hotel owners suffered near-catastrophic business interruption. Demand for space remains strong, with enterprise migrations in data centers and 5G buildouts in towers expected to accelerate. At the same time, edge and cloud computing, mobile data usage growth and artificial intelligence are expected to provide tailwinds to demand for the foreseeable future.
Industrial REITs were another clear winner throughout the pandemic as online shopping exploded and consumers continued to execute a secular shift from ‘bricks and mortar’ shopping to e-commerce with same-day delivery.
Single family rental REITs also delivered solid performance. A limited supply of affordable and available inventory, coupled with surging demand from renters fleeing large, urban areas drove near-sector-leading returns for single family rental REITs.
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As if ‘bricks & mortar’ retailers needed another problem in the fight for consumer dollars, the pandemic all but destroyed the demand for in-person shopping. Another year of significant store closures and bankruptcy filings resulted in dismal performance for mall REITs, whose returns lagged the index by nearly 30%.
Office REITs were another casualty of COVID-19, as the world reverted to a work-from-home model. We believe this phenomenon has staying power that will impinge office demand for the foreseeable future. We believe that demand and rental rates will likely take years to recover (if ever) to pre-COVID-19 levels in certain urban markets.
Contributors and detractors
The Portfolio delivered a negative return, but widely outperformed its benchmark and finished in the top quartile of peers. We properly anticipated the wide-ranging influence of the pandemic and quickly shifted the Portfolio to a “defensive” posture late in the first quarter. Our investment philosophy consistently favors companies we believe own well-located, high-quality properties that feature stable balance sheets, exhibit improving property fundamentals and have above-average cash flow growth prospects. Those characteristics have proven over time to result in favorable performance.
Office stocks underperformed the index, but selection decisions within the sector aided the Portfolio’s relative performance. A long-held overweight position in biotechnology/life science owner Alexandria Real Estate Equities was a sizable outperformer. This company continues to benefit from owning an A+ portfolio of buildings with a highly attractive tenant roster. Additionally, near complete avoidance of New York City (NYC) office owners benefitted the Portfolio. Owners of NYC office face significant challenges now and into the forseeable future with the COVID-19 fallout expected to impact demand for years, as dense urban office leasing will likely become taboo in the post-pandemic world. We also reduced our holdings in West Coast centric office owners as conditions in that region have deteriorated.
Data center and tower REITs were among the top performers in 2020, and the Portfolio’s overweight position was a significant contributor to benchmark-relative performance. We continue to see the communications infrastructure names as attractively valued when considering their growth prospects and defensive lease structures – the Portfolio remains overweight to this sector.
Retail REITs dramatically lagged the benchmark as COVID-19-related business disruption drove record bankruptcies and tenant disruption. Later in the year, particularly following “Pfizer Monday” when it announced its vaccine, retail REITs became a prime beneficiary within the reopening rally. We continue to have concerns over tenant health in the space, but also recognize the steep discounted valuations available at current pricing. We have recently shifted the portfolio to an overweight position as we have become increasingly optimistic that retail fundamentals will improve in a post-vaccine environment.
Hotel REITs and operating companies continued to feel the impacts of restricted travel throughout the year and their stock performance suffered relative to the REIT benchmark. While business and air travel remain largely shut down, hotel REIT management teams have noted a surprising uptick in leisure demand at drive-to resort properties. Similar to retail, we have taken advantage of depressed pricing to initiate an overweight position predicated on improving lodging trends in 2021.
Outlook
The Federal Reserve’s (Fed) intentions are clear – rates are to remain anchored near zero until inflation takes hold. The Fed remains committed to maintaining an aggressive pace of asset purchases, even as its balance sheet has grown by over $3.2 trillion since the end of February. Congress seems to understand that fiscal policy needs to play a leading role. The late passage of a new COVID-19 relief bill provides for ongoing enhanced unemployment benefits, $600 stimulus checks, and continued aid for small businesses and transportation. At a value of $900 billion, while smaller than the $2.5 trillion CARES Act, the package still weighs in at over 4% of GDP. Under a Biden administration, policymakers are likely to support actions that seek to drive growth until the tide lifts all boats.
While a strong rebound is likely, in our view we’re not going to return to the old normal. The pandemic accelerated trends that were already in place and focused an unflinching spotlight on imbalances and sectors with weak value propositions. We believe that work-from-home is here to stay, and demand for office space and business travel will likely face a long recovery; as will brick-and- mortar retail. We do not believe many office, hotel and retail properties will ever recover pre-COVID-19 occupancy levels. We have been careful to avoid companies that we believe are more exposed to these trends and have focused the Portfolio’s positioning to take advantage of those we believe will recover and thrive post-COVID-19.
On the bright side, the economy has been surprisingly resilient, and strong growth will ease the transition back to normality. REIT stocks remain attractively valued, particularly against the backdrop of Fed actions, improving economic growth, and low interest rates. Slow vaccine rollout, new vaccine-resistant strains, and higher 10-year U.S. Treasury rates are all risks that could cause the group to deliver uninspiring returns again in 2021.
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Past performance is not a guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Investment risks associated with real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Real estate securities are subject to interest-rate risk and, as such, the Portfolio’s net asset value may fall as interest rates rise. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the Portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Securian Real Estate Securities.
2020 | ANNUAL REPORT | 59 |
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PORTFOLIO HIGHLIGHTS | SECURIAN REAL ESTATE SECURITIES |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
|
| |||
Stocks | 98.0% | |||
Real Estate | 98.0% | |||
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 2.0% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
ProLogis, Inc. | Real Estate | Industrial REITs | ||
Equinix, Inc. | Real Estate | Specialized REITs | ||
Welltower, Inc. | Real Estate | Health Care REITs | ||
Simon Property Group, Inc. | Real Estate | Retail REITs | ||
Public Storage, Inc. | Real Estate | Specialized REITs | ||
Digital Realty Trust, Inc. | Real Estate | Specialized REITs | ||
AvalonBay Communities, Inc. | Real Estate | Residential REITs | ||
Ventas, Inc. | Real Estate | Health Care REITs | ||
Duke Realty Corp. | Real Estate | Industrial REITs | ||
Invitation Homes, Inc. | Real Estate | Residential REITs |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
60 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | SECURIAN REAL ESTATE SECURITIES |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | -3.13% | |||
5-year period ended 12-31-20 | 4.57% | |||
10-year period ended 12-31-20 | 7.87% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
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SCHEDULE OF INVESTMENTS | SECURIAN REAL ESTATE SECURITIES (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Real Estate |
| |||||||
Diversified REITs – 4.4% |
| |||||||
Essential Properties Realty Trust, Inc. | 10 | $ | 220 | |||||
STORE Capital Corp. | 16 | 544 | ||||||
VEREIT, Inc. | 14 | 516 | ||||||
W.P. Carey, Inc. | 1 | 99 | ||||||
|
| |||||||
1,379 | ||||||||
|
| |||||||
Health Care REITs – 11.4% |
| |||||||
CareTrust REIT, Inc. | 12 | 257 | ||||||
Healthcare Trust of America, Inc., Class A | 8 | 221 | ||||||
Healthpeak Properties, Inc. | 22 | 677 | ||||||
Omega Healthcare Investors, Inc. | 10 | 352 | ||||||
Ventas, Inc. | 17 | 843 | ||||||
Welltower, Inc. | 18 | 1,189 | ||||||
|
| |||||||
3,539 | ||||||||
|
| |||||||
Hotel & Resort REITs – 4.9% |
| |||||||
Host Hotels & Resorts, Inc. | 37 | 543 | ||||||
MGM Growth Properties LLC, Class A | 6 | 200 | ||||||
Park Hotels & Resorts, Inc. | 16 | 274 | ||||||
Pebblebrook Hotel Trust | 13 | 235 | ||||||
RLJ Lodging Trust | 19 | 268 | ||||||
|
| |||||||
1,520 | ||||||||
|
| |||||||
Industrial REITs – 12.4% |
| |||||||
Duke Realty Corp. | 21 | 835 | ||||||
First Industrial Realty Trust, Inc. | 5 | 207 | ||||||
ProLogis, Inc. | 24 | 2,394 | ||||||
Terreno Realty Corp. | 7 | 404 | ||||||
|
| |||||||
3,840 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Office REITs – 8.5% |
| |||||||
Alexandria Real Estate Equities, Inc. | 4 | $ | 757 | |||||
Boston Properties, Inc. | 5 | 473 | ||||||
Cousins Properties, Inc. | 11 | 357 | ||||||
Douglas Emmett, Inc. | 7 | 190 | ||||||
Highwoods Properties, Inc. | 7 | 257 | ||||||
Kilroy Realty Corp. | 6 | 327 | ||||||
Vornado Realty Trust | 8 | 284 | ||||||
|
| |||||||
2,645 | ||||||||
|
| |||||||
Residential REITs – 19.3% |
| |||||||
American Homes 4 Rent | 20 | 597 | ||||||
AvalonBay Communities, Inc. | 6 | 940 | ||||||
Camden Property Trust | 5 | 530 | ||||||
Equity Lifestyle Properties, Inc. | 6 | 399 | ||||||
Equity Residential | 11 | 641 | ||||||
Essex Property Trust, Inc. | 1 | 131 | ||||||
Invitation Homes, Inc. | 28 | 832 | ||||||
Mid-America Apartment Communities, Inc. | 5 | 570 | ||||||
Sun Communities, Inc. | 4 | 547 | ||||||
UDR, Inc. | 21 | 811 | ||||||
|
| |||||||
5,998 | ||||||||
|
| |||||||
Retail REITs – 13.9% |
| |||||||
Agree Realty Corp. | 5 | 353 | ||||||
Brixmor Property Group, Inc. | 33 | 553 | ||||||
Federal Realty Investment Trust | 3 | 221 | ||||||
Kimco Realty Corp. | 23 | 341 | ||||||
National Retail Properties, Inc. | 8 | 327 | ||||||
Realty Income Corp. | 13 | 814 | ||||||
Regency Centers Corp. | 6 | 277 | ||||||
Simon Property Group, Inc. | 13 | 1,120 | ||||||
Weingarten Realty Investors | 15 | 323 | ||||||
|
| |||||||
4,329 | ||||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Specialized REITs – 23.2% |
| |||||||
American Tower Corp., Class A | 1 | $ | 202 | |||||
CubeSmart | 7 | 235 | ||||||
CyrusOne, Inc. | 11 | 768 | ||||||
Digital Realty Trust, Inc. | 8 | 1,061 | ||||||
Equinix, Inc. | 3 | 1,924 | ||||||
Extra Space Storage, Inc. | 6 | 637 | ||||||
Gaming and Leisure Properties, Inc. | — | * | 1 | |||||
Life Storage, Inc. | 3 | 358 | ||||||
Public Storage, Inc. | 5 | 1,086 | ||||||
QTS Realty Trust, Inc., Class A | 4 | 272 | ||||||
VICI Properties, Inc. | 26 | 672 | ||||||
| �� | |||||||
7,216 | ||||||||
|
| |||||||
Total Real Estate – 98.0% |
| 30,466 | ||||||
TOTAL COMMON STOCKS – 98.0% |
| $ | 30,466 | |||||
(Cost: $29,859) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 1.7% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, | 527 | 527 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 1.7% |
| $ | 527 | |||||
(Cost: $527) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.7% |
| $ | 30,993 | |||||
(Cost: $30,386) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.3% |
| 104 | ||||||
NET ASSETS – 100.0% |
| $ | 31,097 |
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 30,466 | $ | — | $ | — | ||||||
Short-Term Securities | 527 | — | — | |||||||||
Total | $ | 30,993 | $ | — | $ | — |
The following acronym is used throughout this schedule:
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
62 | ANNUAL REPORT | 2020 |
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MANAGEMENT DISCUSSION | VALUE |
(UNAUDITED)
Matthew T. Norris
Below, Matthew T. Norris, CFA, portfolio manager of Ivy VIP Value, discusses positioning, performance and results for the fiscal year ended December 31, 2020. He has managed the Fund since 2003 and has 29 years of industry experience.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Value (Class II shares at net asset value) | 1.98% | |||
Benchmark and Morningstar Category | ||||
Russell 1000 Value Index | 2.80% | |||
(generally reflects the performance of large-company value style stocks) | ||||
Morningstar Large Value Category Average | 2.91% | |||
(generally reflects the performance of the universe of funds with similar investment objectives) |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Key drivers
2020 started out relatively benign, with a continuation of the 10-year bull market in the month of January. In February, the arrival of the novel coronavirus in the U.S. caused one of the sharpest and fastest market declines in history. The S&P 500 Index declined 12% on March 16, the third worse daily loss in history, only topped by infamous trading days in October 1929 and October 1987. Volatility remained elevated, but the market bottomed shortly after that in late March.
As a result of the virus, the U.S. economy contracted severely in the first half of 2020, and policy was enacted to combat that. The Federal Reserve (Fed) lowered the federal funds rate close to zero, where is it likely to remain for some time. Stimulus checks were sent to many American people and businesses. These policy actions have helped. The unemployment rate, which was 6.7% as of the end of the fiscal year, remained elevated relative to the period prior to the pandemic, but has declined faster than most expected since climbing above 13% during the second quarter.
Housing demand remained strong with help from record low mortgage rates, a demographic tailwind, and nesting/work-from-home trends. Record low inventory continues to place pressure on homebuilders to keep up with demand while also placing upward pressure on home prices, a risk to the outlook for affordability.
Personal consumption continued to hold up on net during the first two months of 2020 despite the virus resurgence and tighter restrictions. Auto sales have recovered to pre-COVID-19 levels and demand remains solid. The online portion of consumption continued to take market share from brick and mortar. Goods have more than recovered relative to pre-pandemic levels, although we believe services will likely remain depressed until the vaccine has reached a major portion of the U.S. population.
Manufacturing activity strengthened during the fiscal year, and we believe the combination of elevated orders and low inventories is expected to support ongoing production in coming months.
The Russell 1000 Value Index, the Portfolio’s benchmark, was up 2.80% for the measurement period. By comparison, the Portfolio return 1.98% for the same period. Value investing, while still lagging over the long term, has very recently begun to perform better relative to growth investing. As usual, we try to ignore short-term fluctuations and keep our focus on the longer term.
Contributors and detractors
During the measurement period, energy caused the most damage to the Portfolio’s return as two sector holdings cost the strategy more than three percentage points of relative performance. These underperforming holdings were Valero and Energy Transfer. Oil prices cratered as demand collapsed in the second quarter of 2020. The price of oil hit a shocking all-time low of minus $37 per barrel in April 2020. The resulting fallout in names was painful. Oil has since recovered along with the rest of the world, and the long-depressed energy sector has started to outperform. While there is probably still value in Valero and Energy Transfer, we no longer own either stock, as the risk does not justify reward.
The Portfolio’s best relative sector was information technology, where our investments in Lam Research Corp. and Broadcom. Corp. drove performance. Lam Research benefited from a resurgence in semiconductor spending that is still on
2020 | ANNUAL REPORT | 63 |
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an upward swing. The Portfolio’s next best sector was consumer discretionary, where our investment in Lowe’s Co., Inc. was up nearly 36%. As consumers hunkered down to ride out the virus, home improvement spend was a large beneficiary.
The Portfolio does not attempt to make sector calls, rather focusing primarily on stock selection. We hold overweight or underweight positions in sectors based on individual stock opportunity, with some limits to control risk or volatility. The Portfolio currently holds overweight positions in financials and information technology, where we continue to find value and yield. In these areas, we have been able to find good companies with repeatable business models generating high rates of free cash flow, and low stock prices relative to our estimation of each company’s true intrinsic value. We currently hold underweight positions in real estate and industrials, simply due to a lack of compelling ideas.
Outlook
The U.S. economy had enjoyed a long successful run from the end of the 2008 recession, but the coronavirus ended this run in March 2020. We think the snapback in economic activity is helpful, and we expect it to grind higher until we are back to levels pre-crisis. The Fed strengthened forward guidance for interest rates, which sets a very high bar for raising rates until well after the virus is contained. The Fed would also like to see inflation return to a typical level of 2%, but we expect this target won’t be achieved for another year or so. We believe this may result in higher interest rates at the longer end of the Treasury curve. We must also watch as a new administration takes office, and potential governance changes that could affect our holdings.
While the economic forces listed above are clearly important factors, our first approach is from the company level. We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic values. This is often due to short-term negative factors, and we become larger owners of a company if we feel those negatives are about to dissipate. We continue to search for and make investments one company at a time to seek to benefit clients over the long run.
Past performance is no guarantee of future results. The value of the Portfolio’s shares will change, and you could lose money on your investment.
Value stocks are stocks of companies that may have experienced adverse business or industry developments, or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Portfolio’s manager, undervalued. The value of a security believed by the Portfolio’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. These and other risks are more fully described in the Portfolio’s prospectus.
The use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Portfolio’s value and the risk that fluctuations in the value of the derivatives may not correlate with the corresponding securities or fixed-income markets or the underlying asset upon which the derivative’s value is based.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy VIP Value.
64 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | VALUE |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Stocks | 97.7% | |||
Financials | 20.8% | |||
Health Care | 14.0% | |||
Industrials | 11.9% | |||
Information Technology | 9.6% | |||
Communication Services | 9.6% | |||
Consumer Discretionary | 7.8% | |||
Consumer Staples | 7.0% | |||
Utilities | 5.2% | |||
Materials | 5.1% | |||
Energy | 4.0% | |||
Real Estate | 2.7% | |||
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 2.3% |
Top 10 Equity Holdings
Company | Sector | Industry | ||
Comcast Corp., Class A | Communication Services | Cable & Satellite | ||
Wal-Mart Stores, Inc. | Consumer Staples | Hypermarkets & Super Centers | ||
Morgan Stanley | Financials | Investment Banking & Brokerage | ||
Citigroup, Inc. | Financials | Other Diversified Financial Services | ||
Philip Morris International, Inc. | Consumer Staples | Tobacco | ||
Raytheon Technologies Corp. | Industrials | Aerospace & Defense | ||
Target Corp. | Consumer Discretionary | General Merchandise Stores | ||
Capital One Financial Corp. | Financials | Consumer Finance | ||
CVS Caremark Corp. | Health Care | Health Care Services | ||
Broadcom Corp., Class A | Information Technology | Semiconductors |
See your advisor or www.ivyinvestments.com for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 65 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | VALUE |
(UNAUDITED)
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Class II | |||
1-year period ended 12-31-20 | 1.98% | |||
5-year period ended 12-31-20 | 8.36% | |||
10-year period ended 12-31-20 | 9.04% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
66 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | VALUE (in thousands) |
DECEMBER 31, 2020
COMMON STOCKS | Shares | Value | ||||||
Communication Services |
| |||||||
Alternative Carriers – 2.7% |
| |||||||
Liberty Global, Inc., Series C (A) | 523 | $ | 12,369 | |||||
|
| |||||||
Cable & Satellite – 6.9% |
| |||||||
Comcast Corp., Class A | 372 | 19,500 | ||||||
Liberty Media Corp., Class C (A) | 294 | 12,774 | ||||||
|
| |||||||
32,274 | ||||||||
|
| |||||||
Total Communication Services – 9.6% |
| 44,643 | ||||||
Consumer Discretionary |
| |||||||
Auto Parts & Equipment – 2.4% |
| |||||||
Magna International, Inc. | 159 | 11,236 | ||||||
|
| |||||||
General Merchandise Stores – 3.1% |
| |||||||
Target Corp. | 81 | 14,262 | ||||||
|
| |||||||
Home Improvement Retail – 2.3% |
| |||||||
Lowe’s Co., Inc. | 67 | 10,800 | ||||||
|
| |||||||
Total Consumer Discretionary – 7.8% |
| 36,298 | ||||||
Consumer Staples |
| |||||||
Hypermarkets & Super Centers – 3.7% |
| |||||||
Wal-Mart Stores, Inc. | 118 | 16,952 | ||||||
|
| |||||||
Tobacco – 3.3% |
| |||||||
Philip Morris International, Inc. | 187 | 15,457 | ||||||
|
| |||||||
Total Consumer Staples – 7.0% |
| 32,409 | ||||||
Energy |
| |||||||
Oil & Gas Exploration & Production – 1.3% |
| |||||||
EOG Resources, Inc. | 124 | 6,164 | ||||||
|
| |||||||
Oil & Gas Refining & Marketing – 2.7% |
| |||||||
Marathon Petroleum Corp. | 300 | 12,416 | ||||||
|
| |||||||
Total Energy – 4.0% |
| 18,580 | ||||||
Financials |
| |||||||
Asset Management & Custody Banks – 2.3% |
| |||||||
Ameriprise Financial, Inc. | 56 | 10,798 | ||||||
|
| |||||||
Consumer Finance – 5.4% |
| |||||||
Capital One Financial Corp. | 144 | 14,223 | ||||||
Synchrony Financial | 310 | 10,753 | ||||||
|
| |||||||
24,976 | ||||||||
|
| |||||||
Investment Banking & Brokerage – 3.5% |
| |||||||
Morgan Stanley | 238 | 16,287 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Mortgage REITs – 2.1% |
| |||||||
AGNC Investment Corp. | 627 | $ | 9,777 | |||||
|
| |||||||
Other Diversified Financial Services – 3.5% |
| |||||||
Citigroup, Inc. | 261 | 16,116 | ||||||
|
| |||||||
Reinsurance – 4.0% |
| |||||||
Everest Re Group Ltd. | 40 | 9,252 | ||||||
Reinsurance Group of America, Inc. | 81 | 9,430 | ||||||
|
| |||||||
18,682 | ||||||||
|
| |||||||
Total Financials – 20.8% |
| 96,636 | ||||||
Health Care |
| |||||||
Biotechnology – 2.2% |
| |||||||
Amgen, Inc. | 44 | 10,231 | ||||||
|
| |||||||
Health Care Distributors – 2.6% |
| |||||||
McKesson Corp. | 70 | 12,203 | ||||||
|
| |||||||
Health Care Facilities – 2.9% |
| |||||||
HCA Holdings, Inc. | 82 | 13,506 | ||||||
|
| |||||||
Health Care Services – 3.0% |
| |||||||
CVS Caremark Corp. | 204 | 13,934 | ||||||
|
| |||||||
Managed Health Care – 1.3% |
| |||||||
Anthem, Inc. | 18 | 5,908 | ||||||
|
| |||||||
Pharmaceuticals – 2.0% |
| |||||||
GlaxoSmithKline plc ADR | 260 | 9,553 | ||||||
|
| |||||||
Total Health Care – 14.0% |
| 65,335 | ||||||
Industrials |
| |||||||
Aerospace & Defense – 3.1% |
| |||||||
Raytheon Technologies Corp. | 203 | 14,548 | ||||||
|
| |||||||
Electrical Components & Equipment – 5.8% |
| |||||||
Eaton Corp. | 115 | 13,867 | ||||||
nVent Electric plc | 559 | 13,015 | ||||||
|
| |||||||
26,882 | ||||||||
|
| |||||||
Railroads – 3.0% |
| |||||||
Norfolk Southern Corp. | 58 | 13,853 | ||||||
|
| |||||||
Total Industrials – 11.9% |
| 55,283 | ||||||
Information Technology |
| |||||||
Data Processing & Outsourced Services – 2.9% |
| |||||||
Fidelity National Information Services, Inc. | 96 | 13,606 | ||||||
|
| |||||||
Semiconductor Equipment – 1.1% |
| |||||||
Lam Research Corp. | 10 | 4,941 | ||||||
|
|
COMMON STOCKS (Continued) | Shares | Value | ||||||
Semiconductors – 5.6% |
| |||||||
Broadcom Corp., Class A | 32 | $ | 13,871 | |||||
NXP Semiconductors N.V. | 78 | 12,456 | ||||||
|
| �� | ||||||
26,327 | ||||||||
|
| |||||||
Total Information Technology – 9.6% |
| 44,874 | ||||||
Materials |
| |||||||
Diversified Metals & Mining – 2.4% |
| |||||||
BHP Billiton Ltd. ADR | 174 | 11,363 | ||||||
|
| |||||||
Paper Packaging – 2.7% |
| |||||||
Graphic Packaging Holding Co. | 736 | 12,474 | ||||||
|
| |||||||
Total Materials – 5.1% |
| 23,837 | ||||||
Real Estate |
| |||||||
Health Care REITs – 2.7% |
| |||||||
Welltower, Inc. | 191 | 12,331 | ||||||
|
| |||||||
Total Real Estate – 2.7% |
| 12,331 | ||||||
Utilities |
| |||||||
Electric Utilities – 4.6% |
| |||||||
Entergy Corp. | 112 | 11,202 | ||||||
Evergy, Inc. (B) | 178 | 9,898 | ||||||
|
| |||||||
21,100 | ||||||||
|
| |||||||
Multi-Utilities – 0.6% |
| |||||||
Public Service Enterprise Group, Inc. | 50 | 2,921 | ||||||
|
| |||||||
Total Utilities – 5.2% |
| 24,021 | ||||||
TOTAL COMMON STOCKS – 97.7% |
| $ | 454,247 | |||||
(Cost: $383,857) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (C) – 2.3% |
| |||||||
State Street Institutional U.S. Government Money Market Fund – Premier Class, | ||||||||
0.030% | 10,893 | 10,893 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 2.3% |
| $ | 10,893 | |||||
(Cost: $10,893) | ||||||||
TOTAL INVESTMENT SECURITIES – 100.0% |
| $ | 465,140 | |||||
(Cost: $394,750) | ||||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – 0.0% |
| (138 | ) | |||||
NET ASSETS – 100.0% |
| $ | 465,002 |
2020 | ANNUAL REPORT | 67 |
Table of Contents
SCHEDULE OF INVESTMENTS | VALUE (in thousands) |
DECEMBER 31, 2020
Notes to Schedule of Investments
(A) | No dividends were paid during the preceding 12 months. |
(B) | All or a portion of securities with an aggregate value of $414 are held in collateralized accounts to cover potential obligations with respect to outstanding written options. |
(C) | Rate shown is the annualized 7-day yield at December 31, 2020. |
The following written options were outstanding at December 31, 2020 (contracts and exercise prices unrounded):
Underlying Security | Counterparty, if OTC | Type | Number of Contracts | Notional Amount | Expiration Month | Exercise Price | Premium Received | Value | ||||||||||||||||||||||
Broadcom Corp., Class A | N/A | Call | 32 | 3 | January 2021 | $ | 440.00 | $ | 25 | $ | (27 | ) | ||||||||||||||||||
nVent Electric plc | JPMorgan Chase Bank N.A. | Put | 717 | 72 | February 2021 | 25.00 | 287 | (183 | ) | |||||||||||||||||||||
Reinsurance Group of America, Inc. | JPMorgan Chase Bank N.A. | Put | 84 | 8 | April 2021 | 140.00 | 318 | (218 | ) | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
$ | 630 | $ | (428 | ) | ||||||||||||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Common Stocks | $ | 454,247 | $ | — | $ | — | ||||||
Short-Term Securities | 10,893 | — | — | |||||||||
Total | $ | 465,140 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Written Options | $ | 27 | $ | 401 | $ | — |
The following acronyms are used throughout this schedule:
ADR = American Depository Receipts
OTC = Over the Counter
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
68 | ANNUAL REPORT | 2020 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES | IVY VIP |
AS OF DECEMBER 31, 2020
(In thousands, except per share amounts) | Core Equity | Corporate Bond | Global Bond | Global Equity Income | Global Growth | Limited- Term Bond | Securian Real Estate Securities | Value | ||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities at value+^ | $ | 735,135 | $ | 680,031 | $ | 21,256 | $ | 314,555 | $ | 155,477 | $ | 427,814 | $ | 30,993 | $ | 465,140 | ||||||||||||||||||||||||
Investments at Value | 735,135 | 680,031 | 21,256 | 314,555 | 155,477 | 427,814 | 30,993 | 465,140 | ||||||||||||||||||||||||||||||||
Cash | — | — | — | — | — | — | — | * | — | |||||||||||||||||||||||||||||||
Restricted cash | — | 410 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Investment securities sold receivable | 1,526 | 634 | 1 | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Dividends and interest receivable | 347 | 5,530 | 220 | 871 | 287 | 2,355 | 135 | 644 | ||||||||||||||||||||||||||||||||
Capital shares sold receivable | 7 | 1 | 2 | — | * | 4 | — | * | 7 | — | * | |||||||||||||||||||||||||||||
Receivable from affiliates | 160 | — | — | — | 58 | — | — | — | ||||||||||||||||||||||||||||||||
Receivable from securities lending income – net | — | * | — | * | — | * | 1 | 1 | — | * | — | — | * | |||||||||||||||||||||||||||
Prepaid and other assets | 5 | 4 | — | * | 1 | 2 | 1 | — | * | 3 | ||||||||||||||||||||||||||||||
Total Assets | 737,180 | 686,610 | 21,479 | 315,428 | 155,829 | 430,170 | 31,135 | 465,787 | ||||||||||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||||||||||||
Cash collateral on securities loaned at value | — | 761 | 926 | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Investment securities purchased payable | — | 625 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Capital shares redeemed payable | 349 | 258 | 2 | 111 | 6 | 130 | 21 | 262 | ||||||||||||||||||||||||||||||||
Independent Trustees and Chief Compliance Officer fees payable | 100 | 70 | 1 | 41 | 49 | 29 | 6 | 56 | ||||||||||||||||||||||||||||||||
Overdraft due to custodian | — | — | * | — | — | 78 | — | — | — | |||||||||||||||||||||||||||||||
Distribution and service fees payable | 5 | 5 | — | * | 2 | 1 | 3 | — | * | 3 | ||||||||||||||||||||||||||||||
Investment management fee payable | 14 | 9 | — | 6 | 3 | 6 | 1 | 9 | ||||||||||||||||||||||||||||||||
Accounting services fee payable | 28 | 27 | 3 | 16 | 11 | 21 | 4 | 21 | ||||||||||||||||||||||||||||||||
Variation margin payable | — | 33 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Written options at value+ | — | — | — | — | — | — | — | 428 | ||||||||||||||||||||||||||||||||
Other liabilities | 9 | 10 | 5 | 12 | 11 | 8 | 6 | 6 | ||||||||||||||||||||||||||||||||
Total Liabilities | 505 | 1,798 | 937 | 188 | 159 | 197 | 38 | 785 | ||||||||||||||||||||||||||||||||
Commitments and Contingencies | ||||||||||||||||||||||||||||||||||||||||
Total Net Assets | $ | 736,675 | $ | 684,812 | $ | 20,542 | $ | 315,240 | $ | 155,670 | $ | 429,973 | $ | 31,097 | $ | 465,002 | ||||||||||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||||||||||||||||||
Capital paid in (shares authorized – unlimited) | $ | 498,985 | $ | 595,800 | $ | 19,835 | $ | 278,432 | $ | 93,726 | $ | 412,656 | $ | 29,709 | $ | 388,857 | ||||||||||||||||||||||||
Accumulated earnings gain | 237,690 | 89,012 | 707 | 36,808 | 61,944 | 17,317 | 1,388 | 76,145 | ||||||||||||||||||||||||||||||||
Total Net Assets | $ | 736,675 | $ | 684,812 | $ | 20,542 | $ | 315,240 | $ | 155,670 | $ | 429,973 | $ | 31,097 | $ | 465,002 | ||||||||||||||||||||||||
CAPITAL SHARES OUTSTANDING: | ||||||||||||||||||||||||||||||||||||||||
Class II | 51,288 | 113,160 | 3,907 | 52,371 | 36,256 | 85,835 | 4,460 | 72,671 | ||||||||||||||||||||||||||||||||
NET ASSET VALUE PER SHARE: | ||||||||||||||||||||||||||||||||||||||||
Class II | $ | 14.36 | $ | 6.05 | $ | 5.26 | $ | 6.02 | $ | 4.29 | $ | 5.01 | $ | 6.97 | $ | 6.40 | ||||||||||||||||||||||||
+COST | ||||||||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities at cost | $ | 529,833 | $ | 635,735 | $ | 20,131 | $ | 280,219 | $ | 101,075 | $ | 418,962 | $ | 30,386 | $ | 394,750 | ||||||||||||||||||||||||
Written options premiums received at cost | — | — | — | — | — | — | — | 630 | ||||||||||||||||||||||||||||||||
^Securities loaned at value | — | 745 | 903 | 7,281 | — | 2,697 | — | — |
* Not shown due to rounding.
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 69 |
Table of Contents
STATEMENTS OF OPERATIONS | IVY VIP |
FOR THE YEAR ENDED DECEMBER 31, 2020
(In thousands) | Core Equity | Corporate Bond | Global Bond | Global Equity Income | Global Growth | Limited- Term Bond | Securian Real Estate Securities | Value | ||||||||||||||||||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||||||||||||||||||||||
Dividends from unaffiliated securities | $ | 9,981 | $ | — | $ | — | $ | 9,951 | $ | 1,751 | $ | — | $ | 733 | $ | 11,001 | ||||||||||||||||||||||||
Foreign dividend withholding tax | (30 | ) | — | — | (708 | ) | (97 | ) | — | — | (72 | ) | ||||||||||||||||||||||||||||
Interest and amortization from unaffiliated securities | 35 | 19,582 | 866 | 21 | 8 | 9,928 | 2 | 77 | ||||||||||||||||||||||||||||||||
Securities lending income – net | — | * | 21 | 4 | 36 | 2 | 3 | — | 38 | |||||||||||||||||||||||||||||||
Total Investment Income | 9,986 | 19,603 | 870 | 9,300 | 1,664 | 9,931 | 735 | 11,044 | ||||||||||||||||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||||||||||||||||||
Investment management fee | 4,774 | 2,993 | 125 | 2,025 | 1,190 | 2,066 | 274 | 3,009 | ||||||||||||||||||||||||||||||||
Distribution and service fees: | ||||||||||||||||||||||||||||||||||||||||
Class II | 1,705 | 1,575 | 50 | 723 | 350 | 1,033 | 76 | 1,075 | ||||||||||||||||||||||||||||||||
Shareholder servicing: | ||||||||||||||||||||||||||||||||||||||||
Class II | — | * | — | * | — | * | — | * | — | * | — | * | — | * | — | * | ||||||||||||||||||||||||
Custodian fees | 15 | 10 | 4 | 31 | 13 | 8 | 3 | 6 | ||||||||||||||||||||||||||||||||
Independent Trustees and Chief Compliance Officer fees | 85 | 63 | 4 | 26 | 26 | 32 | 4 | 39 | ||||||||||||||||||||||||||||||||
Accounting services fee | 165 | 160 | 13 | 92 | 62 | 124 | 26 | 126 | ||||||||||||||||||||||||||||||||
Professional fees | 43 | 59 | 49 | 38 | 49 | 56 | 49 | 42 | ||||||||||||||||||||||||||||||||
Third-party valuation service fees | — | * | 1 | — | 7 | 12 | — | — | — | |||||||||||||||||||||||||||||||
Other | 35 | 29 | 11 | 40 | 20 | 20 | 12 | 25 | ||||||||||||||||||||||||||||||||
Total Expenses | 6,822 | 4,890 | 256 | 2,982 | 1,722 | 3,339 | 444 | 4,322 | ||||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||
Expenses in excess of limit | (330 | ) | — | (124 | ) | — | (136 | ) | — | (28 | ) | — | ||||||||||||||||||||||||||||
Total Net Expenses | 6,492 | 4,890 | 132 | 2,982 | 1,586 | 3,339 | 416 | 4,322 | ||||||||||||||||||||||||||||||||
Net Investment Income | 3,494 | 14,713 | 738 | 6,318 | 78 | 6,592 | 319 | 6,722 | ||||||||||||||||||||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||||||||||||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities | 29,065 | 33,123 | (86 | ) | (2,054 | ) | 11,263 | 7,840 | 445 | (3,769 | ) | |||||||||||||||||||||||||||||
Futures contracts | — | (698 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Written options | — | — | — | — | — | — | — | 39 | ||||||||||||||||||||||||||||||||
Foreign currency exchange transactions | (8 | ) | — | — | * | 5 | (20 | ) | — | — | — | |||||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities | 102,469 | 14,754 | 833 | 9,662 | 15,811 | 1,725 | (1,951 | ) | 823 | |||||||||||||||||||||||||||||||
Futures contracts | — | (65 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Written options | — | — | — | — | — | — | — | 36 | ||||||||||||||||||||||||||||||||
Foreign currency exchange transactions | — | — | — | * | 44 | 19 | — | — | — | |||||||||||||||||||||||||||||||
Net Realized and Unrealized Gain (Loss) | 131,526 | 47,114 | 747 | 7,657 | 27,073 | 9,565 | (1,506 | ) | (2,871 | ) | ||||||||||||||||||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 135,020 | $ | 61,827 | $ | 1,485 | $ | 13,975 | 27,151 | 16,157 | $ | (1,187 | ) | $ | 3,851 |
* Not shown due to rounding.
See Accompanying Notes to Financial Statements.
70 | ANNUAL REPORT | 2020 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS | IVY VIP |
Core Equity | Corporate Bond | Global Bond | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income | $ | 3,494 | $ | 3,660 | $ | 14,713 | $ | 15,182 | $ | 738 | $ | 855 | ||||||||||||||||||
Net realized gain (loss) on investments | 29,057 | 39,097 | 32,425 | 7,968 | (86 | ) | 71 | |||||||||||||||||||||||
Net change in unrealized appreciation | 102,469 | 141,906 | 14,689 | 40,261 | 833 | 1,024 | ||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 135,020 | 184,663 | 61,827 | 63,411 | 1,485 | 1,950 | ||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class II | (41,268 | ) | (73,214 | ) | (15,230 | ) | (15,235 | ) | (784 | ) | (784 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (41,268 | ) | (73,214 | ) | (15,230 | ) | (15,235 | ) | (784 | ) | (784 | ) | ||||||||||||||||||
Capital Share Transactions | (80,352 | ) | (14,607 | ) | 38,413 | 7,718 | (761 | ) | (2,406 | ) | ||||||||||||||||||||
Net Increase (Decrease) in Net Assets | 13,400 | 96,842 | 85,010 | 55,894 | (60 | ) | (1,240 | ) | ||||||||||||||||||||||
Net Assets, Beginning of Period | 723,275 | 626,433 | 599,802 | 543,908 | 20,602 | 21,842 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 736,675 | $ | 723,275 | $ | 684,812 | $ | 599,802 | $ | 20,542 | $ | 20,602 | ||||||||||||||||||
Global Equity Income | Global Growth | Limited-Term Bond | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income | $ | 6,318 | $ | 7,412 | $ | 78 | $ | 596 | $ | 6,592 | $ | 9,982 | ||||||||||||||||||
Net realized gain (loss) on investments | (2,049 | ) | (1,045 | ) | 11,243 | (3,622 | ) | 7,840 | 2,068 | |||||||||||||||||||||
Net change in unrealized appreciation | 9,706 | 54,983 | 15,830 | 36,179 | 1,725 | 10,182 | ||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 13,975 | 61,350 | 27,151 | 33,153 | 16,157 | 22,232 | ||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class II | (8,016 | ) | (85,169 | ) | (585 | ) | (96,488 | ) | (10,693 | ) | (9,903 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (8,016 | ) | (85,169 | ) | (585 | ) | (96,488 | ) | (10,693 | ) | (9,903 | ) | ||||||||||||||||||
Capital Share Transactions | 12,697 | 36,767 | (19,238 | ) | 77,403 | (28,033 | ) | (101,449 | ) | |||||||||||||||||||||
Net Increase (Decrease) in Net Assets | 18,656 | 12,948 | 7,328 | 14,068 | (22,569 | ) | (89,120 | ) | ||||||||||||||||||||||
Net Assets, Beginning of Period | 296,584 | 283,636 | 148,342 | 134,274 | 452,542 | 541,662 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 315,240 | $ | 296,584 | $ | 155,670 | $ | 148,342 | $ | 429,973 | $ | 452,542 |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 71 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS | IVY VIP |
Securian Real Estate Securities | Value | |||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||
Operations: | ||||||||||||||||||||
Net investment income | $ | 319 | $ | 503 | $ | 6,722 | $ | 8,776 | ||||||||||||
Net realized gain (loss) on investments | 445 | 2,485 | (3,730 | ) | 18,462 | |||||||||||||||
Net change in unrealized appreciation (depreciation) | (1,951 | ) | 4,986 | 859 | 84,726 | |||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,187 | ) | 7,974 | 3,851 | 111,964 | |||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||
Class II | (2,884 | ) | (744 | ) | (26,609 | ) | (30,616 | ) | ||||||||||||
Total Distributions to Shareholders | (2,884 | ) | (744 | ) | (26,609 | ) | (30,616 | ) | ||||||||||||
Capital Share Transactions | (293 | ) | (6,032 | ) | (23,117 | ) | (16,326 | ) | ||||||||||||
Net Increase (Decrease) in Net Assets | (4,364 | ) | 1,198 | (45,875 | ) | 65,022 | ||||||||||||||
Net Assets, Beginning of Period | 35,461 | 34,263 | 510,877 | 445,855 | ||||||||||||||||
Net Assets, End of Period | $ | 31,097 | $ | 35,461 | $ | 465,002 | $ | 510,877 |
See Accompanying Notes to Financial Statements.
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2020 | ANNUAL REPORT | 73 |
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FINANCIAL HIGHLIGHTS | IVY VIP |
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Distributions From Net Investment Income | Distributions From Net Realized Gains | Total Distributions | |||||||||||||||||||||||||||||
Core Equity | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 12.63 | $ | 0.06 | $ | 2.44 | $ | 2.50 | $ | (0.07 | ) | $ | (0.70 | ) | $ | (0.77 | ) | ||||||||||||||||||
Year ended 12-31-2019 | 10.80 | 0.06 | 3.10 | 3.16 | (0.07 | ) | (1.26 | ) | (1.33 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 12.30 | 0.07 | (0.53 | ) | (0.46 | ) | (0.06 | ) | (0.98 | ) | (1.04 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 10.67 | 0.05 | 2.09 | 2.14 | (0.05 | ) | (0.46 | ) | (0.51 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 11.75 | 0.05 | 0.32 | 0.37 | (0.05 | ) | (1.40 | ) | (1.45 | ) | |||||||||||||||||||||||||
Corporate Bond | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.60 | 0.14 | 0.46 | 0.60 | (0.15 | ) | — | (0.15 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.13 | 0.15 | 0.47 | 0.62 | (0.15 | ) | — | (0.15 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.35 | 0.14 | (0.24 | ) | (0.10 | ) | (0.11 | ) | (0.01 | ) | (0.12 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.27 | 0.12 | 0.08 | 0.20 | (0.08 | ) | (0.04 | ) | (0.12 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.20 | 0.12 | 0.09 | 0.21 | (0.13 | ) | (0.01 | ) | (0.14 | ) | |||||||||||||||||||||||||
Global Bond | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.07 | 0.19 | 0.20 | 0.39 | (0.20 | ) | — | (0.20 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2019 | 4.81 | 0.20 | 0.24 | 0.44 | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.96 | 0.17 | (0.18 | ) | (0.01 | ) | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||||||
Year ended 12-31-2017 | 4.89 | 0.15 | 0.06 | 0.21 | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.74 | 0.16 | 0.17 | 0.33 | (0.18 | ) | — | (0.18 | ) | ||||||||||||||||||||||||||
Global Equity Income | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 6.01 | 0.12 | 0.03 | 0.15 | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2019 | 6.89 | 0.16 | 1.17 | 1.33 | (0.22 | ) | (1.99 | ) | (2.21 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 8.58 | 0.16 | (1.07 | ) | (0.91 | ) | (0.14 | ) | (0.64 | ) | (0.78 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 7.79 | 0.13 | 1.03 | 1.16 | (0.10 | ) | (0.27 | ) | (0.37 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 7.82 | 0.11 | 0.40 | 0.51 | (0.10 | ) | (0.44 | ) | (0.54 | ) | |||||||||||||||||||||||||
Global Growth | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 3.58 | 0.00 | * | 0.72 | 0.72 | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 8.67 | 0.02 | 1.45 | 1.47 | (0.06 | ) | (6.50 | ) | (6.56 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 9.87 | 0.05 | (0.58 | ) | (0.53 | ) | (0.05 | ) | (0.62 | ) | (0.67 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 8.14 | 0.04 | 1.93 | 1.97 | — | * | (0.24 | ) | (0.24 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 8.68 | 0.01 | (0.28 | ) | (0.27 | ) | (0.02 | ) | (0.25 | ) | (0.27 | ) | |||||||||||||||||||||||
Limited-Term Bond | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 4.95 | 0.08 | 0.12 | 0.20 | (0.14 | ) | — | (0.14 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2019 | 4.84 | 0.09 | 0.11 | 0.20 | (0.09 | ) | — | (0.09 | ) | ||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.88 | 0.09 | (0.05 | ) | 0.04 | (0.08 | ) | — | (0.08 | ) | |||||||||||||||||||||||||
Year ended 12-31-2017 | 4.89 | 0.08 | (0.01 | ) | 0.07 | (0.08 | ) | — | (0.08 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 4.87 | 0.08 | 0.01 | 0.09 | (0.07 | ) | — | (0.07 | ) | ||||||||||||||||||||||||||
Securian Real Estate Securities | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 8.05 | 0.07 | (0.46 | ) | (0.39 | ) | (0.12 | ) | (0.57 | ) | (0.69 | ) | |||||||||||||||||||||||
Year ended 12-31-2019 | 6.60 | 0.17 | 1.43 | 1.60 | (0.12 | ) | (0.03 | ) | (0.15 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 7.64 | 0.10 | (0.54 | ) | (0.44 | ) | (0.11 | ) | (0.49 | ) | (0.60 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 8.40 | 0.11 | 0.27 | 0.38 | (0.11 | ) | (1.03 | ) | (1.14 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 8.98 | 0.10 | 0.25 | 0.35 | (0.10 | ) | (0.84 | ) | (0.94 | ) | |||||||||||||||||||||||||
Value | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 6.72 | 0.09 | (0.05 | ) | 0.04 | (0.12 | ) | (0.24 | ) | (0.36 | ) | ||||||||||||||||||||||||
Year ended 12-31-2019 | 5.69 | 0.11 | 1.32 | 1.43 | (0.05 | ) | (0.35 | ) | (0.40 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 6.44 | 0.07 | (0.51 | ) | (0.44 | ) | (0.12 | ) | (0.19 | ) | (0.31 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.93 | 0.11 | 0.61 | 0.72 | (0.09 | ) | (0.12 | ) | (0.21 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 6.15 | 0.08 | 0.49 | 0.57 | (0.07 | ) | (0.72 | ) | (0.79 | ) |
* | Not shown due to rounding. |
(1) | Based on average weekly shares outstanding. |
(2) | Based on net asset value. Total returns do not reflect a sales charge or contingent sales charge, if applicable. Total returns for periods less than one year are not annualized. |
(3) | Ratios excluding expense waivers are included only for periods in which the class had waived or reimbursed expenses. |
74 | ANNUAL REPORT | 2020 |
Table of Contents
Net Asset End of Period | Total Return(2) | Net Assets, End of Period (in millions) | Ratio of Expenses to Average Net | Ratio of Net Net Assets | Ratio of Net Assets | Ratio of Net Net Assets | Portfolio Turnover Rate | |||||||||||||||||||||||||||||||||
Core Equity |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 14.36 | 21.52 | % | $ | 737 | 0.95 | % | 0.51 | % | 1.00 | % | 0.46 | % | 58 | % | ||||||||||||||||||||||||
Year ended 12-31-2019 | 12.63 | 31.09 | 723 | 0.95 | 0.53 | 1.00 | 0.48 | 80 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 10.80 | -4.51 | 626 | 0.95 | 0.59 | 1.00 | 0.54 | 99 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 12.30 | 20.75 | 445 | 0.95 | 0.42 | 1.00 | 0.37 | 78 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 10.67 | 3.74 | 420 | 0.95 | 0.45 | 1.01 | 0.39 | 75 | ||||||||||||||||||||||||||||||||
Corporate Bond | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 6.05 | 10.97 | 685 | 0.77 | 2.34 | — | — | 95 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.60 | 12.18 | 600 | 0.77 | 2.73 | — | — | 66 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.13 | -1.90 | 544 | 0.77 | 2.77 | — | — | 63 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.35 | 4.01 | 548 | 0.78 | 2.32 | — | — | 66 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.27 | 4.03 | 416 | 0.79 | 2.17 | — | — | 84 | ||||||||||||||||||||||||||||||||
Global Bond | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.26 | 8.15 | 21 | 0.65 | 3.71 | 1.28 | 3.08 | 56 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.07 | 9.42 | 21 | 0.50 | 3.96 | 1.13 | 3.33 | 43 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.81 | -0.18 | 22 | 0.50 | 3.52 | 1.12 | 2.90 | 37 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 4.96 | 4.27 | 23 | 0.50 | 3.08 | 1.12 | 2.46 | 49 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.89 | 7.04 | 22 | 0.50 | 3.28 | 1.13 | 2.65 | 18 | ||||||||||||||||||||||||||||||||
Global Equity Income | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 6.02 | 3.15 | 315 | 1.03 | 2.19 | — | — | 73 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 6.01 | 23.15 | 297 | 1.02 | 2.52 | — | — | 39 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 6.89 | -11.68 | 284 | 1.01 | 2.01 | — | — | 93 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 8.58 | 15.56 | 527 | 1.00 | 1.60 | — | — | 35 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 7.79 | 6.95 | 509 | 1.01 | 1.43 | — | — | 59 | ||||||||||||||||||||||||||||||||
Global Growth | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 4.29 | 20.58 | 156 | 1.13 | 0.06 | 1.23 | -0.04 | 33 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 3.58 | 25.93 | 148 | 1.13 | 0.41 | 1.21 | 0.33 | 26 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 8.67 | -6.27 | 134 | 1.13 | �� | 0.46 | 1.18 | 0.41 | 40 | |||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 9.87 | 24.52 | 424 | 1.14 | 0.47 | 1.17 | 0.44 | 54 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 8.14 | -3.04 | 408 | 1.13 | 0.09 | 1.16 | 0.06 | 71 | ||||||||||||||||||||||||||||||||
Limited-Term Bond | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.01 | 4.14 | 430 | 0.81 | 1.60 | — | — | 74 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 4.95 | 4.23 | 453 | 0.79 | 1.89 | — | — | 54 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.84 | 0.78 | 542 | 0.79 | 1.91 | — | — | 53 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 4.88 | 1.40 | 443 | 0.80 | 1.62 | — | — | 55 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.89 | 1.94 | 395 | 0.81 | 1.53 | — | — | 60 | ||||||||||||||||||||||||||||||||
Securian Real Estate Securities | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 6.97 | -3.13 | 31 | 1.37 | 1.06 | 1.46 | 0.97 | 72 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 8.05 | 24.43 | 35 | 1.26 | 1.36 | 1.35 | 1.27 | 54 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 6.60 | -5.57 | 34 | 1.24 | 1.45 | 1.33 | 1.36 | 71 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 7.64 | 5.39 | 43 | 1.22 | 1.38 | 1.31 | 1.29 | 73 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 8.39 | 4.26 | 49 | 1.20 | 1.26 | 1.29 | 1.17 | 79 | ||||||||||||||||||||||||||||||||
Value | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 6.40 | 1.98 | 465 | 1.01 | 1.57 | — | — | 63 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 6.72 | 26.33 | 511 | 1.00 | 1.81 | — | — | 62 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.69 | -7.24 | 446 | 1.00 | 1.09 | — | — | 56 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 6.44 | 12.49 | 432 | 1.00 | 1.74 | — | — | 67 | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.93 | 11.14 | 379 | 1.02 | 1.38 | 1.03 | 1.37 | 54 |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 75 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS | IVY VIP |
DECEMBER 31, 2020
1. | ORGANIZATION |
Ivy Variable Insurance Portfolios, a Delaware statutory trust (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Core Equity, Corporate Bond, Global Bond, Global Equity Income, Global Growth, Limited-Term Bond, Securian Real Estate Securities and Value (each, a “Portfolio”) are eight series of the Trust and are the only series of the Trust included in these financial statements. The assets belonging to each Portfolio are held separately by the custodian. The investment objective, policies and risk factors of each Portfolio are described more fully in the Prospectus and Statement of Additional Information (“SAI”). Each Portfolio’s investment adviser is Ivy Investment Management Company (“IICO”).
2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies consistently followed by each Portfolio.
Security Transactions and Related Investment Income. Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Portfolio is informed of the ex-dividend date. All or a portion of the distributions received from a real estate investment trust or publicly traded partnership may be designated as a reduction of cost of the related investment or realized gain.
Foreign Currency Translation. Each Portfolio’s accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily, using foreign exchange rates obtained from an independent pricing service approved by the Board of Trustees of the Trust (the “Board”). Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. Each Portfolio combines fluctuations from currency exchange rates and fluctuations in value when computing net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments. Foreign exchange rates are typically valued as of the close of the New York Stock Exchange (“NYSE”), normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
Dividends and Distributions to Shareholders. Dividends and distributions to shareholders are recorded by each Portfolio on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America (“U.S. GAAP”). If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital.
Income Taxes. It is the policy of each Portfolio to distribute all of its taxable income and capital gains to its shareholders and to otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, each Portfolio intends to pay distributions as required to avoid imposition of excise tax. Accordingly, no provision has been made for Federal income taxes. The Portfolios file income tax returns in U.S. federal and applicable state jurisdictions. The Portfolios’ tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax returns. Management of the Trust periodically reviews all tax positions to assess whether it is more likely than not that the position would be sustained upon examination by the relevant tax authority based on the technical merits of each position. As of the date of these financial statements, management believes that no liability for unrecognized tax positions is required.
Segregation and Collateralization. In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”), the Dodd Frank Wall Street Reform and Consumer Protection Act, or the interpretive rules and regulations of the U.S. Commodities Futures Trading Commission require that a Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls, financial futures contracts, foreign currency exchange contracts, options written, securities with extended settlement periods, and swaps), the Portfolio will segregate collateral or designate on its books and records, cash or other liquid securities having a value at least equal to the amount that is required to be physically segregated for the benefit of the counterparty. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party has requirements to deliver/deposit cash or securities as collateral for certain investments. Certain countries require that cash reserves be held while investing in companies incorporated in that country. These cash reserves and cash collateral that has been pledged to cover obligations of the Portfolios under derivative contracts, if any, will be reported separately on the Statements of Assets and Liabilities as “Restricted cash”. Securities collateral pledged for the same purpose, if any, is noted on the Schedule of Investments.
Concentration of Market and Credit Risk. In the normal course of business, the Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet
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all its obligations (issuer credit risk). The value of securities held by the Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Portfolios; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Portfolios may be exposed to counterparty credit risk, or the risk that an entity with which the Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The Portfolios manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Portfolios to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Portfolios’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded on the Portfolios’ Statements of Assets and Liabilities, less any collateral held by the Portfolios.
Certain Portfolios may hold high-yield or non-investment-grade bonds, that may be subject to a greater degree of credit risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. The Portfolios may acquire securities in default and are not obligated to dispose of securities whose issuers subsequently default.
Certain Portfolios may enter into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument, as reflected on the Statements of Assets and Liabilities.
If a Portfolio invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in financial derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Portfolio, or, in the case of hedging positions, that the Portfolio’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
The London Interbank Offered Rate “LIBOR” is an indicative measure of the average interest rate at which major global banks could borrow from one another. LIBOR is quoted in multiple currencies and multiple time frames using data reported by private-sector banks. LIBOR is used extensively in the United States and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives.
It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market.
Management believes that, with respect to any significant investments by a Portfolio in instruments linked to LIBOR, the impact on investments and discontinuation of LIBOR may represent a significant risk.
However, management acknowledges that the anticipated transition away from LIBOR will occur after 2021 and certain of the current investments will mature prior to that time. Furthermore, the ways in which LIBOR’s discontinuation potentially could impact the Portfolios’ investments is not fully known. The extent of that impact may vary depending on various factors, which include, but are not limited to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry participants develop and adopt new successor reference rates and/or fallbacks for both legacy and new instruments.
In addition, the transition to a successor rate could potentially cause (i) increased volatility or illiquidity in markets for instruments that currently rely on LIBOR, (ii) a reduction in the value of certain instruments held by a Portfolio, or (iii) reduced effectiveness of related Portfolio transactions, such as hedging.
As the impacts of the transition become clearer during the next year, management will be evaluating the impacts of these changes.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused
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by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
The individual Portfolios herein have adopted a Liquidity Risk Management Program (the “Program”). The Portfolio’s board has designated a Liquidity Risk Management Committee (the “Committee”) as the administrator of the Program. The Committee or delegates of the Committee conduct the day-to-day operation of the Program. Under the Program, the Committee manages the Portfolio’s liquidity risk, which is the risk that any Portfolio could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Portfolio. This risk is managed by monitoring the degree of liquidity of the Portfolio’s investments, limiting the amount of the Portfolio’s illiquid investments, and utilizing various risk management tools and facilities available to the Portfolio for meeting shareholder redemptions, among other means. The Committee’s process of determining the degree of liquidity of the Portfolio’s investments is supported by one or more third-party liquidity assessment vendors. The Portfolio’s board reviewed a report prepared by a designee of the Committee regarding the operation, adequacy and effectiveness of the Program from the period June 1, 2019, through March 31, 2020. The report described the Program’s liquidity classification methodology and the methodology in establishing a Portfolio’s Highly Liquid Investment Minimum (“HLIM”), if necessary. The Committee reported that during the period covered by the report, there were no material changes to the Program and no significant liquidity events impacting the Portfolio or its ability to timely meet redemptions without dilution to existing shareholders. In addition, the Committee provided its assessment that the Program, including the operation of each Portfolio’s HLIM, where applicable, had been effective in managing the Portfolio’s liquidity risk.
Inflation-Indexed Bonds. Certain Portfolios may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond will be included as interest income on the Statements of Operations, even though investors do not receive their principal until maturity.
Interest Only Obligations. These securities entitle the owner to receive only the interest portion from a bond, Treasury note or pool of mortgages. These securities are generally created by a third party separating a bond or pool of mortgages into distinct interest-only and principal-only securities. As the principal (par) amount of a bond or pool of mortgages is paid down, the amount of interest income earned by the owner will decline as well.
Loans. Certain Portfolios may invest in loans, the interest rates of which float or adjust periodically based upon a specified adjustment schedule, benchmark indicator, or prevailing interest rates, the debtor of which may be a domestic or foreign corporation, partnership or other entity (“Borrower”). Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates generally include prime rates of one or more major U.S. banks, the LIBOR or certificates of deposit rates. Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to which Borrowers repay cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturities. Loans are exempt from registration under the Securities Act of 1933, as amended, may contain certain restrictions on resale, and cannot be sold publicly. A Portfolio’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties.
When a Portfolio purchases assignments, it acquires all the rights and obligations under the loan agreement of the assigning lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than those held by the assigning lender. When a Portfolio purchases a participation of a loan interest, the Portfolio typically enters into a contractual agreement with the lender or other third party selling the participation. A participation interest in loans includes the right to receive payments of principal, interest and any fees to which it is entitled from the lender and only upon receipt by the lender of payments from the Borrower, but not from the Borrower directly. When investing in a participation interest, if a Borrower is unable to meet its obligations under a loan agreement, a Portfolio generally has no direct right to enforce compliance with the terms of the loan agreement. As a result, the Portfolio assumes the credit risk of the Borrower, the selling participant, and any other persons that are interpositioned between the Portfolio and the Borrower. If the lead lender in a typical lending syndicate becomes insolvent, enters Federal Deposit Insurance Corporation (“FDIC”) receivership or, if not FDIC insured, enters into bankruptcy, the Portfolio may incur certain costs and delays in receiving payment or may suffer a loss of principal and interest.
Payment In-Kind Securities. Certain Portfolios may invest in payment in-kind securities (“PIKs”). PIKs give the issuer the option at each interest payment date of making interest payments in cash or in additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro-rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statements of Assets and Liabilities.
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Securities on a When-Issued or Delayed Delivery Basis. Certain Portfolios may purchase securities on a “when-issued” basis, and may purchase or sell securities on a “delayed delivery” basis. “When-issued” or “delayed delivery” refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. Delivery and payment for securities that have been purchased by a Portfolio on a when-issued basis normally take place within six months and possibly as long as two years or more after the trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The purchase of securities on a when-issued basis may increase the volatility of a Portfolio’s NAV to the extent the Portfolio executes such transactions while remaining substantially fully invested. When a Portfolio engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Portfolio to lose the opportunity to obtain or dispose of the security at a price and yield IICO, or the Portfolio’s investment subadviser, as applicable, consider advantageous. The Portfolio maintains internally designated assets with a value equal to or greater than the amount of its purchase commitments. The Portfolio may also sell securities that it purchased on a when-issued or delayed delivery basis prior to settlement of the original purchase.
Custodian Fees. “Custodian fees” on the Statements of Operations may include interest expense incurred by a Portfolio on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. A Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by that Portfolio. The “Earnings credit” line item, if shown, represents earnings on cash balances maintained by that Portfolio during the period. Such interest expense and other custodian fees may be paid with these earnings.
Indemnification. The Trust’s organizational documents provide current and former Trustees and Officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Trust. In the normal course of business, the Trust may also enter into contracts that provide general indemnification. The Trust’s maximum exposure under these arrangements is unknown and is dependent on future claims that may be made against the Trust. The risk of material loss from such claims is considered remote.
Basis of Preparation. Each Portfolio is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). The accompanying financial statements were prepared in accordance with U.S. GAAP, including but not limited to ASC 946. U.S. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Notice of Acquisition. On December 2, 2020, Waddell & Reed Financial, Inc. (“Waddell & Reed Financial”), the parent company of Ivy Investment Management Company (“IICO”), and Macquarie Group Limited, including its asset management division Macquarie Asset Management (together, “Macquarie”), announced that they had entered into an agreement whereby Macquarie will acquire Waddell & Reed Financial (the “Transaction”). The Transaction is subject to approval by Waddell & Reed Financial’s shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of certain other conditions, the Transaction is expected to close by mid-2021. This is subject to change.
Under the Investment Company Act of 1940, as amended, closing of the Transaction will result in the automatic termination of each Portfolio’s investment advisory agreement with IICO, and any related sub-advisory contract(s), where applicable. Each Portfolio’s Board recently approved a new investment advisory agreement (and new sub-advisory agreement(s)). The new investment advisory agreement (and new sub-advisory agreement(s)) approved by each Portfolio’s Board is expected to be presented to Portfolio shareholders for approval, and, if approved, would take effect upon the closing of the Transaction. Ivy Portfolios’ shareholders will receive proxy materials pertaining to this and other matters relating to the Transaction in the first quarter of 2021.
Subsequent Events. Management has performed a review for subsequent events through the date this report was issued.
3. | INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS |
Each Portfolio’s investments are reported at fair value. Fair value is defined as the price that each Portfolio would receive upon selling an asset or would pay upon satisfying a liability in an orderly transaction between market participants at the measurement date. Each Portfolio calculates the NAV of its shares as of the close of the NYSE, normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
For purposes of calculating the NAV, the portfolio securities and financial instruments are valued on each business day using pricing and valuation methods as adopted by the Board. Where market quotes are readily available, fair value is generally determined on the basis of the last reported sales price, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services.
Prices for fixed-income securities are typically based on quotes that are obtained from an independent pricing service approved by the Board. To determine values of fixed-income securities, the independent pricing service utilizes such factors
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as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Securities that cannot be valued by the independent pricing service may be valued using quotes obtained from dealers that make markets in the securities.
Short-term securities with maturities of 60 days or less are valued based on quotes that are obtained from an independent pricing service approved by the Board as described in the preceding paragraph above.
Because many foreign markets close before the NYSE, events may occur between the close of the foreign market and the close of the NYSE that could have a material impact on the valuation of foreign securities. Waddell & Reed Services Company (“WRSCO”), pursuant to procedures adopted by the Board, evaluates the impact of these events and may adjust the valuation of foreign securities to reflect the fair value as of the close of the NYSE. In addition, all securities for which values are not readily available or are deemed unreliable are appraised at fair value as determined in good faith under the supervision of the Board.
Where market quotes are not readily available, portfolio securities or financial instruments are valued at fair value, as determined in good faith by the Board or Valuation Committee pursuant to procedures approved by the Board.
Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes), including where events occur after the close of the relevant market, but prior to the NYSE close, that materially affect the values of a Portfolio’s securities or financial instruments. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available.
The Board has delegated to WRSCO the responsibility for monitoring significant events that may materially affect the values of a Portfolio’s securities or financial instruments and for determining whether the value of the applicable securities or financial instruments should be re-evaluated in light of such significant events. IICO, pursuant to authority delegated by the Board, has established a Valuation Committee to administer and oversee the valuation process, including the use of third party pricing vendors.
The Board has adopted methods for valuing securities and financial instruments in circumstances where market quotes are not readily available. For instances in which daily market quotes are not readily available, investments may be valued, pursuant to procedures established by the Board, with reference to other securities or indices. In the event that the security or financial instrument cannot be valued pursuant to one of the valuation methods established by the Board, the value of the security or financial instrument will be determined in good faith by the Valuation Committee in accordance with the procedures adopted by the Board.
When a Portfolio uses these fair valuation methods applied by WRSCO that use significant unobservable inputs to determine its NAV, securities will be priced by a method that the Board or persons acting at its direction believe accurately reflects fair value and are categorized as Level 3 of the fair value hierarchy. These methods may require subjective determinations about the value of a security. The prices used by a Portfolio may differ from the value that will ultimately be realized at the time the securities are sold.
WRSCO is responsible for monitoring the implementation of the pricing and valuation policies through a series of activities to provide reasonable comfort of the accuracy of prices including: 1) periodic vendor due diligence meetings to review methodologies, new developments, and process at vendors, 2) daily and monthly multi-source pricing comparisons reviewed and submitted to the Valuation Committee, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by management and the Valuation Committee.
Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the factors that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs which are significant to the overall valuation.
The three-tier hierarchy of inputs is summarized as follows:
• | Level 1 – Observable inputs such as quoted prices, available in active markets, for identical assets or liabilities. |
• | Level 2 – Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs. |
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• | Level 3 – Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at its direction that are used in determining the fair value of investments. |
A description of the valuation techniques applied to the Portfolios’ major classes of assets and liabilities measured at fair value on a recurring basis follows:
Asset-Backed Securities and Mortgage-Backed Securities. The fair value of asset-backed securities and mortgage-backed securities are estimated using recently executed transactions and based on models that consider the estimated cash flows of each debt tranche of the issuer, establish a benchmark yield, and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche including, but not limited to, the prepayment speed assumptions and attributes of the collateral. To the extent the inputs are observable and timely, the values would be categorized in Level 2 of the fair value hierarchy, and otherwise they would be categorized as Level 3.
Corporate Bonds. The fair value of corporate bonds, as obtained from an independent pricing service, is estimated using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads adjusted for any basis difference between cash and derivative instruments. While most corporate bonds are categorized in Level 2 of the fair value hierarchy, in instances where lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they are categorized in Level 3 of the fair value hierarchy.
Derivative Instruments. Forward foreign currency contracts are valued based upon the closing prices of the forward currency rates determined at the close of the NYSE, which are provided by an independent pricing service. Swaps derive their value from underlying asset prices, indices, reference rates and other inputs or a combination of these factors. Swaps are valued by an independent pricing service unless the price is unavailable, in which case they are valued at the price provided by a dealer in that security. Exchange-traded futures contracts are generally valued at the settlement price. Listed options are ordinarily valued at the mean of the last bid and ask price provided by an independent pricing service unless the price is unavailable, in which case they are valued at a quotation obtained from a broker-dealer. Over the counter (“OTC”) options are ordinarily valued at the mean of the last bid and ask price for a comparable listed option provided by an independent pricing service unless such a price is unavailable, in which case they are valued at a quotation obtained from a broker-dealer.
Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. OTC derivative contracts include forward foreign currency contracts, swap agreements, and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices, or commodity prices. Depending on the product and the terms of the transaction, the fair value of the OTC derivative products are modeled taking into account the counterparties’ creditworthiness and using a series of techniques, including simulation models. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgments and the pricing inputs are observed from actively quoted markets, as is the case with interest rate swap and option contracts. OTC derivative products valued using pricing models with significant observable inputs are categorized within Level 2 of the fair value hierarchy.
Equity Securities. Equity securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day unless otherwise stated below. OTC equity securities and listed securities for which no price is readily available are valued at the average of the last bid and ask prices.
Mutual funds, including investment funds, typically are valued at the NAV reported as of the valuation date.
Securities that are stated at the last reported sales price or closing price on the day of valuation taken from the primary exchange where the security is principally traded and to the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Foreign securities, for which the primary trading market closes at the same time or after the NYSE, are valued based on quotations from the primary market in which they are traded and categorized in Level 1. Because many foreign securities markets and exchanges close prior to the close of the NYSE, closing prices for foreign securities in those markets or on those exchanges do not reflect the events that occur after that close. Certain foreign securities may be fair valued using a pricing service that considers the correlation of the trading patterns of the foreign security to the intra-day trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, exchange-traded funds, and the movement of certain indices of securities based on a statistical analysis of their historical relationship; such valuations generally are categorized in Level 2.
Preferred stock, repurchase agreements, and other equities traded on inactive markets or valued by reference to similar instruments are also generally categorized in Level 2.
Loans. Loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price
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quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3.
Municipal Bonds. Municipal bonds are fair valued based on pricing models used by and obtained from an independent pricing service that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-wants lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable and timely, the fair values of municipal bonds would be categorized as Level 2; otherwise the fair values would be categorized as Level 3.
Overdraft due to custodian. Due to the short-term nature of overdraft due to custodian, the carrying value approximates fair value and the liability is categorized as Level 2 in the fair value hierarchy.
Restricted Securities. Restricted securities that are deemed to be Rule 144A securities and illiquid, as well as restricted securities held in non-public entities, are included in Level 3 of the fair value hierarchy to the extent that significant inputs to valuation are unobservable, because they trade infrequently, if at all and, therefore, the inputs are unobservable. Restricted securities that are valued at a discount to similar publicly traded securities may be categorized as Level 2 of the fair value hierarchy to the extent that the discount is considered to be insignificant to the fair value measurement in its entirety; otherwise they may be categorized as Level 3.
U.S. Government and Agency Securities. U.S. government and agency securities are normally valued using a model that incorporates market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, quoted market prices, and reference data. Accordingly, U.S. government and agency securities are normally categorized in Level 2 of the fair value hierarchy depending on the liquidity and transparency of the market.
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information.
For fair valuations using unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. In accordance with the requirements of U.S. GAAP, a fair value hierarchy and Level 3 reconciliation, if any, have been included in the Notes to the Schedule of Investments for each respective Portfolio.
Net realized gain (loss) and net unrealized appreciation (depreciation), shown on the reconciliation of Level 3 investments, if applicable, are included on the Statements of Operations in net realized gain (loss) on investments in unaffiliated and/or affiliated securities and in net change in unrealized appreciation (depreciation) on investments in unaffiliated and/or affiliated securities, respectively.
4. | DERIVATIVE INSTRUMENTS ($ amounts in thousands unless indicated otherwise) |
The following disclosures contain information on why and how the Portfolios use derivative instruments, the associated risks of investing in derivative instruments, and how derivative instruments affect the Portfolios’ financial positions and results of operations.
Futures Contracts. Each Portfolio is authorized to engage in buying and selling futures contracts. Upon entering into a futures contract, a Portfolio is required to deposit, in a segregated account, an amount equal to a varying specified percentage of the contract amount. This amount is known as the initial margin. Subsequent amounts, known as variation margin, are paid or received by the Portfolio each day, dependent on the daily fluctuations in the value of the underlying debt security or index. Options on futures contracts may also be purchased or sold by a Portfolio.
Futures contracts are reported on a schedule following the Schedule of Investments. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are identified on the Schedule of Investments. Cash held by the broker to cover initial margin requirements on open futures contracts and the receivable and/or payable for the daily mark to market for the variation margin are noted on the Statements of Assets and Liabilities. The net change in unrealized appreciation (depreciation) is reported on the Statements of Operations. Realized gains (losses) are reported on the Statements of Operations at the closing or expiration of futures contracts.
Risks of entering into futures contracts include the possibility of loss of securities or cash held as collateral, that there may be an illiquid market where the Portfolio is unable to close the contract or enter into an offsetting position and, if used for hedging purposes, the risk that the price of the contract will correlate imperfectly with the prices of the Portfolio’s securities.
Corporate Bond invests in long and/or short positions in futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk).
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Option Contracts. Options purchased by a Portfolio are accounted for in the same manner as portfolio securities. The cost of the underlying instruments acquired through the exercise of call options is increased by the premium paid to purchase the call. The proceeds from instruments sold through the exercise of put options are decreased by the premium paid to purchase the put.
When a Portfolio writes (sells) an option, an amount equal to the premium received by the Portfolio is recorded as a liability. The amount of the liability is subsequently adjusted to reflect the current value of the option written. When an option expires on its stipulated expiration date or a Portfolio enters into a closing purchase transaction, the Portfolio realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the call option was sold), and the liability related to such option is extinguished. When a written call option is exercised, the premium is added to the proceeds from the sale of the underlying instrument in determining whether a Portfolio has realized a gain or loss. When a written put is exercised, the cost basis of the instruments purchased by a Portfolio is reduced by the amount of the premium received.
Investments in options, whether purchased or written, involve certain risks. Writing put options and purchasing call options may increase a Portfolio’s exposure to the underlying instrument. With written options, there may be times when a Portfolio will be required to purchase or sell instruments to meet its obligation under the option contract where the required action is not beneficial to the Portfolio, due to unfavorable movement of the market price of the underlying instrument.
Option contracts can be traded on a regulated exchange or traded OTC. Unlike the trades on a regulated exchange where the clearinghouse guarantees the performances of both the buyer and the seller, to the extent a Portfolio enters into OTC option transactions with counterparties, the Portfolio will be exposed to the risk that counterparties to these OTC transactions will be unable to meet their obligations under the terms of the transaction.
Value purchases and writes call and put options to increase or decrease hedging exposure to underlying instruments (which include credit risk, equity risk, foreign currency exchange rate risk, event risk and/or interest rate risk), increase exposure to various equity markets or certain sectors, gain exposure to or facilitate trading in certain securities and/or, in the case of options written, to generate returns from options premiums.
Collateral and rights of offset. A Portfolio mitigates credit risk with respect to OTC derivative counterparties through credit support annexes (“CSA”) included with an International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreement which is the standard contract governing all OTC derivative transactions between the Portfolio and each of its counterparties. Although it is not possible to eliminate credit risk entirely, the CSA allows the Portfolio and its counterparty to reduce their exposure to the risk of payment default by the other party by holding an amount in collateral equivalent to the realized and unrealized amount of exposure to the counterparty, which is generally held by the Portfolio’s custodian. An amount of collateral is moved to/from applicable counterparties only if the amount of collateral required to be posted surpasses both the threshold and the minimum transfer amount pre-agreed in the CSA between the Portfolio and the counterparty. See Note 2 “Segregation and Collateralization” for additional information with respect to collateral practices.
Offsetting of Assets and Liabilities. The following tables present financial instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement or similar agreement as of December 31, 2020:
Liabilities
Gross Amounts Not Offset on the Statements of Assets and Liabilities | ||||||||||||||||||||||||||||
Portfolio | Gross Amounts of Recognized Liabilities | Gross Amounts Offset on the Statements of Assets and Liabilities | Net Amounts of Liabilities Presented on the Statements of Assets and Liabilities | Financial Instruments and Derivatives Available for Offset | Non-Cash Collateral Pledged | Cash Collateral Pledged | Net Amount Payable | |||||||||||||||||||||
Value | ||||||||||||||||||||||||||||
Written options at value | $ | 401 | $ | — | $ | 401 | $ | — | $ | (401 | ) | $ | — | $ | — |
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Additional | Disclosure Related to Derivative Instruments |
Fair values of derivative instruments as of December 31, 2020:
Assets | Liabilities | |||||||||||||||||
Portfolio | Type of Risk Exposure | Statements of Assets & Liabilities Location | Value | Statements of Assets & Liabilities Location | Value | |||||||||||||
Corporate Bond | Interest Rate | $ | — | Unrealized depreciation on futures contracts* | $ | 65 | ||||||||||||
Value | Equity | — | Written options at value | 428 |
* The value presented includes cumulative gain (loss) on open futures contracts; however, the value reflected on the accompanying Statements of Assets and Liabilities is only the unsettled variation margin receivable (payable) as of December 31, 2020.
Amount of realized gain (loss) on derivatives recognized on the Statements of Operations for the year ended December 31, 2020:
Net realized gain (loss) on: | ||||||||||||||||||||||||||
Portfolio | Type of Risk Exposure | Investments in unaffiliated securities* | Swap agreements | Futures contracts | Written options | Forward foreign currency contracts | Total | |||||||||||||||||||
Corporate Bond | Interest rate | $ | — | $ | — | $ | (698 | ) | $ | — | $ | — | $ | (698 | ) | |||||||||||
Value | Equity | — | — | — | 39 | — | 39 |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
Change in unrealized appreciation (depreciation) on derivatives recognized on the Statements of Operations for the year ended December 31, 2020:
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||||
Portfolio | Type of Risk Exposure | Investments in unaffiliated securities* | Swap agreements | Futures contracts | Written options | Forward foreign currency contracts | Total | |||||||||||||||||||
Corporate Bond | Interest rate | $ | — | $ | — | $ | (65 | ) | $ | — | $ | — | $ | (65 | ) | |||||||||||
Value | Equity | — | — | — | 36 | — | 36 |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
During the year ended December 31, 2020, the average derivative volume was as follows:
Portfolio | Forward foreign currency contracts(1) | Long futures contracts(2) | Short futures contracts(2) | Swap agreements(3) | Purchased options(2) | Written options(2) | ||||||||||||||||||||||||
Corporate Bond | $— | $ | — | $ | 11,629 | $ | — | $ | — | $ | — | |||||||||||||||||||
Value | — | — | — | — | — | 2,142 |
(1) | Average absolute value of unrealized appreciation/depreciation during the period. |
(2) | Average value outstanding during the period. |
(3) | Average notional amount outstanding during the period. |
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5. | INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS ($ amounts in thousands unless indicated otherwise) |
Management Fees. IICO serves as each Portfolio’s investment adviser. The management fee is accrued daily by each Portfolio at the following annual rates as a percentage of average daily net assets:
Portfolio (M – Millions) | $0 to $500M | $500 to $1,000M | $1,000 to $1,500M | $1,500 to $2,000M | $2,000 to $3,000M | Over $3,000M | ||||||||||||||||||
Core Equity | 0.700 | % | 0.700 | % | 0.650 | % | 0.650 | % | 0.600 | % | 0.550 | % | ||||||||||||
Corporate Bond | 0.475 | 0.475 | 0.450 | 0.400 | 0.400 | 0.400 | ||||||||||||||||||
Global Bond | 0.625 | 0.600 | 0.550 | 0.500 | 0.500 | 0.500 | ||||||||||||||||||
Global Equity Income | 0.700 | 0.700 | 0.650 | 0.650 | 0.600 | 0.550 | ||||||||||||||||||
Global Growth | 0.850 | 0.850 | 0.830 | 0.830 | 0.800 | 0.760 | ||||||||||||||||||
Limited-Term Bond | 0.500 | 0.450 | 0.400 | 0.350 | 0.350 | 0.350 | ||||||||||||||||||
Securian Real Estate Securities | 0.900 | 0.900 | 0.870 | 0.870 | 0.840 | 0.800 | ||||||||||||||||||
Value | 0.700 | 0.700 | 0.650 | 0.650 | 0.600 | 0.550 |
IICO has voluntarily agreed to waive a Portfolio’s investment management fee on any Portfolio that is not subadvised on any day that the Portfolio’s net assets are less than $25 million, subject to IICO’s right to change or modify this waiver. See Expense Reimbursements and/or Waivers for more information.
IICO has entered into a Subadvisory Agreement with the following entity on behalf of Securian Real Estate Securities:
Securian Asset Management, Inc. (“Securian”) serves as subadvisor to Securian Real Estate Securities. The subadvisor makes investment decisions in accordance with the Portfolio’s investment objectives, policies and restrictions under the supervision of IICO and the Board of Trustees. IICO pays all applicable costs of the subadvisor.
Independent Trustees and Chief Compliance Officer Fees. Fees paid to the Independent Trustees can be paid in cash or deferred to a later date, at the election of the Trustees according to the Deferred Fee Agreement entered into between the Trust and the Trustee(s). Each Portfolio records its portion of the deferred fees as a liability on the Statements of Assets and Liabilities. All fees paid in cash plus any appreciation (depreciation) in the underlying deferred plan are shown on the Statements of Operations. Additionally, fees paid to the Chief Compliance Officer of the Portfolios are shown on the Statements of Operations.
Accounting Services Fees. The Trust has an Accounting and Administrative Services Agreement with Waddell & Reed Services Company (“WRSCO”), doing business as WI Services Company (“WISC”). Under the agreement, WISC acts as the agent in providing bookkeeping and accounting services and assistance to the Trust, including maintenance of Portfolio records, pricing of Portfolio shares and preparation of certain shareholder reports. For these services, each Portfolio pays WISC a monthly fee of one-twelfth of the annual fee based on the average net asset levels shown in the following table:
(M – Millions) | $0 to $10M | $10 to $25M | $25 to $50M | $50 to $100M | $100 to $200M | $200 to $350M | $350 to $550M | $550 to $750M | $750 to $1,000M | Over $1,000M | ||||||||||||||||||||||||||||||
Annual Fee Rate | $ | 0.00 | $ | 11.50 | $ | 23.10 | $ | 35.50 | $ | 48.40 | $ | 63.20 | $ | 82.50 | $ | 96.30 | $ | 121.60 | $ | 148.50 |
Each Portfolio also pays WISC a monthly administrative fee at the annual rate of 0.01%, or one basis point, for the first $1 billion of net assets with no fee charged for net assets in excess of $1 billion. This fee is voluntarily waived by WISC until a Portfolio’s net assets are at least $10 million and is included in “Accounting services fee” on the Statements of Operations.
Shareholder Servicing. Under the Transfer Agency Agreement between the Trust and WISC, each Portfolio reimburses WISC for certain out-of-pocket costs.
Service Plan. Class II. Under a Service Plan adopted by the Trust pursuant to Rule 12b–1 under the 1940 Act, each Portfolio may pay a service fee to Ivy Distributors, Inc. (“IDI”) for Class II shares in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate IDI for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.
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Expense Reimbursements and/or Waivers. IICO, the Portfolios’ investment manager, IDI, the Portfolios’ distributor, and/or Waddell & Reed Services Company, doing business as WISC, the Portfolios’ transfer agent, have contractually agreed to reimburse sufficient management fees, 12b-1 fees and/or shareholder servicing fees to cap the total annual ordinary fund operating expenses (which would exclude interest, taxes, brokerage commissions, acquired fund fees and expenses, and extraordinary expenses, if any). Portfolio and class expense limitations and related waivers/reimbursements for the year ended December 31, 2020 were as follows:
Portfolio Name | Share Class Name | Type of Expense Limit | Commencement Date | End Date | Expense Limit | Amount of Expense Waiver/ Reimbursement | Expense Reduced | |||||||
Core Equity | Class II | Contractual | 10-1-2016 | 4-30-2021 | 0.95% | $330 | 12b-1 Fees and/or Shareholder Servicing | |||||||
Global Bond | Class II | Voluntary | N/A | N/A | N/A | $124(1) | Investment Management Fee | |||||||
Global Growth | Class II | Contractual | 10-1-2016 | 4-30-2021 | 1.13% | $136 | 12b-1 Fees and/or Shareholder Servicing | |||||||
Securian Real Estate Securities | Class II | Contractual | 12-3-2012 | 4-30-2021 | N/A | $28(2) | Investment Management Fee |
(1) | For Portfolios managed solely by IICO, IICO has voluntarily agreed to waive its management fee for any day that a portfolio’s net assets are less than $25 million, subject to IICO’s right to change or modify this waiver. |
(2) | The Portfolio’s investment management fee is being reduced by 0.09% of average daily net assets until April 30, 2021. |
Any amounts due to the Portfolios as a reimbursement but not paid as of December 31, 2020 are shown as a receivable from affiliates on the Statements of Assets and Liabilities.
6. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the SEC (“Order”), the Ivy Funds, Ivy Variable Insurance Portfolios and InvestEd Portfolios (collectively, the “Funds” only for purposes of this footnote 6) have the ability to lend money to, and borrow money from, each other pursuant to a master interfund lending agreement (“Interfund Lending Program”). Under the Interfund Lending Program, the Funds may lend or borrow money for temporary purposes directly to or from one another (each an “Interfund Loan”), subject to meeting the conditions of the Order. The interest rate to be charged on an Interfund Loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The Funds made no Interfund Loans under the Interfund Lending Program during the year ended December 31, 2020.
7. | INVESTMENT SECURITIES TRANSACTIONS ($ amounts in thousands) |
The cost of purchases and the proceeds from maturities and sales of investment securities (excluding short-term securities) for the year ended December 31, 2020, were as follows:
Purchases | Sales | |||||||||||||||
U.S. Government | Other Issuers | U.S. Government | Other Issuers | |||||||||||||
Core Equity | $ | — | $ | 392,177 | $ | — | $ | 508,806 | ||||||||
Corporate Bond | — | 620,917 | — | 578,907 | ||||||||||||
Global Bond | 2,641 | 8,346 | 3,009 | 9,007 | ||||||||||||
Global Equity Income | — | 217,047 | — | 203,726 | ||||||||||||
Global Growth | — | 45,511 | — | 61,908 | ||||||||||||
Limited-Term Bond | 92,635 | 206,328 | 204,846 | 122,970 | ||||||||||||
Securian Real Estate Securities | — | 21,383 | — | 24,305 | ||||||||||||
Value | — | 261,253 | — | 298,624 |
8. | LOANS OF PORTFOLIO SECURITIES ($ amounts in thousands) |
Each Portfolio may lend their portfolio securities only to borrowers that are approved by the Portfolio’s securities lending agent, The Bank of New York Mellon (“BNYM”). The borrower pledges and maintains with the Portfolio collateral consisting
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of cash or securities issued or guaranteed by the U.S. government. The collateral received by the Portfolio is required to have a value of at least 102% of the market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% of the market value for all other securities, except in the case of loans of foreign securities which are denominated and payable in U.S. dollars, in which case the collateral is required to have a value of at least 102% of the market value of the loaned securities. The market value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Portfolio and any excess collateral is returned by the Portfolio on the next business day. During the term of the loan, the Portfolio is entitled to all distributions made on or in respect of the loaned securities but does not receive interest income on securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
Cash received as collateral for securities on loan may be reinvested in the Dreyfus Institutional Preferred Government Money Market Fund – Institutional Shares or certain other registered money market funds and are disclosed in the Portfolio’s Schedule of Investments and are reflected in the Statements of Assets and Liabilities as cash collateral on securities loaned at value. Non-cash collateral, in the form of securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, is not disclosed in the Portfolio’s Statements of Assets and Liabilities as it is held by the lending agent on behalf of the Portfolio and the Portfolio does not have the ability to re-hypothecate these securities. The securities on loan for each Portfolio are also disclosed in its Schedule of Investments. The total value of any securities on loan as of December 31, 2020 and the total value of the related cash collateral are disclosed in the Statements of Assets and Liabilities. Income earned by the Portfolios from securities lending activity is disclosed in the Statements of Operations.
The following is a summary of each Portfolio’s securities lending positions and related cash and non-cash collateral received as of December 31, 2020:
Portfolio | Value of Securities on Loan | Cash Collateral Received | Non-Cash Collateral Received | Total Collateral Received | ||||||||||||
Corporate Bond | $ | 745 | $ | 761 | $ | — | $ | 761 | ||||||||
Global Bond | 903 | 926 | — | 926 | ||||||||||||
Global Equity Income | 7,281 | — | 7,797 | 7,797 | ||||||||||||
Limited-Term Bond | 2,697 | — | 2,756 | 2,756 |
The cash collateral received amounts presented in the table above are transactions accounted for as secured borrowings and have an overnight and continuous maturity. The proceeds from the cash collateral received is invested in registered money market funds.
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Portfolios benefit from a borrower indemnity provided by BNYM. BNYM’s indemnity allows for full replacement of securities lent wherein BNYM will purchase the unreturned loaned securities on the open market by applying the proceeds of the collateral or to the extent such proceeds are insufficient or the collateral is unavailable, BNYM will purchase the unreturned loan securities at BNYM’s expense. However, the Portfolio could suffer a loss if the value of the investments purchased with cash collateral falls below the value of the cash collateral received.
9. | CAPITAL SHARE TRANSACTIONS (All amounts in thousands) |
The Trust has authorized an unlimited number of no par value shares of beneficial interest. Transactions in shares of beneficial interest were as follows:
Core Equity | Corporate Bond | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class II | 2,903 | $ | 31,943 | 2,145 | $ | 25,198 | 31,953 | $ | 185,875 | 15,860 | $ | 87,364 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 3,675 | 41,268 | 6,669 | 73,214 | 2,715 | 15,230 | 2,907 | 15,235 | ||||||||||||||||||||||||||||
Shares redeemed: |
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Class II | (12,562 | ) | (153,563 | ) | (9,534 | ) | (113,019 | ) | (28,668 | ) | (162,692 | ) | (17,580 | ) | (94,881 | ) | ||||||||||||||||||||
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Net increase (decrease) | (5,984 | ) | $ | (80,352 | ) | (720 | ) | $ | (14,607 | ) | 6,000 | $ | 38,413 | 1,187 | $ | 7,718 | ||||||||||||||||||||
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Global Bond | Global Equity Income | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class II | 1,085 | $ | 5,544 | 750 | $ | 3,702 | 16,011 | $ | 80,580 | 861 | $ | 5,716 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 164 | 784 | 162 | 784 | 1,697 | 8,016 | 15,944 | 85,169 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class II | (1,406 | ) | (7,089 | ) | (1,391 | ) | (6,892 | ) | (14,700 | ) | (75,899 | ) | (8,600 | ) | (54,118 | ) | ||||||||||||||||||||
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Net increase (decrease) | (157 | ) | $ | (761 | ) | (479 | ) | $ | (2,406 | ) | 3,008 | $ | 12,697 | 8,205 | $ | 36,767 | ||||||||||||||||||||
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Global Growth | Limited-Term Bond | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class II | 1,469 | $ | 5,075 | 948 | $ | 4,338 | 25,074 | $ | 124,940 | 9,392 | $ | 46,061 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 178 | 585 | 30,123 | 96,488 | 2,180 | 10,693 | 2,048 | 9,903 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class II | (6,864 | ) | (24,898 | ) | (5,094 | ) | (23,423 | ) | (32,863 | ) | (163,666 | ) | (32,011 | ) | (157,413 | ) | ||||||||||||||||||||
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Net increase (decrease) | (5,217 | ) | $ | (19,238 | ) | 25,977 | $ | 77,403 | (5,609 | ) | $ | (28,033 | ) | (20,571 | ) | $ | (101,449 | ) | ||||||||||||||||||
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Securian Real Estate Securities | Value | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: | ||||||||||||||||||||||||||||||||||||
Class II | 644 | $ | 4,266 | 428 | $ | 3,239 | 15,095 | $ | 79,254 | 4,195 | $ | 26,513 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 494 | 2,884 | 99 | 744 | 5,308 | 26,609 | 5,212 | 30,616 | ||||||||||||||||||||||||||||
Shares redeemed: | ||||||||||||||||||||||||||||||||||||
Class II | (1,084 | ) | (7,443 | ) | (1,311 | ) | (10,015 | ) | (23,715 | ) | (128,980 | ) | (11,823 | ) | (73,455 | ) | ||||||||||||||||||||
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Net increase (decrease) | 54 | $ | (293 | ) | (784 | ) | $ | (6,032 | ) | (3,312 | ) | $ | (23,117 | ) | (2,416 | ) | $ | (16,326 | ) | |||||||||||||||||
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10. | COMMITMENTS |
Bridge loan commitments may obligate a Portfolio to furnish temporary financing to a borrower until permanent financing can be arranged. In connection with these commitments, the Portfolio earns a commitment fee, typically set as a percentage of the commitment amount. Such fee income is included in interest income on the Statements of Operations. At December 31, 2020, there were no outstanding bridge loan commitments.
11. | FEDERAL INCOME TAX MATTERS ($ amounts in thousands) |
For Federal income tax purposes, cost of investments owned at December 31, 2020 and the related unrealized appreciation (depreciation) were as follows:
Portfolio | Cost of Investments | Gross Appreciation | Gross Depreciation | Net Unrealized Appreciation | ||||||||||||
Core Equity | $ | 529,788 | $ | 206,627 | $ | 1,280 | $ | 205,347 | ||||||||
Corporate Bond | 635,790 | 45,220 | 979 | 44,241 | ||||||||||||
Global Bond | 20,131 | 1,264 | 139 | 1,125 | ||||||||||||
Global Equity Income | 281,292 | 41,795 | 8,532 | 33,263 | ||||||||||||
Global Growth | 101,143 | 55,687 | 1,353 | 54,334 | ||||||||||||
Limited-Term Bond | 418,962 | 9,055 | 203 | 8,852 | ||||||||||||
Securian Real Estate Securities | 30,567 | 2,367 | 1,941 | 426 | ||||||||||||
Value | 394,810 | 81,552 | 11,222 | 70,330 |
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For Federal income tax purposes, the Portfolios’ undistributed earnings and profit for the year ended December 31, 2020 and the post-October and late-year ordinary activity updated with information available through the date of this report were as follows:
Portfolio | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Tax Return of Capital | Post- October Capital Losses Deferred | Late-Year Ordinary Losses Deferred | |||||||||||||||
Core Equity | $ | 2,107 | $ | 30,335 | $ | — | $ | — | $ | — | ||||||||||
Corporate Bond | 32,000 | 12,840 | — | — | — | |||||||||||||||
Global Bond | 734 | — | — | — | — | |||||||||||||||
Global Equity Income | 7,038 | — | — | — | — | |||||||||||||||
Global Growth | 87 | 7,557 | — | — | — | |||||||||||||||
Limited-Term Bond | 8,495 | — | — | — | — | |||||||||||||||
Securian Real Estate Securities | 327 | 551 | — | — | — | |||||||||||||||
Value | 5,598 | 70 | — | — | — |
Internal Revenue Code regulations permit each Portfolio to elect to defer into its next fiscal year capital losses and certain specified ordinary items incurred between each November 1 and the end of its fiscal year. Each Portfolio is also permitted to defer into its next fiscal certain ordinary losses that are generated between January 1 and the end of its fiscal year.
The tax character of dividends and distributions paid during the two fiscal years ended December 31, 2020 and 2019 were as follows:
December 31, 2020 | December 31, 2019 | |||||||||||||||||||
Portfolio | Distributed Ordinary Income(1) | Distributed Long-Term Capital Gains | Distributed Ordinary Income(1) | Distributed Long-Term Capital Gains | ||||||||||||||||
Core Equity | $ | 10,009 | $ | 31,259 | $ | 4,416 | $ | 68,798 | ||||||||||||
Corporate Bond | 15,230 | — | 15,235 | — | ||||||||||||||||
Global Bond | 784 | — | 784 | — | ||||||||||||||||
Global Equity Income | 8,016 | — | 8,357 | 76,812 | ||||||||||||||||
Global Growth | 585 | — | 11,998 | 84,490 | ||||||||||||||||
Limited-Term Bond | 10,693 | — | 9,903 | — | ||||||||||||||||
Securian Real Estate Securities | 942 | 1,942 | 582 | 162 | ||||||||||||||||
Value | 10,310 | 16,299 | 3,917 | 26,699 |
(1) | Includes short-term capital gains, if any. |
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes.
Accumulated capital losses represent net capital loss carryovers as of December 31, 2020 that may be available to offset future realized capital gains and thereby reduce future capital gains distributions. As of December 31, 2020, the capital loss carryforwards were as follows:
Portfolio | Short-Term Capital Loss Carryover | Long-Term Capital Loss Carryover | ||||||
Core Equity | $ | — | $ | — | ||||
Corporate Bond | — | — | ||||||
Global Bond | 163 | 986 | ||||||
Global Equity Income | — | 3,503 | ||||||
Global Growth | — | — | ||||||
Limited-Term Bond | — | — | ||||||
Securian Real Estate Securities | — | — | ||||||
Value | — | — |
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Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. These differences are due to differing treatments for items such as deferral of wash sales, post-October losses, late-year ordinary losses, foreign currency transactions, net operating losses, income from passive foreign investment companies (PFICs) and partnership transactions. At December 31, 2020, the following reclassifications were made:
Portfolio | Accumulated Earning Gain (Loss) | Paid-In Capital | ||||||
Core Equity | $ | 2 | $ | (2 | ) | |||
Corporate Bond | — | — | ||||||
Global Bond | — | — | ||||||
Global Equity Income | — | — | ||||||
Global Growth | — | — | ||||||
Limited-Term Bond | — | — | ||||||
Securian Real Estate Securities | — | — | ||||||
Value | 4 | (4 | ) |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | IVY VIP |
To the Shareholders and Board of Trustees of Ivy Variable Insurance Portfolios:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of Ivy VIP Core Equity, Ivy VIP Corporate Bond, Ivy VIP Global Bond, Ivy VIP Global Equity Income, Ivy VIP Global Growth, Ivy VIP Limited-Term Bond, Ivy VIP Securian Real Estate Securities, and Ivy VIP Value, eight of the series constituting the Ivy Variable Insurance Portfolios (the “Funds”), including the schedules of investments, as of December 31, 2020, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of December 31, 2020, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Kansas City, Missouri
February 12, 2021
We have served as the auditor of one or more Waddell & Reed investment companies since 1997.
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INCOME TAX INFORMATION | IVY VIP |
AMOUNTS NOT ROUNDED (UNAUDITED)
The Portfolios hereby designate the following amounts of dividends paid from net ordinary income as dividends qualifying for the 70% dividends received deduction for corporations for the tax period ended December 31, 2020:
Dividends Received Deduction for Corporations | ||||
Core Equity | $ | 8,586,992 | ||
Corporate Bond | — | |||
Global Bond | — | |||
Global Equity Income | 3,154,402 | |||
Global Growth | 706,714 | |||
Limited-Term Bond | — | |||
Securian Real Estate Securities | — | |||
Value | 10,068,505 |
The Portfolios hereby designate the following amounts as distributions of long-term capital gains:
Core Equity | $ | 31,258,981 | ||
Corporate Bond | — | |||
Global Bond | — | |||
Global Equity Income | — | |||
Global Growth | — | |||
Limited-Term Bond | — | |||
Securian Real Estate Securities | 1,941,573 | (1) | ||
Value | 16,298,658 | (2) |
(1) | Of this amount $43,351 is Unrecaptured Section 1250 Gain. |
(2) | Of this amount $49,135 is Unrecaptured Section 1250 Gain. |
Internal Revenue Code regulations permit each qualifying Portfolio to elect to pass through a foreign tax credit to shareholders with respect to foreign taxes paid by the Portfolio. Each Portfolio elected to pass the following amounts of creditable foreign taxes through to their shareholders:
Foreign Tax Credit | Foreign Derived Income | |||||||
Global Equity Income | $ | 499,668 | $ | 5,169,785 |
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BOARD OF TRUSTEES AND OFFICERS | IVY VIP |
(UNAUDITED)
Each of the individuals listed below serves as a trustee for the Trust (28 portfolios), and for the rest of the funds within the Fund Complex, which also includes, in addition to the Trust, the Ivy Funds (45 portfolios), the Ivy High Income Opportunities Fund (a closed-end fund) (“IVH”) and InvestEd Portfolios (“InvestEd”) (10 portfolios).
Board members who are not “interested persons” of the Funds as defined in Section 2(a)(19) of the 1940 Act (Disinterested Trustees) constitute at least 75% of the Board.
Joseph Harroz, Jr. serves as the Independent Chairman of the Trust’s Board and of the Board of Trustees of the other funds in the Fund Complex. Subject to the Trustee Emeritus and Retirement Policy, a Trustee serves until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
The Statement of Additional Information (the “SAI”) for the Trust includes additional information about the Trust’s trustees. The SAI is available without charge, upon request, by calling 1.888.923.3355. It is also available on the Ivy Investments website, www.ivyinvestments.com.
Disinterested Trustees
Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
James M. Concannon 6300 Lamar Avenue Overland Park, KS 66202 1947 | Trustee | 1997 | Emeritus Dean and Professor of Law, Washburn University School of Law (1973 to present). | Director, Kansas Legal Services for Prisoners, Inc. (non-profit community service); Director, U.S. Alliance Corporation and wholly-owned subsidiaries: U.S. Alliance Life and Security Company – Montana and Dakota Capital Life Insurance Company (Insurance) (2009 to present); Director, Kansas Appleseed, Inc. (non-profit community service) (2007 to present); Trustee, WRA Funds (1997-2018); Trustee, Ivy NextShares (2017-2019); Trustee, InvestEd (2001 to present) (10 portfolios overseen); Trustee, Ivy Funds (2017 to present) (45 portfolios overseen); Trustee, IVH (2017 to present) (1 portfolio overseen). | ||||
H. Jeffrey Dobbs 6300 Lamar Avenue Overland Park, KS 66202 1955 | Trustee | 2019 | Global Sector Chairman, Industrial Manufacturing, KPMG LLP (2010-2015). | Director, Valparaiso University (2012 to present); Director, TechAccel LLC (2015 to present) (Tech R&D); Board Member, Kansas City Repertory Theatre (2015 to present); Board Member, PatientsVoices, Inc. (technology) (2018 to present); Board Member, Kansas City Campus for Animal Care (2018 to present); Director, National Association of Manufacturers (2010-2015); Director, The Children’s Center (2003-2015); Director, Metropolitan Affairs Coalition (2003-2015); Director, Michigan Roundtable for Diversity and Inclusion (2003-2015); Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). | ||||
James D. Gressett 6300 Lamar Avenue Overland Park, KS 66202 1950 | Trustee | 2017 | Chief Executive Officer (CEO) of CalPac Pizza LLC (2011 to present); CEO of CalPac Pizza II LLC (2012 to present); CEO of PacPizza LLC (Pizza Hut franchise) (2000 to present); Member/CEO, Southern Pac Pizza LLC (2013 to present); Partner, Century Bridge Partners (real estate investments) (2007 to present); Manager, Hartley Ranch Angus Beef, LLC (2013 to present); President, Penn Capital Corp. (1995 to present); Partner, Penn Capital Partners (1999 to present); Partner, 1788 Chicken, LLC (food franchise) (2016 to present). | Member/Secretary, The Metochoi Group LLC (1999 to present); Member/Chairman, Idea Homes LLC (homebuilding and development) (2013 to present); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee; IVH (2013 to present) (1 portfolio overseen). |
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Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Joseph Harroz, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1967 | Trustee
Independent Chairman | 1998
2015 | President (2020 to present), Interim President (2019-2020), Vice President (2010-2019) and Dean (2010-2019), College of Law, University of Oklahoma; Managing Member, Harroz Investments, LLC, (commercial enterprises) (1998 to present). | Director and Shareholder, Valliance Bank (2007 to present); Director, Foundation Healthcare (formerly Graymark HealthCare) (2008-2017); Trustee, The Mewbourne Family Support Organization (2006 to present) (non-profit); Independent Director, LSQ Manager, Inc. (real estate) (2007-2016); Director, Oklahoma Foundation for Excellence (non-profit) (2008 to present); Director, University of Oklahoma Medical, Inc. (2020 to present) (non-profit); Independent Chairman and Trustee, WRA Funds (Independent Chairman: 2015-2018; Trustee: 1998-2018); Independent Chairman and Trustee, Ivy NextShares (2016-2019); Independent Chairman and Trustee, InvestEd (Independent Chairman: 2015 to present; Trustee: 2001 to present) (10 portfolios overseen); Independent Chairman and Trustee, Ivy Funds (Independent Chairman: 2006 to present; Trustee: 1998 to present) (45 portfolios overseen); Independent Chairman and Trustee, IVH (Independent Chairman and Trustee (2013 to present) (1 portfolio overseen). | ||||
Glendon E. Johnson, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1951 | Trustee | 2017 | Of Counsel, Lee & Smith, PC (law firm, emphasis on finance, securities, mergers and acquisitions law) (1996 to 2020); Owner and Manager, Castle Valley Ranches, LLC (ranching) and Castle Valley Outdoors, LLC (outdoor recreation) (1995 to present); Formerly, Partner, Kelly, Drye & Warren LLP (law firm) (1989-1996); Partner, Lane & Edson PC (law firm) (1987-1989). | Director, Thomas Foundation for Cancer Research (non-profit) (2005 to present); Director, Warriors Afield Legacy Foundation (non-profit) (2014 to present); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee, IVH (2013 to present) (1 portfolio overseen). | ||||
Sandra A.J. Lawrence 6300 Lamar Avenue Overland Park, KS 66202 1957 | Trustee | 2019 | Retired, formerly, Chief Administrative Officer, Children’s Mercy Hospitals and Clinics (2016-2019); CFO, Children’s Mercy Hospitals and Clinics (2005-2016). | Director, Hall Family Foundation (1993 to present); Director, Westar Energy (2004-2018); Trustee, Nelson-Atkins Museum of Art (non-profit) (2007 to present); Director, Turn the Page KC (non-profit) (2012-2016); Director, Kansas Metropolitan Business and Healthcare Coalition (non-profit) (2017-2019); Director, National Association of Corporate Directors (non-profit) (2017 to present); Director, American Shared Hospital Services (2017 to present); Director, Evergy, Inc., Kansas City Power & Light Company, KCP&L Greater Missouri Operations Company, Westar Energy, Inc. and Kansas Gas and Electric Company (related utility companies) (2018 to present); Director, Stowers (research) (2018); Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). | ||||
Frank J. Ross, Jr. Polsinelli PC 900 West 48th Place, Suite 900 Kansas City, MO 64112 1953 | Trustee | 1996 | Shareholder/Director, Polsinelli PC (law firm) (1980 to present). | Trustee, WRA Funds (1996-2018); Trustee, Ivy NextShares (2017-2019); Trustee, InvestEd (2001 to present) (10 portfolios overseen); Trustee, Ivy Funds (2017 to present) (45 portfolios overseen); Trustee, IVH (2017 to present) (1 portfolio overseen). |
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Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Michael G. Smith 6300 Lamar Avenue Overland Park, KS 66202 1944 | Trustee | 2017
| Retired; formerly, with Merrill Lynch as Managing Director of Global Investor Client Strategy (1996-1998), Head of Regional Institutional Sales (1995-1996) and of U.S. Central Region (1986-1995, 1999). | Director, Executive Board, Cox Business School, Southern Methodist University (1998-2019); Lead Director, Northwestern Mutual Funds (2003-2017) (29 portfolios overseen); Director, CTMG, Inc. (clinical testing) (2008-2015); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee, IVH (2013 to present) (1 portfolio overseen). |
Interested Trustee
Mr. Sanders is “interested” by virtue of his current or former engagement as an officer of Waddell & Reed Financial, Inc. (“WDR”) or its wholly-owned subsidiaries, including each Fund’s investment manager, Ivy Investment Management Company (“IICO”), each Fund’s principal underwriter, Ivy Distributors, Inc. (“IDI”), and each Fund’s shareholder servicing and accounting services agent, Waddell & Reed Services Company, doing business as WI Services Company (“WISC”), a subsidiary of Waddell & Reed, Inc. (“Waddell & Reed”), as well as by virtue of his personal ownership of shares of WDR. The address for the Interested Trustee and each of the officers in the following tables is 6300 Lamar Avenue, Overland Park, KS 66202.
Name and Year of Birth | Position(s) Held with the Trust | Trustee/Officer Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Philip J. Sanders 1959 | Trustee | 2019 | CEO, WDR (2016 to present); President, CEO and Chairman, IICO (2016 to present); President of each of the funds in the Fund Complex (2016 to present); CIO, WDR (2011-2019); CIO, IICO (2010-2019). | Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). |
Officers
The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. The Trust’s principal officers are:
Name And Year of Birth | Position(s) Held with the Trust and Fund Complex | Officer of Trust Since | Officer of Fund Complex Since* | Principal Occupation(s) During Past 5 Years | ||||
Jennifer K. Dulski 1980 | Secretary | 2017 | 2017 | Secretary for each of the funds in the Fund Complex (2017 to present); Senior Vice President and Associate General Counsel of Waddell & Reed, IICO and IDI (2018 to present). | ||||
Joseph W. Kauten 1969 | Vice President
Treasurer
Principal Financial Officer | 2009
2009
2009 | 2006
2006
2007 | Principal Financial Officer of each of the funds in the Fund Complex (2007 to present); Vice President and Treasurer of each of the funds in the Fund Complex (2006 to present); Principal Accounting Officer of each of the funds in the Fund Complex (2006-2017); Assistant Treasurer of each of the funds in the Fund Complex (2003-2006); Senior Vice President of Waddell & Reed Services Company (WRSCO) (2014 to present). | ||||
Philip J. Sanders** 1959 | President | 2016 | 2016 | CEO of WDR (2016 to present); President, CEO and Chairman of IICO (2016 to present) and WRIMCO (2016-2018); President of each of the funds in the Fund Complex (2016 to present); CIO of WDR (2011-2019); CIO of IICO (2010-2019) and WRIMCO (2010-2018). | ||||
Scott J. Schneider 1968 | Vice President
Chief Compliance Officer | 2009
2009 | 2006
2004 | Chief Compliance Officer (2004 to present) and Vice President (2006 to present) of each of the funds in the Fund Complex; Vice President of IICO (2006 to present) and WRIMCO (2006-2018). |
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Name And Year of Birth | Position(s) Held with the Trust and Fund Complex | Officer of Trust Since | Officer of Fund Complex Since* | Principal Occupation(s) During Past 5 Years | ||||
Philip A. Shipp 1969 | Assistant Secretary | 2012 | 2012 | Assistant Secretary of each of the funds in the Fund Complex (2012 to present); Vice President of Waddell & Reed and IDI (2010-present). |
* This is the date when the Officer first became an officer of one or more of the funds that are the predecessors to current funds within the Fund Complex (if applicable).
** Mr. Sanders was Vice President of the Trust since 1998, until his appointment as President in 2016.
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RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT | IVY VIP |
At a meeting of the Board of Trustees (the “Board”) of Ivy Variable Insurance Portfolios (the “Trust”) held on August 11th and 12th, 2020, the Board, including all of the trustees who are not “interested persons” (the “Independent Trustees”), as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”), unanimously approved the continuance of the Investment Management Agreement (the “Management Agreement”) between Ivy Investment Management Company (“IICO”) and the Trust, and the continuance of the Investment Subadvisory Agreement between IICO and Securian Asset Management, Inc. (the “Subadviser”) with respect to Ivy VIP Securian Real Estate Securities, Ivy VIP Pathfinder Moderate – Managed Volatility, Ivy VIP Pathfinder Moderately Aggressive – Managed Volatility and Ivy VIP Pathfinder Moderately Conservative – Managed Volatility. The Management Agreement and the Investment Subadvisory Agreement are referred to collectively herein as the “Agreements.”
The Board’s Independent Trustees were assisted in their review by independent legal counsel and met with such counsel separately from representatives of IICO and the Subadviser. Independent legal counsel explained the factors that the Board should consider as part of its review of the Agreements, all as outlined in a memorandum it had provided to the Board prior to the meeting, including, among other things, the nature and the quality of the services provided by IICO and the Subadviser, profitability (including any fall-out benefits) from IICO’s and the Subadviser’s relationships with each series of the Trust (each, a “Fund” and together, the “Funds”), economies of scale, the role played by the Independent Trustees, and information on comparative fees and expenses. The Independent Trustees also considered the written responses and materials produced by IICO and the Subadviser in response to 15(c) due diligence request lists submitted by the Independent Trustees’ legal counsel prior to the meeting, as well as materials produced in response to a follow-up request list sent to IICO by independent legal counsel on behalf of the Independent Trustees. Included in those responses, which had been provided to the Board prior to the meeting, was a Fund-by-Fund profitability analysis prepared by IICO, as well as an explanation of the methodology by which the profitability analysis was calculated. The Board also received extensive materials on performance, expenses and comparable fund information from an independent mutual fund rating service. Finally, the Independent Trustees received and reviewed a considerable amount of information that their independent fee consultant had provided to them. The Independent Trustees previously had reviewed and discussed these materials during a telephonic meeting in July 2020. They further reviewed these materials among themselves, with their independent legal counsel and the independent fee consultant, and with the other Board members at executive sessions of the Independent Trustees at the August 11-12, 2020 Board meeting, during which the Board considered various factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Board’s determination to approve the Agreements are discussed separately below.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of services provided to the Funds by IICO and the Subadviser, taking into account the large amount of materials produced by IICO and the Subadviser in response to the 15(c) due diligence requests submitted on its behalf by independent legal counsel to the Independent Trustees.
The Board also took into account the review that its Investment Oversight Committee (the “IOC”) had conducted, in light of that committee’s duties to assist the Board in the 15(c) process. The IOC had reported to the Board on its review of the performance of the Funds, IICO’s investment risk management function, and the changes IICO and its affiliates have been undertaking for the Trust and the overall fund complex. As such, the Board examined all of IICO’s activities in light of performance and expense structure, as well as the overall rationalization of the Ivy Funds complex, which is designed to provide economies of scale to the shareholders, reduce the Funds’ expenses and enhance the performance of the Funds, particularly in the context of substantial industry change and regulatory developments.
The Board likewise considered the knowledge it had received from its regular meetings, including from the materials provided in connection with those meetings, such as the resources and key personnel of IICO and the Subadviser, as well as the other services provided to the Funds by IICO and the Subadviser, as applicable (e.g., managing the quality of execution of portfolio transactions and the selection of broker-dealers for those transactions, monitoring adherence to each Fund’s investment restrictions, producing reports, providing support services for the Board and its committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various Fund policies and procedures and with applicable laws and regulations). The Board also took into account the compliance environment at IICO and the Subadviser, noting the resources that each has dedicated towards compliance. The Board concluded that the nature and extent of the services provided by IICO and the Subadviser were appropriate, that the quality of those services had been consistent with quality norms in the industry and that the Funds were likely to benefit from the continued provision of those services.
Benefits from the Relationship with the Funds
The Board next discussed whether IICO or the Subadviser derives any other direct or indirect benefit from serving the Funds. In that regard, the Board discussed the transfer agency and shareholder servicing fees that Waddell & Reed Services Company (“WISC”), an affiliate of IICO, has provided the Funds. The Board took note of the caps that management previously had agreed to on shareholder servicing costs. The Board also considered the benefits that accrue to each service provider organization from its respective relationship with the Funds, including the fact that a variety of services are
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provided by affiliates of IICO, including distribution, administrative and Fund accounting services, and, as discussed above, shareholder servicing. The Board also considered that WISC has outsourced certain of its transactional processing operations to a sub-agent, which is designed to promote, and has achieved, greater efficiencies and savings for Fund shareholders over time. After full consideration of these and other factors, the Board concluded that none of IICO, the Subadviser or any of their affiliates receives any additional direct or indirect benefits that would preclude the Board from approving the continuation of the Management Agreement with IICO or the Investment Subadvisory Agreement with the Subadviser.
Economies of Scale
The Board discussed whether economies of scale are being realized by the Funds and whether fee levels reflect those economies of scale for the benefit of the Funds’ shareholders. The Board considered the fact that as a Fund’s assets have grown, the expenses of that Fund generally have fallen. Additionally, in that regard, the Board considered the various initiatives that IICO has recently undertaken, and continues to implement, in seeking to rationalize the Ivy Funds complex, including the Trust, as well as to reduce expenses and enhance performance.
Performance of the Funds and Costs of Services Provided
The Board considered the performance of each Fund and the costs of the services provided, focusing in particular on a number of Funds that the independent fee consultant had identified. Specifically, the Board examined the investment performance of each Fund, including the percentile ranking of each Fund over various periods of time. The Board also examined the performance of each Fund against its respective benchmark index and peer funds for the same periods. After extensively reviewing all of the performance information provided, the Board concluded that the Funds’ performance in each asset class was acceptable. Although the performance of some of the focus Funds identified by the independent fee consultant lagged that of their peers or respective benchmark index, the Board recognized that IICO, or the Subadviser, had taken, or was taking, steps to address that underperformance, and determined to continue to monitor closely the performance of those Funds.
The Board also considered the expenses and expense ratio of each Fund, and the expense limitation and fee reduction arrangements entered into by IICO in light of the services provided by IICO and the Subadviser. The Board also compared each Fund’s expenses, including advisory, distribution and shareholder servicing fees, with the expenses and advisory fees of other investment advisers managing similarly situated funds, as well as the advisory fees that IICO charges for providing advisory services to other accounts in the same asset class for certain Funds. In that regard, the Board noted that IICO performs significant additional services for the Funds as compared to those other accounts. The Board also took into account the information on IICO’s profitability in managing the Funds, including the methodology used to calculate profitability. The Board finally considered the amount of assets in each Fund, each Fund’s average account size and how those factors affect the Funds’ expense ratios, noting that, as the Funds’ assets have increased or decreased over time, the expense ratios of the Funds generally have fallen or risen, respectively. After completing this examination, the Board concluded that each Fund’s expenses are appropriate at the current time.
Independent Fee Consultant Review
Independent legal counsel, on behalf of the Independent Trustees, engaged an independent fee consultant to assist them in evaluating the reasonableness of the management fees charged by IICO to all funds within the Ivy Funds complex. The independent fee consultant’s review addressed the following fee-related factors:
1. The nature, extent and quality of IICO’s services to the Funds;
2. Management fees and expenses in the context of performance;
3. Product category expenses, including peers;
4. Profit margins of IICO’s parent from supplying such services;
5. Subadviser and institutional fee analyses; and
6. Possible economies of scale as a Fund grows larger.
The following summarizes the findings of the independent fee consultant retained by the Independent Trustees.
Summary Findings
The report stated that IICO delivered reasonable levels of performance in the longer-term periods and reasonable levels of service to the Funds in relation to its management fees as compared to the investment advisers of comparable funds. For the 36 months ended March 31, 2020, approximately 23% of the funds within the Ivy Funds complex were in the top quartile of performance and 55% of the Funds were in the top two quartiles of performance and that short-term performance of such funds were showing signs of improvement. Specifically, the report noted that 50% of the funds within the Ivy Funds
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complex were in the top two quartiles in the one-year period. The independent fee consultant noted that the funds’ performance appeared to be grounded in a number of institutional competitive advantages at IICO, including investment management depth, ability to attract top talent, proactive management, performance-focused culture, economic analysis and an effective trading infrastructure.
The report further indicated that total expenses of the funds in the complex, on average, were reasonable in relation to the average total expenses of their respective group of peer funds and that their net management fees were reasonable in relation to the average net management fees of their respective groups of peer funds. The report also stated that the management fees IICO charges to the funds are reasonable in relation to the management fees it charges to its institutional account clients. The report noted that these institutional account clients have different service and infrastructure needs and in addition, the average spread between management fees IICO charged to the funds and those it charges to institutional account clients is reasonable relative to the average fee spreads computed from industry surveys.
The report stated that while it was difficult to confirm overall economies of scale, it was clear that the Funds’ shareholders generally are benefitting from lower expenses as the funds’ assets grow.
The report also noted that the overall profitability of IICO’s parent relative to other complexes is reasonable.
Finally, the report also examined the fees that IICO retains on funds that are subadvised by unaffiliated subadvisers and indicated that those fees are reasonable relative to the industry. The report also stated that the subadvisory fees that IICO earns for serving as a subadviser to an unaffiliated fund when compared to fees of similar funds likewise are reasonable relative to the industry.
Conclusions
The independent fee consultant’s report concluded that it believes that the services provided by IICO and its affiliates and expenses incurred by the funds within the Ivy Funds complex in the previous 12 months are reasonable and provide adequate justification for renewal of the Funds’ existing Agreements.
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ANNUAL PRIVACY NOTICE | IVY VIP |
(UNAUDITED)
FACTS | What does Ivy Variable Insurance Portfolios do with your personal information? | |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do. | |
What? | The types of personal information we collect and share depend on the product or service you have with us. The information can include: | |
• Social Security Number and income, | ||
• Assets and transaction history, and | ||
• Checking account information and wire transfer instructions. | ||
When you are no longer our customer, we continue to share your information as described in this notice. | ||
How? | All financial companies need to share customers’ personal information to conduct everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information, the reasons Ivy Variable Insurance Portfolios chooses to share, and whether you can limit this sharing. |
Reasons we can share your personal information | Does Ivy Variable Insurance Portfolios share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your accounts, respond to court orders and legal investigations or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | Yes | No | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | Yes | No | ||
For our affiliates everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For our affiliates to market to you | No | We don’t share | ||
For non-affiliates to market to you | No | We don’t share |
Questions? | Call 1(800) 777-6472 with questions about this notice. Client service representatives are available Monday through Friday from 7:30 am to 7:00 pm CST. You may also go to www.ivyinvestments.com/privacy_policy. | |
If we serve you through an investment professional, such as a registered representative of a broker-dealer or an investment adviser representative (each, a “financial advisor”), please contact them directly. Specific internet addresses, mailing addresses and telephone numbers are listed on your statements and other correspondence. |
Who we are | ||
Who is providing this notice? | Ivy Variable Insurance Portfolios | |
| ||
What we do | ||
How does Ivy Variable Insurance Portfolios protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | |
How does Ivy Variable Insurance Portfolios collect my personal information? | We collect your personal information, for example, when you: | |
• Give us your contact information or other personal information, | ||
• Open an account, or | ||
• Make deposits to an account or withdrawals from an account. | ||
We also collect your personal information from our affiliates. | ||
Why can’t I limit all sharing? | Federal law gives you the right to limit only: | |
• Sharing for affiliates’ everyday business purposes – information about your creditworthiness, | ||
• Affiliates from using your information to market to you, and | ||
• Sharing for non-affiliates to market to you. | ||
State laws and individual companies may give you additional rights to limit sharing. |
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Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. | |
• Affiliates of Ivy Funds include Waddell & Reed Services Company, Ivy Distributors, Inc., and Ivy Investment Management Company. | ||
Non-affiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. | |
• Ivy Funds does not share your personal information with non-affiliates so they can market to you. | ||
Joint marketing | A formal agreement between non-affiliated financial companies that together market financial products or services to you. | |
• Ivy Funds does not jointly market. | ||
| ||
Other important information | ||
If you own shares of Ivy Variable Insurance Portfolios in the name of a third party, such as a bank or a broker-dealer, the third party’s privacy policy may apply to you in addition to ours. | ||
If you are working with a financial advisor, and the financial advisor leaves their firm and joins another non-affiliated broker-dealer or registered investment adviser, then the financial advisor may be permitted to use limited information to contact you. The information that the financial advisor may use is comprised of your name, address, email address, telephone number and account title. |
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PROXY VOTING INFORMATION | IVY VIP |
(UNAUDITED)
Proxy Voting Guidelines
A description of the policies and procedures Ivy Variable Insurance Portfolios uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1.888.923-3355 and (ii) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Proxy Voting Records
Information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on Form N-PX at www.ivyinvestments.com and on the SEC’s website at www.sec.gov.
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QUARTERLY PORTFOLIO SCHEDULE INFORMATION | IVY VIP |
(UNAUDITED)
Portfolio holdings can be found on the Trust’s website at www.ivyinvestments.com. Alternatively, a complete schedule of portfolio holdings of each Portfolio for the first and third quarters of each fiscal year is filed with the SEC and can be found as an exhibit to the Trust’s Form N-PORT. These holdings may be viewed in the following ways:
• | On the SEC’s website at www.sec.gov. |
• | For review and copy at the SEC’s Public Reference Room in Washington, DC. Information on the operations of the Public Reference Room may be obtained by calling 1.800.SEC.0330. |
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THE IVY VARIABLE INSURANCE PORTFOLIOS FAMILY |
Global/International Portfolios
Global Equity Income
Global Growth
International Core Equity
Domestic Equity Portfolios
Core Equity
Growth
Mid Cap Growth
Small Cap Core
Small Cap Growth
Value
Fixed Income Portfolios
Corporate Bond
Global Bond
High Income
Limited-Term Bond
Money Market Portfolio
Government Money Market
Specialty Portfolios
Asset Strategy
Balanced
Energy
Natural Resources
Pathfinder Aggressive
Pathfinder Conservative
Pathfinder Moderate
Pathfinder Moderately Aggressive
Pathfinder Moderately Conservative
Pathfinder Moderate – Managed Volatility
Pathfinder Moderately Aggressive – Managed Volatility
Pathfinder Moderately Conservative – Managed Volatility
Science and Technology
Securian Real Estate Securities
The underlying portfolios discussed in this report are only available as investment options in variable annuity and variable life insurance contracts issued by life insurance companies. They are not offered or made available directly to the general public.
This report is submitted for the general information of the shareholders of Ivy Variable Insurance Portfolios. It is not authorized for distribution to prospective investors in a Portfolio unless accompanied with or preceded by the current Portfolio prospectus as well as the variable product prospectus.
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ANN-VIP2 (12/20)
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VARIABLE INSURANCE PORTFOLIOS |
Annual Report
DECEMBER 31, 2020 |
Ivy Variable Insurance Portfolios | ||||
Pathfinder Aggressive | Class II | |||
Pathfinder Conservative | Class II | |||
Pathfinder Moderate | Class II | |||
Pathfinder Moderately Aggressive | Class II | |||
Pathfinder Moderately Conservative | Class II | |||
Pathfinder Moderate — Managed Volatility | Class II | |||
Pathfinder Moderately Aggressive — Managed Volatility | Class II | |||
Pathfinder Moderately Conservative — Managed Volatility | Class II | |||
Government Money Market | Class II |
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CONTENTS | IVY VIP |
3 | ||||
4 | ||||
Management Discussion, Portfolio Highlights and Schedule of Investments: | ||||
6 | ||||
6 | ||||
24 | ||||
27 | ||||
29 | ||||
31 | ||||
34 | ||||
38 | ||||
51 | ||||
52 | ||||
53 | ||||
57 | ||||
60 | ||||
62 | ||||
63 |
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PRESIDENT’S LETTER | IVY VIP |
DECEMBER 31, 2020 (UNAUDITED) | ||
Philip J. Sanders, CFA |
Dear Shareholder,
Markets in 2020 were, to use an overused word, unprecedented. In a matter of months, we witnessed economic and market moves that typically take an entire market cycle of many years to unfold. To start the fiscal year, financial markets had been positive as political conflicts, trade uncertainty and global economic growth concerns waned. However, that upward trajectory suddenly reversed in late February and markets declined in response to two exogenous shocks: the COVID-19 pandemic and the collapse in energy markets. The COVID-19 pandemic caused one of the most rapid and dramatic global economic downturns in history. The U.S. stock markets dropped approximately 35% from peak in February to trough in late March. Global economic activity hit a full stop around the world, as countries and businesses implemented plans to isolate and protect each other. Remarkably, within about 30 days, we moved from a relatively strong domestic economy with financial market indexes hitting record highs, to a global recession.
Governments and central banks took strong steps to mitigate the economic blow of social distancing. Monetary policy response was broader and more rapid than at any other time in history. Global central banks enacted aggressive stimulus through lower interest rates, quantitative easing (QE) and liquidity provisions, with some developing countries implementing QE for the first time. The U.S. Federal Reserve’s (Fed) response included a broad array of policy measures and an unprecedented pace of QE. Fourth quarter 2020 economic data showed the global economy had a very strong rebound. Since the March 23 trough, the S&P 500 Index stabilized and experienced a rapid bounce back. As of fiscal year end, the Index was up 18.40%.
Going forward, we believe there are reasons for optimism as we enter 2021. COVID-19 vaccines are being distributed around the world and record amounts of stimulus continue to support the global economic recovery. This optimism is reflected in our outlook for global growth in 2021, which we believe will return to pre-pandemic levels sooner than expected, driven in part by pent-up demand. We anticipate 2021 U.S. economic GDP growth will average 6.2%, fueled in part by a resurgence in consumption as pandemic-related constraints wane. With President Joe Biden and his administration taking the reins of power in Washington, we anticipate policy changes on several fronts. We expect an additional stimulus package that includes additional checks to individuals, an extension of emergency unemployment benefits and help for state and local governments. Later in the year, we anticipate broader legislation to pass that could include a number of spending
initiatives, including an infrastructure plan with a focus on green initiatives. We also expect the legislation to include higher taxes for businesses and high-income earners.
As we examine the investment landscape, we continue to put greater emphasis on the fundamentals and quality of asset classes and sectors. We believe it is important to stay focused on the merits of individual market sectors, industries and company business models when making investment decisions. Those fundamentals historically have tended to outweigh external factors. In today’s environment, we believe there are many high-quality businesses offering attractive entry points and cyclicals that will likely be key beneficiaries as economies continue to recover. Importantly, through this uncertain time, we remain focused on the innovation and management skill within individual companies, the ultimate drivers of long-term stock prices.
Economic Snapshot
12/31/2020 | 12/31/2019 | |||||||
S&P 500 Index | 3,756.07 | 3,230.78 | ||||||
MSCI EAFE Index | 2,147.53 | 2,036.94 | ||||||
10-Year Treasury Yield | 0.93 | % | 1.92 | % | ||||
U.S. unemployment rate | 6.7 | % | 3.6 | % | ||||
30-year fixed mortgage rate | 2.67 | % | 3.74 | % | ||||
Oil price per barrel | $48.52 | $61.14 |
Sources: Bloomberg, U.S. Department of Labor, MBA, CME
All government statistics shown are subject to periodic revision. The S&P 500 Index is an unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies. MSCI EAFE Index is an unmanaged index comprised of securities that represent the securities markets in Europe, Australasia and the Far East. It is not possible to invest directly in any of these indexes. Mortgage rates are from BankRate and reflect the overnight national average rate on a conventional 30-year fixed loan. Oil prices reflect the market price of West Texas intermediate grade crude.
Respectfully,
Philip J. Sanders, CFA
President
The opinions expressed in this letter are those of the President of the Ivy Variable Insurance Portfolios and are current only through the end of the period of the report, as stated on the cover. The President’s views are subject to change at any time, based on market and other conditions, and no forecasts can be guaranteed.
2020 | ANNUAL REPORT | 3 |
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ILLUSTRATION OF PORTFOLIO EXPENSES | IVY VIP |
(UNAUDITED)
Expense Example
As a shareholder of a Portfolio, you incur ongoing costs, including management fees, distribution and service fees, and other Portfolio expenses. The following table is intended to help you understand your ongoing costs (in dollars) of investing in a Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. As a shareholder in the underlying Ivy VIP Portfolios, the Pathfinder Aggressive, Pathfinder Conservative, Pathfinder Moderate, Pathfinder Moderately Aggressive and Pathfinder Moderately Conservative Portfolios (collectively, the “Pathfinder Portfolios”) and the Pathfinder Moderate — Managed Volatility, Pathfinder Moderately Aggressive — Managed Volatility and Pathfinder Moderately Conservative — Managed Volatility Portfolios (collectively, the “Managed Volatility Portfolios”) will indirectly bear their pro rata share of the expenses incurred by the underlying funds. These expenses are not included in the Pathfinder Portfolios’ or Managed Volatility Portfolios’ annualized expense ratios or the expenses paid during the period. These expenses are, however, included in the effective expenses paid during the period. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six-month period ended December 31, 2020.
Actual Expenses
The first section in the following table provides information about actual investment values and actual expenses for each share class. You may use the information in this section, together with your initial investment in Portfolio shares, to estimate the expenses that you paid over the period. Simply divide the value of that investment by $1,000 (for example, a $7,500 initial investment divided by $1,000 = 7.5), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your investment during this period. In addition, there are fees and expenses imposed under the variable annuity or variable life insurance contract through which shares of the Portfolio are held. Additional fees have the effect of reducing investment returns.
Hypothetical Example for Comparison Purposes
The second section in the following table provides information about hypothetical investment values and hypothetical expenses for each share class based on the Portfolio’s actual expense ratio and an assumed rate of return of five percent per year before expenses, which is not the Portfolio’s actual return. The hypothetical investment values and expenses may not be used to estimate the actual investment value at the end of the period or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this five percent hypothetical example with the five percent hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs as a shareholder of the Portfolio and do not reflect any fees and expenses imposed under the variable annuity or variable life insurance contract through which shares of the Portfolio are held.
Expenses paid may be impacted by expense reduction arrangements. If those arrangements had not been in place, expenses paid would have been higher. See Note 5 in Notes to Financial Statements for further information.
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ILLUSTRATION OF PORTFOLIO EXPENSES | IVY VIP |
(UNAUDITED)
Actual(1) | Hypothetical(2) | |||||||||||||||||||||||||||
Portfolio | Beginning Account Value 6-30-20 | Ending Account Value 12-31-20 | Expenses Paid During Period* | Beginning Account Value 6-30-20 | Ending Account Value 12-31-20 | Expenses Paid During Period* | Annualized Expense Ratio Based on the Six-Month Period | |||||||||||||||||||||
Pathfinder Aggressive | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,196.10 | $ | 0.66 | $ | 1,000 | $ | 1,024.57 | $ | 0.61 | 0.11% | |||||||||||||||
Pathfinder Conservative | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,116.60 | $ | 0.42 | $ | 1,000 | $ | 1,024.75 | $ | 0.40 | 0.08% | |||||||||||||||
Pathfinder Moderate | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,156.70 | $ | 0.22 | $ | 1,000 | $ | 1,024.95 | $ | 0.20 | 0.04% | |||||||||||||||
Pathfinder Moderately Aggressive | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,177.20 | $ | 0.22 | $ | 1,000 | $ | 1,024.95 | $ | 0.20 | 0.04% | |||||||||||||||
Pathfinder Moderately Conservative | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,136.70 | $ | 0.32 | $ | 1,000 | $ | 1,024.86 | $ | 0.30 | 0.06% | |||||||||||||||
Pathfinder Moderate — Managed Volatility | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,133.90 | $ | 1.17 | $ | 1,000 | $ | 1,024.00 | $ | 1.11 | 0.23% | |||||||||||||||
Pathfinder Moderately Aggressive — Managed Volatility | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,154.40 | $ | 1.51 | $ | 1,000 | $ | 1,023.72 | $ | 1.42 | 0.28% | |||||||||||||||
Pathfinder Moderately Conservative — Managed Volatility | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,114.20 | $ | 1.48 | $ | 1,000 | $ | 1,023.69 | $ | 1.42 | 0.29% | |||||||||||||||
Government Money Market | ||||||||||||||||||||||||||||
Class II | $ | 1,000 | $ | 1,000.10 | $ | 0.60 | $ | 1,000 | $ | 1,024.56 | $ | 0.61 | 0.11% |
* | Portfolio expenses are equal to the Portfolio’s annualized expense ratio (provided in the table), multiplied by the average account value over the period, multiplied by 184 days in the six-month period ended December 31, 2020, and divided by 366. |
(1) | This section uses the Portfolio’s actual total return and actual Portfolio expenses. It is a guide to the actual expenses paid by the Portfolio in the period. The “Ending Account Value” shown is computed using the Portfolio’s actual return and the “Expenses Paid During Period” column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Portfolio. A shareholder may use the information here, together with the dollar amount invested, to estimate the expenses that were paid over the period. For every thousand dollars a shareholder has invested, the expenses are listed in the last column of this section. |
(2) | This section uses a hypothetical five percent annual return and actual Portfolio expenses. It helps to compare the Portfolio’s ongoing costs with other mutual funds. A shareholder can compare the Portfolio’s ongoing costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other Portfolios. |
The above illustrations are based on ongoing costs only.
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MANAGEMENT DISCUSSION | PATHFINDER PORTFOLIOS |
(UNAUDITED)
Chace Brundige
Aaron Young
W. Jeffery Surles
Below, F. Chace Brundige, CFA, Aaron D. Young and W. Jeffery Surles, CFA, portfolio managers of each of the five Ivy VIP Pathfinder Portfolios and the three Ivy VIP Pathfinder Managed Volatility Portfolios, discuss positioning, performance and results for the fiscal year ended December 31, 2020. Mr. Brundige has 27 years of industry experience and has managed each VIP Pathfinder Portfolio and VIP Pathfinder Managed Volatility Portfolio since 2016. Mr. Young has 15 years of industry experience and has managed the Portfolios since 2016. Mr. Surles has 19 years of industry experience and has managed the Portfolios since 2018. Since the Ivy VIP Pathfinder Managed Volatility Portfolios’ inception, Securian Asset Management, Inc., (Securian) has served as the subadvisor for the volatility management strategy. Craig Stapleton, CFA of Securian, has 18 years of industry experience and has managed the volatility management strategy since inception. Merlin Erickson, with 28 years of industry experience, and Jeremy Gogos, Ph.D., CFA, with 8 years of industry experience, both of Securian, have managed the strategy since 2017.
Fiscal Year Performance
For the 12 Months Ended December 31, 2020 | ||||
Ivy VIP Pathfinder Aggressive | 15.70% | |||
55% Russell 3000 Index + 30% MSCI EAFE Index + 15% Bloomberg Barclays U.S. Credit Index | 15.45% | |||
55% Russell 3000 Index + 30% MSCI EAFE Index + 15% Bloomberg Barclays U.S. Universal Index | 15.29% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 55% Russell 3000 Index + 30% MSCI EAFE Index + 15% Bloomberg Barclays U.S. Universal Index to a combination of 55% Russell 3000 Index + 30% MSCI EAFE Index + 15% Bloomberg Barclays U.S. Credit Index. | ||||
Ivy VIP Pathfinder Conservative | 12.67% | |||
35% Russell 3000 Index + 35% Bloomberg Barclays U.S. Credit Index + 20% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index + 10% MSCI EAFE Index. | 12.61% | |||
35% Russell 3000 Index + 35% Bloomberg Barclays U.S. Universal Index + 20% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index + 10% MSCI EAFE Index. | 12.38% |
Effective April 30, 2020, the blended benchmark changed from a combination of 35% Russell 3000 Index + 35% Bloomberg Barclays U.S. Universal Index + 20% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index + 10% MSCI EAFE Index to a combination of 35% Russell 3000 Index + 35% Bloomberg Barclays U.S. Credit Index + 20% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index + 10% MSCI EAFE Index. | ||||
Ivy VIP Pathfinder Moderate | 14.35% | |||
45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Credit Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 14.14% | |||
45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Universal Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index | 13.96% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Universal Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index to a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Credit Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index. | ||||
Ivy VIP Pathfinder Moderately Aggressive | 15.12% | |||
50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Credit Index + 5% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 14.82% | |||
50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Universal Index + 5% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index | 14.66% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Universal Index + 5% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index to a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Credit Index + 5% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index. | ||||
Ivy VIP Pathfinder Moderately Conservative | 13.52% | |||
40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Credit Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 13.40% |
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40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Universal Index + 15% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index + 15% MSCI EAFE Index | 13.20% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Universal Index + 15% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index + 15% MSCI EAFE Index to a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Credit Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index. | ||||
Ivy VIP Pathfinder Moderately Conservative — Managed Volatility | 9.61% | |||
40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Credit Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 13.40% | |||
40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Universal Index + 15% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index + 15% MSCI EAFE Index | 13.20% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Universal Index + 15% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index + 15% MSCI EAFE Index to a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Credit Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index. | ||||
Ivy VIP Pathfinder Moderate — Managed Volatility | 9.07% | |||
45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Credit Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 14.14% | |||
45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Universal Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index | 13.96% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Universal Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index to a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Credit Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index. | ||||
Ivy VIP Pathfinder Moderately Aggressive — Managed Volatility | 9.71% | |||
50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Credit Index + 5% Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 14.82% | |||
50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Universal Index + 5% Bloomberg Barclays 1-5 Year U.S. Government/Credit Index | 14.66% | |||
Effective April 30, 2020, the blended benchmark changed from a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Universal Index + 5% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index to a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Credit Index + 5% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index. |
Index Performance
Russell 3000 Index | 20.89% | |||
(generally reflects the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.) | ||||
MSCI EAFE Index | 7.82% | |||
(generally reflects the performance of equity securities across 21 developed market countries in Europe, Australasia and the Far East.) | ||||
Bloomberg Barclays U.S. Credit Index | 9.35% | |||
(generally reflects the performance of all publicly issued, fixed-rate, nonconvertible, investment-grade corporate debt. Issues are rated at least Baa by Moody’s Investors Service or BBB by Standard & Poor’s, if unrated by Moody’s. Collateralized Mortgage Obligations (CMOs) are not included.) | ||||
Bloomberg Barclays 1-3 Year U.S. Government/Credit Index | 3.33% | |||
(generally reflects the performance of Treasuries, agencies, publicly issued U.S. corporate and foreign debentures and secured notes with at least one but less than three years to maturity.) | ||||
Bloomberg Barclays U.S. Universal Index | 7.58% | |||
(generally reflects the performance of USD-denominated, taxable bonds that are rated either investment grade or high yield.) | ||||
Bloomberg Barclays 1-5 Year U.S. Government/Credit Index | 4.71% | |||
(generally reflects the performance of Treasuries, agencies, publicly issued U.S. corporate and foreign debentures and secured notes with at least one but less than five years to maturity.) |
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Multiple indexes are shown because the Portfolios invest in multiple asset classes.
Past performance is not a guarantee of future results. For additional performance information for each Portfolio, please see the Comparison of Change in Value of a $10,000 Investment and the Average Annual Total Return information for each Portfolio found in this report.
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, each Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Variable Insurance Portfolios.
Year in review
Markets plunged in the first quarter of the fiscal year in response to the economic destruction and tremendous uncertainty from the COVID-19 outbreak. The pandemic was not only deadly but thrust tens of millions of Americans suddenly into unemployment and led an economy to severe recession. But the market rebound from March lows was nearly just as sudden in response to vast amounts of monetary and fiscal stimulus, launched by policy makers with a speed and magnitude that had never been seen before in the history of markets. There was more than two trillion dollars of fiscal stimulus, the Federal Funds Rate was cut to zero, and a near doubling of the U.S. Federal Reserve’s (Fed) balance sheet representing an increase of three trillion dollars. While U.S. gross domestic product (GDP) growth fell by more than 30% in the first quarter, it later rebounded by 30% in the third quarter as fiscal and monetary stimulus kicked-in and hope soared that effective vaccines would soon be readily available. Interest rates fell precipitously in the beginning of the fiscal year and generally remained at low levels; credit spreads compressed to pre-COVID-19 tights; and equity markets rallied. After having experienced more than a 30% year-to-date loss at the lows in March, the Russell 3000 Index gained over 75% off its lows to finish with a total return in excess of 20%, on a year-to-date basis at year end.
The Pathfinder Portfolios finished the year with very robust positive returns in 2020. The broad strength across asset classes was reflected by the Portfolios’ benchmarks as the U.S. equity benchmark return exceeded 20% and the international equity benchmark return exceeded 7%. Fixed-income returns were also positive during the year as interest rates declined significantly across the yield curve and credit spreads narrowed. The shorter-term fixed income benchmark return was over 3% while the longer-term fixed income benchmark return exceeded 9% on the year. On a relative basis, the Portfolios outperformed their benchmarks after fees except for the managed volatility portfolios. The performance of the Portfolios reflects the mix of returns in the underlying funds during the year and their allocation weightings.
Although the Portfolios outperformed their blended benchmarks, the most notable detractor of relative performance was being underweight duration and credit risk in fixed income compared to benchmarks in an unusual environment where interest rates declined precipitously, equities rallied and credit spreads narrowed. This positioning benefitted the Portfolios by reducing volatility in the first quarter of 2020 but was a headwind to relative performance given the strong returns simultaneously exhibited in both stocks and bonds later in the fiscal year. However, positive contributions from the equity portion of the portfolio made up the difference, most notably outperformance from the large cap growth and mid cap growth funds.
Changes to exposure
During the period, the Portfolios undertook only modest changes in the underlying mix of funds during the period in order to manage exposures commensurate with the investment objectives of the Portfolios. Additionally, there was a modification to the fixed-income components of the policy benchmarks as of April 30, 2020. This changed the fixed-income indices from the Bloomberg Barclays U.S. Universal Index to Bloomberg Barclays U.S. Credit Index and from the Bloomberg Barclays 1-5 Year U.S. Government/Credit Index to Bloomberg Barclays 1-3 Year U.S. Government/Credit Index. These changes mirrored benchmark changes made in the underlying funds and were found to better represent the exposures in the Pathfinder Portfolios.
Outlook
As populations are inoculated against the virus and as low interest rates and trillions of dollars of stimulus continue to work their way through the economy, activity is expected to continue its upward trajectory toward more normal levels in 2021. The labor market is expected to reach “full employment” by 2022, buoying equity earnings estimates. And while equity and fixed-income valuations are demanding, fiscal stimulus is expected to continue, adding to the pro-cyclical impulse. Additionally, the Fed has indicated a willingness to maintain accommodative monetary policy until a “persistent” and “significant” increase in inflation is observed, likely alleviating upward pressure that might otherwise exist for interest rates. However, a myriad of risk factors remain, as always. Among these risks include the risk of inflation and valuation compression in securities markets that have already priced in much of this good news. Given this balanced outlook, equity allocations are rather neutral with respect to geography, industry and style such that the most significant driver of relative returns should be our underlying active managers’ ability to add alpha through security selection.
8 | ANNUAL REPORT | 2020 |
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Past performance is not a guarantee of future results. As with any mutual fund, the value of each Portfolio’s shares will change, and you could lose money on your investment.
The ability of each Portfolio to meet its investment objective depends both on the allocation of its assets among the Underlying Funds and the ability of those funds to meet their respective investment objectives. Each Portfolio’s share price will likely change daily based on the performance of the Underlying Funds in which it invests. In general, each Portfolio is subject to the same risks as those of the Underlying Funds it holds. Because the Portfolios are weighted toward Underlying Funds that invest in stocks, both U.S. and foreign, including mid cap and small cap stocks, as well as bonds and short-term instruments, the Portfolios are more subject to the risks associated with those investments.
Securian Asset Management, Inc., may be unsuccessful in managing volatility, and there is a risk that the Ivy VIP Managed Volatility Portfolios may experience a high level of volatility in their returns. The Portfolios’ holdings are subject to price volatility, and the Portfolios may not be any less volatile than the market as a whole and could be more volatile. In addition, there can be no guarantee that the Portfolios will achieve their goal of managing the volatility of their equity returns. Furthermore, while the management of volatility seeks competitive returns with more consistent volatility, the management of volatility does not ensure that the Portfolios will deliver competitive returns. Additionally, even if successful, the Portfolios’ management of volatility may also generally result in the Portfolios’ NAV increasing to a lesser degree than the markets (for example, in a rising market with relatively high volatility) or decreasing to a greater degree than the market (for example, in a declining market with relatively low volatility). The Portfolios’ managed volatility strategy may expose the Portfolios to losses (some of which may be sudden) to which it would not have otherwise been exposed if invested only in Underlying Funds. Additionally, the derivatives used by Securian Asset Management to hedge the value of the Portfolios are not identical to the Underlying Funds, and as a result, the Portfolios’ investment in derivatives may decline in value at the same time as the Portfolios’ investment in Underlying Funds. Securian Asset Management does not intend to attempt to manage the volatility of the Portfolios’ fixed-income returns. It is possible that the fixed-income portion of the Portfolios, whose volatility would not be managed by the volatility management strategy, could become more volatile than the equity portion of the Portfolios.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The portfolio managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The indexes noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of any Ivy VIP Pathfinder Portfolio or Ivy VIP Pathfinder Portfolio—Managed Volatility.
2020 | ANNUAL REPORT | 9 |
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PORTFOLIO HIGHLIGHTS | PATHFINDER PORTFOLIOS |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Pathfinder Aggressive – Asset Allocation
Ivy VIP International Core Equity, Class II | 16.3% | |
Ivy VIP Growth, Class II | 15.9% | |
Ivy VIP Core Equity, Class II | 13.2% | |
Ivy VIP Global Equity Income, Class II | 13.2% | |
Ivy VIP Value, Class II | 11.7% | |
Ivy VIP Mid Cap Growth, Class I | 10.0% | |
Ivy VIP Corporate Bond, Class II | 9.4% | |
Ivy VIP Limited-Term Bond, Class II | 4.8% | |
Ivy VIP Small Cap Growth, Class I | 2.6% | |
Ivy VIP Small Cap Core, Class II | 1.3% | |
Ivy VIP High Income, Class I | 0.2% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 1.4% |
Pathfinder Conservative – Asset Allocation
Ivy VIP Corporate Bond, Class II | 25.2% | |
Ivy VIP Limited-Term Bond, Class II | 24.4% | |
Ivy VIP Growth, Class II | 10.1% | |
Ivy VIP Core Equity, Class II | 8.3% | |
Ivy VIP Value, Class II | 7.9% | |
Ivy VIP Mid Cap Growth, Class I | 7.2% | |
Ivy VIP International Core Equity, Class II | 5.5% | |
Ivy VIP Global Equity Income, Class II | 4.5% | |
Ivy VIP Government Money Market, Class II | 2.9% | |
Ivy VIP Small Cap Growth, Class I | 1.6% | |
Ivy VIP High Income, Class I | 1.2% | |
Ivy VIP Small Cap Core, Class II | 0.3% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.9% |
Pathfinder Moderate – Asset Allocation
Ivy VIP Corporate Bond, Class II | 16.9% | |
Ivy VIP Limited-Term Bond, Class II | 14.7% | |
Ivy VIP Growth, Class II | 13.2% | |
Ivy VIP International Core Equity, Class II | 11.0% | |
Ivy VIP Core Equity, Class II | 10.9% | |
Ivy VIP Value, Class II | 9.9% | |
Ivy VIP Global Equity Income, Class II | 8.9% | |
Ivy VIP Mid Cap Growth, Class I | 8.7% | |
Ivy VIP Small Cap Growth, Class I | 2.1% | |
Ivy VIP Government Money Market, Class II | 2.0% | |
Ivy VIP Small Cap Core, Class II | 0.8% | |
Ivy VIP High Income, Class I | 0.7% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.2% |
Pathfinder Moderately Aggressive – Asset Allocation
Ivy VIP Growth, Class II | 14.7% | |
Ivy VIP International Core Equity, Class II | 13.7% | |
Ivy VIP Corporate Bond, Class II | 13.5% | |
Ivy VIP Core Equity, Class II | 12.1% | |
Ivy VIP Global Equity Income, Class II | 11.2% | |
Ivy VIP Value, Class II | 10.9% | |
Ivy VIP Limited-Term Bond, Class II | 9.8% | |
Ivy VIP Mid Cap Growth, Class I | 9.4% | |
Ivy VIP Small Cap Growth, Class I | 2.3% | |
Ivy VIP Small Cap Core, Class II | 1.0% | |
Ivy VIP Government Money Market, Class II | 0.7% | |
Ivy VIP High Income, Class I | 0.5% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 0.2% |
Pathfinder Moderately Conservative – Asset Allocation
Ivy VIP Corporate Bond, Class II | 21.3% | |
Ivy VIP Limited-Term Bond, Class II | 19.6% | |
Ivy VIP Growth, Class II | 11.7% | |
Ivy VIP Core Equity, Class II | 9.6% | |
Ivy VIP Value, Class II | 8.9% | |
Ivy VIP International Core Equity, Class II | 8.3% | |
Ivy VIP Mid Cap Growth, Class I | 7.9% | |
Ivy VIP Global Equity Income, Class II | 6.7% | |
Ivy VIP Government Money Market, Class II | 2.2% | |
Ivy VIP Small Cap Growth, Class I | 1.8% | |
Ivy VIP High Income, Class I | 1.0% | |
Ivy VIP Small Cap Core, Class II | 0.5% | |
Liabilities (Net of Cash and Other Assets), and Cash Equivalents+ | 0.5% |
Pathfinder Moderate – Managed Volatility – Asset Allocation
Ivy VIP Corporate Bond, Class II | 16.5% | |
Ivy VIP Limited-Term Bond, Class II | 14.3% | |
Ivy VIP Growth, Class II | 12.8% | |
Ivy VIP International Core Equity, Class II | 10.7% | |
Ivy VIP Core Equity, Class II | 10.6% | |
Ivy VIP Value, Class II | 9.7% | |
Ivy VIP Global Equity Income, Class II | 8.7% | |
Ivy VIP Mid Cap Growth, Class I | 8.5% | |
Ivy VIP Small Cap Growth, Class I | 2.0% | |
Ivy VIP Government Money Market, Class II | 1.9% | |
Ivy VIP Small Cap Core, Class II | 0.8% | |
Ivy VIP High Income, Class I | 0.7% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 2.8% |
10 | ANNUAL REPORT | 2020 |
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PORTFOLIO HIGHLIGHTS | PATHFINDER PORTFOLIOS |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Pathfinder Moderately Aggressive – Managed Volatility – Asset Allocation
Ivy VIP Growth, Class II | 14.3% | |
Ivy VIP International Core Equity, Class II | 13.4% | |
Ivy VIP Corporate Bond, Class II | 13.1% | |
Ivy VIP Core Equity, Class II | 11.8% | |
Ivy VIP Global Equity Income, Class II | 10.9% | |
Ivy VIP Value, Class II | 10.6% | |
Ivy VIP Limited-Term Bond, Class II | 9.5% | |
Ivy VIP Mid Cap Growth, Class I | 9.2% | |
Ivy VIP Small Cap Growth, Class I | 2.3% | |
Ivy VIP Small Cap Core, Class II | 1.0% | |
Ivy VIP Government Money Market, Class II | 0.7% | |
Ivy VIP High Income, Class I | 0.5% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 2.7% |
Pathfinder Moderately Conservative – Managed Volatility – Asset Allocation
Ivy VIP Corporate Bond, Class II | 20.8% | |
Ivy VIP Limited-Term Bond, Class II | 19.1% | |
Ivy VIP Growth, Class II | 11.4% | |
Ivy VIP Core Equity, Class II | 9.4% | |
Ivy VIP Value, Class II | 8.7% | |
Ivy VIP International Core Equity, Class II | 8.1% | |
Ivy VIP Mid Cap Growth, Class I | 7.7% | |
Ivy VIP Global Equity Income, Class II | 6.5% | |
Ivy VIP Government Money Market, Class II | 2.1% | |
Ivy VIP Small Cap Growth, Class I | 1.8% | |
Ivy VIP High Income, Class I | 1.0% | |
Ivy VIP Small Cap Core, Class II | 0.5% | |
Cash and Other Assets (Net of Liabilities), and Cash Equivalents+ | 2.9% |
The percentages of investments in the underlying funds may not currently be within the target allocation ranges disclosed in the Portfolios’ prospectus due to market movements; these percentages are expected to change over time, and deviation from the target allocation ranges due to market movements is permitted by the prospectus.
+Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
2020 | ANNUAL REPORT | 11 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 55% Russell 3000 Index + 30% MSCI EAFE Index + 15% Bloomberg Barclays U.S. Credit Index.
^^Former Blended Benchmark is computed using a combination of 55% Russell 3000 Index + 30% MSCI EAFE Index + 15% Bloomberg Barclays U.S. Universal Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
See footnotes on page 16.
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 35% Russell 3000 Index + 35% Bloomberg Barclays U.S. Credit Index + 20% Bloomberg Barclays 1-3 Year U.S.Gov/Credit Index + 10% MSCI EAFE Index.
^^Former Blended Benchmark is computed using a combination of 35% Russell 3000 Index + 35% Bloomberg Barclays U.S. Universal Index + 20% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index + 10% MSCI EAFE Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
See footnotes on page 16.
2020 | ANNUAL REPORT | 13 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Credit Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index.
^^Former Blended Benchmark is computed using a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Universal Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
See footnotes on page 16.
14 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 50% Russell 3000 Index +25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Credit Index + 5% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index.
^^Former Blended Benchmark is computed using a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Universal Index + 5% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
See footnotes on page 16.
2020 | ANNUAL REPORT | 15 |
Table of Contents
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Credit Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index.
^^Former Blended Benchmark is computed using a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Universal Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-5 Year U.S.Gov/Credit Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Pathfinder Aggressive | Pathfinder Conservative | Pathfinder Moderate | Pathfinder Moderately Aggressive | Pathfinder Moderately Conservative | |||||||||||||||
1-year period ended 12-31-20 | 15.70% | 12.67% | 14.35% | 15.12% | 13.52% | |||||||||||||||
5-year period ended 12-31-20 | 11.38% | 7.56% | 9.23% | 10.19% | 8.46% | |||||||||||||||
10-year period ended 12-31-20 | 9.44% | 6.34% | 7.81% | 8.51% | 7.16% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
16 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Credit Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-3 Year U.S.Gov/Credit Index.
^^Former Blended Benchmark is computed using a combination of 45% Russell 3000 Index + 25% Bloomberg Barclays U.S. Universal Index + 20% MSCI EAFE Index + 10% Bloomberg Barclays 1-5 Year U.S.Gov/Credit Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
See footnotes on page 19.
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Credit Index + 5% Bloomberg Barclays 1-3 Year U.S. Gov/Credit Index.
^^Former Blended Benchmark is computed using a combination of 50% Russell 3000 Index + 25% MSCI EAFE Index + 20% Bloomberg Barclays U.S. Universal Index + 5% Bloomberg Barclays 1-5 Year U.S. Gov/Credit Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
See footnotes on page 19.
18 | ANNUAL REPORT | 2020 |
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT | PATHFINDER PORTFOLIOS |
(UNAUDITED)
^Current Blended Benchmark is computed using a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Credit Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-3 Year U.S.Gov/Credit Index.
^^Former Blended Benchmark is computed using a combination of 40% Russell 3000 Index + 30% Bloomberg Barclays U.S. Universal Index + 15% MSCI EAFE Index + 15% Bloomberg Barclays 1-5 Year U.S.Gov/Credit Index.
+A benchmark change was effective April 30, 2020. IICO believes that this benchmark is more reflective of the types of securities that the Portfolio invests in. Both the Current Blended Benchmark and the Portfolio’s Former Blended Benchmark are included for comparison purposes.
(1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
Average Annual Total Return(2) | Pathfinder Moderate — Managed Volatility | Pathfinder Moderately Aggressive — Managed Volatility | Pathfinder Moderately Conservative — Managed Volatility | |||||||||
1-year period ended 12-31-20 | 9.07% | 9.71% | 9.61% | |||||||||
5-year period ended 12-31-20 | 7.31% | 8.10% | 6.72% | |||||||||
10-year period ended 12-31-20 | — | — | — | |||||||||
Since inception of Portfolio(3) through 12-31-20 | 6.37% | 6.98% | 5.70% |
(2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please visit www.ivyinvestments.com for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
(3) | 8-1-13 Pathfinder Moderate — Managed Volatility, 8-1-13 Pathfinder Moderately Aggressive — Managed Volatility and 8-1-13 Pathfinder Moderately Conservative — Managed Volatility (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
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SCHEDULE OF INVESTMENTS | PATHFINDER PORTFOLIOS (in thousands) |
DECEMBER 31, 2020
Pathfinder Aggressive
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 623 | $ | 8,944 | |||||
Ivy VIP Corporate Bond, Class II | 1,054 | 6,381 | ||||||
Ivy VIP Global Equity Income, Class II | 1,488 | 8,957 | ||||||
Ivy VIP Growth, Class II | 852 | 10,826 | ||||||
Ivy VIP High Income, Class I | 48 | 165 | ||||||
Ivy VIP International Core Equity, Class II | 675 | 11,035 | ||||||
Ivy VIP Limited-Term Bond, Class II | 652 | 3,265 | ||||||
Ivy VIP Mid Cap Growth, Class I | 387 | 6,809 | ||||||
Ivy VIP Small Cap Core, Class II | 62 | 852 | ||||||
Ivy VIP Small Cap Growth, Class I (B) | 144 | 1,744 | ||||||
Ivy VIP Value, Class II | 1,241 | 7,942 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 66,920 | |||||
(Cost: $65,772) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 1.4% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 957 | 957 | ||||||
|
| |||||||
TOTAL SHORT-TERM |
| $ | 957 | |||||
(Cost: $957) | ||||||||
TOTAL INVESTMENT |
| $ | 67,877 | |||||
(Cost: $66,729) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.0% |
| 26 | ||||||
NET ASSETS – 100.0% |
| $ | 67,903 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | No dividends were paid during the preceding 12 months. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 66,920 | $ | — | $ | — | ||||||
Short-Term Securities | 957 | — | — | |||||||||
|
| |||||||||||
Total | $ | 67,877 | $ | — | $ | — | ||||||
|
|
Pathfinder Conservative
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 649 | $ | 9,317 | |||||
Ivy VIP Corporate Bond, Class II | 4,659 | 28,194 | ||||||
Ivy VIP Global Equity Income, Class II | 830 | 4,994 | ||||||
Ivy VIP Government Money Market, Class II | 3,259 | 3,259 | ||||||
Ivy VIP Growth, Class II | 891 | 11,324 | ||||||
Ivy VIP High Income, Class I | 404 | 1,377 | ||||||
Ivy VIP International Core Equity, Class II | 377 | 6,156 | ||||||
Ivy VIP Limited-Term Bond, Class II | 5,450 | 27,299 | ||||||
Ivy VIP Mid Cap Growth, Class I | 453 | 7,980 | ||||||
Ivy VIP Small Cap Core, Class II | 21 | 285 | ||||||
Ivy VIP Small Cap Growth, Class I (B) | 144 | 1,754 | ||||||
Ivy VIP Value, Class II | 1,384 | 8,857 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 110,796 | |||||
(Cost: $106,603) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 0.9% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 972 | 972 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.9% |
| $ | 972 | |||||
(Cost: $972) | ||||||||
TOTAL INVESTMENT SECURITIES – 100.0% |
| $ | 111,768 | |||||
(Cost: $107,575) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.0% |
| 4 | ||||||
NET ASSETS – 100.0% |
| $ | 111,772 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | No dividends were paid during the preceding 12 months. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 110,796 | $ | — | $ | — | ||||||
Short-Term Securities | 972 | — | — | |||||||||
|
| |||||||||||
Total | $ | 111,768 | $ | — | $ | — | ||||||
|
|
Pathfinder Moderate
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 4,970 | $ | 71,387 | |||||
Ivy VIP Corporate Bond, Class II | 18,355 | 111,081 | ||||||
Ivy VIP Global Equity Income, Class II | 9,757 | 58,729 | ||||||
Ivy VIP Government Money Market, Class II | 12,806 | 12,806 | ||||||
Ivy VIP Growth, Class II | 6,814 | 86,549 | ||||||
Ivy VIP High Income, Class I | 1,427 | 4,860 | ||||||
Ivy VIP International Core Equity, Class II | 4,428 | 72,378 | ||||||
Ivy VIP Limited-Term Bond, Class II | 19,230 | 96,327 | ||||||
Ivy VIP Mid Cap Growth, Class I | 3,235 | 56,948 | ||||||
Ivy VIP Small Cap Core, Class II | 363 | 5,033 | ||||||
Ivy VIP Small Cap Growth, Class I (B) | 1,131 | 13,739 | ||||||
Ivy VIP Value, Class II | 10,171 | 65,081 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 654,918 | |||||
(Cost: $633,172) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 0.1% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 814 | 814 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.1% |
| $ | 814 | |||||
(Cost: $814) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.9% |
| $ | 655,732 | |||||
(Cost: $633,986) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% |
| 477 | ||||||
NET ASSETS – 100.0% |
| $ | 656,209 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | No dividends were paid during the preceding 12 months. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 654,918 | $ | — | $ | — | ||||||
Short-Term Securities | 814 | — | — | |||||||||
|
| |||||||||||
Total | $ | 655,732 | $ | — | $ | — | ||||||
|
|
20 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | PATHFINDER PORTFOLIOS (in thousands) |
DECEMBER 31, 2020
Pathfinder Moderately Aggressive
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 6,739 | $ | 96,797 | |||||
Ivy VIP Corporate Bond, Class II | 17,776 | 107,576 | ||||||
Ivy VIP Global Equity Income, Class II | 14,816 | 89,182 | ||||||
Ivy VIP Government Money Market, Class II | 5,821 | 5,821 | ||||||
Ivy VIP Growth, Class II | 9,231 | 117,250 | ||||||
Ivy VIP High Income, Class I | 1,156 | 3,936 | ||||||
Ivy VIP International Core Equity, Class II | 6,723 | 109,893 | ||||||
Ivy VIP Limited-Term Bond, Class II | 15,575 | 78,021 | ||||||
Ivy VIP Mid Cap Growth, Class I | 4,276 | 75,272 | ||||||
Ivy VIP Small Cap Core, Class II | 588 | 8,150 | ||||||
Ivy VIP Small Cap Growth, Class I (B) | 1,545 | 18,767 | ||||||
Ivy VIP Value, Class II | 13,592 | 86,974 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 797,639 | |||||
(Cost: $773,840) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 0.2% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 1,347 | 1,347 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.2% |
| $ | 1,347 | |||||
(Cost: $1,347) | ||||||||
TOTAL INVESTMENT |
| $ | 798,986 | |||||
(Cost: $775,187) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.0% |
| 10 | ||||||
NET ASSETS – 100.0% |
| $ | 798,996 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | No dividends were paid during the preceding 12 months. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 797,639 | $ | — | $ | — | ||||||
Short-Term Securities | 1,347 | — | — | |||||||||
|
| |||||||||||
Total | $ | 798,986 | $ | — | $ | — | ||||||
|
|
Pathfinder Moderately Conservative
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 1,306 | $ | 18,753 | |||||
Ivy VIP Corporate Bond, Class II | 6,879 | 41,631 | ||||||
Ivy VIP Global Equity Income, Class II | 2,175 | 13,093 | ||||||
Ivy VIP Government Money Market, Class II | 4,287 | 4,287 | ||||||
Ivy VIP Growth, Class II | 1,792 | 22,760 | ||||||
Ivy VIP High Income, Class I | 566 | 1,926 | ||||||
Ivy VIP International Core Equity, Class II | 987 | 16,138 | ||||||
Ivy VIP Limited-Term Bond, Class II | 7,621 | 38,177 | ||||||
Ivy VIP Mid Cap Growth, Class I | 877 | 15,431 | ||||||
Ivy VIP Small Cap Core, Class II | 72 | 998 | ||||||
Ivy VIP Small Cap Growth, Class I (B) | 294 | 3,574 | ||||||
Ivy VIP Value, Class II | 2,721 | 17,409 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 194,177 | |||||
(Cost: $187,415) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 0.5% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 985 | 985 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 0.5% |
| $ | 985 | |||||
(Cost: $985) | ||||||||
TOTAL INVESTMENT |
| $ | 195,162 | |||||
(Cost: $188,400) | ||||||||
LIABILITIES, NET OF CASH AND OTHER ASSETS – 0.0% |
| (40 | ) | |||||
NET ASSETS – 100.0% |
| $ | 195,122 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | No dividends were paid during the preceding 12 months. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 194,177 | $ | — | $ | — | ||||||
Short-Term Securities | 985 | — | — | |||||||||
|
| |||||||||||
Total | $ | 195,162 | $ | — | $ | — | ||||||
|
|
Pathfinder Moderate – Managed Volatility
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 5,369 | $ | 77,125 | |||||
Ivy VIP Corporate Bond, Class II | 19,832 | 120,020 | ||||||
Ivy VIP Global Equity Income, Class II | 10,542 | 63,455 | ||||||
Ivy VIP Government Money Market, Class II | 13,830 | 13,830 | ||||||
Ivy VIP Growth, Class II | 7,361 | 93,502 | ||||||
Ivy VIP High Income, Class I | 1,542 | 5,251 | ||||||
Ivy VIP International Core Equity, Class II | 4,784 | 78,199 | ||||||
Ivy VIP Limited-Term Bond, Class II | 20,777 | 104,080 | ||||||
Ivy VIP Mid Cap Growth, Class I | 3,495 | 61,521 | ||||||
Ivy VIP Small Cap Core, Class II | 393 | 5,437 | ||||||
Ivy VIP Small Cap Growth, Class I (C) | 1,222 | 14,839 | ||||||
Ivy VIP Value, Class II | 10,990 | 70,322 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 707,581 | |||||
(Cost: $675,090) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 2.6% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 19,188 | 19,188 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 2.6% |
| $ | 19,188 | |||||
(Cost: $19,188) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.8% |
| $ | 726,769 | |||||
(Cost: $694,278) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES (B) – 0.2% |
| 1,799 | ||||||
NET ASSETS – 100.0% |
| $ | 728,568 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | Cash of $2,028 has been pledged as collateral on open futures contracts. |
(C) | No dividends were paid during the preceding 12 months. |
The following futures contracts were outstanding at December 31, 2020 (contracts unrounded):
Description | Type | Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Depreciation | ||||||||||||||||
E-mini Russell 2000 Index | Short | 107 | 3-19-21 | 6 | $ | (10,565 | ) | $ | (321 | ) | ||||||||||||
E-mini S&P 500 Index | Short | 126 | 3-19-21 | 6 | (23,618 | ) | (347 | ) | ||||||||||||||
|
| |||||||||||||||||||||
$ | (34,183 | ) | $ | (668 | ) | |||||||||||||||||
|
|
2020 | ANNUAL REPORT | 21 |
Table of Contents
SCHEDULE OF INVESTMENTS | PATHFINDER PORTFOLIOS (in thousands) |
DECEMBER 31, 2020
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 707,581 | $ | — | $ | — | ||||||
Short-Term Securities | 19,188 | — | — | |||||||||
|
| |||||||||||
Total | $ | 726,769 | $ | — | $ | — | ||||||
|
| |||||||||||
Liabilities | ||||||||||||
Futures Contracts | $ | 668 | $ | — | $ | — | ||||||
|
|
Pathfinder Moderately Aggressive – Managed Volatility
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 789 | $ | 11,340 | |||||
Ivy VIP Corporate Bond, Class II | 2,082 | 12,602 | ||||||
Ivy VIP Global Equity Income, Class II | 1,736 | 10,448 | ||||||
Ivy VIP Government Money Market, Class II | 675 | 675 | ||||||
Ivy VIP Growth, Class II | 1,081 | 13,736 | ||||||
Ivy VIP High Income, Class I | 135 | 461 | ||||||
Ivy VIP International Core Equity, Class II | 788 | 12,875 | ||||||
Ivy VIP Limited-Term Bond, Class II | 1,825 | 9,140 | ||||||
Ivy VIP Mid Cap Growth, Class I | 501 | 8,821 | ||||||
Ivy VIP Small Cap Core, Class II | 69 | 955 | ||||||
Ivy VIP Small Cap Growth, Class I (C) | 181 | 2,198 | ||||||
Ivy VIP Value, Class II | 1,593 | 10,192 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL FUNDS – 97.3% |
| $ | 93,443 | |||||
(Cost: $91,314) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 2.5% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 2,414 | 2,414 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 2.5% |
| $ | 2,414 | |||||
(Cost: $2,414) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.8% |
| $ | 95,857 | |||||
(Cost: $93,728) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES (B) – 0.2% |
| 201 | ||||||
NET ASSETS – 100.0% |
| $ | 96,058 |
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | Cash of $232 has been pledged as collateral on open futures contracts. |
(C) | No dividends were paid during the preceding 12 months. |
The following futures contracts were outstanding at December 31, 2020 (contracts unrounded):
Description | Type | Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Depreciation | ||||||||||||||||
E-mini Russell 2000 Index | Short | 13 | 3-19-21 | — | * | $ | (1,284 | ) | $ | (39 | ) | |||||||||||
E-mini S&P 500 Index | Short | 14 | 3-19-21 | 1 | (2,624 | ) | (39 | ) | ||||||||||||||
|
| |||||||||||||||||||||
$ | (3,908 | ) | $ | (78 | ) | |||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 93,443 | $ | — | $ | — | ||||||
Short-Term Securities | 2,414 | — | — | |||||||||
|
| |||||||||||
Total | $ | 95,857 | $ | — | $ | — | ||||||
|
| |||||||||||
Liabilities | ||||||||||||
Futures Contracts | $ | 78 | $ | — | $ | — | ||||||
|
|
22 | ANNUAL REPORT | 2020 |
Table of Contents
SCHEDULE OF INVESTMENTS | PATHFINDER PORTFOLIOS (in thousands) |
DECEMBER 31, 2020
Pathfinder Moderately Conservative – Managed Volatility
AFFILIATED MUTUAL FUNDS | Shares | Value | ||||||
Ivy VIP Core Equity, Class II | 560 | $ | 8,041 | |||||
Ivy VIP Corporate Bond, Class II | 2,950 | 17,851 | ||||||
Ivy VIP Global Equity Income, Class II | 933 | 5,615 | ||||||
Ivy VIP Government Money Market, Class II | 1,835 | 1,835 | ||||||
Ivy VIP Growth, Class II | 768 | 9,760 | ||||||
Ivy VIP High Income, Class I | 243 | 826 | ||||||
Ivy VIP International Core Equity, Class II | 423 | 6,920 | ||||||
Ivy VIP Limited-Term Bond, Class II | 3,268 | 16,370 | ||||||
Ivy VIP Mid Cap Growth, Class I | 376 | 6,618 | ||||||
Ivy VIP Small Cap Core, Class II | 31 | 428 | ||||||
Ivy VIP Small Cap Growth, Class I (C) | 126 | 1,533 | ||||||
Ivy VIP Value, Class II | 1,167 | 7,466 | ||||||
|
| |||||||
TOTAL AFFILIATED MUTUAL |
| $ | 83,263 | |||||
(Cost: $79,723) | ||||||||
SHORT-TERM SECURITIES | ||||||||
Money Market Funds (A) – 2.6% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 2,214 | 2,214 | ||||||
|
| |||||||
TOTAL SHORT-TERM SECURITIES – 2.6% |
| $ | 2,214 | |||||
(Cost: $2,214) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.7% |
| $ | 85,477 | |||||
(Cost: $81,937) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES (B) – 0.3% |
| 215 | ||||||
NET ASSETS – 100.0% |
| $ | 85,692 |
Notes to Schedule of Investments
* | Not shown due to rounding. |
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | Cash of $254 has been pledged as collateral on open futures contracts. |
(C) | No dividends were paid during the preceding 12 months. |
The following futures contracts were outstanding at December 31, 2020 (contracts unrounded):
Description | Type | Number of Contracts | Expiration Date | Notional Amount | Value | Unrealized Depreciation | ||||||||||||||||
E-mini Russell 2000 Index | Short | 13 | 3-19-21 | — | * | $ | (1,284 | ) | $ | (39 | ) | |||||||||||
E-mini S&P 500 Index | Short | 16 | 3-19-21 | 1 | (2,999 | ) | (44 | ) | ||||||||||||||
|
| |||||||||||||||||||||
$ | (4,283 | ) | $ | (83 | ) | |||||||||||||||||
|
|
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Affiliated Mutual Funds | $ | 83,263 | $ | — | $ | — | ||||||
Short-Term Securities | 2,214 | — | — | |||||||||
|
| |||||||||||
Total | $ | 85,477 | $ | — | $ | — | ||||||
|
| |||||||||||
Liabilities | ||||||||||||
Futures Contracts | $ | 83 | $ | — | $ | — | ||||||
|
|
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 23 |
Table of Contents
MANAGEMENT DISCUSSION | GOVERNMENT MONEY MARKET |
(UNAUDITED)
Mira Stevovich
Below, Mira Stevovich, CFA, portfolio manager of Ivy VIP Government Money Market, discusses positioning, performance and results for the fiscal year ended December 31, 2020. She has managed the Portfolio for 22 years and has 34 years of industry experience.
The Portfolio’s fiscal year ended on December 31, 2020 with short-term rates substantially lower after emergency rate cuts by the Federal Reserve (Fed) of 50 basis points (bps) and 100 bps in March 2020. The rate cuts were made to support the economy as the COVID-19 pandemic evolved in the U.S.
Fed Intervention
The Portfolio’s fiscal year started with the federal funds rate between 1.50-1.75% and ended in a range of 0.0-0.25%. The Fed continued to use an interest rate band of a quarter of a percentage point to manage the federal funds rate. The Reverse Repo Program continued as a tool to manage the band floor. As the Portfolio’s fiscal year began, the Fed was purchasing $60 billion of U.S. Treasury Bills on a monthly basis to inject bank reserves in to the financial system. This was part of a plan which began the previous year to lower short-term rates that had increased due to technical reasons. The Fed’s plan succeeded in
maintaining an acceptable level of short-term rates over calendar year-end 2019 and into the beginning of the Portfolio’s fiscal year.
The higher rates of interest early in the fiscal year boosted the performance of the Portfolio and rates on money market investments, in general. However, in March, mandated shutdowns of the U.S. economy due to the COVID-19 pandemic caused the Fed to intervene with interest rate cuts, which caused a drop in short-term rates. A flight to U.S. government money market funds pushed short U.S. Treasury bill rates close to zero. In addition, the Fed established a variety of programs to help the markets function, which included a program to aid in the efficient functioning of the money markets. These programs required the U.S. Treasury to substantially increase the issuance of U.S. Treasury bills to finance these programs. As a result, U.S. Treasury bill rates moved higher due to the increase in supply. A paring back of U.S. Treasury bill auctions began in the third quarter and continued through year-end, causing short-term interest rates to return to lower levels, but not to the depressed levels seen at the beginning of the pandemic. As a result of the lower interest rate environment, the return on the Portfolio continued to move down throughout the fiscal year.
Staying the course
This past fiscal year, we invested a minimum of 99.5% of the Portfolio’s total assets in government securities, cash, sweep funds and/or repurchase agreements that are collateralized fully, per SEC regulations for government money market funds. The Portfolio has been structured to comply with the “know your investor” mandate, such that a short average maturity is maintained to provide ample liquidity for our investors. We anticipate continuing to use short floating-rate securities in the coming fiscal year as part of our liquidity management of the Portfolio.
We have managed the Portfolio to comply with all SEC regulations that apply to “government money market funds” since the conversion of the Portfolio in 2016. The SEC reformed money fund regulations in 2010 and further modified those regulations in July 2014 to provide money market investors with greater protection and more timely information about the fund in which they invest. To this end, we seek to maintain daily and weekly liquidity levels according to those regulations to provide for the liquidity needs of our shareholders. We intend to continue to manage the Portfolio in a prudent manner and in accordance with SEC regulations for “government money market funds.”
You could lose money by investing in Ivy VIP Government Money Market. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Portfolio’s sponsor has no legal obligation to provide financial support to the Portfolio, and you should not expect that the sponsor will provide financial support to the Portfolio at any time.
Interest rate increases can cause the price of a money market security to decrease. A decline in the credit quality of an issuer or a provider of credit support or a maturity-shortening structure for a security can cause the price of a money market security to decrease. Portfolio shares are not guaranteed by the U.S. Government. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
24 | ANNUAL REPORT | 2020 |
Table of Contents
PORTFOLIO HIGHLIGHTS | GOVERNMENT MONEY MARKET |
ALL DATA IS AS OF DECEMBER 31, 2020 (UNAUDITED)
Asset Allocation
Investment Funds | 18.0% | |||
Money Market Funds | 18.0% | |||
Corporate Obligations | 0.6% | |||
Master Note | 0.6% | |||
United States Government Agency Obligations | 81.3% | |||
Cash and Other Assets (Net of Liabilities) | 0.1% |
2020 | ANNUAL REPORT | 25 |
Table of Contents
SCHEDULE OF INVESTMENTS | GOVERNMENT MONEY MARKET (in thousands) |
DECEMBER 31, 2020
INVESTMENT FUNDS | Shares | Value | ||||||
Money Market Funds (A) – 18.0% |
| |||||||
State Street Institutional U.S. Government Money Market Fund - Premier Class, | 17,218 | $ | 17,218 | |||||
|
| |||||||
Total Money Market Funds – 18.0% |
| 17,218 | ||||||
TOTAL INVESTMENT FUNDS – 18.0% |
| $ | 17,218 | |||||
(Cost: $17,218) | ||||||||
CORPORATE OBLIGATIONS | Principal | |||||||
Master Note – 0.6% |
| |||||||
Toyota Motor Credit Corp. (1-Week U.S. LIBOR plus 25 bps), 0.350%, 1-7-21 (B) | $ | 610 | 610 | |||||
|
| |||||||
Total Master Note – 0.6% |
| 610 | ||||||
TOTAL CORPORATE |
| $ | 610 | |||||
(Cost: $610) |
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS | Principal | Value | ||||||
United States Government Agency Obligations – 81.3% |
| |||||||
U.S. International Development Finance Corp. (GTD by U.S. Government) (3-Month U.S. TB Rate): | ||||||||
0.130%, 1-7-21 (B) | $ | 77,952 | $ | 77,952 | ||||
|
| |||||||
77,952 | ||||||||
|
| |||||||
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 81.3% |
| $ | 77,952 | |||||
(Cost: $77,952) | ||||||||
TOTAL INVESTMENT SECURITIES – 99.9% |
| $ | 95,780 | |||||
(Cost: $95,780) | ||||||||
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% |
| 126 | ||||||
NET ASSETS – 100.0% |
| $ | 95,906 |
Notes to Schedule of Investments
(A) | Rate shown is the annualized 7-day yield at December 31, 2020. |
(B) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2020. Date shown represents the date that the variable rate resets. Description of the reference rate and spread, if applicable, are included in the security description. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2020. See Note 3 to the Financial Statements for further information regarding fair value measurement.
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Investments in Securities | ||||||||||||
Investment Funds | $ | 17,218 | $ | — | $ | — | ||||||
Corporate Obligations | — | 610 | — | |||||||||
United States Government Agency Obligations | — | 77,952 | — | |||||||||
|
| |||||||||||
Total | $ | 17,218 | $ | 78,562 | $ | — | ||||||
|
|
The following acronyms are used throughout this schedule:
GTD = Guaranteed
LIBOR = London Interbank Offered Rate
TB = Treasury Bill
See Accompanying Notes to Financial Statements.
26 | ANNUAL REPORT | 2020 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES | IVY VIP |
AS OF DECEMBER 31, 2020
(In thousands, except per share amounts) | Pathfinder Aggressive | Pathfinder Conservative | Pathfinder Moderate | Pathfinder Moderately Aggressive | Pathfinder Moderately Conservative | Pathfinder Managed | Pathfinder Moderately Managed | Pathfinder Moderately Managed | ||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities at value+ | $ | 957 | $ | 972 | $ | 814 | $ | 1,347 | $ | 985 | $ | 19,188 | $ | 2,414 | $ | 2,214 | ||||||||||||||||||||||||
Investments in affiliated mutual funds at value+ | 66,920 | 110,796 | 654,918 | 797,639 | 194,177 | 707,581 | 93,443 | 83,263 | ||||||||||||||||||||||||||||||||
Investments at Value | 67,877 | 111,768 | 655,732 | 798,986 | 195,162 | 726,769 | 95,857 | 85,477 | ||||||||||||||||||||||||||||||||
Restricted cash | — | — | — | — | — | 2,028 | 232 | 254 | ||||||||||||||||||||||||||||||||
Investment securities sold receivable | 43 | 28 | 686 | 153 | — | — | — | — | ||||||||||||||||||||||||||||||||
Dividends and interest receivable | — | * | — | * | — | * | — | * | — | * | — | * | — | * | — | * | ||||||||||||||||||||||||
Capital shares sold receivable | — | * | — | * | — | * | — | * | 1 | — | * | — | — | |||||||||||||||||||||||||||
Variation margin receivable | — | — | — | — | — | 9 | 1 | 1 | ||||||||||||||||||||||||||||||||
Prepaid and other assets | 1 | 1 | 9 | 11 | 3 | 10 | 1 | 1 | ||||||||||||||||||||||||||||||||
Total Assets | 67,921 | 111,797 | 656,427 | 799,150 | 195,166 | 728,816 | 96,091 | 85,733 | ||||||||||||||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||||||||||||||||||
Capital shares redeemed payable | 3 | 8 | 130 | 49 | 13 | 45 | 4 | 11 | ||||||||||||||||||||||||||||||||
Independent Trustees and Chief Compliance Officer fees payable | 8 | 9 | 65 | 78 | 21 | 20 | 3 | 3 | ||||||||||||||||||||||||||||||||
Investment management fee payable | — | — | — | — | — | 4 | 1 | — | * | |||||||||||||||||||||||||||||||
Accounting services fee payable | 4 | 6 | 19 | 23 | 7 | 20 | 5 | 4 | ||||||||||||||||||||||||||||||||
Variation margin payable | — | — | — | — | — | 155 | 17 | 20 | ||||||||||||||||||||||||||||||||
Other liabilities | 3 | 2 | 4 | 4 | 3 | 4 | 3 | 3 | ||||||||||||||||||||||||||||||||
Total Liabilities | 18 | 25 | 218 | 154 | 44 | 248 | 33 | 41 | ||||||||||||||||||||||||||||||||
Total Net Assets | $ | 67,903 | $ | 111,772 | $ | 656,209 | $ | 798,996 | $ | 195,122 | $ | 728,568 | $ | 96,058 | $ | 85,692 | ||||||||||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||||||||||||||||||
Capital paid in (shares authorized – unlimited) | $ | 62,178 | $ | 100,925 | $ | 592,019 | $ | 722,418 | $ | 176,004 | $ | 675,269 | $ | 91,128 | $ | 78,950 | ||||||||||||||||||||||||
Accumulated earnings gain | 5,725 | 10,847 | 64,190 | 76,578 | 19,118 | 53,299 | 4,930 | 6,742 | ||||||||||||||||||||||||||||||||
Total Net Assets | $ | 67,903 | $ | 111,772 | $ | 656,209 | $ | 798,996 | $ | 195,122 | $ | 728,568 | $ | 96,058 | $ | 85,692 | ||||||||||||||||||||||||
CAPITAL SHARES OUTSTANDING: | ||||||||||||||||||||||||||||||||||||||||
Class II | 13,813 | 21,031 | 127,513 | 154,158 | 37,070 | 126,376 | 17,602 | 15,195 | ||||||||||||||||||||||||||||||||
NET ASSET VALUE PER SHARE: | ||||||||||||||||||||||||||||||||||||||||
Class II | $ | 4.92 | $ | 5.31 | $ | 5.15 | $ | 5.18 | $ | 5.26 | $ | 5.77 | $ | 5.46 | $ | 5.64 | ||||||||||||||||||||||||
+COST | ||||||||||||||||||||||||||||||||||||||||
Investments in unaffiliated securities at cost | $ | 957 | $ | 972 | $ | 814 | $ | 1,347 | $ | 985 | $ | 19,188 | $ | 2,414 | $ | 2,214 | ||||||||||||||||||||||||
Investments in affiliated mutual funds at cost | 65,772 | 106,603 | 633,172 | 773,840 | 187,415 | 675,090 | 91,314 | 79,723 |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 27 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES | IVY VIP |
AS OF DECEMBER 31, 2020
(In thousands, except per share amounts) | Government Money Market | ||||
ASSETS | |||||
Investments in unaffiliated securities at value+ | $ | 95,780 | |||
Investments at Value | 95,780 | ||||
Dividends and interest receivable | 12 | ||||
Capital shares sold receivable | 54 | ||||
Receivable from affiliates | 215 | ||||
Prepaid and other assets | 1 | ||||
Total Assets | 96,062 | ||||
LIABILITIES | |||||
Capital shares redeemed payable | 103 | ||||
Distributions payable | 1 | ||||
Independent Trustees and Chief Compliance Officer fees payable | 39 | ||||
Investment management fee payable | 1 | ||||
Accounting services fee payable | 9 | ||||
Other liabilities | 3 | ||||
Total Liabilities | 156 | ||||
Total Net Assets | $ | 95,906 | |||
NET ASSETS | |||||
Capital paid in (shares authorized – unlimited) | $ | 95,906 | |||
Accumulated earnings gain | — | * | |||
Total Net Assets | $ | 95,906 | |||
CAPITAL SHARES OUTSTANDING: | |||||
Class II | 95,910 | ||||
NET ASSET VALUE PER SHARE: | |||||
Class II | $ | 1.00 | |||
+COST | |||||
Investments in unaffiliated securities at cost | $ | 95,780 |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
28 | ANNUAL REPORT | 2020 |
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STATEMENTS OF OPERATIONS | IVY VIP |
FOR THE YEAR ENDED DECEMBER 31, 2020
(In thousands) | Pathfinder Aggressive | Pathfinder Conservative | Pathfinder Moderate | Pathfinder Moderately Aggressive | Pathfinder Moderately Conservative | Pathfinder Managed | Pathfinder Moderately Managed | Pathfinder Moderately Managed | ||||||||||||||||||||||||||||||||
INVESTMENT INCOME |
| |||||||||||||||||||||||||||||||||||||||
Dividends from affiliated mutual funds | $ | 1,246 | $ | 2,118 | $ | 13,073 | $ | 15,493 | $ | 4,036 | $ | 13,611 | $ | 1,743 | $ | 1,652 | ||||||||||||||||||||||||
Interest and amortization from unaffiliated securities | 1 | 2 | 4 | 3 | 1 | 62 | 7 | 8 | ||||||||||||||||||||||||||||||||
Total Investment Income | 1,247 | 2,120 | 13,077 | 15,496 | 4,037 | 13,673 | 1,750 | 1,660 | ||||||||||||||||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||||||||||||||||||
Investment management fee | — | — | — | — | — | 1,309 | 178 | 160 | ||||||||||||||||||||||||||||||||
Shareholder servicing: | ||||||||||||||||||||||||||||||||||||||||
Class II | — | * | — | * | — | * | — | * | — | * | — | * | — | * | — | * | ||||||||||||||||||||||||
Custodian fees | 1 | 1 | 1 | 1 | 1 | 1 | 2 | 2 | ||||||||||||||||||||||||||||||||
Independent Trustees and Chief Compliance Officer fees | 5 | 7 | 47 | 56 | 15 | 39 | 5 | 5 | ||||||||||||||||||||||||||||||||
Accounting services fee | 24 | 31 | 111 | 133 | 44 | 117 | 27 | 26 | ||||||||||||||||||||||||||||||||
Insurance fees | 2 | 3 | 21 | 25 | 6 | 22 | 3 | 3 | ||||||||||||||||||||||||||||||||
Printing fees | 10 | 11 | 15 | 16 | 12 | 15 | 10 | 10 | ||||||||||||||||||||||||||||||||
Professional fees | 33 | 32 | 38 | 40 | 33 | 39 | 35 | 35 | ||||||||||||||||||||||||||||||||
Other | — | * | — | * | 2 | 2 | 1 | 6 | — | * | — | * | ||||||||||||||||||||||||||||
Total Expenses | 75 | 85 | 235 | 273 | 112 | 1,548 | 260 | 241 | ||||||||||||||||||||||||||||||||
Net Investment Income | 1,172 | 2,035 | 12,842 | 15,223 | 3,925 | 12,125 | 1,490 | 1,419 | ||||||||||||||||||||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||||||||||||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||||||||||||||||||||||
Investments in affiliated mutual funds | 1,230 | 2,379 | 11,036 | 12,812 | 3,429 | 18,762 | 2,240 | 2,373 | ||||||||||||||||||||||||||||||||
Distributions of realized capital gains from affiliated mutual funds | 2,217 | 2,303 | 18,746 | 24,920 | 5,066 | 19,500 | 2,800 | 2,074 | ||||||||||||||||||||||||||||||||
Futures contracts | — | — | — | — | — | (29,436 | ) | (3,692 | ) | (2,625 | ) | |||||||||||||||||||||||||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||||||||||||||||||
Investments in affiliated mutual funds | 4,498 | 5,590 | 39,792 | 52,016 | 11,064 | 39,421 | 5,709 | 4,464 | ||||||||||||||||||||||||||||||||
Futures contracts | — | — | — | — | — | (89 | ) | (11 | ) | (16 | ) | |||||||||||||||||||||||||||||
Net Realized and Unrealized Gain | 7,945 | 10,272 | 69,574 | 89,748 | 19,559 | 48,158 | 7,046 | 6,270 | ||||||||||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | $ | 9,117 | $ | 12,307 | $ | 82,416 | $ | 104,971 | $ | 23,484 | $ | 60,283 | $ | 8,536 | $ | 7,689 |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 29 |
Table of Contents
STATEMENTS OF OPERATIONS | IVY VIP |
FOR THE YEAR ENDED DECEMBER 31, 2020
(In thousands) | Government Money Market | ||||
INVESTMENT INCOME | |||||
Interest and amortization from unaffiliated securities | $ | 1,000 | |||
Total Investment Income | 1,000 | ||||
EXPENSES | |||||
Investment management fee | 494 | ||||
Shareholder servicing: | |||||
Class II | — | * | |||
Custodian fees | 2 | ||||
Independent Trustees and Chief Compliance Officer fees | 19 | ||||
Accounting services fee | 62 | ||||
Professional fees | 29 | ||||
Other | 15 | ||||
Total Expenses | 621 | ||||
Less: | |||||
Expenses in excess of limit | (244 | ) | |||
Total Net Expenses | 377 | ||||
Net Investment Income | 623 | ||||
REALIZED AND UNREALIZED GAIN (LOSS) | |||||
Net realized gain (loss) on: | |||||
Investments in unaffiliated securities | — | * | |||
Net change in unrealized appreciation (depreciation) on: | |||||
Investments in unaffiliated securities | — | ||||
Net Realized and Unrealized Gain | — | * | |||
Net Increase in Net Assets Resulting from Operations | $ | 623 |
* Not shown due to rounding.
See Accompanying Notes to Financial Statements.
30 | ANNUAL REPORT | 2020 |
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STATEMENTS OF CHANGES IN NET ASSETS | IVY VIP |
Pathfinder Aggressive | Pathfinder Conservative | Pathfinder Moderate | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income | $ | 1,172 | $ | 907 | $ | 2,035 | $ | 1,687 | $ | 12,842 | $ | 11,452 | ||||||||||||||||||
Net realized gain on investments | 3,447 | 7,868 | 4,682 | 6,321 | 29,782 | 68,117 | ||||||||||||||||||||||||
Net change in unrealized appreciation | 4,498 | 4,449 | 5,590 | 5,418 | 39,792 | 44,037 | ||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 9,117 | 13,224 | 12,307 | 13,426 | 82,416 | 123,606 | ||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class II | (8,768 | ) | (7,374 | ) | (7,983 | ) | (6,905 | ) | (79,596 | ) | (75,615 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (8,768 | ) | (7,374 | ) | (7,983 | ) | (6,905 | ) | (79,596 | ) | (75,615 | ) | ||||||||||||||||||
Capital Share Transactions | 1,416 | 1,498 | 8,635 | (1,287 | ) | (26,530 | ) | (70,658 | ) | |||||||||||||||||||||
Net Increase (Decrease) in Net Assets | 1,765 | 7,348 | 12,959 | 5,234 | (23,710 | ) | (22,667 | ) | ||||||||||||||||||||||
Net Assets, Beginning of Period | 66,138 | 58,790 | 98,813 | 93,579 | 679,919 | 702,586 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 67,903 | $ | 66,138 | $ | 111,772 | $ | 98,813 | $ | 656,209 | $ | 679,919 | ||||||||||||||||||
Pathfinder Moderately Aggressive | Pathfinder Moderately Conservative | Pathfinder Moderate – Managed Volatility | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income | $ | 15,223 | $ | 13,376 | $ | 3,925 | $ | 3,491 | $ | 12,125 | $ | 9,293 | ||||||||||||||||||
Net realized gain on investments | 37,732 | 96,363 | 8,495 | 16,658 | 8,826 | 52,655 | ||||||||||||||||||||||||
Net change in unrealized appreciation | 52,016 | 55,859 | 11,064 | 12,370 | 39,332 | 42,967 | ||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 104,971 | 165,598 | 23,484 | 32,519 | 60,283 | 104,915 | ||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class II | (109,757 | ) | (102,589 | ) | (20,114 | ) | (18,438 | ) | (60,610 | ) | (43,825 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (109,757 | ) | (102,589 | ) | (20,114 | ) | (18,438 | ) | (60,610 | ) | (43,825 | ) | ||||||||||||||||||
Capital Share Transactions | (25,125 | ) | (72,019 | ) | (9,979 | ) | (17,598 | ) | 21,803 | 40,173 | ||||||||||||||||||||
Net Increase (Decrease) in Net Assets | (29,911 | ) | (9,010 | ) | (6,609 | ) | (3,517 | ) | 21,476 | 101,263 | ||||||||||||||||||||
Net Assets, Beginning of Period | 828,907 | 837,917 | 201,731 | 205,248 | 707,092 | 605,829 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 798,996 | $ | 828,907 | $ | 195,122 | $ | 201,731 | $ | 728,568 | $ | 707,092 |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 31 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS | IVY VIP |
Pathfinder Moderately Aggressive – Managed Volatility | Pathfinder Moderately Conservative – Managed Volatility | Government Money Market | ||||||||||||||||||||||||||||
(In thousands) | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | ||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||||
Net investment income | $ | 1,490 | $ | 1,203 | $ | 1,419 | $ | 1,133 | $ | 623 | $ | 3,937 | ||||||||||||||||||
Net realized gain on investments | 1,348 | 8,777 | 1,822 | 5,094 | — | * | — | * | ||||||||||||||||||||||
Net change in unrealized appreciation | 5,698 | 5,825 | 4,448 | 4,537 | — | — | ||||||||||||||||||||||||
Net Increase in Net Assets Resulting from Operations | 8,536 | 15,805 | 7,689 | 10,764 | 623 | 3,937 | ||||||||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Accumulated earnings: | ||||||||||||||||||||||||||||||
(combined net investment income and net realized gains) | ||||||||||||||||||||||||||||||
Class II | (9,697 | ) | (7,558 | ) | (6,043 | ) | (4,908 | ) | (623 | ) | (3,964 | ) | ||||||||||||||||||
Total Distributions to Shareholders | (9,697 | ) | (7,558 | ) | (6,043 | ) | (4,908 | ) | (623 | ) | (3,964 | ) | ||||||||||||||||||
Capital Share Transactions | 3,939 | 1,066 | 3,600 | 1,754 | (88,117 | ) | (54,886 | ) | ||||||||||||||||||||||
Net Increase (Decrease) in Net Assets | 2,778 | 9,313 | 5,246 | 7,610 | (88,117 | ) | (54,913 | ) | ||||||||||||||||||||||
Net Assets, Beginning of Period | 93,280 | 83,967 | 80,446 | 72,836 | 184,023 | 238,936 | ||||||||||||||||||||||||
Net Assets, End of Period | $ | 96,058 | $ | 93,280 | $ | 85,692 | $ | 80,446 | $ | 95,906 | $ | 184,023 |
* Not shown due to rounding.
See Accompanying Notes to Financial Statements.
32 | ANNUAL REPORT | 2020 |
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2019 | ANNUAL REPORT | 33 |
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FINANCIAL HIGHLIGHTS | IVY VIP |
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Distributions From Net Investment Income | Distributions From Net Realized Gains | Total Distributions | |||||||||||||||||||||||||||||
Pathfinder Aggressive | |||||||||||||||||||||||||||||||||||
Class II Shares |
| ||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 5.00 | $ | 0.09 | $ | 0.52 | $ | 0.61 | $ | (0.07 | ) | $ | (0.62 | ) | $ | (0.69 | ) | ||||||||||||||||||
Year ended 12-31-2019 | 4.60 | 0.07 | 0.92 | 0.99 | (0.14 | ) | (0.45 | ) | (0.59 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.16 | 0.13 | (0.32 | ) | (0.19 | ) | (0.09 | ) | (0.28 | ) | (0.37 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 4.68 | 0.08 | 0.80 | 0.88 | (0.05 | ) | (0.35 | ) | (0.40 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.05 | 0.04 | 0.15 | 0.19 | (0.07 | ) | (0.49 | ) | (0.56 | ) | |||||||||||||||||||||||||
Pathfinder Conservative | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.15 | 0.10 | 0.49 | 0.59 | (0.09 | ) | (0.34 | ) | (0.43 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 4.83 | 0.09 | 0.59 | 0.68 | (0.10 | ) | (0.26 | ) | (0.36 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.16 | 0.10 | (0.20 | ) | (0.10 | ) | (0.06 | ) | (0.17 | ) | (0.23 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 4.90 | 0.05 | 0.46 | 0.51 | (0.04 | ) | (0.21 | ) | (0.25 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.15 | 0.04 | 0.09 | 0.13 | (0.06 | ) | (0.32 | ) | (0.38 | ) | |||||||||||||||||||||||||
Pathfinder Moderate | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.19 | 0.10 | 0.51 | 0.61 | (0.09 | ) | (0.56 | ) | (0.65 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 4.89 | 0.08 | 0.79 | 0.87 | (0.14 | ) | (0.43 | ) | (0.57 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.40 | 0.12 | (0.31 | ) | (0.19 | ) | (0.08 | ) | (0.24 | ) | (0.32 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.02 | 0.07 | 0.64 | 0.71 | (0.04 | ) | (0.29 | ) | (0.33 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.34 | 0.04 | 0.13 | 0.17 | (0.07 | ) | (0.42 | ) | (0.49 | ) | |||||||||||||||||||||||||
Pathfinder Moderately Aggressive | �� | ||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.32 | 0.10 | 0.52 | 0.62 | (0.09 | ) | (0.67 | ) | (0.76 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 4.98 | 0.08 | 0.92 | 1.00 | (0.15 | ) | (0.51 | ) | (0.66 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.59 | 0.13 | (0.37 | ) | (0.24 | ) | (0.10 | ) | (0.27 | ) | (0.37 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.14 | 0.09 | 0.74 | 0.83 | (0.05 | ) | (0.33 | ) | (0.38 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.50 | 0.04 | 0.17 | 0.21 | (0.09 | ) | (0.48 | ) | (0.57 | ) | |||||||||||||||||||||||||
Pathfinder Moderately Conservative | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.22 | 0.10 | 0.50 | 0.60 | (0.10 | ) | (0.46 | ) | (0.56 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 4.90 | 0.08 | 0.70 | 0.78 | (0.12 | ) | (0.34 | ) | (0.46 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.32 | 0.11 | (0.24 | ) | (0.13 | ) | (0.07 | ) | (0.22 | ) | (0.29 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 4.99 | 0.06 | 0.56 | 0.62 | (0.04 | ) | (0.25 | ) | (0.29 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.30 | 0.04 | 0.10 | 0.14 | (0.07 | ) | (0.38 | ) | (0.45 | ) |
* | Not shown due to rounding. |
(1) | Based on average weekly shares outstanding. |
(2) | Based on net asset value. Total returns do not reflect a sales charge or contingent deferred sales charge, if applicable. Total returns for periods less than one year are not annualized. |
(3) | Ratios excluding expense waivers are included only for periods in which the class had waived or reimbursed expenses. |
(4) | Does not include expenses of underlying Ivy VIP Portfolios in which the Portfolio invests. |
(5) | Does not include expenses of the underlying unaffiliated Portfolio in which the Portfolio invests. |
.
34 | ANNUAL REPORT | 2020 |
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Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Investment Operations | Distributions From Net Investment Income | Distributions From Net Realized Gains | Total Distributions | |||||||||||||||||||||||||||||
Pathfinder Moderate – Managed Volatility |
| ||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 5.84 | $ | 0.10 | $ | 0.34 | $ | 0.44 | $ | (0.08 | ) | $ | (0.43 | ) | $ | (0.51 | ) | ||||||||||||||||||
Year ended 12-31-2019 | 5.33 | 0.08 | 0.82 | 0.90 | (0.11 | ) | (0.28 | ) | (0.39 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.78 | 0.11 | (0.33 | ) | (0.22 | ) | (0.06 | ) | (0.17 | ) | (0.23 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.25 | 0.06 | 0.65 | 0.71 | (0.03 | ) | (0.15 | ) | (0.18 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.37 | 0.03 | 0.06 | 0.09 | (0.03 | ) | (0.18 | ) | (0.21 | ) | |||||||||||||||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility |
| ||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.63 | 0.09 | 0.33 | 0.42 | (0.07 | ) | (0.52 | ) | (0.59 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 5.15 | 0.07 | 0.88 | 0.95 | (0.12 | ) | (0.35 | ) | (0.47 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.66 | 0.11 | (0.37 | ) | (0.26 | ) | (0.07 | ) | (0.18 | ) | (0.25 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.06 | 0.07 | 0.71 | 0.78 | (0.02 | ) | (0.16 | ) | (0.18 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.25 | 0.03 | 0.09 | 0.12 | (0.05 | ) | (0.26 | ) | (0.31 | ) | |||||||||||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility |
| ||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.58 | 0.09 | 0.39 | 0.48 | (0.08 | ) | (0.34 | ) | (0.42 | ) | |||||||||||||||||||||||||
Year ended 12-31-2019 | 5.19 | 0.08 | 0.66 | 0.74 | (0.10 | ) | (0.25 | ) | (0.35 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 5.55 | 0.10 | (0.24 | ) | (0.14 | ) | (0.05 | ) | (0.17 | ) | (0.22 | ) | |||||||||||||||||||||||
Year ended 12-31-2017 | 5.10 | 0.05 | 0.53 | 0.58 | (0.02 | ) | (0.11 | ) | (0.13 | ) | |||||||||||||||||||||||||
Year ended 12-31-2016 | 5.23 | 0.02 | 0.04 | 0.06 | (0.03 | ) | (0.16 | ) | (0.19 | ) | |||||||||||||||||||||||||
Government Money Market | |||||||||||||||||||||||||||||||||||
Class II Shares | |||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 1.00 | 0.00 | * | 0.00 | 0.00 | * | — | * | — | — | * | ||||||||||||||||||||||||
Year ended 12-31-2019 | 1.00 | 0.02 | 0.00 | 0.02 | (0.02 | ) | — | * | (0.02 | ) | |||||||||||||||||||||||||
Year ended 12-31-2018 | 1.00 | 0.02 | 0.00 | * | 0.02 | (0.02 | ) | — | * | (0.02 | ) | ||||||||||||||||||||||||
Year ended 12-31-2017 | 1.00 | 0.01 | 0.00 | * | 0.01 | (0.01 | ) | — | * | (0.01 | ) | ||||||||||||||||||||||||
Year ended 12-31-2016 | 1.00 | 0.00 | * | 0.00 | * | 0.00 | * | — | * | — | * | — | * |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 35 |
Table of Contents
FINANCIAL HIGHLIGHTS | IVY VIP |
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (in millions) | Ratio of Expenses to Average Net Assets Including Expense Waiver | Ratio of Net Investment Income to Average Net Assets Including Expense Waiver | Ratio of Expenses to Average Net Assets Excluding Expense Waiver(3) | Ratio of Net Investment Income to Average Net Assets Excluding Expense Waiver(3) | Portfolio Turnover Rate | |||||||||||||||||||||||||||||||||
Pathfinder Aggressive |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares |
| |||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 4.92 | 15.70 | % | $ | 68 | 0.12 | %(4) | 1.91 | %(4) | — | % | — | % | 21 | % | ||||||||||||||||||||||||
Year ended 12-31-2019 | 5.00 | 23.24 | 66 | 0.09 | (4) | 1.41 | (4) | — | — | 18 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.60 | -4.27 | 59 | 0.09 | (4) | 2.49 | (4) | — | — | 51 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.16 | 19.83 | 76 | 0.07 | (4) | 1.68 | (4) | — | — | 20 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.68 | 4.80 | 75 | 0.08 | (4) | 0.88 | (4) | — | — | 23 | ||||||||||||||||||||||||||||||
Pathfinder Conservative | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.31 | 12.67 | 112 | 0.08 | (4) | 2.02 | (4) | — | — | 41 | ||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.15 | 14.66 | 99 | 0.07 | (4) | 1.71 | (4) | — | — | 31 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.83 | -1.93 | 94 | 0.07 | (4) | 1.89 | (4) | — | — | 39 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.16 | 10.51 | 109 | 0.06 | (4) | 1.06 | (4) | — | — | 30 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.90 | 2.84 | 114 | 0.07 | (4) | 0.71 | (4) | — | — | 26 | ||||||||||||||||||||||||||||||
Pathfinder Moderate | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.15 | 14.35 | 656 | 0.04 | (4) | 2.05 | (4) | — | — | 21 | ||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.19 | 19.05 | 680 | 0.04 | (4) | 1.62 | (4) | — | — | 17 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.89 | -3.90 | 703 | 0.03 | (4) | 2.26 | (4) | — | — | 36 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.40 | 14.70 | 877 | 0.03 | (4) | 1.30 | (4) | — | — | 22 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.02 | 3.65 | 860 | 0.03 | (4) | 0.78 | (4) | — | — | 19 | ||||||||||||||||||||||||||||||
Pathfinder Moderately Aggressive |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.18 | 15.12 | 799 | 0.04 | (4) | 2.02 | (4) | — | — | 20 | ||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.32 | 21.40 | 829 | 0.03 | (4) | 1.56 | (4) | — | — | 19 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.98 | -4.71 | 838 | 0.03 | (4) | 2.35 | (4) | — | — | 39 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.59 | 16.72 | 1,052 | 0.03 | (4) | 1.66 | (4) | — | — | 20 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.14 | 4.52 | 1,020 | 0.04 | (4) | 0.85 | (4) | — | — | 17 | ||||||||||||||||||||||||||||||
Pathfinder Moderately Conservative |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.26 | 13.52 | 195 | 0.06 | (4) | 2.09 | (4) | — | — | 25 | ||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.22 | 16.85 | 202 | 0.05 | (4) | 1.67 | (4) | — | — | 18 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 4.90 | -2.67 | 205 | 0.05 | (4) | 2.07 | (4) | — | — | 34 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.32 | 12.77 | 251 | 0.05 | (4) | 1.22 | (4) | — | — | 24 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 4.99 | 3.10 | 261 | 0.05 | (4) | 0.80 | (4) | — | — | 16 |
36 | ANNUAL REPORT | 2020 |
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Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (in millions) | Ratio of Expenses to Average Net Assets Including Expense Waiver | Ratio of Net Investment Income to Average Net Assets Including Expense Waiver | Ratio of Expenses to Average Net Assets Excluding Expense Waiver(3) | Ratio of Net Investment Income to Average Net Assets Excluding Expense Waiver(3) | Portfolio Turnover Rate | |||||||||||||||||||||||||||||||||
Pathfinder Moderate – Managed Volatility |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | $ | 5.77 | 9.07 | % | $ | 729 | 0.23 | %(4) | 1.78 | %(4) | — | % | — | % | 42 | % | ||||||||||||||||||||||||
Year ended 12-31-2019 | 5.84 | 17.32 | 707 | 0.23 | (4) | 1.39 | (4) | — | — | 9 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.33 | -4.00 | 606 | 0.23 | (4) | 2.00 | (4) | — | — | 28 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.78 | 13.80 | 600 | 0.23 | (4) | 1.07 | (4) | — | — | 21 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.25 | 1.81 | 511 | 0.24 | (4) | 0.55 | (4) | — | — | 14 | ||||||||||||||||||||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.46 | 9.71 | 96 | 0.29 | (4) | 1.68 | (4) | — | — | 41 | ||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.63 | 19.29 | 93 | 0.27 | (4) | 1.32 | (4) | — | — | 16 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.15 | -4.75 | 84 | 0.27 | (4) | 2.04 | (4) | — | — | 37 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.66 | 15.70 | 92 | 0.27 | (4) | 1.38 | (4) | — | — | 19 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.06 | 2.36 | 78 | 0.31 | (4) | 0.56 | (4) | — | — | 12 | ||||||||||||||||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility |
| |||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 5.64 | 9.61 | 86 | 0.30 | (4) | 1.77 | (4) | — | — | 45 | ||||||||||||||||||||||||||||||
Year ended 12-31-2019 | 5.58 | 14.89 | 80 | 0.27 | (4) | 1.45 | (4) | — | — | 14 | ||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 5.19 | -2.90 | 73 | 0.29 | (4) | 1.79 | (4) | — | — | 28 | ||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 5.55 | 11.84 | 74 | 0.27 | (4) | 0.96 | (4) | — | — | 26 | ||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 5.10 | 1.21 | 67 | 0.30 | (4) | 0.49 | (4) | — | — | 11 | ||||||||||||||||||||||||||||||
Government Money Market | ||||||||||||||||||||||||||||||||||||||||
Class II Shares | ||||||||||||||||||||||||||||||||||||||||
Year ended 12-31-2020 | 1.00 | 0.37 | 96 | 0.27 | (5) | 0.44 | (5) | 0.44 | (5) | 0.27 | (5) | — | ||||||||||||||||||||||||||||
Year ended 12-31-2019 | 1.00 | 1.83 | 184 | 0.42 | 1.82 | — | — | — | ||||||||||||||||||||||||||||||||
Year ended 12-31-2018 | 1.00 | 1.53 | 239 | 0.40 | 1.49 | — | — | — | ||||||||||||||||||||||||||||||||
Year ended 12-31-2017 | 1.00 | 0.59 | 317 | 0.41 | 0.56 | 0.42 | 0.55 | — | ||||||||||||||||||||||||||||||||
Year ended 12-31-2016 | 1.00 | 0.13 | 414 | 0.45 | 0.13 | 0.46 | 0.12 | — |
See Accompanying Notes to Financial Statements.
2020 | ANNUAL REPORT | 37 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS | IVY VIP |
DECEMBER 31, 2020
1. | ORGANIZATION |
Ivy Variable Insurance Portfolios, a Delaware statutory trust (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. Pathfinder Aggressive, Pathfinder Conservative, Pathfinder Moderate, Pathfinder Moderately Aggressive and Pathfinder Moderately Conservative (collectively, the “Pathfinder Portfolios”), Pathfinder Moderate – Managed Volatility, Pathfinder Moderately Aggressive – Managed Volatility and Pathfinder Moderately Conservative – Managed Volatility (collectively, the “Managed Volatility Portfolios”) and Government Money Market (each, a “Portfolio”) are nine series of the Trust and are the only series of the Trust included in the financial statements. The assets belonging to Government Money Market are held separately by the custodian. The assets belonging to each Pathfinder Portfolio and Managed Volatility Portfolio are held separately by the transfer agent for the underlying funds and the custodian. The investment objective, policies and risk factors of each Portfolio are described more fully in the Prospectus and Statement of Additional Information (“SAI”). Each Portfolio’s investment adviser is Ivy Investment Management Company (“IICO”).
2. | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies consistently followed by each Portfolio.
Security Transactions and Related Investment Income. Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Portfolio is informed of the ex-dividend date. All or a portion of the distributions received from a real estate investment trust or publicly traded partnership may be designated as a reduction of cost of the related investment or realized gain. Income or short-term capital gain distributions received from registered investment companies, if any, are recorded as dividend income. Long-term capital gain distributions received from registered investment companies, if any, are recorded as realized gains.
Foreign Currency Translation. Each Portfolio’s accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily, using foreign exchange rates obtained from an independent pricing service approved by the Board of Trustees of the Trust (the “Board”). Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. Each Portfolio combines fluctuations from currency exchange rates and fluctuations in value when computing net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments. Foreign exchange rates are typically valued as of the close of the New York Stock Exchange (“NYSE”), normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
Dividends and Distributions to Shareholders. Dividends and distributions to shareholders are recorded by each Portfolio on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America (“U.S. GAAP”). If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital.
Income Taxes. It is the policy of each Portfolio to distribute all of its taxable income and capital gains to its shareholders and to otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, each Portfolio intends to pay distributions as required to avoid imposition of excise tax. Accordingly, no provision has been made for Federal income taxes. The Portfolios file income tax returns in U.S. federal and applicable state jurisdictions. The Portfolios’ tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax returns. Management of the Trust periodically reviews all tax positions to assess whether it is more likely than not that the position would be sustained upon examination by the relevant tax authority based on the technical merits of each position. As of the date of these financial statements, management believes that no liability for unrecognized tax positions is required.
Segregation and Collateralization. In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”), the Dodd Frank Wall Street Reform and Consumer Protection Act, or the interpretive rules and regulations of the U.S. Commodities Futures Trading Commission require that a Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls, financial futures contracts, foreign currency exchange contracts, options written, securities with extended settlement periods, and swaps), the Portfolio will segregate collateral or designate on its books and records, cash or other liquid securities having a value at least equal to the amount that is required to be physically segregated for the benefit of the counterparty. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party has requirements to deliver/deposit cash or
38 | ANNUAL REPORT | 2020 |
Table of Contents
securities as collateral for certain investments. Certain countries require that cash reserves be held while investing in companies incorporated in that country. These cash reserves and cash collateral that has been pledged to cover obligations of the Portfolios under derivative contracts, if any, will be reported separately on the Statements of Assets and Liabilities as “Restricted cash”. Securities collateral pledged for the same purpose, if any, is noted on the Schedule of Investments.
Concentration of Market and Credit Risk. Because each Pathfinder Portfolio and Managed Volatility Portfolio invests substantially all of its assets in Ivy Variable Insurance Portfolios mutual funds (“Underlying Funds”), the risks associated with investing in the Portfolios are closely related to the risks associated with the securities and other investments held by the Underlying Funds.
In the normal course of business, Government Money Market and the Underlying Funds may invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by Government Money Market and the Underlying Funds may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Underlying Funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, Government Money Market and the Underlying Funds may be exposed to counterparty credit risk, or the risk that an entity with which Government Money Market or the Underlying Funds have unsettled or open transactions may fail to or be unable to perform on its commitments. Government Money Market and the Underlying Funds manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Underlying Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties.
Certain Underlying Funds may hold high-yield or non-investment-grade bonds, that may be subject to a greater degree of credit risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. The Underlying Funds may acquire securities in default and are not obligated to dispose of securities whose issuers subsequently default.
Certain Underlying Funds may enter into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument.
If an Underlying Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in financial derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Underlying Funds, or, in the case of hedging positions, that the Underlying Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
The London Interbank Offered Rate “LIBOR” is an indicative measure of the average interest rate at which major global banks could borrow from one another. LIBOR is quoted in multiple currencies and multiple time frames using data reported by private-sector banks. LIBOR is used extensively in the United States and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other derivatives.
It is expected that a number of private-sector banks currently reporting information used to set LIBOR will stop doing so after 2021 when their current reporting commitment ends, which could either cause LIBOR to stop publication immediately or cause LIBOR’s regulator to determine that its quality has degraded to the degree that it is no longer representative of its underlying market.
Management believes that, with respect to any significant investments by a Portfolio or Underlying Fund in instruments linked to LIBOR, the impact on investments and discontinuation of LIBOR may represent a significant risk.
However, management acknowledges that the anticipated transition away from LIBOR will occur after 2021 and certain of the current investments will mature prior to that time. Furthermore, the ways in which LIBOR’s discontinuation potentially could impact an Underlying Fund’s investments is not fully known. The extent of that impact may vary depending on various factors, which include, but are not limited to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry participants develop and adopt new successor reference rates and/or fallbacks for both legacy and new instruments.
In addition, the transition to a successor rate could potentially cause (i) increased volatility or illiquidity in markets for instruments that currently rely on LIBOR, (ii) a reduction in the value of certain instruments held by an Underlying Fund, or (iii) reduced effectiveness of related Underlying Fund transactions, such as hedging.
2020 | ANNUAL REPORT | 39 |
Table of Contents
As the impacts of the transition become clearer during the next year, management will be evaluating the impacts of these changes.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
The individual Portfolios herein have adopted a Liquidity Risk Management Program (the “Program”). The Portfolio’s board has designated a Liquidity Risk Management Committee (the “Committee”) as the administrator of the Program. The Committee or delegates of the Committee conduct the day-to-day operation of the Program. Under the Program, the Committee manages the Portfolio’s liquidity risk, which is the risk that any Portfolio could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the Portfolio. This risk is managed by monitoring the degree of liquidity of the Portfolio’s investments, limiting the amount of the Portfolio’s illiquid investments, and utilizing various risk management tools and facilities available to the Portfolio for meeting shareholder redemptions, among other means. The Committee’s process of determining the degree of liquidity of the Portfolio’s investments is supported by one or more third-party liquidity assessment vendors. The Portfolio’s board reviewed a report prepared by a designee of the Committee regarding the operation, adequacy and effectiveness of the Program from the period June 1, 2019, through March 31, 2020. The report described the Program’s liquidity classification methodology and the methodology in establishing a Portfolio’s Highly Liquid Investment Minimum (“HLIM”), if necessary. The Committee reported that during the period covered by the report, there were no material changes to the Program and no significant liquidity events impacting the Portfolio or its ability to timely meet redemptions without dilution to existing shareholders. In addition, the Committee provided its assessment that the Program, including the operation of each Portfolio’s HLIM, where applicable, had been effective in managing the Portfolio’s liquidity risk.
Custodian Fees. “Custodian fees” on the Statements of Operations may include interest expense incurred by a Portfolio on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. A Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by that Portfolio. The “Earnings credit” line item, if shown, represents earnings on cash balances maintained by that Portfolio during the period. Such interest expense and other custodian fees may be paid with these earnings.
Indemnification. The Trust’s organizational documents provide current and former Trustees and Officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Trust. In the normal course of business, the Trust may also enter into contracts that provide general indemnification. The Trust’s maximum exposure under these arrangements is unknown and is dependent on future claims that may be made against the Trust. The risk of material loss from such claims is considered remote.
Basis of Preparation. Each Portfolio is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). The accompanying financial statements were prepared in accordance with U.S. GAAP, including but not limited to ASC 946. U.S. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Notice of Acquisition. On December 2, 2020, Waddell & Reed Financial, Inc. (“Waddell & Reed Financial”), the parent company of Ivy Investment Management Company (“IICO”), and Macquarie Group Limited, including its asset management division Macquarie Asset Management (together, “Macquarie”), announced that they had entered into an agreement whereby Macquarie will acquire Waddell & Reed Financial (the “Transaction”). The Transaction is subject to approval by Waddell & Reed Financial’s shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of certain other conditions, the Transaction is expected to close by mid-2021. This is subject to change.
Under the Investment Company Act of 1940, as amended, closing of the Transaction will result in the automatic termination of each Portfolio’s investment advisory agreement with IICO, and any related sub-advisory contract(s), where applicable. Each Portfolio’s Board recently approved a new investment advisory agreement (and new sub-advisory agreement(s)). The new investment advisory agreement (and new sub-advisory agreement(s)) approved by each Portfolio’s
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Board is expected to be presented to Portfolio shareholders for approval, and, if approved, would take effect upon the closing of the Transaction. Ivy Portfolios’ shareholders will receive proxy materials pertaining to this and other matters relating to the Transaction in the first quarter of 2021.
Subsequent Events. Management has performed a review for subsequent events through the date this report was issued.
3. | INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS |
Investments in affiliated mutual funds within the Ivy Variable Insurance Portfolios family are valued at their Net Asset Value (“NAV”) as reported by the Underlying Funds. Investments in Government Money Market are valued on the basis of amortized cost in accordance with rule 2a-7 (which approximates value), whereby a portfolio security is valued at its cost initially, and thereafter valued to reflect a constant amortization to maturity of any discount or premium. Short-term securities with maturities of 60 days or less held in all Portfolios (with the exception of Government Money Market) are valued based on quotes that are obtained from an independent pricing service approved by the Board.
Fair value is defined as the price that each Portfolio would receive upon selling an asset or would pay upon satisfying a liability in an orderly transaction between market participants at the measurement date. For purposes of calculating the NAV, the portfolio securities are valued on each business day using pricing and valuation methods as adopted by the Board. Where market quotes are readily available, fair value is generally determined on the basis of the last reported sales price, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services.
Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the factors that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs which are significant to the overall valuation.
The three-tier hierarchy of inputs is summarized as follows:
• Level 1 – Observable inputs such as quoted prices, available in active markets, for identical assets or liabilities.
• Level 2 – Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.
• Level 3 – Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at its direction that are used in determining the fair value of investments.
A description of the valuation techniques applied to the Portfolios’ major classes of assets and liabilities measured at fair value on a recurring basis follows:
Derivative Instruments. Exchange-traded futures contracts are generally valued at the settlement price.
Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. OTC derivative contracts include forward foreign currency contracts, swap agreements, and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices, or commodity prices. Depending on the product and the terms of the transaction, the fair value of the OTC derivative products are modeled taking into account the counterparties’ creditworthiness and using a series of techniques, including simulation models. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgments and the pricing inputs are observed from actively quoted markets, as is the case with interest rate swap and option contracts. OTC derivative products valued using pricing models with significant observable inputs are categorized within Level 2 of the fair value hierarchy.
Equity Securities. Investments in registered open-end investment management companies will be valued based upon the NAV of such investments and are categorized as Level 1 of the fair value hierarchy.
Short-term Investments. Short-term investments having a maturity of 60 days or less are valued based on quotes that are obtained from an independent pricing service authorized by the Board. These investments are categorized as Level 2 of the fair value hierarchy.
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4. | DERIVATIVE INSTRUMENTS ($ amounts in thousands unless indicated otherwise) |
The following disclosures contain information on why and how the Portfolios use derivative instruments, the associated risks of investing in derivative instruments, and how derivative instruments affect the Portfolios’ financial positions and results of operations.
Futures Contracts. Each Managed Volatility Portfolio is authorized to engage in buying and selling futures contracts. Upon entering into a futures contract, a Portfolio is required to deposit, in a segregated account, an amount equal to a varying specified percentage of the contract amount. This amount is known as the initial margin. Subsequent amounts, known as variation margin, are paid or received by the Portfolio each day, dependent on the daily fluctuations in the value of the underlying debt security or index. Options on futures contracts may also be purchased or sold by a Portfolio.
Futures contracts are reported on a schedule following the Schedule of Investments. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are identified on the Schedule of Investments. Cash held by the broker to cover initial margin requirements on open futures contracts and the receivable and/or payable for the daily mark to market for the variation margin are noted on the Statements of Assets and Liabilities. The net change in unrealized appreciation (depreciation) is reported on the Statements of Operations. Realized gains (losses) are reported on the Statements of Operations at the closing or expiration of futures contracts.
Risks of entering into futures contracts include the possibility of loss of securities or cash held as collateral, that there may be an illiquid market where the Portfolio is unable to close the contract or enter into an offsetting position and, if used for hedging purposes, the risk that the price of the contract will correlate imperfectly with the prices of the Portfolio’s securities.
Pathfinder Moderate — Managed Volatility, Pathfinder Moderately Aggressive — Managed Volatility and Pathfinder Moderately Conservative — Managed Volatility invest in long and/or short positions in futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk).
Additional Disclosure Related to Derivative Instruments
Fair values of derivative instruments as of December 31, 2020:
Assets | Liabilities | |||||||||||||||||
Portfolio | Type of Risk Exposure | Statements of Assets & Liabilities Location | Value | Statements of Assets & Liabilities Location | Value | |||||||||||||
Pathfinder Moderate – Managed Volatility | Equity | $ | — | Unrealized depreciation on futures contracts* | $ | 668 | ||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | Equity | — | Unrealized depreciation on futures contracts* | 78 | ||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | Equity | — | Unrealized depreciation on futures contracts* | 83 |
*The value presented includes cumulative gain (loss) on open futures contracts; however, the value reflected on the accompanying Statements of Assets and Liabilities is only the unsettled variation margin receivable (payable) as of December 31, 2020.
Amount of realized gain (loss) on derivatives recognized on the Statements of Operations for the year ended December 31, 2020:
Net realized gain (loss) on: | ||||||||||||||||||||||||||
Portfolio | Type of Risk Exposure | Investments in unaffiliated securities* | Swap agreements | Futures contracts | Written options | Forward foreign currency contracts | Total | |||||||||||||||||||
Pathfinder Moderate – Managed Volatility | Equity | $ | — | $ | — | $ | (29,436 | ) | $ | — | $ | — | $ | (29,436 | ) | |||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | Equity | — | — | (3,692 | ) | — | — | (3,692 | ) | |||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | Equity | — | — | (2,625 | ) | — | — | (2,625 | ) |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
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Change in unrealized appreciation (depreciation) on derivatives recognized on the Statements of Operations for the year ended December 31, 2020:
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||||
Portfolio | Type of Risk Exposure | Investments in unaffiliated securities* | Swap agreements | Futures contracts | Written options | Forward foreign currency contracts | Total | |||||||||||||||||||
Pathfinder Moderate – Managed Volatility | Equity | $ | — | $ | — | $ | (89 | ) | $ | — | $ | — | $ | (89 | ) | |||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | Equity | — | — | (11 | ) | — | — | (11 | ) | |||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | Equity | — | — | (16 | ) | — | — | (16 | ) |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
During the year ended December 31, 2020, the average derivative volume was as follows:
Portfolio | Forward foreign currency contracts(1) | Long futures contracts(2) | Short futures contracts(2) | Swap agreements(3) | Purchased options(2) | Written options(2) | ||||||||||||||||||||||||
Pathfinder Moderate – Managed Volatility | $ | $ | — | $ | 67,426 | $ | — | $ | — | $ | — | |||||||||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | — | 69 | 8,411 | — | — | — | ||||||||||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | — | 960 | 8,283 | — | — | — |
(1) | Average absolute value of unrealized appreciation/depreciation during the period. |
(2) | Average value outstanding during the period. |
(3) | Average notional amount outstanding during the period. |
5. | INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS ($ amounts in thousands unless indicated otherwise) |
Management Fees. IICO serves as each Portfolio’s investment adviser. The management fee is accrued daily by Government Money Market at the following annual rates as a percentage of average daily net assets:
Portfolio (M – Millions) | $0 to $1,000M | Over $1,000M | ||||||
Government Money Market | 0.350 | % | 0.300 | % |
Each Managed Volatility Portfolio pays a management fee to IICO for providing investment advice and supervising its investments at the following annual rates as a percentage of average daily net assets:
Portfolio (M – Millions) | $0 to $500M | $500 to $1,000M | Over $1,000M | |||||||||
Pathfinder Moderate – Managed Volatility | 0.200 | % | 0.170 | % | 0.150 | % | ||||||
Pathfinder Moderately Aggressive – Managed Volatility | 0.200 | 0.170 | 0.150 | |||||||||
Pathfinder Moderately Conservative – Managed Volatility | 0.200 | 0.170 | 0.150 |
IICO uses all of the management fee it receives from the Managed Volatility Portfolios to pay Securian Asset Management Inc. (“Securian”). Accordingly, Securian receives a fee based on the average daily net assets of the Managed Volatility Portfolios.
The Pathfinder Portfolios pay no management fees; however, IICO receives management fees from the underlying funds.
IICO has entered into Subadvisory Agreements with the following entity on behalf of certain Portfolios:
Securian serves as subadvisor to the Managed Volatility Portfolios. The subadvisor makes investment decisions in accordance with the Portfolio’s investment objectives, policies and restrictions under the supervision of IICO and the Board of Trustees. IICO pays all applicable costs of the subadvisor.
Independent Trustees and Chief Compliance Officer Fees. Fees paid to the Independent Trustees can be paid in cash or deferred to a later date, at the election of the Trustees according to the Deferred Fee Agreement entered into between the Trust and the Trustee(s). Each Portfolio records its portion of the deferred fees as a liability on the Statements of Assets and Liabilities. All fees paid in cash plus any appreciation (depreciation) in the underlying deferred plan are shown on the Statements of Operations. Additionally, fees paid to the Chief Compliance Officer of the Portfolios are shown on the Statements of Operations.
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Accounting Services Fees. The Trust has an Accounting and Administrative Services Agreement with Waddell & Reed Services Company (“WRSCO”), doing business as WI Services Company (“WISC”). Under the agreement, WISC acts as the agent in providing bookkeeping and accounting services and assistance to the Trust, including maintenance of Portfolio records, pricing of Portfolio shares and preparation of certain shareholder reports. For these services Government Money Market pays WISC a monthly fee of one-twelfth of the annual fee based on the average net asset levels shown in the following table:
(M – Millions) | $0 to $10M | $10 to $25M | $25 to $50M | $50 to $100M | $100 to $200M | $200 to $350M | $350 to $550M | $550 to $750M | $750 to $1,000M | Over $1,000M | ||||||||||||||||||||||||||||||
Annual Fee Rate | $ | 0.00 | $ | 11.50 | $ | 23.10 | $ | 35.50 | $ | 48.40 | $ | 63.20 | $ | 82.50 | $ | 96.30 | $ | 121.60 | $ | 148.50 |
Under the Accounting Services Agreement, each Pathfinder Portfolio and Managed Volatility Portfolio pays WISC a monthly fee of one-twelfth of the annual fee shown in the following table:
(M – Millions) | $0 to $10M | $10 to $25M | $25 to $50M | $50 to $100M | $100 to $200M | $200 to $350M | $350 to $550M | $550 to $750M | $750 to $1,000M | Over $1,000M | ||||||||||||||||||||||||||||||
Annual Fee Rate | $ | 0.00 | $ | 5.75 | $ | 11.55 | $ | 17.75 | $ | 24.20 | $ | 31.60 | $ | 41.25 | $ | 48.15 | $ | 60.80 | $ | 74.25 |
Each Portfolio also pays WISC a monthly administrative fee at the annual rate of 0.01%, or one basis point, for the first $1 billion of net assets with no fee charged for net assets in excess of $1 billion. This fee is voluntarily waived by WISC until a Portfolio’s net assets are at least $10 million and is included in “Accounting services fee” on the Statements of Operations.
Shareholder Servicing. Under the Transfer Agency Agreement between the Trust and WISC, each Portfolio reimburses WISC for certain out-of-pocket costs.
Expense Reimbursements and/or Waivers. IICO, the Portfolios’ investment manager, has determined to voluntarily waive and/or reimburse sufficient expenses of Government Money Market to the extent necessary to maintain a yield of not less than zero. There is no guarantee that Class II of Government Money Market Fund will maintain such a yield. IICO may amend or terminate this voluntary waiver and/or reimbursement at any time without prior notice to shareholders. Government Money Market class expense limitations and related waivers/reimbursements for the year ended December 31, 2020 were as follows:
Portfolio Name | Share Class Name | Type of Expense Limit | Commencement Date | End Date | Expense Limit | Amount of Expense Waiver/ Reimbursement | Expense Reduced | |||||||
Government Money Market | Class II | Voluntary | N/A | N/A | To maintain minimum yield | $244(1) | Investment Management Fees and/or Shareholder Servicing |
(1) | Minimum yield was 0.01%. |
Any amounts due to the Portfolios as a reimbursement but not paid as December 31, 2020 of are shown as a receivable from affiliates on the Statements of Assets and Liabilities.
6. | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the SEC (“Order”), the Ivy Funds, Ivy Variable Insurance Portfolios and InvestEd Portfolios (collectively, the “Funds” only for purposes of this footnote 6) have the ability to lend money to, and borrow money from, each other pursuant to a master interfund lending agreement (“Interfund Lending Program”). Under the Interfund Lending Program, the Funds may lend or borrow money for temporary purposes directly to or from one another (each an “Interfund Loan”), subject to meeting the conditions of the Order. The interest rate to be charged on an Interfund Loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The Funds made no Interfund Loans under the Interfund Lending Program during the year ended December 31, 2020.
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7. | AFFILIATED COMPANY TRANSACTIONS (All amounts in thousands) |
A summary of the transactions in affiliated companies during the year ended December 31, 2020 follows:
12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Aggressive | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 8,842 | $ | 841 | $ | 1,837 | $ | 103 | $ | 995 | $ | 8,944 | $ | 119 | $ | 373 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 5,896 | 1,697 | 1,668 | 135 | 321 | 6,381 | 156 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 7,851 | 2,403 | 1,499 | 98 | 104 | 8,957 | 223 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 8,952 | 2,840 | 2,275 | 244 | 1,065 | 10,826 | 161 | 1,165 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 323 | 34 | 190 | (9 | ) | 7 | 165 | 11 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 11,721 | 1,387 | 2,539 | 13 | 453 | 11,035 | 248 | 2 | ||||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 4,595 | 1,006 | 2,398 | 74 | (12 | ) | 3,265 | 79 | — | |||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 6,379 | 656 | 2,230 | 523 | 1,481 | 6,809 | 67 | 374 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 828 | 172 | 177 | 17 | 12 | 852 | 10 | 32 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 1,671 | 135 | 603 | 57 | 484 | 1,744 | — | — | ||||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 8,690 | 1,922 | 2,233 | (25 | ) | (412 | ) | 7,942 | 172 | 271 | ||||||||||||||||||||||||||||||
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$ | 65,748 | $ | 1,230 | $ | 4,498 | $ | 66,920 | $ | 1,246 | $ | 2,217 | |||||||||||||||||||||||||||||
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12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Conservative | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 8,365 | $ | 2,748 | $ | 3,016 | $ | 225 | $ | 995 | $ | 9,317 | $ | 122 | $ | 381 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 18,661 | 13,712 | 5,864 | 508 | 1,177 | 28,194 | 541 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 3,977 | 2,299 | 1,473 | 111 | 80 | 4,994 | 122 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 8,639 | 1,975 | 7,355 | — | — | 3,259 | 29 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 8,472 | 4,602 | 3,152 | 371 | 1,031 | 11,324 | 166 | 1,198 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 1,474 | 491 | 592 | 9 | (5 | ) | 1,377 | 93 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 5,937 | 1,996 | 2,140 | 110 | 253 | 6,156 | 136 | 1 | ||||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 26,285 | 10,514 | 9,850 | 206 | 144 | 27,299 | 646 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 6,620 | 2,390 | 3,392 | 613 | 1,749 | 7,980 | 76 | 421 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 254 | 115 | 100 | 8 | 8 | 285 | 3 | 11 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 1,524 | 511 | 849 | 100 | 468 | 1,754 | — | — | ||||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 8,223 | 3,910 | 3,084 | 118 | (310 | ) | 8,857 | 184 | 291 | |||||||||||||||||||||||||||||||
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$ | 98,431 | $ | 2,379 | $ | 5,590 | $ | 110,796 | $ | 2,118 | $ | 2,303 | |||||||||||||||||||||||||||||
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12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Moderate | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 74,751 | $ | 5,593 | $ | 17,953 | $ | 1,048 | $ | 7,948 | $ | 71,387 | $ | 1,003 | $ | 3,132 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 94,712 | 32,352 | 23,370 | 1,950 | 5,437 | 111,081 | 2,438 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 54,513 | 16,159 | 13,129 | 809 | 377 | 58,729 | 1,538 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 36,306 | 3,439 | 26,939 | — | — | 12,806 | 116 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 75,699 | 18,709 | 18,720 | 2,304 | 8,557 | 86,549 | 1,360 | 9,810 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 6,732 | 764 | 2,589 | (93 | ) | 46 | 4,860 | 351 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 81,384 | 8,739 | 20,750 | (157 | ) | 3,162 | 72,378 | 1,710 | 13 | |||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 107,267 | 23,130 | 35,402 | 701 | 631 | 96,327 | 2,442 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 55,941 | 5,931 | 22,190 | 4,516 | 12,750 | 56,948 | 587 | 3,269 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 5,183 | 1,065 | 1,365 | 39 | 111 | 5,033 | 59 | 200 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 13,931 | 1,178 | 5,788 | (46 | ) | 4,464 | 13,739 | — | — | |||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 73,454 | 16,521 | 21,168 | (35 | ) | (3,691 | ) | 65,081 | 1,469 | 2,322 | ||||||||||||||||||||||||||||||
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$ | 679,873 | $ | 11,036 | $ | 39,792 | $ | 654,918 | $ | 13,073 | $ | 18,746 | |||||||||||||||||||||||||||||
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(A) | No dividends were paid during the preceding 12 months. |
2020 | ANNUAL REPORT | 45 |
Table of Contents
12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Moderately Aggressive | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 101,226 | $ | 6,659 | $ | 23,184 | $ | 1,312 | $ | 10,784 | $ | 96,797 | $ | 1,337 | $ | 4,177 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 98,711 | 26,885 | 25,426 | 2,107 | 5,299 | 107,576 | 2,375 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 82,676 | 23,628 | 18,843 | 1,140 | 581 | 89,182 | 2,298 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 30,144 | 2,574 | 26,897 | — | — | 5,821 | 91 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 102,502 | 26,772 | 26,650 | 3,266 | 11,360 | 117,250 | 1,812 | 13,067 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 6,132 | 671 | 2,827 | (115 | ) | 75 | 3,936 | 280 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 123,429 | 12,458 | 30,363 | (928 | ) | 5,297 | 109,893 | 2,553 | 20 | |||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 81,987 | 20,658 | 25,623 | 361 | 638 | 78,021 | 1,945 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 74,252 | 6,839 | 28,484 | 5,900 | 16,765 | 75,272 | 767 | 4,271 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 8,375 | 1,618 | 2,078 | 76 | 159 | 8,150 | 95 | 318 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 19,011 | 1,359 | 7,563 | (137 | ) | 6,097 | 18,767 | — | — | |||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 99,473 | 20,902 | 28,192 | (170 | ) | (5,039 | ) | 86,974 | 1,940 | 3,067 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
$ | 827,918 | $ | 12,812 | $ | 52,016 | $ | 797,639 | $ | 15,493 | $ | 24,920 | |||||||||||||||||||||||||||||
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|
|
|
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|
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|
|
|
|
12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Moderately Conservative | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 19,638 | $ | 2,004 | $ | 5,293 | $ | 334 | $ | 2,070 | $ | 18,753 | $ | 270 | $ | 843 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 32,110 | 15,058 | 8,199 | 699 | 1,963 | 41,631 | 903 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 12,156 | 3,920 | 3,274 | 218 | 73 | 13,093 | 351 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 14,197 | 1,360 | 11,270 | — | — | 4,287 | 46 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 19,888 | 5,384 | 5,398 | 656 | 2,230 | 22,760 | 366 | 2,644 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 2,500 | 334 | 891 | (23 | ) | 6 | 1,926 | 143 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 18,149 | 2,306 | 5,033 | (145 | ) | 861 | 16,138 | 391 | 3 | |||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 43,724 | 8,842 | 14,937 | 320 | 228 | 38,177 | 992 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 15,062 | 2,015 | 6,373 | 1,302 | 3,425 | 15,431 | 162 | 902 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 1,029 | 238 | 300 | 9 | 22 | 998 | 12 | 41 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 3,624 | 401 | 1,620 | 20 | 1,149 | 3,574 | — | — | ||||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 19,300 | 4,891 | 5,858 | 39 | (963 | ) | 17,409 | 400 | 633 | |||||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||
$ | 201,377 | $ | 3,429 | $ | 11,064 | $ | 194,177 | $ | 4,036 | $ | 5,066 | |||||||||||||||||||||||||||||
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|
|
|
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|
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|
|
|
|
12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Moderate – Managed Volatility | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 75,930 | $ | 19,788 | $ | 28,721 | $ | 1,936 | $ | 8,192 | $ | 77,125 | $ | 1,044 | $ | 3,261 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 96,210 | 55,208 | 38,829 | 2,584 | 4,847 | 120,020 | 2,538 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 55,446 | 28,332 | 22,285 | 1,174 | 788 | 63,455 | 1,602 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 36,995 | 8,847 | 32,012 | — | — | * | 13,830 | 120 | — | |||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 76,894 | 34,819 | 30,276 | 2,838 | 9,227 | 93,502 | 1,412 | 10,189 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 6,879 | 1,799 | 3,371 | (135 | ) | 79 | 5,251 | 366 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 82,775 | 28,354 | 37,689 | 1,870 | 2,889 | 78,199 | 1,780 | 14 | ||||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 109,238 | 43,998 | 50,333 | 1,264 | (87 | ) | 104,080 | 2,542 | — | |||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 56,810 | 16,491 | 30,386 | 5,467 | 13,139 | 61,521 | 611 | 3,402 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 5,279 | 2,075 | 2,141 | 136 | 88 | 5,437 | 62 | 208 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 14,154 | 3,792 | 7,893 | 794 | 3,992 | 14,839 | — | — | ||||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 74,645 | 30,949 | 32,373 | 834 | (3,733 | ) | 70,322 | 1,534 | 2,426 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
$ | 691,255 | $ | 18,762 | $ | 39,421 | $ | 707,581 | $ | 13,611 | $ | 19,500 | |||||||||||||||||||||||||||||
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* | Not shown due to rounding. |
(A) | No dividends were paid during the preceding 12 months. |
46 | ANNUAL REPORT | 2020 |
Table of Contents
12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 11,170 | $ | 2,875 | $ | 4,173 | $ | 224 | $ | 1,244 | $ | 11,340 | $ | 151 | $ | 470 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 10,897 | 5,440 | 4,530 | 304 | 491 | 12,602 | 267 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 9,131 | 4,623 | 3,613 | 178 | 129 | 10,448 | 258 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 3,321 | 693 | 3,339 | — | — | 675 | 10 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 11,311 | 5,398 | 4,721 | 441 | 1,307 | 13,736 | 203 | 1,466 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 680 | 166 | 380 | (18 | ) | 13 | 461 | 32 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 13,631 | 3,836 | 5,207 | 141 | 474 | 12,875 | 287 | 2 | ||||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 9,079 | 4,142 | 4,181 | 56 | 44 | 9,140 | 219 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 8,193 | 2,312 | 4,318 | 705 | 1,929 | 8,821 | 86 | 480 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 925 | 359 | 367 | 22 | 16 | 955 | 11 | 36 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 2,098 | 548 | 1,146 | 100 | 598 | 2,198 | — | — | ||||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 10,980 | 4,416 | 4,755 | 87 | (536 | ) | 10,192 | 219 | 346 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
$ | 91,416 | $ | 2,240 | $ | 5,709 | $ | 93,443 | $ | 1,743 | $ | 2,800 | |||||||||||||||||||||||||||||
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12-31-19 Value | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ (Depreciation) | 12-31-20 Value | Distributions Received | Capital Gain Distributions | |||||||||||||||||||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | ||||||||||||||||||||||||||||||||||||||||
Ivy VIP Core Equity, Class II | $ | 7,649 | $ | 2,271 | $ | 3,009 | $ | 253 | $ | 877 | $ | 8,041 | $ | 111 | $ | 345 | ||||||||||||||||||||||||
Ivy VIP Corporate Bond, Class II | 12,506 | 9,282 | 5,025 | 339 | 749 | 17,851 | 370 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Global Equity Income, Class II | 4,740 | 2,598 | 1,961 | 153 | 85 | 5,615 | 144 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Government Money Market, Class II | 5,560 | 1,350 | 5,075 | — | — | 1,835 | 18 | — | ||||||||||||||||||||||||||||||||
Ivy VIP Growth, Class II | 7,747 | 3,829 | 3,138 | 335 | 987 | 9,760 | 150 | 1,082 | ||||||||||||||||||||||||||||||||
Ivy VIP High Income, Class I | 980 | 296 | 447 | (6 | ) | 3 | 826 | 58 | — | |||||||||||||||||||||||||||||||
Ivy VIP International Core Equity, Class II | 7,076 | 2,191 | 2,781 | 182 | 252 | 6,920 | 160 | 1 | ||||||||||||||||||||||||||||||||
Ivy VIP Limited-Term Bond, Class II | 17,048 | 6,812 | 7,696 | 217 | (11 | ) | 16,370 | 406 | — | |||||||||||||||||||||||||||||||
Ivy VIP Mid Cap Growth, Class I | 5,866 | 1,916 | 3,232 | 618 | 1,450 | 6,618 | 66 | 369 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Core, Class II | 403 | 171 | 170 | 14 | 10 | 428 | 5 | 17 | ||||||||||||||||||||||||||||||||
Ivy VIP Small Cap Growth, Class I (A) | 1,412 | 424 | 819 | 105 | 411 | 1,533 | — | — | ||||||||||||||||||||||||||||||||
Ivy VIP Value, Class II | 7,519 | 3,390 | 3,257 | 163 | (349 | ) | 7,466 | 164 | 260 | |||||||||||||||||||||||||||||||
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$ | 78,506 | $ | 2,373 | $ | 4,464 | $ | 83,263 | $ | 1,652 | $ | 2,074 | |||||||||||||||||||||||||||||
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(A) | No dividends were paid during the preceding 12 months. |
8. | INVESTMENT SECURITIES TRANSACTIONS ($ amounts in thousands) |
The cost of purchases and the proceeds from maturities and sales of investment securities (excluding short-term securities) for the year ended December 31, 2020, were as follows:
Purchases | Sales | |||||||||||||||
U.S. Government | Other Issuers | U.S. Government | Other Issuers | |||||||||||||
Pathfinder Aggressive | $ | — | $ | 13,093 | $ | — | $ | 17,649 | ||||||||
Pathfinder Conservative | — | 45,263 | — | 40,867 | ||||||||||||
Pathfinder Moderate | — | 133,580 | — | 209,363 | ||||||||||||
Pathfinder Moderately Aggressive | — | 151,023 | — | 246,130 | ||||||||||||
Pathfinder Moderately Conservative | — | 46,753 | — | 68,446 | ||||||||||||
Pathfinder Moderate – Managed Volatility | — | 274,451 | — | 316,309 | ||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | — | 34,808 | — | 40,730 | ||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | — | 34,530 | — | 36,610 | ||||||||||||
Government Money Market | — | — | — | — |
2020 | ANNUAL REPORT | 47 |
Table of Contents
9. | CAPITAL SHARE TRANSACTIONS (All amounts in thousands) |
The Trust has authorized an unlimited number of no par value shares of beneficial interest. Transactions in shares of beneficial interest were as follows:
Pathfinder Aggressive | Pathfinder Conservative | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: |
| |||||||||||||||||||||||||||||||||||
Class II | 455 | $ | 2,017 | 904 | $ | 4,399 | 4,945 | $ | 24,739 | 2,758 | $ | 13,757 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 2,257 | 8,768 | 1,655 | 7,374 | 1,739 | 7,983 | 1,443 | 6,905 | ||||||||||||||||||||||||||||
Shares redeemed: |
| |||||||||||||||||||||||||||||||||||
Class II | (2,118 | ) | (9,369 | ) | (2,113 | ) | (10,275 | ) | (4,826 | ) | (24,087 | ) | (4,383 | ) | (21,949 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Net increase (decrease) | 594 | $ | 1,416 | 446 | $ | 1,498 | 1,858 | $ | 8,635 | (182 | ) | $ | (1,287 | ) | ||||||||||||||||||||||
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Pathfinder Moderate | Pathfinder Moderately Aggressive | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: |
| |||||||||||||||||||||||||||||||||||
Class II | 189 | $ | 894 | 183 | $ | 932 | 848 | $ | 4,022 | 411 | $ | 2,138 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 18,744 | 79,596 | 16,016 | 75,614 | 26,249 | 109,757 | 21,454 | 102,589 | ||||||||||||||||||||||||||||
Shares redeemed: |
| |||||||||||||||||||||||||||||||||||
Class II | (22,309 | ) | (107,020 | ) | (29,129 | ) | (147,204 | ) | (28,732 | ) | (138,904 | ) | (34,231 | ) | (176,746 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Net decrease | (3,376 | ) | $ | (26,530 | ) | (12,930 | ) | $ | (70,658 | ) | (1,635 | ) | $ | (25,125 | ) | (12,366 | ) | $ | (72,019 | ) | ||||||||||||||||
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Pathfinder Moderately Conservative | Pathfinder Moderate – Managed Volatility | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: |
| |||||||||||||||||||||||||||||||||||
Class II | 558 | $ | 2,801 | 617 | $ | 3,094 | 1,390 | $ | 7,539 | 5,714 | $ | 32,066 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 4,529 | 20,114 | 3,846 | 18,438 | 12,381 | 60,610 | 8,200 | 43,825 | ||||||||||||||||||||||||||||
Shares redeemed: |
| |||||||||||||||||||||||||||||||||||
Class II | (6,674 | ) | (32,894 | ) | (7,714 | ) | (39,130 | ) | (8,561 | ) | (46,346 | ) | (6,337 | ) | (35,718 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Net increase (decrease) | (1,587 | ) | $ | (9,979 | ) | (3,251 | ) | $ | (17,598 | ) | 5,210 | $ | 21,803 | 7,577 | $ | 40,173 | ||||||||||||||||||||
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48 | ANNUAL REPORT | 2020 |
Table of Contents
Pathfinder Moderately Aggressive – Managed Volatility | Pathfinder Moderately Conservative – Managed Volatility | |||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | |||||||||||||||||||||||||||||
Shares issued from sale of shares: |
| |||||||||||||||||||||||||||||||||||
Class II | 1,089 | $ | 5,429 | 915 | $ | 4,945 | 1,268 | $ | 6,624 | 1,302 | $ | 7,038 | ||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 2,141 | 9,697 | 1,483 | 7,558 | 1,234 | 6,043 | 950 | 4,908 | ||||||||||||||||||||||||||||
Shares redeemed: |
| |||||||||||||||||||||||||||||||||||
Class II | (2,203 | ) | (11,187 | ) | (2,123 | ) | (11,437 | ) | (1,716 | ) | (9,067 | ) | (1,885 | ) | (10,192 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Net increase | 1,027 | $ | 3,939 | 275 | $ | 1,066 | 786 | $ | 3,600 | 367 | $ | 1,754 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Government Money Market | ||||||||||||||||||||||||||||||||||||
Year ended 12-31-20 | Year ended 12-31-19 | |||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | |||||||||||||||||||||||||||||||||
Shares issued from sale of shares: |
| |||||||||||||||||||||||||||||||||||
Class II | 68,026 | $ | 68,026 | 54,880 | $ | 54,880 | ||||||||||||||||||||||||||||||
Shares issued in reinvestment of distributions to shareholders: | ||||||||||||||||||||||||||||||||||||
Class II | 616 | 616 | 3,958 | 3,948 | ||||||||||||||||||||||||||||||||
Shares redeemed: |
| |||||||||||||||||||||||||||||||||||
Class II | (156,759 | ) | (156,759 | ) | (113,724 | ) | (113,724 | ) | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net decrease | (88,117 | ) | $ | (88,117 | ) | (54,886 | ) | $ | (54,886 | ) | ||||||||||||||||||||||||||
|
|
10. | FEDERAL INCOME TAX MATTERS ($ amounts in thousands) |
For Federal income tax purposes, cost of investments owned at December 31, 2020 and the related unrealized appreciation (depreciation) were as follows:
Portfolio | Cost of Investments | Gross Appreciation | Gross Depreciation | Net Unrealized Appreciation | ||||||||||||
Pathfinder Aggressive | $ | 66,760 | $ | 5,292 | $ | 4,175 | $ | 1,117 | ||||||||
Pathfinder Conservative | 107,689 | 6,260 | 2,181 | 4,079 | ||||||||||||
Pathfinder Moderate | 634,226 | 46,808 | 25,302 | 21,506 | ||||||||||||
Pathfinder Moderately Aggressive | 775,522 | 60,404 | 36,940 | 23,464 | ||||||||||||
Pathfinder Moderately Conservative | 188,500 | 13,143 | 6,481 | 6,662 | ||||||||||||
Pathfinder Moderate – Managed Volatility | 694,751 | 50,073 | 18,055 | 32,018 | ||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | 93,794 | 6,438 | 4,375 | 2,063 | ||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | 81,945 | 5,552 | 2,020 | 3,532 | ||||||||||||
Government Money Market | 95,780 | — | — | — |
2020 | ANNUAL REPORT | 49 |
Table of Contents
For Federal income tax purposes, the Portfolios’ undistributed earnings and profit for the year ended December 31, 2020 and the post-October and late-year ordinary activity updated with information available through the date of this report were as follows:
Portfolio | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Tax Return of Capital | Post- October Capital Losses Deferred | Late-Year Ordinary Losses Deferred | |||||||||||||||
Pathfinder Aggressive | $ | 1,594 | $ | 3,021 | $ | — | $ | — | $ | — | ||||||||||
Pathfinder Conservative | 3,018 | 3,759 | — | — | — | |||||||||||||||
Pathfinder Moderate | 16,707 | 26,042 | — | — | — | |||||||||||||||
Pathfinder Moderately Aggressive | 20,763 | 32,428 | — | — | — | |||||||||||||||
Pathfinder Moderately Conservative | 5,191 | 7,286 | — | — | — | |||||||||||||||
Pathfinder Moderate – Managed Volatility | 12,115 | 9,200 | — | — | — | |||||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | 1,485 | 1,398 | — | — | — | |||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | 1,529 | 1,697 | — | — | — | |||||||||||||||
Government Money Market | 39 | — | — | — | — |
Internal Revenue Code regulations permit each Portfolio to elect to defer into its next fiscal year capital losses and certain specified ordinary items incurred between each November 1 and the end of its fiscal year. Each Portfolio is also permitted to defer into its next fiscal certain ordinary losses that are generated between January 1 and the end of its fiscal year.
The tax character of dividends and distributions paid during the two fiscal years ended December 31, 2020 and 2019 were as follows:
December 31, 2020 | December 31, 2019 | |||||||||||||||||||
Portfolio | Distributed Ordinary Income(1) | Distributed Long-Term Capital Gains | Distributed Ordinary Income(1) | Distributed Long-Term Capital Gains | ||||||||||||||||
Pathfinder Aggressive | $ | 1,191 | $ | 7,578 | $ | 1,922 | $ | 5,452 | ||||||||||||
Pathfinder Conservative | 2,101 | 5,882 | 2,143 | 4,762 | ||||||||||||||||
Pathfinder Moderate | 14,439 | 65,157 | 19,550 | 56,065 | ||||||||||||||||
Pathfinder Moderately Aggressive | 17,246 | 92,511 | 24,441 | 78,148 | ||||||||||||||||
Pathfinder Moderately Conservative | 4,264 | 15,850 | 5,005 | 13,433 | ||||||||||||||||
Pathfinder Moderate – Managed Volatility | 9,296 | 51,313 | 12,479 | 31,346 | ||||||||||||||||
Pathfinder Moderately Aggressive – Managed Volatility | 1,202 | 8,495 | 2,045 | 5,513 | ||||||||||||||||
Pathfinder Moderately Conservative – Managed Volatility | 1,133 | 4,910 | 1,340 | 3,568 | ||||||||||||||||
Government Money Market | 623 | — | 3,948 | 16 |
(1) | Includes short-term capital gains distributed, if any. |
Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | IVY VIP |
To the Shareholders and Board of Trustees of Ivy Variable Insurance Portfolios:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of Ivy VIP Pathfinder Aggressive, Ivy VIP Pathfinder Conservative, Ivy VIP Pathfinder Moderate, Ivy VIP Pathfinder Moderately Aggressive, Ivy VIP Pathfinder Moderately Conservative, Ivy VIP Pathfinder Moderate – Managed Volatility, Ivy VIP Pathfinder Moderately Aggressive – Managed Volatility, Ivy VIP Pathfinder Moderately Conservative – Managed Volatility, and Ivy VIP Government Money Market, nine of the series constituting the Ivy Variable Insurance Portfolios (the “Funds”), including the schedules of investments, as of December 31, 2020, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of December 31, 2020, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian, transfer agent, and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Kansas City, Missouri
February 12, 2021
We have served as the auditor of one or more Waddell & Reed investment companies since 1997.
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INCOME TAX INFORMATION | IVY VIP |
AMOUNTS NOT ROUNDED (UNAUDITED)
The Portfolios hereby designate the following amounts of dividends paid from net ordinary income as dividends qualifying for the 70% dividends received deduction for corporations for the tax period ended December 31, 2020:
Dividends Received Deduction for Corporations | ||||
Pathfinder Aggressive | $ | 331,856 | ||
Pathfinder Conservative | 245,608 | |||
Pathfinder Moderate | 2,756,721 | |||
Pathfinder Moderately Aggressive | 3,923,548 | |||
Pathfinder Moderately Conservative | 669,079 | |||
Pathfinder Moderate – Managed Volatility | 2,455,334 | |||
Pathfinder Moderately Aggressive – Managed Volatility | 402,138 | |||
Pathfinder Moderately Conservative – Managed Volatility | 241,504 | |||
Government Money Market | — |
The Portfolios intend to pass through to the extent available Section 163(j) Interest Dividends as defined in Treasury Regulation 1.163(j)-(b).
The Portfolios hereby designate the following amounts as distributions of long-term capital gains:
Pathfinder Aggressive | $ | 7,577,995 | ||
Pathfinder Conservative | 5,881,819 | |||
Pathfinder Moderate | 65,156,582 | |||
Pathfinder Moderately Aggressive | 92,511,076 | |||
Pathfinder Moderately Conservative | 15,850,330 | |||
Pathfinder Moderate – Managed Volatility | 51,313,353 | |||
Pathfinder Moderately Aggressive – Managed Volatility | 8,495,199 | |||
Pathfinder Moderately Conservative – Managed Volatility | 4,909,883 | |||
Government Money Market | — |
Internal Revenue Code regulations permit each qualifying Portfolio to elect to pass through a foreign tax credit to shareholders with respect to foreign taxes paid by the Portfolio. Each Portfolio elected to pass the following amounts of creditable foreign taxes through to their shareholders:
Foreign Tax Credit | Foreign Derived Income | |||||||
Pathfinder Aggressive | $ | 41,594 | $ | 346,887 | ||||
Pathfinder Conservative | 22,782 | 190,001 | ||||||
Pathfinder Moderate | 287,192 | 2,395,163 | ||||||
Pathfinder Moderately Aggressive | 428,898 | 3,576,975 | ||||||
Pathfinder Moderately Conservative | 65,617 | 547,239 | ||||||
Pathfinder Moderate – Managed Volatility | 298,989 | 2,493,540 | ||||||
Pathfinder Moderately Aggressive – Managed Volatility | 48,242 | 402,331 | ||||||
Pathfinder Moderately Conservative – Managed Volatility | 26,867 | 224,068 |
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BOARD OF TRUSTEES AND OFFICERS | IVY VIP |
(UNAUDITED)
Each of the individuals listed below serves as a trustee for the Trust (28 portfolios), and for the rest of the funds within the Fund Complex, which also includes, in addition to the Trust, the Ivy Funds (45 portfolios), the Ivy High Income Opportunities Fund (a closed-end fund) (“IVH”) and InvestEd Portfolios (“InvestEd”) (10 portfolios).
Board members who are not “interested persons” of the Funds as defined in Section 2(a)(19) of the 1940 Act (Disinterested Trustees) constitute at least 75% of the Board.
Joseph Harroz, Jr. serves as the Independent Chairman of the Trust’s Board and of the Board of Trustees of the other funds in the Fund Complex. Subject to the Trustee Emeritus and Retirement Policy, a Trustee serves until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
The Statement of Additional Information (the “SAI”) for the Trust includes additional information about the Trust’s trustees. The SAI is available without charge, upon request, by calling 1.888.923.3355. It is also available on the Ivy Investments website, www.ivyinvestments.com.
Disinterested Trustees
Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
James M. Concannon 6300 Lamar Avenue Overland Park, KS 66202 1947 | Trustee | 1997 | Emeritus Dean and Professor of Law, Washburn University School of Law (1973 to present). | Director, Kansas Legal Services for Prisoners, Inc. (non-profit community service); Director, U.S. Alliance Corporation and wholly-owned subsidiaries: U.S. Alliance Life and Security Company — Montana and Dakota Capital Life Insurance Company (Insurance) (2009 to present); Director, Kansas Appleseed, Inc. (non-profit community service) (2007 to present); Trustee, WRA Funds (1997-2018); Trustee, Ivy NextShares (2017-2019); Trustee, InvestEd (2001 to present) (10 portfolios overseen); Trustee, Ivy Funds (2017 to present) (45 portfolios overseen); Trustee, IVH (2017 to present) (1 portfolio overseen). | ||||
H. Jeffrey Dobbs 6300 Lamar Avenue Overland Park, KS 66202 1955 | Trustee | 2019 | Global Sector Chairman, Industrial Manufacturing, KPMG LLP (2010-2015). | Director, Valparaiso University (2012 to present); Director, TechAccel LLC (2015 to present) (Tech R&D); Board Member, Kansas City Repertory Theatre (2015 to present); Board Member, PatientsVoices, Inc. (technology) (2018 to present); Board Member, Kansas City Campus for Animal Care (2018 to present); Director, National Association of Manufacturers (2010-2015); Director, The Children’s Center (2003-2015); Director, Metropolitan Affairs Coalition (2003-2015); Director, Michigan Roundtable for Diversity and Inclusion (2003-2015); Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). | ||||
James D. Gressett 6300 Lamar Avenue Overland Park, KS 66202 1950 | Trustee | 2017 | Chief Executive Officer (CEO) of CalPac Pizza LLC (2011 to present); CEO of CalPac Pizza II LLC (2012 to present); CEO of PacPizza LLC (Pizza Hut franchise) (2000 to present); Member/CEO, Southern Pac Pizza LLC (2013 to present); Partner, Century Bridge Partners (real estate investments) (2007 to present); Manager, Hartley Ranch Angus Beef, LLC (2013 to present); President, Penn Capital Corp. (1995 to present); Partner, Penn Capital Partners (1999 to present); Partner, 1788 Chicken, LLC (food franchise) (2016 to present). | Member/Secretary, The Metochoi Group LLC (1999 to present); Member/Chairman, Idea Homes LLC (homebuilding and development) (2013 to present); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee; IVH (2013 to present) (1 portfolio overseen). |
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Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Joseph Harroz, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1967 | Trustee
Independent Chairman | 1998
2015 | President (2020 to present), Interim President (2019-2020), Vice President (2010-2019) and Dean (2010-2019), College of Law, University of Oklahoma; Managing Member, Harroz Investments, LLC, (commercial enterprises) (1998 to present). | Director and Shareholder, Valliance Bank (2007 to present); Director, Foundation Healthcare (formerly Graymark HealthCare) (2008-2017); Trustee, The Mewbourne Family Support Organization (2006 to present) (non-profit); Independent Director, LSQ Manager, Inc. (real estate) (2007-2016); Director, Oklahoma Foundation for Excellence (non-profit) (2008 to present); Director, University of Oklahoma Medical, Inc. (2020 to present) (non-profit); Independent Chairman and Trustee, WRA Funds (Independent Chairman: 2015-2018; Trustee: 1998-2018); Independent Chairman and Trustee, Ivy NextShares (2016-2019); Independent Chairman and Trustee, InvestEd (Independent Chairman: 2015 to present; Trustee: 2001 to present) (10 portfolios overseen); Independent Chairman and Trustee, Ivy Funds (Independent Chairman: 2006 to present; Trustee: 1998 to present) (45 portfolios overseen); Independent Chairman and Trustee, IVH (Independent Chairman and Trustee (2013 to present) (1 portfolio overseen). | ||||
Glendon E. Johnson, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1951 | Trustee | 2017 | Of Counsel, Lee & Smith, PC (law firm, emphasis on finance, securities, mergers and acquisitions law) (1996 to 2020); Owner and Manager, Castle Valley Ranches, LLC (ranching) and Castle Valley Outdoors, LLC (outdoor recreation) (1995 to present); Formerly, Partner, Kelly, Drye & Warren LLP (law firm) (1989-1996); Partner, Lane & Edson PC (law firm) (1987-1989). | Director, Thomas Foundation for Cancer Research (non-profit) (2005 to present); Director, Warriors Afield Legacy Foundation (non-profit) (2014 to present); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee, IVH (2013 to present) (1 portfolio overseen). | ||||
Sandra A.J. Lawrence 6300 Lamar Avenue Overland Park, KS 66202 1957 | Trustee | 2019 | Retired, formerly, Chief Administrative Officer, Children’s Mercy Hospitals and Clinics (2016-2019); CFO, Children’s Mercy Hospitals and Clinics (2005-2016). | Director, Hall Family Foundation (1993 to present); Director, Westar Energy (2004-2018); Trustee, Nelson-Atkins Museum of Art (non-profit) (2007 to present); Director, Turn the Page KC (non-profit) (2012-2016); Director, Kansas Metropolitan Business and Healthcare Coalition (non-profit) (2017-2019); Director, National Association of Corporate Directors (non-profit) (2017 to present); Director, American Shared Hospital Services (2017 to present); Director, Evergy, Inc., Kansas City Power & Light Company, KCP&L Greater Missouri Operations Company, Westar Energy, Inc. and Kansas Gas and Electric Company (related utility companies) (2018 to present); Director, Stowers (research) (2018); Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). | ||||
Frank J. Ross, Jr. Polsinelli PC 900 West 48th Place, Suite 900 Kansas City, MO 64112 1953 | Trustee | 1996 | Shareholder/Director, Polsinelli PC (law firm) (1980 to present). | Trustee, WRA Funds (1996-2018); Trustee, Ivy NextShares (2017-2019); Trustee, InvestEd (2001 to present) (10 portfolios overseen); Trustee, Ivy Funds (2017 to present) (45 portfolios overseen); Trustee, IVH (2017 to present) (1 portfolio overseen). |
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Name, Address and Year of Birth | Position(s) Held with the Trust | Trustee Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Michael G. Smith 6300 Lamar Avenue Overland Park, KS 66202 1944 | Trustee | 2017 | Retired; formerly, with Merrill Lynch as Managing Director of Global Investor Client Strategy (1996-1998), Head of Regional Institutional Sales (1995-1996) and of U.S. Central Region (1986-1995, 1999). | Director, Executive Board, Cox Business School, Southern Methodist University (1998-2019); Lead Director, Northwestern Mutual Funds (2003-2017) (29 portfolios overseen); Director, CTMG, Inc. (clinical testing) (2008-2015); Trustee, WRA Funds (2017-2018); Trustee, Ivy NextShares (2016-2019); Trustee, InvestEd (2017 to present) (10 portfolios overseen); Trustee, Ivy Funds (2002 to present) (45 portfolios overseen); Trustee, IVH (2013 to present) (1 portfolio overseen). |
Interested Trustee
Mr. Sanders is “interested” by virtue of his current or former engagement as an officer of Waddell & Reed Financial, Inc. (“WDR”) or its wholly-owned subsidiaries, including each Fund’s investment manager, Ivy Investment Management Company (“IICO”), each Fund’s principal underwriter, Ivy Distributors, Inc. (“IDI”), and each Fund’s shareholder servicing and accounting services agent, Waddell & Reed Services Company, doing business as WI Services Company (“WISC”), a subsidiary of Waddell & Reed, Inc. (“Waddell & Reed”), as well as by virtue of his personal ownership of shares of WDR. The address for the Interested Trustee and each of the officers in the following tables is 6300 Lamar Avenue, Overland Park, KS 66202.
Name and Year of Birth | Position(s) Held with the Trust | Trustee/Officer Since | Principal Occupation(s) During Past 5 Years | Other Directorships Held | ||||
Philip J. Sanders 1959 | Trustee | 2019 | CEO, WDR (2016 to present); President, CEO and Chairman, IICO (2016 to present); President of each of the funds in the Fund Complex (2016 to present); CIO, WDR (2011-2019); CIO, IICO (2010-2019). | Trustee, Ivy NextShares (2019); Trustee, InvestEd (2019 to present) (10 portfolios overseen); Trustee, Ivy Funds (2019 to present) (45 portfolios overseen); Trustee, IVH (2019 to present) (1 portfolio overseen). |
Officers
The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. The Trust’s principal officers are:
Name And Year of Birth | Position(s) Held with the Trust and Fund Complex | Officer of Trust Since | Officer of Fund Complex Since* | Principal Occupation(s) During Past 5 Years | ||||
Jennifer K. Dulski 1980 | Secretary | 2017 | 2017 | Secretary for each of the funds in the Fund Complex (2017 to present); Senior Vice President and Associate General Counsel of Waddell & Reed, IICO and IDI (2018 to present). | ||||
Joseph W. Kauten 1969 | Vice President
Treasurer
Principal Financial Officer | 2009
2009
2009 | 2006
2006
2007 | Principal Financial Officer of each of the funds in the Fund Complex (2007 to present); Vice President and Treasurer of each of the funds in the Fund Complex (2006 to present); Principal Accounting Officer of each of the funds in the Fund Complex (2006-2017); Assistant Treasurer of each of the funds in the Fund Complex (2003-2006); Senior Vice President of Waddell & Reed Services Company (WRSCO) (2014 to present). | ||||
Philip J. Sanders** 1959 | President | 2016 | 2016 | CEO of WDR (2016 to present); President, CEO and Chairman of IICO (2016 to present) and WRIMCO (2016-2018); President of each of the funds in the Fund Complex (2016 to present); CIO of WDR (2011-2019); CIO of IICO (2010-2019) and WRIMCO (2010-2018). | ||||
Scott J. Schneider 1968 | Vice President
Chief Compliance Officer | 2009
2009 | 2006
2004 | Chief Compliance Officer (2004 to present) and Vice President (2006 to present) of each of the funds in the Fund Complex; Vice President of IICO (2006 to present) and WRIMCO (2006-2018). |
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Name And Year of Birth | Position(s) Held with the Trust and Fund Complex | Officer of Trust Since | Officer of Fund Complex Since* | Principal Occupation(s) During Past 5 Years | ||||
Philip A. Shipp 1969 | Assistant Secretary | 2012 | 2012 | Assistant Secretary of each of the funds in the Fund Complex (2012 to present); Vice President of Waddell & Reed and IDI (2010-present). |
* This is the date when the Officer first became an officer of one or more of the funds that are the predecessors to current funds within the Fund Complex (if applicable).
** Mr. Sanders was Vice President of the Trust since 1998, until his appointment as President in 2016.
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RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT | IVY VIP |
At a meeting of the Board of Trustees (the “Board”) of Ivy Variable Insurance Portfolios (the “Trust”) held on August 11th and 12th, 2020, the Board, including all of the trustees who are not “interested persons” (the “Independent Trustees”), as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”), unanimously approved the continuance of the Investment Management Agreement (the “Management Agreement”) between Ivy Investment Management Company (“IICO”) and the Trust, and the continuance of the Investment Subadvisory Agreement between IICO and Securian Asset Management, Inc. (the “Subadviser”) with respect to Ivy VIP Securian Real Estate Securities, Ivy VIP Pathfinder Moderate – Managed Volatility, Ivy VIP Pathfinder Moderately Aggressive – Managed Volatility and Ivy VIP Pathfinder Moderately Conservative – Managed Volatility. The Management Agreement and the Investment Subadvisory Agreement are referred to collectively herein as the “Agreements.”
The Board’s Independent Trustees were assisted in their review by independent legal counsel and met with such counsel separately from representatives of IICO and the Subadviser. Independent legal counsel explained the factors that the Board should consider as part of its review of the Agreements, all as outlined in a memorandum it had provided to the Board prior to the meeting, including, among other things, the nature and the quality of the services provided by IICO and the Subadviser, profitability (including any fall-out benefits) from IICO’s and the Subadviser’s relationships with each series of the Trust (each, a “Fund” and together, the “Funds”), economies of scale, the role played by the Independent Trustees, and information on comparative fees and expenses. The Independent Trustees also considered the written responses and materials produced by IICO and the Subadviser in response to 15(c) due diligence request lists submitted by the Independent Trustees’ legal counsel prior to the meeting, as well as materials produced in response to a follow-up request list sent to IICO by independent legal counsel on behalf of the Independent Trustees. Included in those responses, which had been provided to the Board prior to the meeting, was a Fund-by-Fund profitability analysis prepared by IICO, as well as an explanation of the methodology by which the profitability analysis was calculated. The Board also received extensive materials on performance, expenses and comparable fund information from an independent mutual fund rating service. Finally, the Independent Trustees received and reviewed a considerable amount of information that their independent fee consultant had provided to them. The Independent Trustees previously had reviewed and discussed these materials during a telephonic meeting in July 2020. They further reviewed these materials among themselves, with their independent legal counsel and the independent fee consultant, and with the other Board members at executive sessions of the Independent Trustees at the August 11-12, 2020 Board meeting, during which the Board considered various factors described below, none of which by itself was considered dispositive. However, the material factors and conclusions that formed the basis for the Board’s determination to approve the Agreements are discussed separately below.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of services provided to the Funds by IICO and the Subadviser, taking into account the large amount of materials produced by IICO and the Subadviser in response to the 15(c) due diligence requests submitted on its behalf by independent legal counsel to the Independent Trustees.
The Board also took into account the review that its Investment Oversight Committee (the “IOC”) had conducted, in light of that committee’s duties to assist the Board in the 15(c) process. The IOC had reported to the Board on its review of the performance of the Funds, IICO’s investment risk management function, and the changes IICO and its affiliates have been undertaking for the Trust and the overall fund complex. As such, the Board examined all of IICO’s activities in light of performance and expense structure, as well as the overall rationalization of the Ivy Funds complex, which is designed to provide economies of scale to the shareholders, reduce the Funds’ expenses and enhance the performance of the Funds, particularly in the context of substantial industry change and regulatory developments.
The Board likewise considered the knowledge it had received from its regular meetings, including from the materials provided in connection with those meetings, such as the resources and key personnel of IICO and the Subadviser, as well as the other services provided to the Funds by IICO and the Subadviser, as applicable (e.g., managing the quality of execution of portfolio transactions and the selection of broker-dealers for those transactions, monitoring adherence to each Fund’s investment restrictions, producing reports, providing support services for the Board and its committees, communicating with shareholders and overseeing the activities of other service providers, including monitoring compliance with various Fund policies and procedures and with applicable laws and regulations). The Board also took into account the compliance environment at IICO and the Subadviser, noting the resources that each has dedicated towards compliance. The Board concluded that the nature and extent of the services provided by IICO and the Subadviser were appropriate, that the quality of those services had been consistent with quality norms in the industry and that the Funds were likely to benefit from the continued provision of those services.
Benefits from the Relationship with the Funds
The Board next discussed whether IICO or the Subadviser derives any other direct or indirect benefit from serving the Funds. In that regard, the Board discussed the transfer agency and shareholder servicing fees that Waddell & Reed Services Company (“WISC”), an affiliate of IICO, has provided the Funds. The Board took note of the caps that management previously had agreed to on shareholder servicing costs. The Board also considered the benefits that accrue to each service
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provider organization from its respective relationship with the Funds, including the fact that a variety of services are provided by affiliates of IICO, including distribution, administrative and Fund accounting services, and, as discussed above, shareholder servicing. The Board also considered that WISC has outsourced certain of its transactional processing operations to a sub-agent, which is designed to promote, and has achieved, greater efficiencies and savings for Fund shareholders over time. After full consideration of these and other factors, the Board concluded that none of IICO, the Subadviser or any of their affiliates receives any additional direct or indirect benefits that would preclude the Board from approving the continuation of the Management Agreement with IICO or the Investment Subadvisory Agreement with the Subadviser.
Economies of Scale
The Board discussed whether economies of scale are being realized by the Funds and whether fee levels reflect those economies of scale for the benefit of the Funds’ shareholders. The Board considered the fact that as a Fund’s assets have grown, the expenses of that Fund generally have fallen. Additionally, in that regard, the Board considered the various initiatives that IICO has recently undertaken, and continues to implement, in seeking to rationalize the Ivy Funds complex, including the Trust, as well as to reduce expenses and enhance performance.
Performance of the Funds and Costs of Services Provided
The Board considered the performance of each Fund and the costs of the services provided, focusing in particular on a number of Funds that the independent fee consultant had identified. Specifically, the Board examined the investment performance of each Fund, including the percentile ranking of each Fund over various periods of time. The Board also examined the performance of each Fund against its respective benchmark index and peer funds for the same periods. After extensively reviewing all of the performance information provided, the Board concluded that the Funds’ performance in each asset class was acceptable. Although the performance of some of the focus Funds identified by the independent fee consultant lagged that of their peers or respective benchmark index, the Board recognized that IICO, or the Subadviser, had taken, or was taking, steps to address that underperformance, and determined to continue to monitor closely the performance of those Funds.
The Board also considered the expenses and expense ratio of each Fund, and the expense limitation and fee reduction arrangements entered into by IICO in light of the services provided by IICO and the Subadviser. The Board also compared each Fund’s expenses, including advisory, distribution and shareholder servicing fees, with the expenses and advisory fees of other investment advisers managing similarly situated funds, as well as the advisory fees that IICO charges for providing advisory services to other accounts in the same asset class for certain Funds. In that regard, the Board noted that IICO performs significant additional services for the Funds as compared to those other accounts. The Board also took into account the information on IICO’s profitability in managing the Funds, including the methodology used to calculate profitability. The Board finally considered the amount of assets in each Fund, each Fund’s average account size and how those factors affect the Funds’ expense ratios, noting that, as the Funds’ assets have increased or decreased over time, the expense ratios of the Funds generally have fallen or risen, respectively. After completing this examination, the Board concluded that each Fund’s expenses are appropriate at the current time.
Independent Fee Consultant Review
Independent legal counsel, on behalf of the Independent Trustees, engaged an independent fee consultant to assist them in evaluating the reasonableness of the management fees charged by IICO to all funds within the Ivy Funds complex. The independent fee consultant’s review addressed the following fee-related factors:
1. | The nature, extent and quality of IICO’s services to the Funds; |
2. | Management fees and expenses in the context of performance; |
3. | Product category expenses, including peers; |
4. | Profit margins of IICO’s parent from supplying such services; |
5. | Subadviser and institutional fee analyses; and |
6. | Possible economies of scale as a Fund grows larger. |
The following summarizes the findings of the independent fee consultant retained by the Independent Trustees.
Summary Findings
The report stated that IICO delivered reasonable levels of performance in the longer-term periods and reasonable levels of service to the Funds in relation to its management fees as compared to the investment advisers of comparable funds. For the 36 months ended March 31, 2020, approximately 23% of the funds within the Ivy Funds complex were in the top quartile
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of performance and 55% of the Funds were in the top two quartiles of performance and that short-term performance of such funds were showing signs of improvement. Specifically, the report noted that 50% of the funds within the Ivy Funds complex were in the top two quartiles in the one-year period. The independent fee consultant noted that the funds’ performance appeared to be grounded in a number of institutional competitive advantages at IICO, including investment management depth, ability to attract top talent, proactive management, performance-focused culture, economic analysis and an effective trading infrastructure.
The report further indicated that total expenses of the funds in the complex, on average, were reasonable in relation to the average total expenses of their respective group of peer funds and that their net management fees were reasonable in relation to the average net management fees of their respective groups of peer funds. The report also stated that the management fees IICO charges to the funds are reasonable in relation to the management fees it charges to its institutional account clients. The report noted that these institutional account clients have different service and infrastructure needs and in addition, the average spread between management fees IICO charged to the funds and those it charges to institutional account clients is reasonable relative to the average fee spreads computed from industry surveys.
The report stated that while it was difficult to confirm overall economies of scale, it was clear that the Funds’ shareholders generally are benefitting from lower expenses as the funds’ assets grow.
The report also noted that the overall profitability of IICO’s parent relative to other complexes is reasonable.
Finally, the report also examined the fees that IICO retains on funds that are subadvised by unaffiliated subadvisers and indicated that those fees are reasonable relative to the industry. The report also stated that the subadvisory fees that IICO earns for serving as a subadviser to an unaffiliated fund when compared to fees of similar funds likewise are reasonable relative to the industry.
Conclusions
The independent fee consultant’s report concluded that it believes that the services provided by IICO and its affiliates and expenses incurred by the funds within the Ivy Funds complex in the previous 12 months are reasonable and provide adequate justification for renewal of the Funds’ existing Agreements.
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ANNUAL PRIVACY NOTICE | IVY VIP |
(UNAUDITED)
FACTS | What does Ivy Variable Insurance Portfolios do with your personal information? | |
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do. | |
What? | The types of personal information we collect and share depend on the product or service you have with us. The information can include: | |
• Social Security Number and income, | ||
• Assets and transaction history, and | ||
• Checking account information and wire transfer instructions. | ||
When you are no longer our customer, we continue to share your information as described in this notice. | ||
How? | All financial companies need to share customers’ personal information to conduct everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information, the reasons Ivy Variable Insurance Portfolios chooses to share, and whether you can limit this sharing. |
Reasons we can share your personal information | Does Ivy Variable Insurance Portfolios share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your accounts, respond to court orders and legal investigations or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | Yes | No | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | Yes | No | ||
For our affiliates everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For our affiliates to market to you | No | We don’t share | ||
For non-affiliates to market to you | No | We don’t share |
Questions? | Call 1(800) 777-6472 with questions about this notice. Client service representatives are available Monday through Friday from 7:30 am to 7:00 pm CST. You may also go to www.ivyinvestments.com/privacy_policy. | |
If we serve you through an investment professional, such as a registered representative of a broker-dealer or an investment adviser representative (each, a “financial advisor”), please contact them directly. Specific internet addresses, mailing addresses and telephone numbers are listed on your statements and other correspondence. |
Who we are | ||
Who is providing this notice? | Ivy Variable Insurance Portfolios | |
| ||
What we do | ||
How does Ivy Variable Insurance Portfolios protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | |
How does Ivy Variable Insurance Portfolios collect my personal information? | We collect your personal information, for example, when you: | |
• Give us your contact information or other personal information, | ||
• Open an account, or | ||
• Make deposits to an account or withdrawals from an account. | ||
We also collect your personal information from our affiliates. | ||
Why can’t I limit all sharing? | Federal law gives you the right to limit only: | |
• Sharing for affiliates’ everyday business purposes – information about your creditworthiness, | ||
• Affiliates from using your information to market to you, and | ||
• Sharing for non-affiliates to market to you. | ||
State laws and individual companies may give you additional rights to limit sharing. |
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Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. | |
• Affiliates of Ivy Funds include Waddell & Reed Services Company, Ivy Distributors, Inc., and Ivy Investment Management Company. | ||
Non-affiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. | |
• Ivy Funds does not share your personal information with non-affiliates so they can market to you. | ||
Joint marketing | A formal agreement between non-affiliated financial companies that together market financial products or services to you. | |
• Ivy Funds does not jointly market. | ||
| ||
Other important information | ||
If you own shares of Ivy Variable Insurance Portfolios in the name of a third party, such as a bank or a broker-dealer, the third party’s privacy policy may apply to you in addition to ours. | ||
If you are working with a financial advisor, and the financial advisor leaves their firm and joins another non-affiliated broker-dealer or registered investment adviser, then the financial advisor may be permitted to use limited information to contact you. The information that the financial advisor may use is comprised of your name, address, email address, telephone number and account title. |
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PROXY VOTING INFORMATION | IVY VIP |
(UNAUDITED)
Proxy Voting Guidelines
A description of the policies and procedures Ivy Variable Insurance Portfolios uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1.888.923.3355 and (ii) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Proxy Voting Records
Information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on Form N-PX at www.ivyinvestments.com and on the SEC’s website at www.sec.gov.
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QUARTERLY PORTFOLIO SCHEDULE INFORMATION | IVY VIP |
(UNAUDITED)
Portfolio holdings can be found on the Trust’s website at www.ivyinvestments.com. Alternatively, a complete schedule of portfolio holdings of each Portfolio for the first and third quarters of each fiscal year is filed with the SEC and can be found as an exhibit to the Trust’s Form N-PORT. These holdings may be viewed in the following ways:
• | On the SEC’s website at www.sec.gov. |
• | For review and copy at the SEC’s Public Reference Room in Washington, DC. Information on the operations of the Public Reference Room may be obtained by calling 1.800.SEC.0330. |
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THE IVY VARIABLE INSURANCE PORTFOLIOS FAMILY |
Global/International Portfolios
Global Equity Income
Global Growth
International Core Equity
Domestic Equity Portfolios
Core Equity
Growth
Mid Cap Growth
Small Cap Core
Small Cap Growth
Value
Fixed Income Portfolios
Corporate Bond
Global Bond
High Income
Limited-Term Bond
Money Market Portfolio
Government Money Market
Specialty Portfolios
Asset Strategy
Balanced
Energy
Natural Resources
Pathfinder Aggressive
Pathfinder Conservative
Pathfinder Moderate
Pathfinder Moderately Aggressive
Pathfinder Moderately Conservative
Pathfinder Moderate—Managed Volatility
Pathfinder Moderately Aggressive -Managed Volatility
Pathfinder Moderately Conservative -Managed Volatility
Science and Technology
Securian Real Estate Securities
The underlying portfolios discussed in this report are only available as investment options in variable annuity and variable life insurance contracts issued by life insurance companies. They are not offered or made available directly to the general public.
This report is submitted for the general information of the shareholders of Ivy Variable Insurance Portfolios. It is not authorized for distribution to prospective investors in a Portfolio unless accompanied with or preceded by the current Portfolio prospectus as well as the variable product prospectus.
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ANN-VIP-PF (12/20)
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ITEM 2. CODE OF ETHICS
(a) | As of December 31, 2020, the Registrant has adopted a code of ethics (the Code), as defined in Item 2 of Form N-CSR, that applies to the Principal Executive Officer and Principal Financial Officer or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. |
(b) | There have been no amendments, during the period covered by this report, to a provision of the Code that applies to the registrant’s Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the Code. |
(c) | During the period covered by this report, the registrant did not grant any waivers, including an implicit waiver, from a provision of the Code that applies to the registrant’s Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller, or persons performing similar functions, regardless of whether those individuals were employed by the registrant or a third party, that related to one or more of the items set forth in paragraph (b) of this item’s instructions. |
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the Registrant has determined that Edward M. Tighe, H. Jeffrey Dobbs and James D. Gressett are audit committee financial experts, as defined in Item 3 of Form N-CSR, serving on its audit committee. Messrs. Tighe, Dobbs and Gressett are independent for purposes of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) | Audit Fees |
The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the
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accountant in connection with statutory and regulatory filings or engagements for each of the last two fiscal years are as follows:
2019 | $418,300 | |||||
2020 | 428,600 |
(b) | Audit-Related Fees |
The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s annual financial statements and are not reported under paragraph (a) of this Item are as follows:
2019 | $0 | |||||
2020 | 0 |
These fees are related to the review of Form N-1A.
(c) | Tax Fees |
The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning are as follows:
2019 | $153,170 | |||||
2020 | 167,120 |
These fees are related to the review of the registrant’s tax returns.
(d) | All Other Fees |
The aggregate fees billed for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this item are as follows:
2019 | $34,116 | |||||
2020 | 41,907 |
These fees are related to the review of internal control.
(e) | (1) | Registrant’s audit committee considers with the principal accountants all audit services to be provided by the principal accountants and pre-approves all such audit services. |
The audit committee shall pre-approve all non-audit services to be provided by the principal accountants to the registrant; provided that the pre-approval requirement does not apply to non-audit services that (i) were not identified as such at the time of the pre-approval and (ii) do not aggregate more than 5% of total fees paid to the principal accountants by the registrant during the fiscal year in which the services are
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provided, if the audit committee approves the provision of such non-audit services prior to the completion of the audit.
The audit committee shall pre-approve all non-audit services to be provided by the principal accountants to the investment adviser (not including any subadvisor whose role is primarily portfolio management and is subcontracted and overseen by the investment advisor) or any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant if the engagement relates directly to the operations or financial reporting of the registrant; provided that the pre-approval requirement does not apply to non-audit services that (i) were not identified as such at the time of the pre-approval and (ii) do not aggregate more than 5% of total fees paid to the principal accountants by the registrant for all services and by the registrant’s investment adviser for non-audit services if the engagement relates directly to the operations or financial reporting of the registrant during the fiscal year in which those services are provided, if the audit committee approves the provision of such non-audit services prior to the completion of the audit.
(e) | (2) | None of the services described in each of paragraphs (b) through (d) of this Item were approved by the audit committee pursuant to the waiver provisions of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) | Not applicable |
(g) | $187,286 and $209,027 are the aggregate non-audit fees billed in each of the last two fiscal years for services rendered by the principal accountant to the registrant. $73,500 and $53,250 are the aggregate non-audit fees billed in each of the last two fiscal years for services rendered by the principal accountant to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. |
(h) | Not Applicable. |
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) See Item 1 Shareholder Report.
(b) Not Applicable.
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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 COMPANIES AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, based on their evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, have concluded that such controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective and adequately designed to ensure that information required to be disclosed by the Registrant in its reports that it files or submits is accumulated and communicated to the Registrant’s management, including the Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. |
(b) | There were no significant changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is 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.
Not applicable.
ITEM 13. EXHIBITS.
(a) (1) The Code described in Item 2 of this Form N-CSR.
Attached hereto as Exhibit 99.CODE.
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Attached hereto as Exhibit 99.CERT.
Attached hereto as Exhibit 99.906CERT.
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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.
IVY VARIABLE INSURANCE PORTFOLIOS (Registrant) | ||
By | /s/Jennifer K. Dulski | |
Jennifer K. Dulski, Secretary | ||
Date: | March 5, 2021 |
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 | /s/Philip J. Sanders | |
Philip J. Sanders, Principal Executive Officer | ||
Date: | March 5, 2021 |
By | /s/Joseph W. Kauten | |
Joseph W. Kauten, Principal Financial Officer | ||
Date: | March 5, 2021 |