Form 485BPOS VICTORY VARIABLE INSURAN
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E-mailFile No. 333-62051
ICA No. 811-8979
ICA No. 811-8979
As filed with the Securities and Exchange Commission on April 14, 2025
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No. ___
Post-Effective Amendment No. 61
And
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 61
(Exact name of Registrant as Specified in Trust Instrument)
4900 Tiedeman Road, 4th Floor Brooklyn, Ohio 44114
(Address of Principal Executive Office)
(800) 539-3863
(Area Code and Telephone Number)
Copy to:
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Thomas Dusenberry, President
Victory Variable Insurance Funds
15935 La Cantera Parkway
San Antonio, Texas 78256 |
Jay G. Baris
Matthew J. Kutner
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019 |
Approximate Date of Proposed Public Offering: As soon as practicable after this registration statement becomes effective.
It is proposed that this filing will become effective:
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Immediately upon filing pursuant to paragraph (b)
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on (May 1, 2025 ) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
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This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
May 1, 2025
Prospectus
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Victory 500 Index VIP Series | ||||||
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Class I |
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Shares are currently offered to insurance company separate accounts funding certain variable annuity contracts and variable life insurance policies issued by life insurance companies. For more information, call your participating insurance company.
The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
vcm.com
800-539-FUND (800-539-3863)
800-539-FUND (800-539-3863)
(fees paid directly from your investment)
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Class I |
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Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) |
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Maximum Deferred Sales Charge (Load)
(as a percentage of the lower of purchase or sale price) |
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(expenses that you pay each year as a percentage of the value of your investment)
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Management Fees |
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Distribution and/or Service (12b-1) Fees |
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Other Expenses |
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Total Annual Fund Operating Expenses |
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Fee Waiver/Expense Reimbursement1
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Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
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1
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1 Year |
3 Years |
5 Years |
10 Years |
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Class I |
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Victory 500 Index VIP Series Summary
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Victory 500 Index VIP Series Summary
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Victory 500 Index VIP Series Summary
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1 Year |
5 Years |
10 Years |
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CLASS I |
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Indices |
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S&P 500® Index
reflects no deduction for fees, expenses, or taxes |
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Victory US Large Cap 500 Index
reflects no deduction for fees, expenses, or taxes |
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Victory 500 Index VIP Series Summary
Management of the Fund
Investment Adviser
Victory Capital Management Inc. (the “Adviser”) serves as the Fund’s investment adviser. The portfolio managers jointly and primarily responsible for day-to-day management of the Fund are members of the Adviser's Victory Solutions platform, which oversees the Adviser's rules-based investment strategies.
Portfolio Management
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Title |
Tenure with the Fund |
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Mannik Dhillon, CFA, CAIA®
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President, Investment Franchises
& Solutions |
Since 2018 |
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Lela Dunlap, CFA |
Portfolio Manager, VictoryShares
and Solutions |
Since November 2024 |
Purchase and Sale of Fund Shares
Shares of the Fund are currently offered to certain separate accounts to fund variable annuity contracts and variable life insurance policies issued by insurance companies. Shares of the Fund are not offered directly to the public and investors cannot place orders to purchase or sell shares with the Fund directly. Please refer to the separate account prospectus for information on how to manage your investment options in the Fund and any fees that may apply.
Tax Information
Since the Fund is only offered for investment through variable annuity contracts and variable life insurance policies, the Fund’s distributions are not expected to be taxable to holders of such contracts. Holders of such contracts may be taxed later upon withdrawals of monies from those arrangements.
Payments to Insurance Companies
The Fund, through its distributor, may pay fees for activities primarily intended to result in the sale of Fund shares to insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. These payments may create a conflict of interest by influencing insurance companies to include the Fund as an underlying investment option in its variable insurance products. Ask your variable products salesperson or visit the insurance company’s website for more information.
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Additional Fund Information
The Victory 500 Index VIP Series (the “Fund”) is managed by the Adviser, who also manages other funds, each having distinct investment management objectives, strategies, risks, and policies.
The Fund’s investment objective is non-fundamental. The Adviser pursues the Fund’s objective by investing, under normal circumstances, at least 80% of its assets in equity securities of companies included in the Victory US Large Cap 500 Index (the “Index”). The Index is an unmanaged market-cap weighted index originally created by the Adviser and maintained and powered by VettaFi LLC (“Index Provider”) that consists of the largest 500 companies within the VettaFi US Equity 3000 Index (“Parent Index”). The Parent Index measures the performance of all U.S. equity securities with readily available price data. This 80% investment policy is non-fundamental and may be changed by the Board of Trustees (the “Board”) without shareholder approval upon at least 60 days’ prior written notice to shareholders. For purposes of the Fund’s 80% investment policy, “assets” means the Fund’s net assets plus the amount of any borrowings for investment purposes, exclusive of collateral held from securities lending. Any derivatives counted towards the Fund’s 80% investment policy will be valued at market value.
The Index Provider maintains the Index throughout the year, which includes monitoring and adjustments for company additions and deletions, stock splits, corporate restructurings, and other corporate actions. The Index Provider calculates and disseminates the Index on a daily basis and rebalances the Index semi-annually. In conjunction with each rebalancing, the Index Provider selects the largest 500 securities within the Parent Index. Securities that no longer meet eligibility for the Index upon rebalancing are omitted. A security also may be removed from the Index in between rebalancing if it no longer represents an investable asset due to legal constraints or other independent factors.
The Fund generally seeks to track the returns of the Index before fees and expenses by employing a replication strategy that seeks to hold all the stocks in the Index. The Fund may exclude or sell a security that it believes is illiquid or has been impaired by financial conditions or other extraordinary events.
From time to time, the Fund’s investments will be concentrated in an industry or group of industries to the extent the Index is so concentrated. As of the date of this Prospectus, the Fund’s investments are not concentrated in any industry or group of industries, although the Fund’s investments are more focused in the information technology sector, consistent with the Index.
The following section describes additional information about the principal investment strategy the Fund will use under normal market conditions to pursue its investment objective, as well as any secondary strategies the Fund may use, and the related risks. This Prospectus does not attempt to describe all of the various investment techniques and types of investments that the Adviser may use in managing the Fund. The Statement of Additional Information (“SAI”) includes more information about the Fund, its investments, and the related risks. Keep in mind that for temporary or emergency cash management purposes, the Fund may hold all or a portion of its assets in cash, index futures, short-term money market instruments or shares of other investment companies. This may reduce the benefit from any upswing in the market, cause the Fund to fail to meet its investment objective and increase the Fund’s expenses.
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Investments
The following describes the types of securities the Fund may purchase under normal market conditions to achieve its principal investment strategy. The Fund will not necessarily buy all of the securities listed below.
U.S. Equity Securities
Can include common stock, preferred stock, and securities that are convertible or exchangeable into common stock of U.S. corporations.
Additional Fund Strategies. The Adviser may use other types of investment strategies in pursuing the Fund's overall investment objective. The following describes the types of securities or techniques that the Adviser may purchase or investment techniques the Adviser may employ that are not considered to be a part of the Fund's principal investment strategies. Additional securities and techniques are described in the Fund's SAI.
Futures Contracts and Options on Futures Contracts
Contracts involving the right or obligation to deliver or receive assets or money depending on the performance of one or more assets or an economic index. To reduce the effects of leverage, liquid assets equal to the contract commitment are set aside to cover the commitment. The Fund may invest in futures in an effort to hedge against market or currency risk, as a temporary substitute for buying or selling securities or for temporary cash management purposes. There is no assurance that the Fund will engage in any hedging transactions.
Investment Companies
The Fund may invest in securities of other investment companies, including exchange-traded funds (“ETFs”), if those companies invest in securities consistent with the Fund's investment objective and policies. ETFs are investment companies the shares of which are bought and sold on a securities exchange.
Securities Lending
To enhance the return on its portfolio, the Fund may lend portfolio securities to brokers, dealers, and financial institutions to realize additional income under guidelines adopted by the Board. Each loan will be secured continuously by collateral in the form of cash, securities issued by the U.S. government or its agencies or instrumentalities.
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Risk Factors
The following provides additional information about the Fund's principal risks and supplements those risks discussed in the Fund’s Summary section of this Prospectus.
Equity Securities Risk — The market prices of equity securities, which may include common stocks and other stock-related securities such as preferred stocks may fluctuate, sometimes rapidly or unpredictably. The value of a security may decline for reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. Unlike debt securities, which have preference to a company’s assets in case of liquidation, equity securities are entitled to the residual value after the company meets its other obligations. The Fund may continue to accept new subscriptions and to make additional investments in equity securities even under general market conditions that the Fund’s investment team views as unfavorable for equity securities.
General Market Risk — Stock market risk refers to the fact that the prices of equity securities and other exchange traded investments typically fluctuate more than the values of debt and other types of securities, typically in response to changes in the particular company’s financial condition and factors affecting the market in general. Over time, the stock market tends to move in cycles, with periods when stock prices rise, and periods when stock prices decline. A slower-growth or recessionary economic environment could have an adverse effect on stock prices. Consequently, a broad-based market drop may also cause a stock’s price to fall. Portfolio securities may also decline in value due to factors affecting securities markets generally, such as real or perceived adverse economic, political, or regulatory conditions, inflation, changes in interest or currency rates or adverse investor sentiment, or due to factors affecting particular industries represented in the securities markets, such as competitive conditions. Changes in the financial condition of a single issuer can impact a market as a whole, and adverse market conditions may be prolonged and may not have the same impact on all types of securities. In addition, the markets may not favor a particular kind of security, including equity securities. Values of securities may fall due to factors affecting a particular issuer, industry, or the securities market as a whole.
Market turmoil may be reflected in perceptions of economic uncertainty, price volatility in the equity and debt markets, and fluctuating trading liquidity. In response, governments may adopt a variety of fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and changes in interest rates. These policies may not be successful and any unexpected or quick reversal of these policies could increase volatility in the equity and debt markets. Market conditions and economic risks could have a significant effect on domestic and international economies and could add significantly to the risks of increased volatility and decreased liquidity for the Fund's portfolio.
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Geopolitical/Natural Disaster Risk — Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, economic sanctions, currency controls or other actions by countries or international bodies, terrorism, trade disputes, embargoes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires, and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Epidemics and/or pandemics, such as COVID-19, may result in, among other things, closing borders, disruptions to health care service preparation and delivery, quarantines, cancellations, disruptions to supply chains and consumer activity, as well as general concern and uncertainty. The impact may last for extended periods.
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Risk Factors
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Information Technology and Operational Risk — Markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. The information technology and other operational systems upon which the Fund’s service providers rely may be subject to cyber-attack or other technological disruptions, and could otherwise disrupt the ability of these service providers to perform essential tasks for the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Large-Capitalization Stock Risk — Large-sized companies tend to compete in mature product markets and typically do not experience the level of sustained growth of smaller companies and companies competing in less mature product markets. Large-capitalization companies may be unable to respond as quickly as smaller companies to competitive challenges or changes in business, product, financial, or other market conditions. For these and other reasons, a fund that invests in large-capitalization companies may underperform other stock funds (such as funds that focus on the stocks of small- and medium-capitalization companies) when stocks of large-capitalization companies are out of favor.
Passive Investment Risk/Index Risk — The Fund is not actively managed and may be affected by a general decline in market segments related to the Index. The Fund invests in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The Fund does not take defensive positions under any market conditions, including conditions that are adverse to the performance of the Fund, unless such defensive positions are also taken by the Index. There is no assurance that the Index will be compiled or calculated accurately.
Sector Focus Risk — While the Fund reserves the right to dynamically allocate its assets across economic sectors, the Fund may make significant investments in one or more sectors, each of which entails associated risks. Additionally, the Fund’s performance may be more volatile when the Fund’s investments are focused in a particular sector.
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Information Technology Sector Risk — Information technology companies tend to significantly rely on technological events or advances in their product development, production, or operations and are particularly vulnerable to rapid changes in technological product cycles, government regulation, and competition. Information technology companies may be smaller and less experienced companies, with limited product lines, markets, or financial resources and fewer experienced management or marketing personnel. Information technology company stocks, especially those which are internet-related, have experienced extreme price and volume fluctuations that are often unrelated to their operating performance.
Tracking Risk — The Fund’s return may not match the return of the Index for a number of reasons, including: the Fund incurs operating expenses not applicable to the Index and incurs costs in buying and selling securities; the Fund may not be fully invested at times; differences in the valuation of securities; and differences between the Fund’s portfolio and the Index resulting from legal restrictions, cost, or liquidity constraints. Market disruptions and regulatory restrictions could have an adverse effect on the Fund’s ability to adjust its exposure to the required levels in order to track the Index. Errors in index data, index computations and/or the construction of the Index in accordance with its methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the Fund and its
shareholders.
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Risk Factors
Additional Risk Factors. The Adviser may use several types of investment strategies in pursuing the Fund's overall investment objective. The following risks are those that the Adviser does not consider to be principal risks of the Fund. Additional risks are included in the Fund's SAI.
Derivatives Risk — Derivatives, such as forward currency contracts, futures contracts and options on futures contracts, are subject to the risk that small price movements can result in substantial gains or losses. Derivatives also entail exposure to counterparty risk, the risk of mispricing or improper valuation and the risk that changes in value of the derivative may not correlate perfectly with the relevant securities, assets, or indices. The use of derivatives may cause the Fund to incur losses greater than those that would have occurred had derivatives not been used.
Investment Company Risk — The Fund's ability to achieve its investment objective may be directly related to the ability of other investment companies (including ETFs) held by the Fund to meet their investment objectives. In addition, shareholders of the Fund will indirectly bear the fees and expenses of the underlying investment companies. Lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Securities Lending Risk — The risk in lending portfolio securities, as with other extensions of credit, consists of the possibility of loss to the Fund due to (1) the inability of the borrower to return the securities, (2) a delay in receiving additional collateral to adequately cover any fluctuations in the value of securities on loan, (3) a delay in recovery of the securities, or (4) the loss of rights in the collateral should the borrower fail financially. In addition, the Fund is responsible for any loss that might result from its investment of the borrower’s collateral. In determining whether to lend securities, the Adviser or the Fund’s securities lending agent will consider relevant facts and circumstances, including the creditworthiness of the borrower.
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Organization and Management of the Fund
The Fund's Board has the overall responsibility for overseeing the management of the Fund. The Board monitors the services provided to contract owners.
The Investment Adviser
The Adviser serves as the investment adviser to each of the Victory Funds pursuant to an investment advisory agreement and oversees the operations of the Fund according to investment policies and procedures adopted by the Board. The Adviser is a New York corporation that is registered as an investment adviser with the Securities and Exchange Commission (“SEC”). As of March 31, 2025, the Adviser managed and advised assets totaling in excess of $167.5 billion for individual and institutional clients. The Adviser’s principal address is 15935 La Cantera Parkway, San Antonio, TX 78256.
A discussion regarding the basis of the Board’s approval of the Fund's Advisory Agreements is available in the Fund's most recent Form N-CSR for the period ended December 31.
The Adviser is a diversified global asset manager comprised of multiple investment teams. The Adviser’s Victory Solutions platform oversees its rules-based investment strategies and is responsible for the day-to-day investment management of the Fund.
Advisory fees to be paid annually, before waivers, will be equal to an annual rate of 0.25% of the average daily net assets of the Fund.
See “Fund Fees and Expenses” for information about any contractual agreement by the Adviser to waive fees and/or reimburse expenses with respect to the Fund. From time to time, the Adviser also may voluntarily waive fees and/or reimburse expenses in amounts exceeding those required to be waived or reimbursed under any contractual agreement that may be in place with respect to the Fund.
Portfolio Management
Mannik Dhillon serves as President, Investment Franchises & Solutions, for the Adviser and has been a portfolio manager of the Fund since 2018. From 2015-2017, he served as the Adviser’s Head of Investment Solutions, Product, and Strategy. From 2010 to 2015, Mr. Dhillon served as a managing director and head of manager research with Wilshire Associates, where he evaluated asset managers and led strategic consulting engagements. Mr. Dhillon is a CFA and CAIA® charterholder.
Lela Dunlap, CFA, Portfolio Manager, and Head of Portfolio Implementation, VictoryShares and Solutions, has co-managed the Fund since November 2024. Ms. Dunlap has 16 years of investment management experience, five years of which were with USAA Asset Management Company, which was acquired by the Adviser’s parent company in 2019. She holds the CFA designation and is a member of the CFA Society of San Antonio.
The Fund's SAI provides additional information about the portfolio managers' method of compensation, other accounts they manage, and any ownership interests they may have in the Fund.
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Investing in the Fund
The Fund is designed as an investment exclusively for contracts that are offered by the separate accounts of participating insurance companies. The participating insurance company will buy and redeem shares according to your instructions, as provided in the contract, and will redeem shares as needed to provide benefits under the contract.
Shares of the Fund may be offered in the future to other separate accounts established by other insurance companies, and they may fund both variable annuity contracts and variable life insurance policies offered by the same or affiliated insurance companies. For additional information about possible conflicts of interest between owners of variable annuity contracts and variable life insurance policies or between owners of variable contracts issued by insurance companies that are not affiliated with the Fund, see the section in this Prospectus titled Other Information About the Fund.
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Share Price
The Fund calculates its share price, called its net asset value (“NAV”), each business day as of the close of regular trading on the New York Stock Exchange, Inc. (“NYSE”), which is normally 4:00 p.m. Eastern Time. In the event of an emergency or other disruption in trading on the NYSE, the Fund’s share price will be determined based upon the close of the NYSE. You may buy, exchange, and sell your shares on any business day at a price that is based on the NAV that is next calculated after you place your order. A business day is a day on which the NYSE is open. The NYSE is closed on weekends, most national holidays, and Good Friday.
To the extent the Fund’s investments include securities that are traded primarily in foreign markets, the value of those securities may change on days when shareholders are unable to purchase and redeem the Fund’s shares, such as on weekends or other days when the Fund does not price its shares.
The Fund prices its investments based on market value when market quotations are readily available. When these quotations are not readily available, the Adviser will price the Fund’s investments at fair value in accordance with applicable regulatory requirements. The Fund will fair value a security when:
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Trading in the security has been halted;
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The market quotation for the security is clearly erroneous due to a clerical error;
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The security’s liquidity decreases such that, in the Adviser’s opinion, the market quotation has become stale; or
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An event occurs after the close of the trading market (but before the Fund’s NAV is calculated) that, in the Adviser’s opinion, materially affects the value of the security.
The use of fair value pricing may minimize arbitrage opportunities that attempt to exploit the differences between a security’s market quotation and its fair value. The use of fair value pricing may not, however, always reflect a security’s actual market value in light of subsequent relevant information, and the security’s opening price on the next trading day may be different from the fair value price assigned to the security.
The Fund calculates its NAV per share by adding up the total value of its investments and other assets, subtracting its liabilities, and then dividing that figure by the number of its outstanding shares.
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NAV= |
Total Assets – Liabilities |
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Number of Shares Outstanding |
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How to Buy Shares
Opening an Account
You cannot buy shares of the Fund directly, but only as an investment option through variable annuity contracts or variable life insurance policies (together, the “contracts”) that are offered by the separate accounts of certain life insurance companies (“participating insurance companies”). You are encouraged to read this Prospectus in conjunction with the accompanying separate account prospectus. Please refer to the separate account prospectus for information on how the participating insurance company buys and redeems shares.
Purchasing Shares
Orders to buy shares of the Fund are placed by the participating insurance company based upon instructions you provide to the participating insurance company. The Fund’s transfer agent processes orders to buy shares of the Fund at its NAV next computed after the order is received in good order, which means that your request contains all the required documentation, and that all documents contain required signatures or signature guarantees from a financial institution. The value of your contract’s investment in the Fund also will be based upon premium payments, surrender and transfer requests, and any other transaction requests from contract owners, annuitants, and beneficiaries. In order to calculate the value of your investment, you would have to determine the number of contract units you own along with the “accrued unit value” of your contract.
Share Classes
The Fund currently offers only Class I shares as described in this Prospectus. At some future date, the Fund may offer additional classes of shares. The Fund or any class may be closed at any time for failure to achieve an economical level of assets or for other reasons.
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How to Sell Shares
Redemptions
Shares of the Fund may be redeemed by instructing your participating insurance company to terminate your contract’s investment in the Fund. Please refer to the instructions provided in the separate account prospectus. The separate account may redeem shares on any business day at the NAV that is next calculated after the order is placed.
The Fund may suspend your right to redeem your shares in the following circumstances:
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During non-routine closings of the NYSE;
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When the SEC determines either that trading on the NYSE is restricted or that an emergency prevents the sale or valuation of the Fund’s securities; or
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When the SEC orders a suspension to protect the Fund’s shareholders.
The Fund typically uses cash and cash equivalents held in its portfolio or sells portfolio assets to meet redemption requests. In unusual circumstances or under stressed market conditions, the Fund may use other methods to raise cash to meet redemption requests. For example, the Fund may draw funds from a line of credit or borrow available cash held by other Victory Funds under an “interfund lending program” in reliance on an exemptive order from the SEC.
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Distributions and Taxes
The Fund expects to distribute substantially all of its ordinary income and capital gains each year. Ordinarily, the Fund declares and pays dividends from its net investment income annually. However, the Fund may not always pay a dividend or distribution for a given period. Capital gains distributions, if any, from the Fund will be made annually. In addition, the Fund may occasionally be required to make supplemental dividend or capital gains distributions at some other time during the year.
All dividend and capital gains distributions made by the Fund will be reinvested automatically in additional shares of the Fund.
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The tax status of your insurance company separate account’s investment in the Fund depends upon the
features of your contract. For further information, please refer to the separate account prospectus. |
Important Information About Taxes
The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”), so that it will not be subject to U.S. federal income tax on its net earnings and net capital gains that are distributed to its shareholders. In addition, the Fund intends to comply with the diversification requirements of the Code and Treasury Regulations applicable to segregated asset accounts underlying variable annuity contracts or variable life insurance policies (referred to as “variable contracts”) so that the holders of the contracts receive tax-deferred treatment generally afforded holders of annuities or life insurance policies under the Code.
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If a regulated investment company satisfies certain conditions, the regulated investment company will not be treated as a single investment of a segregated asset account for purposes of determining whether the account is adequately diversified, but rather the segregated asset account will be treated as owning its proportionate share of each of the assets of the regulated investment company. The Fund intends to satisfy these conditions so that the segregated asset account will be treated as owning its proportionate share of the Fund’s assets for such purposes.
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The Code requires that a segregated asset account underlying a variable contract must be “adequately diversified” in order for the contract to be treated as an annuity or life insurance contract for tax purposes. A segregated asset account invested in the Fund is intended to be treated as owning its proportionate share of the Fund’s assets for purposes of determining whether the account is adequately diversified. If a segregated asset account underlying a contract were not in compliance with these diversification requirements at the end of any calendar quarter, the contract would not be eligible to be treated as an annuity or life insurance contract under the Code for such period and any subsequent period and the contract holder would not be eligible for tax-deferred treatment. See the section titled “TAXES” in the SAI for additional requirements for tax-deferred treatment and other tax considerations.
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This discussion of U.S. federal income tax consequences is based on tax laws and regulations in effect as of the date of this Prospectus, and may change as a result of legislative, administrative, or judicial action. As this discussion is for general information only, you also should review the more detailed discussion of U.S. federal income tax considerations that is contained in the separate account prospectus and the SAI.
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You should consult with your own tax adviser regarding the tax consequences of your investment
in the separate account, including the application of state and local taxes, which may differ
from the federal income tax consequences described. |
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Important Fund Policies
Market Timing
The Fund discourages and does not accommodate frequent purchases and redemptions of Fund shares (“market timing”). We will uniformly deny any request to purchase shares if we believe that the transaction is part of a market timing strategy. In identifying market timing activity, we consider, among other things, the frequency of your trades, even when the trades are combined with those of other investors or shareholders.
Market timing allows investors to take advantage of market inefficiencies, sometimes to the disadvantage of other shareholders. Market timing increases Fund expenses to all shareholders as a result of increased portfolio turnover. In addition, market timing could potentially dilute share value for all other shareholders by requiring the Fund to hold more cash than it normally would.
The Fund’s Board has adopted policies and procedures with respect to market timing. In order to prevent or minimize market timing, the Fund will employ “fair value” pricing, as described in this Prospectus under “Share Price,” to minimize the discrepancies between a security’s market quotation and its perceived market value, which often gives rise to market timing activity.
Because the Fund’s shares are held exclusively by insurance company separate accounts, rather than directly by the individual contract owners of the separate accounts, the Fund is not able to determine directly whether a separate account’s purchase or sale of the Fund’s shares on any given day represents transactions by a single investor or multiple investors. It also is not able to determine directly whether multiple purchases and sales by a separate account over any given period represent the activity of the same or of different investors.
However, the Fund may request that an insurance company cooperate in monitoring transactions to detect potential market timing. There can be no assurance that an insurance company will cooperate in precluding an investor from further purchases of Fund shares. Consistent with applicable laws and agreements, the Fund may stop selling its shares to a separate account to prevent market timing.
Portfolio Holdings Disclosure
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI, which is available upon request and on the Fund’s website at VictoryFunds.com.
Performance
The Victory Funds may advertise the performance of the Fund by comparing it to other mutual funds with similar objectives and policies. Performance information also may appear in various publications. Any fees charged by Investment Professionals may not be reflected in these performance calculations.
Advertising information may include the average annual total return of the Fund calculated on a compounded basis for specified periods of time. Total return information will be calculated according to rules established by the SEC. Such information may include performance rankings and similar information from independent organizations and publications.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more shareholders with the same last name reside, the Fund may send only one copy of any shareholder reports, proxy statements, prospectuses and their supplements, unless you have instructed us to the contrary. You may request that the Fund send these documents to each shareholder individually by calling your participating insurance company.
17
Other Information About the Fund
The Fund issues and sells its shares to separate accounts of insurance companies including those of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) (the “Separate Accounts”) and to affiliates of such insurance companies. The Separate Accounts hold shares of mutual funds, including the Fund, that fund benefits under variable annuity contracts or variable life insurance policies issued by insurance companies including those of GIAC (either, a “Variable Contract”). With respect to matters to be voted on by shareholders of the Fund, GIAC, or other insurance company, as the owner of the assets held in the Separate Accounts, and the affiliates of GIAC or such other insurance company are the shareholders of the Fund and are entitled to vote their shares of the Fund.
GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus. GIAC has informed the Fund that it will vote outstanding shares of the Fund in accordance with instructions received from the owners of the Variable Contracts, which have some or all of the contract or policy value invested in the Fund. GIAC will vote the Fund’s shares attributable to Variable Contracts for which it does not receive voting instructions in the same proportion as the shares for which it does receive voting instructions. GIAC and its affiliates also will vote the Fund’s shares that they own directly due to their contributions or accumulations in the Separate Accounts through which GIAC offers Variable Contracts in proportion to the shares for which GIAC receives timely voting instructions. As a result of the proportional voting described here, a small number of contract owners may determine the outcome of a shareholder vote.
For a shareholder meeting to go forward with respect to the Fund, there must be a quorum. This means that at least one-third of the Fund’s shares outstanding and entitled to vote on the proposal must be represented at a meeting either in person or by proxy. Because GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus, their presence at a meeting in person or by proxy will meet the quorum requirement for the Fund.
The Fund does not currently foresee any disadvantages to contract owners arising from the fact that the Fund offers shares to both variable annuity contract and variable life insurance policy separate accounts. The Board monitors events to ensure that there are no material irreconcilable differences between or among contract owners. If such a conflict should arise, one or more separate accounts may withdraw their investments in the Fund. This could possibly force the Fund to sell portfolio securities at disadvantageous prices.
If circumstances make it necessary to create separate portfolios for variable annuity and variable life insurance separate accounts, GIAC or another insurance company that offers the Fund will bear the expenses involved in setting up the new portfolios. However, the ongoing expenses contract owners ultimately pay would likely increase because of the loss of economies of scale provided by the current arrangement.
While this Prospectus and the SAI describe pertinent information about the Victory Variable Insurance Funds (the “Trust”) and the Fund, neither the Prospectus nor the SAI represents a contract between the Trust or the Fund and any shareholder or any other party.
18
Financial Highlights
The following financial highlights tables reflect historical information about shares of the Fund and is intended to help you understand the Fund's financial performance for the past five years. Certain information shows the results of an investment in one share of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts. If these charges were reflected, returns would be lower than those shown.
The information presented has been audited by Cohen & Company, Ltd., the Fund's independent registered public accounting firm, whose report, along with the Fund's financial statements, are included in the Fund's most recent N-CSR filing to shareholders, which is available upon request.
19
Victory 500 Index VIP Series
|
|
Class I | ||||
|
For a Share Outstanding Throughout Each
Period |
Year
Ended
12/31/24 |
Year
Ended
12/31/23 |
Year
Ended
12/31/22 |
Year
Ended
12/31/21 |
Year
Ended
12/31/20 |
|
Net Asset Value, Beginning of Period |
$15.75 |
$13.62 |
$19.79 |
$17.71 |
$19.35 |
|
Investment Activities: |
|
|
|
|
|
|
Net investment income (loss)(a) |
0.19 |
0.20 |
0.21 |
0.21 |
0.28 |
|
Net realized and unrealized gains (losses) |
3.79 |
3.45 |
(3.95) |
4.59 |
3.53 |
|
Total from Investment Activities |
3.98 |
3.65 |
(3.74) |
4.80 |
3.81 |
|
Distributions to Shareholders from: |
|
|
|
|
|
|
Net investment income |
(0.24) |
(0.20) |
(0.19) |
(0.23) |
(0.32) |
|
Net realized gains |
(1.62) |
(1.32) |
(2.24) |
(2.49) |
(5.13) |
|
Total Distributions |
(1.86) |
(1.52) |
(2.43) |
(2.72) |
(5.45) |
|
Net Asset Value, End of Period |
$17.87 |
$15.75 |
$13.62 |
$19.79 |
$17.71 |
|
Total Return(b),(c) |
24.96% |
26.94% |
(19.36)% |
27.43% |
20.13% |
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
Net Expenses(d) |
0.28% |
0.28% |
0.28% |
0.28% |
0.28% |
|
Net Investment Income (Loss) |
1.08% |
1.33% |
1.26% |
1.04% |
1.46% |
|
Gross Expenses(d) |
0.41% |
0.41% |
0.41% |
0.48% |
0.58% |
|
Supplemental Data: |
|
|
|
|
|
|
Net Assets at end of period (000's) |
$90,272 |
$92,434 |
$83,617 |
$116,044 |
$103,571 |
|
Portfolio Turnover |
3% |
8% |
7% |
9% |
13% |
(a)
Per share net investment income (loss) has been calculated using the average daily shares method.
(b)
Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. Generally Accepted Accounting Principles and could differ from the reported return.
(c)
Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(d)
Does not include acquired fund fees and expenses, if any.
20
VVIF-RS-500VIP-PRO (05/25)
By mail:
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
P.O. Box 182593
Columbus, OH 43218-2593
Columbus, OH 43218-2593
Statement of Additional Information (SAI): The Fund’s Statement of Additional Information (“SAI”), dated May 1, 2025, as revised from time to time, contains more information about the Fund's operations, investment restrictions, policies, and practices. The SAI is incorporated by reference into this Prospectus, which means that it is legally part of this Prospectus, even if you do not request a copy.
Annual/ Semi Annual Reports and Form N-CSR/Form N-CSRS: Annual and semi annual reports contain more information about the Fund's investments and the market conditions and investment strategies that significantly affected the Fund's performance during the most recent fiscal period. The Fund’s Form N-CSR and Form N-CSRS filings contain the Fund’s annual and semi annual financial statements. The financial statements included in the Fund's Form N-CSR for the fiscal year ended December 31, 2024, are incorporated by reference into this Prospectus.
How to Obtain Information: You may obtain a free copy of the SAI, annual and semi annual reports and other information such as Fund financial statements, or make shareholder inquiries by calling or writing to your participating insurance company at the toll-free number or address listed in the separate account prospectus. Some of the information described herein, including the SAI, annual and semi annual reports and other information such as Fund financial statements, and periodic disclosure of portfolio holdings, are available, free of charge, at VictoryFunds.com.
By telephone:
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
You also can get information about the Fund (including the SAI, other reports, and other information such as Fund financial statements) from the Securities and Exchange Commission (SEC) on the SEC's Edgar database at sec.gov or, after paying a duplicating fee, by electronic request sent to the following e-mail address: [email protected].
Investment Company Act File Number 811-08979
May 1, 2025
Prospectus
|
Victory High Yield VIP Series | ||||||
|
|
Class I |
|
|
|
|
|
Shares are currently offered to insurance company separate accounts funding certain variable annuity contracts and variable life insurance policies issued by life insurance companies. For more information, call your participating insurance company.
The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
vcm.com
800-539-FUND (800-539-3863)
800-539-FUND (800-539-3863)
(fees paid directly from your investment)
|
|
Class I |
|
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) |
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Maximum Deferred Sales Charge (Load)
(as a percentage of the lower of purchase or sale price) |
|
(expenses that you pay each year as a percentage of the value of your investment)
|
Management Fees |
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Distribution and/or Service (12b-1) Fees |
|
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Other Expenses |
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|
Acquired Fund Fees and Expenses |
|
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Total Annual Fund Operating Expenses |
|
|
Fee Waiver/Expense Reimbursement1
|
( |
|
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
|
|
1
|
|
1 Year |
3 Years |
5 Years |
10 Years |
|
Class I |
$ |
$ |
$ |
$ |
1
Victory High Yield VIP Series Summary
2
Victory High Yield VIP Series Summary
3
Victory High Yield VIP Series Summary
4
Victory High Yield VIP Series Summary
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5
Victory High Yield VIP Series Summary
|
|
1 Year |
5 Years |
10 Years |
|
CLASS I |
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Indices |
|
|
|
|
Bloomberg U.S. Universal Index
reflects no deduction for fees, expenses, or taxes |
|
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|
Bloomberg U.S. Corporate High Yield Bond Index
reflects no deduction for fees, expenses, or taxes |
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|
Management of the Fund
Investment Adviser
Victory Capital Management Inc. (the “Adviser”) serves as the Fund’s investment adviser. The portfolio managers jointly and primarily responsible for day-to-day management of the Fund are members of the Adviser's Victory Income Investors investment franchise investment franchise.
Portfolio Management
|
|
Title |
Tenure with the Fund |
|
James F. Jackson, Jr. CFA |
Chief Investment Officer, Head of
Fixed Income Portfolio
Management, and Senior
Portfolio Manager |
September 2024 |
|
Kurt Daum, J.D. |
Senior Portfolio Manager |
September 2024 |
|
Jason Lincoln |
Portfolio Manager and Senior
Fixed Income Research Analyst |
September 2024 |
Purchase and Sale of Fund Shares
Shares of the Fund are currently offered to certain separate accounts to fund variable annuity contracts and variable life insurance policies issued by insurance companies. Shares of the Fund are not offered directly to the public and investors cannot place orders to purchase or sell shares with the Fund directly. Please refer to the separate account prospectus for information on how to manage your investment options in the Fund and any fees that may apply.
Tax Information
Since the Fund is only offered for investment through variable annuity contracts and variable life insurance policies, the Fund’s distributions are not expected to be taxable to holders of such contracts. Holders of such contracts may be taxed later upon withdrawals of monies from those arrangements.
Payments to Insurance Companies
The Fund, through its distributor, may pay fees for activities primarily intended to result in the sale of Fund shares to insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. These payments may create a conflict of interest by influencing insurance companies to include the Fund as an underlying investment option in its variable insurance products. Ask your variable products salesperson or visit the insurance company’s website for more information.
6
Additional Fund Information
The Victory High Yield VIP Series (the “Fund”) is managed by the Adviser, who also manages other funds, each having distinct investment management objectives, strategies, risks, and policies.
The Fund’s investment objective is non-fundamental. In addition, the Fund’s policy to invest at least 80% of its assets in debt securities and other investments that, at the time of purchase, are rated below investment grade is non-fundamental and may be changed by the Board of Trustees (the “Board”) without shareholder approval upon at least 60 days’ prior written notice to shareholders. For purposes of the Fund’s 80% investment policy, “assets” means the Fund’s net assets plus the amount of any borrowings for investment purposes, exclusive of collateral held from securities lending. Any derivatives counted towards the Fund’s 80% investment policy will be valued at market value.
The following section describes additional information about the principal investment strategy the Fund will use under normal market conditions to pursue its investment objective, as well as any secondary strategies the Fund may use, and the related risks. This Prospectus does not attempt to describe all of the various investment techniques and types of investments that the Adviser may use in managing the Fund. The Statement of Additional Information (“SAI”) includes more information about the Fund, its investments, and the related risks.
Under adverse, unstable, or abnormal market conditions, the Fund may be unable to pursue or achieve its investment objective and, for temporary purposes, may invest some or all of its assets in a variety of instruments or assets, including high-quality fixed-income securities, cash, and cash equivalents. For cash management purposes, the Fund may hold all or a portion of its assets in cash, short-term money market instruments, or shares of other investment companies. This may reduce the benefit from any upswing in the market, cause the Fund to fail to meet its investment objective, and increase the Fund's expenses.
7
Investments
The following describes the types of securities the Fund may purchase under normal market conditions to achieve its principal investment strategy. The Fund will not necessarily buy all of the securities listed below.
Asset-Backed Securities
Debt securities backed by loans or accounts receivable originated by banks, credit card companies, student loan issuers, or other providers of credit. These securities may be enhanced by a bank letter of credit or by insurance coverage provided by a third party.
Convertible or Exchangeable Obligations
Debt instruments that may be exchanged or converted to other securities.
Corporate Debt Obligations
Debt instruments issued by corporations. They may be secured or unsecured.
Derivatives
From time to time, the Fund may invest in derivatives, which are financial contracts whose value is based on an underlying security or asset, a currency exchange rate, an interest rate, or a market index. Many types of instruments representing a wide range of potential risks and rewards are derivatives, including but not limited to futures contracts, options on futures contracts, options, swaps, and forward currency exchange contracts. The Fund may, but is not required to, use index futures for cash management (attempting to remain fully invested while maintaining liquidity) or to gain exposure to an investment in a manner other than investing in the asset directly. The Fund will not use derivatives for speculative purposes.
International Bonds
Debt instruments issued by non-domestic issuers, including those traded in U.S. dollars such as Yankee Bonds and Eurodollar Bonds.
Loans
Debt obligations of companies or other entities that typically are structured and administered by a financial institution that acts as the agent of the lenders participating in the loan. A loan may be acquired directly in a transaction arranged through an agent or by assignment from another holder of the loan.
Mortgage-Backed Securities
Mortgage-backed securities, including collateralized mortgage obligations and certain stripped mortgage-backed securities, represent a participation in, or are secured by, mortgage loans.
U.S. Government Instrumentalities1
Securities issued by U.S. government instrumentalities such as: the Student Loan Marketing Association (“SLMA” or Sallie Mae), Federal Farm Credit Banks (“FFCB”), and Federal Home Loan Banks. Certain instrumentalities are “wholly owned government corporations,” such as the Tennessee Valley Authority (“TVA”).
8
Investments
U.S. Government Securities1
Notes and bonds issued or guaranteed by the U.S. government, its agencies or instrumentalities. Some are direct obligations of the U.S. Treasury; others are obligations only of the U.S. agency or instrumentality. There is no guarantee that the U.S. government will provide support to U.S. agencies or instrumentalities if they are unable to meet their obligations.
When-Issued, To-Be-Announced (“TBA”) and Delayed-Delivery Securities
Securities that are purchased or sold for delivery at a later time. In a TBA transaction, a seller generally agrees to deliver a mortgage-backed security meeting certain criteria at a future date.
Zero-Coupon Bonds
Debt instruments that are purchased at a discount from face value. The bond’s face value is received at maturity, with no interest payments before then.
1
Obligations of entities such as the GNMA are backed by the full faith and credit of the U.S. Treasury. Others, such as the FNMA, SLMA, FHLB, FHLMC, FMAC and TVA are supported by the right of the issuer to borrow from the U.S. Treasury. FFCB is supported only by the credit of the federal instrumentality. See the SAI for more information about investments in obligations of U.S. government instrumentalities and wholly owned government corporations.
9
Investments
Additional Fund Strategies. The Adviser may use other types of investment strategies in pursuing the Fund's overall investment objective. The following describes the types of securities or techniques that the Adviser may purchase or investment techniques the Adviser may employ that are not considered to be a part of the Fund's principal investment strategies. Additional securities and techniques are described in the Fund's SAI.
U.S. Equity Securities
Can include common stock, preferred stock, and securities that are convertible or exchangeable into common stock of U.S. corporations.
Investment Companies
The Fund may invest in securities of other investment companies, including exchange-traded funds (“ETFs”), if those companies invest in securities consistent with the Fund's investment objective and policies. ETFs are investment companies the shares of which are bought and sold on a securities exchange.
10
Investments
Securities Lending
To enhance the return on its portfolio, the Fund may lend portfolio securities to brokers, dealers, and financial institutions to realize additional income under guidelines adopted by the Board. Each loan will be secured continuously by collateral in the form of cash, securities issued by the U.S. government or its agencies or instrumentalities.
11
Risk Factors
The following provides additional information about the Fund's principal risks and supplements those risks discussed in the Fund’s Summary section of this Prospectus.
Convertible Securities Risk — The values of convertible securities in which the Fund may invest may be affected by market interest rates, reduction in credit quality or credit ratings, issuer default on interest and principal payments, and declines in the value of the underlying common stock. Additionally, an issuer may retain the right to buy back its convertible securities at a time and price unfavorable to the Fund.
Credit Derivatives Risk — Credit default swaps can create investment leverage and may create additional investment risks that may subject the Fund to greater volatility than investments in more traditional securities.
Debt Securities Risks — The value of a debt security or other income-producing security changes in response to various factors, including, for example, market-related factors (such as changes in interest rates, adverse economic or political conditions, tariffs and trade disruptions, inflation, or adverse investor sentiment generally) and changes in the actual or perceived ability of the issuer (or of issuers generally) to meet its (or their) obligations. Changes in value may occur sharply and unpredictably. Other factors that may affect the value of debt securities, include, among others, public health crises and responses by governments and issuers to such crises. These and other events may affect the creditworthiness of the issuer of a debt security and may impair an issuer’s ability to timely meet its debt obligations as they come due.
◼
Interest Rate Risk — Fluctuations in interest rates can affect the value of debt instruments held by the Fund. When interest rates go up, the value of a debt security typically goes down. When interest rates go down, the value of a debt security typically goes up. Duration is a measure of the price sensitivity of a debt security or portfolio to interest rate changes. The longer the Fund’s average portfolio duration, the more sensitive the Fund will be to changes in interest rates. In addition, during periods of increased market volatility, the market values of fixed-income securities may be more sensitive to changes in interest rates. Interest rates may rise or the rate of inflation may increase, impacting the value of investments in fixed-income securities. A debt issuer’s credit quality may be downgraded or an issuer may default. Interest rates may fluctuate due to changes in governmental fiscal policy initiatives and resulting market reaction to those initiatives. Decisions by the Fed regarding interest rate and monetary policy can have a significant effect on the value of debt securities as well as the overall strength of the U.S. economy. Precise interest rate predictions are difficult to make, and interest rates may change unexpectedly and dramatically in response to extreme changes in market or economic conditions. The impact on various markets that interest rate or other significant policy changes may have is unknown.
◼
Credit (or Default) Risk — The issuer of a debt security may be unable to make timely payments of interest or principal. Credit risk is measured by nationally recognized statistical rating organizations (“NRSROs”) such as S&P Global Ratings, Fitch Ratings, Inc., and Moody’s Investors Service.
◼
Inflation Risk — Inflation will erode the purchasing power of the cash flows generated by debt securities held by the Fund. Fixed-rate debt securities are more susceptible to this risk than floating-rate debt securities or equity securities that have a record of dividend growth.
◼
Reinvestment Risk — When interest rates are declining, the interest income and prepayments on a security the Fund receives will have to be reinvested at lower interest rates. Generally, interest rate risk and reinvestment risk tend to have offsetting effects, though not necessarily of the same magnitude.
12
Risk Factors
◼
Redemption Risk — The Fund may experience periods of heavy shareholder redemptions that could cause the Fund to sell assets at inopportune times or at a loss or depressed value. Redemption risk is heightened during periods of declining or illiquid markets. Heavy redemptions could hurt the Fund’s performance.
Derivatives Risk — The use of derivative instruments, such as futures contracts and credit default swaps, exposes the Fund to additional risks and transaction costs. Risks of derivative instruments include: (1) the risk that interest rates, securities prices, asset values, and currency markets will not move in the direction that a portfolio manager anticipates; (2) imperfect correlation between the price of derivative instruments and movements in the prices of the securities, assets, interest rates, or currencies being hedged; (3) the fact that skills needed to use these strategies are different than those needed to select portfolio securities; (4) the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits, either of which may make it difficult or impossible to close out a position when desired; (5) the risk that adverse price movements in an instrument can result in a loss substantially greater than the Fund’s initial investment in that instrument (in some cases, the potential loss is unlimited); (6) particularly in the case of privately negotiated instruments, the risk that the counterparty will not perform its obligations, which could leave the Fund worse off than if it had not entered into the position; and (7) the inability to close out certain hedged positions to avoid adverse tax consequences.
Floating Rate Loan Risk — Investments in floating rate loans generally are subject to the same risks as investments in other types of debt securities, including, in many cases, investments in high-yield/junk bonds. There may be limited public information available regarding the loan. They may be difficult to value and may be illiquid. The receipt of principal and interest on some loans may be subject to the credit risk of a financial institution that issues or administers the loan. In certain circumstances, the Fund may not have the same protections available to investors under the federal securities laws. In times of unusual or adverse market, economic, or political conditions, floating rate loans may experience higher than normal default rates. In the event of a recession or serious credit event, among other eventualities, the value of the Fund's investments in floating rate loans are more likely to decline. Transactions in loans often settle on a delayed basis, and the Fund may not receive the proceeds from the sale of a loan for a substantial period of time after the sale. The secondary market for floating rate loans is limited; and thus, the Fund’s ability to sell or realize the full value of its investment in these loans to reinvest sale proceeds or to meet redemption obligations may be impaired.
Foreign Securities Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
◼
Foreign Investments Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant
13
Risk Factors
foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
◼
Legal Risk — Legal remedies for investors in foreign countries may be more limited than the legal remedies available in the United States.
◼
Political Risk — Foreign securities markets may be more volatile than their counterparts in the United States. Investments in foreign countries could be affected by factors not present in the United States, including expropriation, confiscation of property, and difficulties in enforcing contracts. Foreign settlement procedures may also involve additional risks, and foreign issuers can be impacted by changes to trade policies and trade disputes. These factors can make foreign investments more volatile than U.S. investments.
General Market Risk — Any investment involves risk, and there is no assurance that the Fund’s investment objective will be achieved. Losing money is a risk of investing in the Fund. The value of the securities in which the Fund invests may go up or down in response to the prospects of individual companies, particular sectors or governments, and/or general economic conditions throughout the world due to increasingly interconnected global economies and financial markets, or general investor sentiment. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value. In addition, markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Market turmoil may be reflected in perceptions of economic uncertainty, price volatility in the equity and debt markets, and fluctuating trading liquidity. In response, governments may adopt a variety of fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and changes in interest rates. An unexpected or quick reversal of these policies could increase volatility in the equity and debt markets. Market conditions and economic risks could have a significant effect on domestic and international economies and could add significantly to the risks of increased volatility for the Fund. Equity securities tend to be more volatile than debt securities.
◼
Geopolitical/Natural Disaster Risk — Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, economic sanctions, currency controls or other actions by countries or international bodies, terrorism, trade disputes, embargoes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires, and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Epidemics and/or pandemics, such as the coronavirus (or COVID-19), may result in, among other things, closing borders, disruptions to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and consumer activity, as well as general concern and uncertainty. The impact may be short-term or may last for extended periods.
◼
Information Technology and Operational Risk — Markets and market participants are
14
Risk Factors
increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. The information technology and other operational systems upon which the Fund’s service providers rely may be subject to cyber attack or other technological disruptions, and could otherwise disrupt the ability of these service providers to perform essential tasks for the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
High-Yield/Junk Bond Risk — Below-investment-grade securities (high-yield or “junk” bonds) are subject to certain risks in addition to those risks associated with higher-rated securities. Below-investment-grade securities generally offer higher yields than investment-grade securities with similar maturities because the financial condition of the issuers may not be as strong as issuers of investment-grade securities. For this reason, below-investment-grade securities may be considered speculative, which means that there is a higher risk that the Fund may lose a substantial portion or all of its investment in a particular below-investment-grade security. Below-investment-grade securities may be more susceptible to real or perceived adverse economic conditions, which may cause them to be downgraded or default, less liquid, and more difficult to evaluate than investment-grade securities.
Liquidity Risk — Liquidity risk exists when particular investments cannot be disposed of quickly in the normal course of business. Market values for illiquid securities may not be readily available, and there can be no assurance that any fair value assigned to an illiquid investment at any time will accurately reflect the price a Fund might receive upon the sale of that investment. The ability of the Fund to dispose of illiquid securities or other instruments at advantageous prices may be greatly limited, and the Fund may have to continue to hold such securities or instruments during periods when the Adviser would otherwise have sold them (in order, for example, to meet redemption requests or to take advantage of other investment opportunities). Adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer, including rising interest rates, may adversely affect the liquidity of the Fund’s investments. Some securities held by the Fund may be restricted as to resale, and there is often no ready market for such securities. In addition, the Fund, by itself or together with other accounts managed by the Adviser, may hold a position in an investment that is large relative to the typical trading volume for that holding, which can make it difficult for the Fund to dispose of the position at an advantageous time or price. It may also be the case that other market participants may be attempting to liquidate a position at the same time as the Fund is attempting to liquidate the same investment, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure. In such cases the sale proceeds received by the Fund may be substantially less than if the Fund had been able to sell the securities in more-orderly transactions, and the sale price may be substantially lower than the price previously used by the Fund to value the securities for purposes of determining the Fund’s net asset value. The capacity of dealers to make markets in fixed-income securities may not keep pace with the growth in the size of the fixed-income markets. Liquidity risk may be magnified in a rising interest rate environment or when investor redemptions from fixed-income funds may be higher than normal, due to the increased supply in the market that would result from selling activity.
Loan Risk — Investments in loans, including floating rate loans generally are subject to the same risks as investments in other types of debt instruments, including, in many cases, investments in high-yield/junk bonds. This means they are subject to greater credit risks than other investments, including a greater possibility that the borrower will be adversely affected by changes in market or economic conditions and may default or enter bankruptcy. In addition, investments in loans may be difficult to value and may be illiquid. The secondary market for loans may be subject to irregular
15
Risk Factors
trading activity, wide bid/ask spreads, and extended trade settlement periods, which may cause the Fund to be unable to realize the full value of its investment in the loan, resulting in a material decline in the Fund’s net asset value (“NAV”). As a result, the Fund may be adversely affected by selling other investments at an unfavorable time and/or under unfavorable conditions or borrowing to raise cash to meet redemption obligations or pursue other investment opportunities. Floating rate loans and other similar debt obligations that lack financial maintenance covenants or possess fewer or contingent financial maintenance covenants and other financial protections for lenders and investors (sometimes referred to as “covenant-lite” loans or obligations) generally are subject to more risk than investments that contain traditional financial maintenance covenants and financial reporting requirements. In certain circumstances, bank loans may not be deemed to be securities. As a result, the Fund may not have the same protections as securities under the provisions of the federal securities laws. In such cases, the Fund generally must rely on the contractual provisions in the loan agreement and common-law fraud protections under applicable state law. The Fund’s Adviser or Sub-Adviser may seek to avoid the receipt of material non-public information about the issuers of the loans being considered for purchase by the Fund, which may affect its ability to assess the loans as compared to investors that do receive such information.
Additional risks of investments in loans include:
◼
Agent/Intermediary Risk - If the Fund holds a loan through another financial institution, or relies on another financial institution to administer the loan, the Fund’s receipt of principal and interest on the loan is subject to the credit risk of the financial institution. If the Fund holds its interest in a loan through another financial institution, the Fund likely would not be able to exercise its rights directly against the borrower and may not be able to cause the financial institution to take what it considers to be appropriate action. If the Fund relies on a financial institution to administer a loan, the Fund is subject to the risk that the financial institution may be unwilling or unable to demand and receive payments from the borrower in respect of the loan, or otherwise unwilling or unable to perform its administrative obligations.
◼
Collateral Impairment Risk - The terms of certain loans in which the Fund may invest require that collateral be maintained to support payment of the borrower’s obligations under the loan. However, the value of the collateral may decline after the Fund invests, and the value of the collateral may not be sufficient to cover the amount owed to the Fund. In addition, the Fund’s interest in collateral securing a loan may be found invalid or may be used to pay other outstanding obligations of the borrower under applicable law. In the event that a borrower defaults, the Fund’s access to the collateral may be limited by bankruptcy and other insolvency laws. There is also the risk that the collateral may be difficult to liquidate, or that all or some of the collateral may be illiquid.
◼
Subordination Risk - Senior loans are subject to the risk that a court could subordinate them to presently existing or future indebtedness or take other action detrimental to the holders of senior loans.
◼
Limited Information Risk - Because there is limited public information available regarding loan investments, the Fund is particularly dependent on the analytical abilities of the Fund’s investment team.
◼
Settlement Risk - Transactions in many loans settle on a delayed basis, and the Fund may not receive the proceeds from the sale of a loan for a substantial period after the sale. As a result, those proceeds will not be available to make additional investments or to meet the Fund’s redemption obligations. In order to meet short-term liquidity needs, the Fund may draw on its cash or other short-term positions, maintain short-term liquid assets sufficient to meet reasonably anticipated redemptions, and maintain a credit facility.
16
Risk Factors
Management Risk — The investment process used by the investment team may produce incorrect judgments about the value of a particular asset or the team may implement its investment strategy in a way that may not produce the desired results.
Mortgage- and Asset-Backed Securities Risks — Mortgage-backed securities, including collateralized mortgage obligations and certain stripped mortgage-backed securities, represent a participation in, or are secured by, mortgage loans. Asset-backed securities are structured like mortgage-backed securities, but instead of mortgage loans or interests in mortgage loans, the underlying assets may include such items as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. During periods of falling interest rates, mortgage- and asset-backed securities, which typically provide the issuer with the right to call or prepay the security prior to maturity, may be called or prepaid, which may result in the Fund having to reinvest the proceeds in other investments at a lower interest rate. During periods of rising interest rates, the average life of mortgage- and asset-backed securities may extend because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration, and reduce the value of the security.
As a result, mortgage- and asset-backed securities may have less potential for capital appreciation during periods of declining interest rates than other securities of comparable maturities, although they may have a similar risk of decline in market values during periods of rising interest rates. Prepayment rates are difficult to predict and the potential impact of prepayments on the value of a mortgage- or asset-backed security depends on the terms of the instrument and can result in significant volatility. The price of a mortgage- or asset-backed security also depends on the credit quality and adequacy of the underlying assets or collateral. Enforcing rights against the underlying assets or collateral may be difficult, or the underlying assets or collateral may be insufficient if the issuer defaults. Subprime mortgage loans, which typically are made to less creditworthy borrowers, have a higher risk of default than conventional mortgage loans. Therefore, mortgage-backed securities backed by subprime mortgage loans may suffer significantly greater declines in value due to defaults. Some mortgage-backed securities are backed by the full faith and credit of the U.S. government (e.g., mortgage-backed securities issued by the Government National Mortgage Association, commonly known as “Ginnie Mae”), while other mortgage-backed securities (e.g., mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as “Fannie Mae” and “Freddie Mac”), are backed only by the credit of the government entity issuing them. In addition, some mortgage-backed securities are issued by private entities and are not guaranteed by the U.S. government or any agency or instrumentality of the U.S. government.
Reference Rate Transition Risk — The London Interbank Offered Rate (“LIBOR”) had historically been the principal floating rate benchmark in the financial markets. However, LIBOR is being discontinued as a floating rate benchmark. As an alternative to LIBOR, the market generally has coalesced around the use of the Secured Overnight Financing Rate (“SOFR”) as a replacement for U.S. dollar LIBOR. Various SOFR-based rates, including SOFR-based term rates, and various non-SOFR-based rates have developed in response to the discontinuation of U.S. dollar LIBOR, which may create various risks for the Fund and the financial markets more generally. There are non-LIBOR forward-looking floating rates that are not based on SOFR and that may be considered by participants in the financial markets as LIBOR alternatives. Unlike forward-looking SOFR-based term rates, such rates are intended reflect a bank credit spread component.
Non-LIBOR floating rate obligations, including obligations based on the SOFR, may have returns and values that fluctuate more than those of floating rate debt obligations that are based on LIBOR or other rates. Also, because SOFR and some alternative floating rates are relatively new market indexes, markets for certain non-LIBOR obligations may never develop or may not be liquid. Market terms for non-LIBOR floating rate obligations, such as the spread over the index reflected in interest rate
17
Risk Factors
provisions, may evolve over time, and prices of non-LIBOR floating rate obligations may be different depending on when they are issued and changing views about correct spread levels.
It is not clear how replacement rates for LIBOR–including SOFR-based rates and non-SOFR-based rates–will continue to develop and to what extent they will be used. There is no assurance that these replacement rates will be suitable substitutes for LIBOR, and thus the substitution of such rates for LIBOR could have an adverse effect on the Funds and the financial markets more generally. Concerns about market depth and stability could affect the development of non-SOFR-based term rates, and such rates may create various risks, which may or may not be similar to the risks relating to SOFR.
U.S. Government Securities — U.S. government securities are securities issued or guaranteed as to the payment of interest or principal by the U.S. government, by an agency or instrumentality of the U.S. government, or by a U.S. government-sponsored entity. Certain U.S. government securities may not be supported as to the payment of principal and interest by the full faith and credit of the U.S. government or the ability to borrow from the U.S. Treasury. Some U.S. government securities may be supported as to the payment of principal and interest only by the credit of the entity issuing or guaranteeing the security.
When-Issued, TBA, and Delayed-Delivery Securities Risk — The market value of the security issued on a when-issued, TBA, or delayed-delivery basis may change before the delivery date, which may adversely impact the Fund’s NAV. There is also the risk that a party fails to deliver the security on time or at all.
Additional Risk Factors. The Adviser may use several types of investment strategies in pursuing the Fund's overall investment objective. The following risks are those that the Adviser does not consider to be principal risks of the Fund. Additional risks are included in the Fund's SAI.
Equity Securities Risk — The market prices of equity securities, which may include common stocks and other stock-related securities such as preferred stocks may fluctuate, sometimes rapidly or unpredictably. The value of a security may decline for reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. Unlike debt securities, which have preference to a company’s assets in case of liquidation, equity securities are entitled to the residual value after the company meets its other obligations. The Fund may continue to accept new subscriptions and to make additional investments in equity securities even under general market conditions that the Fund’s investment team views as unfavorable for equity securities.
Investment Company Risk — The Fund's ability to achieve its investment objective may be directly related to the ability of other investment companies (including ETFs) held by the Fund to meet their investment objectives. In addition, shareholders of the Fund will indirectly bear the fees and expenses of the underlying investment companies. Lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Securities Lending Risk — The risk in lending portfolio securities, as with other extensions of credit, consists of the possibility of loss to the Fund due to (1) the inability of the borrower to return the securities, (2) a delay in receiving additional collateral to adequately cover any fluctuations in the value of securities on loan, (3) a delay in recovery of the securities, or (4) the loss of rights in the collateral should the borrower fail financially. In addition, the Fund is responsible for any loss that might result from its investment of the borrower’s collateral. In determining whether to lend securities, the Adviser or the Fund’s securities lending agent will consider relevant facts and circumstances, including the creditworthiness of the borrower.
18
Organization and Management of the Fund
The Fund's Board has the overall responsibility for overseeing the management of the Fund. The Board monitors the services provided to contract owners.
The Investment Adviser
The Adviser serves as the investment adviser to each of the Victory Funds pursuant to an investment advisory agreement and oversees the operations of the Fund according to investment policies and procedures adopted by the Board. The Adviser is a New York corporation that is registered as an investment adviser with the Securities and Exchange Commission (“SEC”). As of March 31, 2025, the Adviser managed and advised assets totaling in excess of $167.5 billion for individual and institutional clients. The Adviser’s principal address is 15935 La Cantera Parkway, San Antonio, TX 78256.
A discussion regarding the basis of the Board’s approval of the Fund's Advisory Agreement is available in the Fund's most recent Form N-CSR for the period ended December 31.
Advisory fees to be paid annually, before waivers, will be equal to an annual rate of 0.60% of the average daily net assets of the Fund.
See “Fund Fees and Expenses” for information about any contractual agreement by the Adviser to waive fees and/or reimburse expenses with respect to the Fund. From time to time, the Adviser also may voluntarily waive fees and/or reimburse expenses in amounts exceeding those required to be waived or reimbursed under any contractual agreement that may be in place with respect to the Fund.
Portfolio Management
James F. Jackson, Jr., CFA, Chief Investment Officer, Head of Fixed Income Portfolio Management, and Senior Portfolio Manager, Victory Income Investors, a Victory Capital investment franchise, has co-managed the Fund since September 2024. Mr. Jackson has 24 years of investment management experience including 10 years with USAA Asset Management Company (“AMCO”), which was acquired by the Adviser’s parent company in 2019. Education: M.B.A. with High Distinction, Ross School of Business, University of Michigan; B.S., United States Naval Academy. He holds the CFA designation and is a member of the CFA Institute and the CFA Society of San Antonio.
Kurt Daum, J.D., Senior Portfolio Manager, Victory Income Investors, a Victory Capital investment franchise, has co-managed the Fund since September 2024. Mr. Daum has 22 years of investment management experience including six years with AMCO, which was acquired by the Adviser’s parent company in 2019. Education: B.B.A., University of Texas at Austin; J.D., University of Texas School of Law.
Jason Lincoln, CFA, Portfolio Manager and Senior Fixed Income Research Analyst, Victory Income Investors, a Victory Capital investment franchise, has co-managed the Fund since September 2024. He has 16 years of investment management experience including six years with AMCO, which was acquired by the Adviser’s parent company in 2019. Education: MBA, Alvarez College of Business, University of Texas at San Antonio, and a B.A., University of Texas at Austin. He holds the CFA designation and is a member of the CFA Institute and the CFA Society of San Antonio.
The Fund's SAI provides additional information about the portfolio managers' method of compensation, other accounts they manage, and any ownership interests they may have in the Fund.
19
Investing in the Fund
The Fund is designed as an investment exclusively for contracts that are offered by the separate accounts of participating insurance companies. The participating insurance company will buy and redeem shares according to your instructions, as provided in the contract, and will redeem shares as needed to provide benefits under the contract.
Shares of the Fund may be offered in the future to other separate accounts established by other insurance companies, and they may fund both variable annuity contracts and variable life insurance policies offered by the same or affiliated insurance companies. For additional information about possible conflicts of interest between owners of variable annuity contracts and variable life insurance policies or between owners of variable contracts issued by insurance companies that are not affiliated with the Fund, see the section in this Prospectus titled Other Information About the Fund.
20
Share Price
The Fund calculates its share price, called its net asset value (“NAV”), each business day as of the close of regular trading on the New York Stock Exchange, Inc. (“NYSE”), which is normally 4:00 p.m. Eastern Time. In the event of an emergency or other disruption in trading on the NYSE, the Fund’s share price will be determined based upon the close of the NYSE. You may buy, exchange, and sell your shares on any business day at a price that is based on the NAV that is next calculated after you place your order. A business day is a day on which the NYSE is open. The NYSE is closed on weekends, most national holidays, and Good Friday.
To the extent the Fund’s investments include securities that are traded primarily in foreign markets, the value of those securities may change on days when shareholders are unable to purchase and redeem the Fund’s shares, such as on weekends or other days when the Fund does not price its shares.
The Fund reserves the right to close if the primary trading markets of the Fund’s portfolio instruments are closed and the Fund’s management believes that there is not an adequate market to meet purchase, redemption, or exchange requests. In addition, if the Securities Industry and Financial Markets Association (“SIFMA”) recommends that government securities dealers close before the close of regular trading on the NYSE (the “Alternative Closing Time”), the Fund reserves the right to refuse any purchase or redemption order received after the Alternative Closing Time. If the Fund closes at the Alternative Closing Time, its NAV will be calculated as of the Alternative Closing Time. You may not be able to buy or sell shares on Columbus Day and Veterans Day, or on holidays when the Federal Reserve system is closed, but the NYSE and other financial markets are open.
The Fund prices its investments based on market value when market quotations are readily available. When these quotations are not readily available, the Adviser will price the Fund’s investments at fair value in accordance with applicable regulatory requirements. The Fund will fair value a security when:
◼
Trading in the security has been halted;
◼
The market quotation for the security is clearly erroneous due to a clerical error;
◼
The security’s liquidity decreases such that, in the Adviser’s opinion, the market quotation has become stale; or
◼
An event occurs after the close of the trading market (but before the Fund’s NAV is calculated) that, in the Adviser’s opinion, materially affects the value of the security.
The use of fair value pricing may minimize arbitrage opportunities that attempt to exploit the differences between a security’s market quotation and its fair value. The use of fair value pricing may not, however, always reflect a security’s actual market value in light of subsequent relevant information, and the security’s opening price on the next trading day may be different from the fair value price assigned to the security.
The Fund calculates its NAV per share by adding up the total value of its investments and other assets, subtracting its liabilities, and then dividing that figure by the number of its outstanding shares.
|
NAV= |
Total Assets – Liabilities |
|
Number of Shares Outstanding |
21
How to Buy Shares
Opening an Account
You cannot buy shares of the Fund directly, but only as an investment option through variable annuity contracts or variable life insurance policies (together, the “contracts”) that are offered by the separate accounts of certain life insurance companies (“participating insurance companies”). You are encouraged to read this Prospectus in conjunction with the accompanying separate account prospectus. Please refer to the separate account prospectus for information on how the participating insurance company buys and redeems shares.
Purchasing Shares
Orders to buy shares of the Fund are placed by the participating insurance company based upon instructions you provide to the participating insurance company. The Fund’s transfer agent processes orders to buy shares of the Fund at its NAV next computed after the order is received in good order, which means that your request contains all the required documentation, and that all documents contain required signatures or signature guarantees from a financial institution. The value of your contract’s investment in the Fund also will be based upon premium payments, surrender and transfer requests, and any other transaction requests from contract owners, annuitants, and beneficiaries. In order to calculate the value of your investment, you would have to determine the number of contract units you own along with the “accrued unit value” of your contract.
Share Classes
The Fund currently offers only Class I shares as described in this Prospectus. At some future date, the Fund may offer additional classes of shares. The Fund or any class may be closed at any time for failure to achieve an economical level of assets or for other reasons.
22
How to Sell Shares
Redemptions
Shares of the Fund may be redeemed by instructing your participating insurance company to terminate your contract’s investment in the Fund. Please refer to the instructions provided in the separate account prospectus. The separate account may redeem shares on any business day at the NAV that is next calculated after the order is placed.
The Fund may suspend your right to redeem your shares in the following circumstances:
◼
During non-routine closings of the NYSE;
◼
When the SEC determines either that trading on the NYSE is restricted or that an emergency prevents the sale or valuation of the Fund’s securities; or
◼
When the SEC orders a suspension to protect the Fund’s shareholders.
The Fund typically uses cash and cash equivalents held in its portfolio or sells portfolio assets to meet redemption requests. In unusual circumstances or under stressed market conditions, the Fund may use other methods to raise cash to meet redemption requests. For example, the Fund may draw funds from a line of credit or borrow available cash held by other Victory Funds under an “interfund lending program” in reliance on an exemptive order from the SEC.
23
Distributions and Taxes
The Fund expects to distribute substantially all of its ordinary income and capital gains each year. Ordinarily, the Fund declares and pays dividends from its net investment income annually. However, the Fund may not always pay a dividend or distribution for a given period. Capital gains distributions, if any, from the Fund will be made annually. In addition, the Fund may occasionally be required to make supplemental dividend or capital gains distributions at some other time during the year.
All dividend and capital gains distributions made by the Fund will be reinvested automatically in additional shares of the Fund.
|
The tax status of your insurance company separate account’s investment in the Fund depends upon the
features of your contract. For further information, please refer to the separate account prospectus. |
Important Information About Taxes
The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”), so that it will not be subject to U.S. federal income tax on its net earnings and net capital gains that are distributed to its shareholders. In addition, the Fund intends to comply with the diversification requirements of the Code and Treasury Regulations applicable to segregated asset accounts underlying variable annuity contracts or variable life insurance policies (referred to as “variable contracts”) so that the holders of the contracts receive tax-deferred treatment generally afforded holders of annuities or life insurance policies under the Code.
◼
If a regulated investment company satisfies certain conditions, the regulated investment company will not be treated as a single investment of a segregated asset account for purposes of determining whether the account is adequately diversified, but rather the segregated asset account will be treated as owning its proportionate share of each of the assets of the regulated investment company. The Fund intends to satisfy these conditions so that the segregated asset account will be treated as owning its proportionate share of the Fund’s assets for such purposes.
◼
The Code requires that a segregated asset account underlying a variable contract must be “adequately diversified” in order for the contract to be treated as an annuity or life insurance contract for tax purposes. A segregated asset account invested in the Fund is intended to be treated as owning its proportionate share of the Fund’s assets for purposes of determining whether the account is adequately diversified. If a segregated asset account underlying a contract were not in compliance with these diversification requirements at the end of any calendar quarter, the contract would not be eligible to be treated as an annuity or life insurance contract under the Code for such period and any subsequent period and the contract holder would not be eligible for tax-deferred treatment. See the section titled “TAXES” in the SAI for additional requirements for tax-deferred treatment and other tax considerations.
◼
This discussion of U.S. federal income tax consequences is based on tax laws and regulations in effect as of the date of this Prospectus, and may change as a result of legislative, administrative, or judicial action. As this discussion is for general information only, you also should review the more detailed discussion of U.S. federal income tax considerations that is contained in the separate account prospectus and the SAI.
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You should consult with your own tax adviser regarding the tax consequences of your investment
in the separate account, including the application of state and local taxes, which may differ
from the federal income tax consequences described. |
24
Important Fund Policies
Market Timing
The Fund discourages and does not accommodate frequent purchases and redemptions of Fund shares (“market timing”). We will uniformly deny any request to purchase shares if we believe that the transaction is part of a market timing strategy. In identifying market timing activity, we consider, among other things, the frequency of your trades, even when the trades are combined with those of other investors or shareholders.
Market timing allows investors to take advantage of market inefficiencies, sometimes to the disadvantage of other shareholders. Market timing increases Fund expenses to all shareholders as a result of increased portfolio turnover. In addition, market timing could potentially dilute share value for all other shareholders by requiring the Fund to hold more cash than it normally would.
The Fund’s Board has adopted policies and procedures with respect to market timing. In order to prevent or minimize market timing, the Fund will employ “fair value” pricing, as described in this Prospectus under “Share Price,” to minimize the discrepancies between a security’s market quotation and its perceived market value, which often gives rise to market timing activity.
Because the Fund’s shares are held exclusively by insurance company separate accounts, rather than directly by the individual contract owners of the separate accounts, the Fund is not able to determine directly whether a separate account’s purchase or sale of the Fund’s shares on any given day represents transactions by a single investor or multiple investors. It also is not able to determine directly whether multiple purchases and sales by a separate account over any given period represent the activity of the same or of different investors.
However, the Fund may request that an insurance company cooperate in monitoring transactions to detect potential market timing. There can be no assurance that an insurance company will cooperate in precluding an investor from further purchases of Fund shares. Consistent with applicable laws and agreements, the Fund may stop selling its shares to a separate account to prevent market timing.
Portfolio Holdings Disclosure
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI, which is available upon request and on the Fund’s website at VictoryFunds.com.
Performance
The Victory Funds may advertise the performance of the Fund by comparing it to other mutual funds with similar objectives and policies. Performance information also may appear in various publications. Any fees charged by Investment Professionals may not be reflected in these performance calculations.
Advertising information may include the average annual total return of the Fund calculated on a compounded basis for specified periods of time. Total return information will be calculated according to rules established by the SEC. Such information may include performance rankings and similar information from independent organizations and publications.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more shareholders with the same last name reside, the Fund may send only one copy of any shareholder reports, proxy statements, prospectuses and their supplements, unless you have instructed us to the contrary. You may request that the Fund send these documents to each shareholder individually by calling your participating insurance company.
25
Other Information About the Fund
The Fund issues and sells its shares to separate accounts of insurance companies including those of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) (the “Separate Accounts”) and to affiliates of such insurance companies. The Separate Accounts hold shares of mutual funds, including the Fund, that fund benefits under variable annuity contracts or variable life insurance policies issued by insurance companies including those of GIAC (either, a “Variable Contract”). With respect to matters to be voted on by shareholders of the Fund, GIAC, or other insurance company, as the owner of the assets held in the Separate Accounts, and the affiliates of GIAC or such other insurance company are the shareholders of the Fund and are entitled to vote their shares of the Fund.
GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus. GIAC has informed the Fund that it will vote outstanding shares of the Fund in accordance with instructions received from the owners of the Variable Contracts, which have some or all of the contract or policy value invested in the Fund. GIAC will vote the Fund’s shares attributable to Variable Contracts for which it does not receive voting instructions in the same proportion as the shares for which it does receive voting instructions. GIAC and its affiliates also will vote the Fund’s shares that they own directly due to their contributions or accumulations in the Separate Accounts through which GIAC offers Variable Contracts in proportion to the shares for which GIAC receives timely voting instructions. As a result of the proportional voting described here, a small number of contract owners may determine the outcome of a shareholder vote.
For a shareholder meeting to go forward with respect to the Fund, there must be a quorum. This means that at least one-third of the Fund’s shares outstanding and entitled to vote on the proposal must be represented at a meeting either in person or by proxy. Because GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus, their presence at a meeting in person or by proxy will meet the quorum requirement for the Fund.
The Fund does not currently foresee any disadvantages to contract owners arising from the fact that the Fund offers shares to both variable annuity contract and variable life insurance policy separate accounts. The Board monitors events to ensure that there are no material irreconcilable differences between or among contract owners. If such a conflict should arise, one or more separate accounts may withdraw their investments in the Fund. This could possibly force the Fund to sell portfolio securities at disadvantageous prices.
If circumstances make it necessary to create separate portfolios for variable annuity and variable life insurance separate accounts, GIAC or another insurance company that offers the Fund will bear the expenses involved in setting up the new portfolios. However, the ongoing expenses contract owners ultimately pay would likely increase because of the loss of economies of scale provided by the current arrangement.
While this Prospectus and the SAI describe pertinent information about the Victory Variable Insurance Funds (the “Trust”) and the Fund, neither the Prospectus nor the SAI represents a contract between the Trust or the Fund and any shareholder or any other party.
26
Financial Highlights
The following financial highlights tables reflect historical information about shares of the Fund and is intended to help you understand the Fund's financial performance for the past five years. Certain information shows the results of an investment in one share of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts. If these charges were reflected, returns would be lower than those shown.
The information presented has been audited by Cohen & Company, Ltd., the Fund's independent registered public accounting firm, whose report, along with the Fund's financial statements, are included in the Fund's most recent N-CSR filing to shareholders, which is available upon request.
27
Victory High Yield VIP Series
|
|
Class I | ||||
|
For a Share Outstanding Throughout Each
Period |
Year
Ended
12/31/24 |
Year
Ended
12/31/23 |
Year
Ended
12/31/22 |
Year
Ended
12/31/21 |
Year
Ended
12/31/20 |
|
Net Asset Value, Beginning of Period |
$6.08 |
$5.92 |
$7.40 |
$7.42 |
$7.36 |
|
Investment Activities: |
|
|
|
|
|
|
Net investment income (loss)(a) |
0.49 |
0.49 |
0.44 |
0.40 |
0.44 |
|
Net realized and unrealized gains (losses) |
0.02 |
0.18 |
(1.44) |
0.03 |
0.14 |
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Total from Investment Activities |
0.51 |
0.67 |
(1.00) |
0.43 |
0.58 |
|
Distributions to Shareholders from: |
|
|
|
|
|
|
Net investment income |
(0.61) |
(0.51) |
(0.48) |
(0.45) |
(0.52) |
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Total Distributions |
(0.61) |
(0.51) |
(0.48) |
(0.45) |
(0.52) |
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Net Asset Value, End of Period |
$5.98 |
$6.08 |
$5.92 |
$7.40 |
$7.42 |
|
Total Return(b),(c) |
8.42% |
11.41% |
(13.55)% |
5.85% |
7.92% |
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
Net Expenses(d) |
0.89% |
0.89% |
0.89% |
0.89% |
0.89% |
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Net Investment Income (Loss) |
7.70% |
7.88% |
6.55% |
5.21% |
6.10% |
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Gross Expenses(d) |
1.05% |
1.02% |
1.01% |
0.99% |
1.04% |
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Supplemental Data: |
|
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Net Assets at end of period (000's) |
$19,030 |
$21,334 |
$22,139 |
$30,016 |
$30,119 |
|
Portfolio Turnover |
109%(e) |
52% |
42% |
75% |
91% |
(a)
Per share net investment income (loss) has been calculated using the average daily shares method.
(b)
Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. Generally Accepted Accounting Principles and could differ from the reported return.
(c)
Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(d)
Does not include acquired fund fees and expenses, if any.
(e)
Reflects increased trading activity due to a sub-adviser termination.
28
VVIF-RS-HYVIP-PRO (05/25)
By mail:
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
P.O. Box 182593
Columbus, OH 43218-2593
Columbus, OH 43218-2593
Statement of Additional Information (SAI): The Fund’s Statement of Additional Information (“SAI”), dated May 1, 2025, as revised from time to time, contains more information about the Fund's operations, investment restrictions, policies, and practices. The SAI is incorporated by reference into this Prospectus, which means that it is legally part of this Prospectus, even if you do not request a copy.
Annual/ Semi Annual Reports and Form N-CSR/Form N-CSRS: Annual and semi annual reports contain more information about the Fund's investments and the market conditions and investment strategies that significantly affected the Fund's performance during the most recent fiscal period. The Fund’s Form N-CSR and Form N-CSRS filings contain the Fund’s annual and semi annual financial statements. The financial statements included in the Fund's Form N-CSR for the fiscal year ended December 31, 2024, are incorporated by reference into this Prospectus.
How to Obtain Information: You may obtain a free copy of the SAI, annual and semi annual reports and other information such as Fund financial statements, or make shareholder inquiries by calling or writing to your participating insurance company at the toll-free number or address listed in the separate account prospectus. Some of the information described herein, including the SAI, annual and semi annual reports and other information such as Fund financial statements, and periodic disclosure of portfolio holdings, are available, free of charge, at VictoryFunds.com.
By telephone:
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
You also can get information about the Fund (including the SAI, other reports, and other information such as Fund financial statements) from the Securities and Exchange Commission (SEC) on the SEC's Edgar database at sec.gov or, after paying a duplicating fee, by electronic request sent to the following e-mail address: [email protected].
Investment Company Act File Number 811-08979
May 1, 2025
Prospectus
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Victory RS International VIP Series | ||||||
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Class I |
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Shares are currently offered to insurance company separate accounts funding certain variable annuity contracts and variable life insurance policies issued by life insurance companies. For more information, call your participating insurance company.
The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
vcm.com
800-539-FUND (800-539-3863)
800-539-FUND (800-539-3863)
(fees paid directly from your investment)
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Class I |
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Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) |
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Maximum Deferred Sales Charge (Load)
(as a percentage of the lower of purchase or sale price) |
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(expenses that you pay each year as a percentage of the value of your investment)
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Management Fees |
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Distribution and/or Service (12b-1) Fees |
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Other Expenses |
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Total Annual Fund Operating Expenses |
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Fee Waiver/Expense Reimbursement1
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( |
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Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
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1
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1 Year |
3 Years |
5 Years |
10 Years |
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Class I |
$ |
$ |
$ |
$ |
1
Victory RS International VIP Series Summary
2
Victory RS International VIP Series Summary
3
Victory RS International VIP Series Summary
4
Victory RS International VIP Series Summary
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1 Year |
5 Years |
10 Years |
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CLASS I |
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Index |
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MSCI EAFE Index
reflects no deduction for fees, expenses, or taxes, except foreign
withholding taxes |
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Management of the Fund
Investment Adviser
Victory Capital Management Inc. (the “Adviser”) serves as the Fund’s investment adviser. The portfolio managers jointly and primarily responsible for day-to-day management of the Fund are members of the Adviser's RS Investments investment franchise.
Portfolio Management
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Title |
Tenure with the Fund |
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U-Wen Kok, CFA |
Chief Investment Officer |
Since 2013 |
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Adam Mezan, CFA |
Portfolio Manager |
Since 2018 |
5
Victory RS International VIP Series Summary
Purchase and Sale of Fund Shares
Shares of the Fund are currently offered to certain separate accounts to fund variable annuity contracts and variable life insurance policies issued by insurance companies. Shares of the Fund are not offered directly to the public and investors cannot place orders to purchase or sell shares with the Fund directly. Please refer to the separate account prospectus for information on how to manage your investment options in the Fund and any fees that may apply.
Tax Information
Since the Fund is only offered for investment through variable annuity contracts and variable life insurance policies, the Fund’s distributions are not expected to be taxable to holders of such contracts. Holders of such contracts may be taxed later upon withdrawals of monies from those arrangements.
Payments to Insurance Companies
The Fund, through its distributor, may pay fees for activities primarily intended to result in the sale of Fund shares to insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. These payments may create a conflict of interest by influencing insurance companies to include the Fund as an underlying investment option in its variable insurance products. Ask your variable products salesperson or visit the insurance company’s website for more information.
6
Additional Fund Information
The Victory RS International VIP Series (the “Fund”) is managed by the Adviser, who also manages other funds, each having distinct investment management objectives, strategies, risks, and policies.
The Fund’s investment objective is a non-fundamental policy and may be changed by the Board of Trustees (the “Board”) without shareholder approval upon 60 days’ prior written notice to shareholders.
The following section describes additional information about the principal investment strategy the Fund will use under normal market conditions to pursue its investment objective, as well as any secondary strategies the Fund may use, and the related risks. This Prospectus does not attempt to describe all of the various investment techniques and types of investments that the Adviser may use in managing the Fund. The Statement of Additional Information (“SAI”) includes more information about the Fund, its investments, and the related risks.
Under adverse, unstable, or abnormal market conditions, the Fund may be unable to pursue or achieve its investment objective and, for temporary purposes, may invest some or all of its assets in a variety of instruments or assets, including high-quality fixed-income securities, cash, and cash equivalents. For cash management purposes, the Fund may hold all or a portion of its assets in cash, short-term money market instruments, or shares of other investment companies. This may reduce the benefit from any upswing in the market, cause the Fund to fail to meet its investment objective, and increase the Fund's expenses.
7
Investments
The following describes the types of securities the Fund may purchase under normal market conditions to achieve its principal investment strategy. The Fund will not necessarily buy all of the securities listed below.
Foreign Securities
Can include common stock and convertible preferred stock of non-U.S. companies. Also may include American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”), which are receipts issued by a bank or trust company and evidence ownership of underlying securities issued by foreign companies, and exchange-traded funds (“ETFs”) that invest in foreign companies.
Convertible Preferred Stock
A class of stock that pays dividends at a specified rate, has preference over common stock in the payment of dividends and the liquidation of assets, and is convertible into common stock.
Additional Fund Strategies. The Adviser may use other types of investment strategies in pursuing the Fund's overall investment objective. The following describes the types of securities or techniques that the Adviser may purchase or investment techniques the Adviser may employ that are not considered to be a part of the Fund's principal investment strategies. Additional securities and techniques are described in the Fund's SAI.
Forward Foreign Currency Exchange Contracts
Contracts that attempt to eliminate currency exposure between the time of a securities transaction and settlement of that transaction. A forward foreign currency exchange contract is an agreement to buy or sell a country’s currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date.
Investment Companies
The Fund may invest in securities of other investment companies, including ETFs, if those companies invest in securities consistent with the Fund's investment objective and policies. ETFs are investment companies the shares of which are bought and sold on a securities exchange.
Securities Lending
To enhance the return on its portfolio, the Fund may lend portfolio securities to brokers, dealers, and financial institutions to realize additional income under guidelines adopted by the Board. Each loan will be secured continuously by collateral in the form of cash, securities issued by the U.S. government or its agencies or instrumentalities.
8
Risk Factors
The following provides additional information about the Fund's principal risks and supplements those risks discussed in the Fund’s Summary section of this Prospectus.
Currency Risk — Since foreign securities often are denominated and traded in foreign currencies, the value of the Fund’s assets may be affected favorably or unfavorably by currency exchange rates, currency exchange control regulations, foreign withholding or other taxes, and restrictions or prohibitions on the repatriation of foreign currencies. To attempt to protect against changes in currency exchange rates, a Fund may, but will not necessarily, engage in forward foreign currency exchange transactions (such as foreign currency forwards or futures contracts, and foreign currency options). The use of foreign currency exchange transactions to reduce foreign currency exposure can eliminate some or all of the benefit of an increase in the value of a foreign currency versus the U.S. dollar.
If the Fund purchases securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund’s assets and potentially the Fund’s income available for distribution. The values of foreign currencies relative to the U.S. dollar fluctuate in response to, among other factors, interest rate changes, intervention (or failure to intervene) by the U.S. or foreign governments, central banks, or supranational entities such as the International Monetary Fund; the imposition of currency controls; and political and regulatory developments in the United States or abroad. Officials in foreign countries may from time to time take actions in respect of their currencies, which could adversely affect the values of the Fund’s assets denominated in those currencies or the liquidity of such investments. Foreign currency values can decrease significantly both in the short term and over the long term in response to these and other developments.
Emerging Markets Risk — All of the risks associated with investing in foreign securities are increased in connection with investments in securities associated with emerging markets. Generally, emerging market countries are less diverse and mature than those of developed countries and their political systems are less stable. These countries are more likely to experience high levels of inflation, deflation or currency devaluation, which could also hurt their economies and securities markets. The risks of investing in these markets also include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting, financial and other reporting requirements, risk of loss resulting from problems in share registration and custody, and the nationalization of foreign deposits or assets. In addition, countries in emerging markets are more likely to experience instability in their markets due to social and political changes, as well as military interventions and war. Further, due to the smaller securities markets, lower trading volumes and less government regulation of securities markets in emerging market countries compared to those in developed countries, investments in emerging market securities generally are more illiquid and volatile and subject to a higher risk of settlement disruptions than investments in securities of issuers in developed countries. Consequently, emerging market securities may be subject to relatively more abrupt and severe price declines.
Equity Securities Risk — The market prices of equity securities, which may include common stocks and other stock-related securities such as preferred stocks may fluctuate, sometimes rapidly or unpredictably. The value of a security may decline for reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. Unlike debt securities, which have preference to a company’s assets in case of liquidation, equity securities are entitled to the residual value after the company meets its other obligations. The Fund may continue to accept new subscriptions and to make additional investments in equity securities even under general market conditions that the Fund’s investment
team views as unfavorable for equity securities.
9
Risk Factors
Foreign Securities Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
◼
Foreign Investments Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
◼
Political Risk — Foreign securities markets may be more volatile than their counterparts in the United States. Investments in foreign countries could be affected by factors not present in the United States, including expropriation, confiscation of property, and difficulties in enforcing contracts. Foreign settlement procedures may also involve additional risks, and foreign issuers can be impacted by changes to trade policies and trade disputes. These factors can make foreign investments more volatile than U.S. investments.
◼
Legal Risk — Legal remedies for investors in foreign countries may be more limited than the legal remedies available in the United States.
General Market Risk — Stock market risk refers to the fact that the prices of equity securities and other exchange traded investments typically fluctuate more than the values of debt and other types of securities, typically in response to changes in the particular company’s financial condition and factors affecting the market in general. Over time, the stock market tends to move in cycles, with periods when stock prices rise, and periods when stock prices decline. A slower-growth or recessionary economic environment could have an adverse effect on stock prices. Consequently, a broad-based market drop may also cause a stock’s price to fall. Portfolio securities may also decline in value due to factors affecting securities markets generally, such as real or perceived adverse economic, political, or regulatory conditions, inflation, changes in interest or currency rates or adverse investor sentiment, or due to factors affecting particular industries represented in the securities markets, such as competitive conditions. Changes in the financial condition of a single issuer can impact a market as a whole, and adverse market conditions may be prolonged and may not have the same impact on all types of securities. In addition, the markets may not favor a particular kind of security, including equity securities. Values of securities may fall due to factors affecting a particular issuer, industry, or the securities market as a whole.
Market turmoil may be reflected in perceptions of economic uncertainty, price volatility in the equity and debt markets, and fluctuating trading liquidity. In response, governments may adopt a variety of fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and changes in interest rates. These policies may not be
10
Risk Factors
successful and any unexpected or quick reversal of these policies could increase volatility in the equity and debt markets. Market conditions and economic risks could have a significant effect on domestic and international economies and could add significantly to the risks of increased volatility and decreased liquidity for the Fund's portfolio.
◼
Geopolitical/Natural Disaster Risk — Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, economic sanctions, currency controls or other actions by countries or international bodies, terrorism, trade disputes, embargoes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires, and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Epidemics and/or pandemics, such as COVID-19, may result in, among other things, closing borders, disruptions to health care service preparation and delivery, quarantines, cancellations, disruptions to supply chains and consumer activity, as well as general concern and uncertainty. The impact may last for extended periods.
◼
Information Technology and Operational Risk — Markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. The information technology and other operational systems upon which the Fund’s service providers rely may be subject to cyber-attack or other technological disruptions, and could otherwise disrupt the ability of these service providers to perform essential tasks for the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Geographic Focus Risk — The Fund may invest a substantial portion of its assets within one or more countries or geographic regions. When the Fund focuses its investments in a country or countries, it is particularly susceptible to the impact of market, economic, political, regulatory, and other factors affecting those countries. Additionally, the Fund’s performance may be more volatile when the Fund’s investments are focused in a country or countries.
Large-Capitalization Stock Risk — Large-sized companies tend to compete in mature product markets and typically do not experience the level of sustained growth of smaller companies and companies competing in less mature product markets. Large-capitalization companies may be unable to respond as quickly as smaller companies to competitive challenges or changes in business, product, financial, or other market conditions. For these and other reasons, a fund that invests in large-capitalization companies may underperform other stock funds (such as funds that focus on the stocks of small- and medium-capitalization companies) when stocks of large-capitalization companies are out of favor.
Liquidity Risk — Liquidity risk exists when particular investments cannot be disposed of quickly in the normal course of business. Market values for illiquid securities may not be readily available, and there can be no assurance that any fair value assigned to an illiquid investment at any time will accurately reflect the price the Fund might receive upon the sale of that investment. The ability of the Fund to dispose of illiquid securities or other instruments at advantageous prices may be greatly limited, and the Fund may have to continue to hold such securities or instruments during periods when the Adviser would otherwise have sold them (in order, for example, to meet redemption requests or to take advantage of other investment opportunities). Adverse market or economic conditions independent of
11
Risk Factors
any specific adverse changes in the conditions of a particular issuer, including rising interest rates, may adversely affect the liquidity of the Fund’s investments. Some securities held by the Fund may be restricted as to resale, and there is often no ready market for such securities. In addition, the Fund, by itself or together with other accounts managed by the Adviser, may hold a position in an investment that is large relative to the typical trading volume for that holding, which can make it difficult for the Fund to dispose of the position at an advantageous time or price. It may also be the case that other market participants may be attempting to liquidate a position at the same time as the Fund is attempting to liquidate the same investment, causing increased supply in the market, and contributing to liquidity risk and downward pricing pressure. In such cases the sale proceeds received by the Fund may be substantially less than if the Fund had been able to sell the securities in more-orderly transactions, and the sale price may be substantially lower than the price previously used by the Fund to value the securities for purposes of determining the Fund’s net asset value. On the whole, foreign exchanges are smaller and less liquid than U.S. exchanges.
Management Risk — The investment process used by the investment team may produce incorrect judgments about the value of a particular asset or the team may implement its investment strategy in a way that may not produce the desired results.
Sector Focus Risk — While the Fund reserves the right to dynamically allocate its assets across economic sectors, the Fund may make significant investments in one or more sectors, each of which entails associated risks. Additionally, the Fund’s performance may be more volatile when the Fund’s investments are focused in a particular sector.
◼
Financials Sector Risk — Companies in the financials sector are subject to extensive government regulation, which can limit both the amounts and types of loans and other financial commitments that companies in this sector can make, and the interest rates and fees that these companies can charge. Profitability can be largely dependent on the availability and cost of capital and the rate of corporate and consumer debt defaults, and can fluctuate significantly when interest rates change. Financial difficulties of borrowers can negatively affect the financials sector. Insurance companies can be subject to severe price competition. The financials sector can be subject to relatively rapid change as distinctions between financial service segments become increasingly blurred.
Smaller-Capitalization Stock Risk — Small- or mid-sized companies often have more limited managerial and financial resources than larger, more established companies and, therefore, may be more susceptible to market downturns or changing economic conditions. In addition, such companies may have been recently organized and have little or no track record of success. Also, the Adviser may not have had an opportunity to evaluate such newer companies’ performance in adverse or fluctuating market conditions. The securities of smaller-sized companies may trade less frequently and in smaller volume than more widely held securities. Prices of small- or mid-sized companies tend to be more volatile than those of larger companies and small- or mid-sized issuers may be subject to greater degrees of changes in their earnings and prospects. Since smaller-company stocks typically have narrower markets and are traded in lower volumes than larger-company stocks, they may be often more difficult to purchase and sell.
Additional Risk Factors. The Adviser may use several types of investment strategies in pursuing the Fund's overall investment objective. The following risks are those that the Adviser does not consider to be principal risks of the Fund. Additional risks are included in the Fund's SAI.
Forward Foreign Currency Exchange Contracts Risk — A forward foreign currency exchange contract is an agreement to exchange a specified amount of U.S. dollars for a specified amount of a foreign currency on a specific date in the future. The outcome of this transaction depends on changes in the relative values of the currencies subject to the transaction, the ability of the adviser to predict how the U.S. dollar will fare against the foreign currency, and the ability of the Fund’s counterparty to
12
Risk Factors
perform its obligation. The Fund may use these contracts to facilitate the settlement of portfolio transactions or to try to manage the risk of changes in currency exchange rates.
Investment Company Risk— The Fund’s ability to achieve its investment objective may be directly related to the ability of other investment companies (including ETFs) held by the Fund to meet their investment objectives. In addition, shareholders of the Fund will indirectly bear the fees and expenses of the underlying investment companies. Lack of liquidity in an ETF could result in an ETF being more
volatile than the underlying portfolio of securities.
13
Risk Factors
Securities Lending Risk — The risk in lending portfolio securities, as with other extensions of credit, consists of the possibility of loss to the Fund due to (1) the inability of the borrower to return the securities, (2) a delay in receiving additional collateral to adequately cover any fluctuations in the value of securities on loan, (3) a delay in recovery of the securities, or (4) the loss of rights in the collateral should the borrower fail financially. In addition, the Fund is responsible for any loss that might result from its investment of the borrower’s collateral. In determining whether to lend securities, the Adviser or the Fund’s securities lending agent will consider relevant facts and circumstances, including the creditworthiness of the borrower.
14
Organization and Management of the Fund
The Fund's Board has the overall responsibility for overseeing the management of the Fund. The Board monitors the services provided to contract owners.
The Investment Adviser
The Adviser serves as the investment adviser to each of the Victory Funds pursuant to an investment advisory agreement and oversees the operations of the Fund according to investment policies and procedures adopted by the Board. The Adviser is a New York corporation that is registered as an investment adviser with the Securities and Exchange Commission (“SEC”). As of March 31, 2025, the Adviser managed and advised assets totaling in excess of $167.5 billion for individual and institutional clients. The Adviser’s principal address is 15935 La Cantera Parkway, San Antonio, TX 78256.
A discussion regarding the basis of the Board’s approval of the Fund's Advisory Agreement is available in the Fund's most recent Form N-CSR for the period ended December 31.
The Adviser is a diversified global asset manager comprised of multiple investment teams, referred to as investment franchises, each of which utilizes an independent approach to investing. RS Investments, a Victory Capital investment franchise, is responsible for the day-to-day investment management of the Fund.
Advisory fees to be paid annually, before waivers, will be equal to an annual rate of 0.80% of the average daily net assets of the Fund.
See “Fund Fees and Expenses” for information about any contractual agreement by the Adviser to waive fees and/or reimburse expenses with respect to the Fund. From time to time, the Adviser also may voluntarily waive fees and/or reimburse expenses in amounts exceeding those required to be waived or reimbursed under any contractual agreement that may be in place with respect to the Fund.
Portfolio Management
U-Wen Kok is the Chief Investment Officer of the RS Investments Global team and has been the portfolio manager of the Fund (including its predecessor fund) since 2013. Ms. Kok holds a B.A. in Economics & Political Science from the University of Toronto. Ms. Kok is a CFA charterholder.
Adam Mezan has been a member of the RS Investments Global team since 2014 and has been a portfolio manager of the Fund since 2018. Mr. Mezan holds a B.A. in History from Duke University and an MBA from the University of Chicago. Mr. Mezan is a CFA charterholder.
The Fund's SAI provides additional information about the portfolio managers' method of compensation, other accounts they manage, and any ownership interests they may have in the Fund.
15
Investing in the Fund
The Fund is designed as an investment exclusively for contracts that are offered by the separate accounts of participating insurance companies. The participating insurance company will buy and redeem shares according to your instructions, as provided in the contract, and will redeem shares as needed to provide benefits under the contract.
Shares of the Fund may be offered in the future to other separate accounts established by other insurance companies, and they may fund both variable annuity contracts and variable life insurance policies offered by the same or affiliated insurance companies. For additional information about possible conflicts of interest between owners of variable annuity contracts and variable life insurance policies or between owners of variable contracts issued by insurance companies that are not affiliated with the Fund, see the section in this Prospectus titled Other Information About the Fund.
16
Share Price
The Fund calculates its share price, called its net asset value (“NAV”), each business day as of the close of regular trading on the New York Stock Exchange, Inc. (“NYSE”), which is normally 4:00 p.m. Eastern Time. In the event of an emergency or other disruption in trading on the NYSE, the Fund’s share price will be determined based upon the close of the NYSE. You may buy, exchange, and sell your shares on any business day at a price that is based on the NAV that is next calculated after you place your order. A business day is a day on which the NYSE is open. The NYSE is closed on weekends, most national holidays, and Good Friday.
To the extent the Fund’s investments include securities that are traded primarily in foreign markets, the value of those securities may change on days when shareholders are unable to purchase and redeem the Fund’s shares, such as on weekends or other days when the Fund does not price its shares.
The Fund prices its investments based on market value when market quotations are readily available. When these quotations are not readily available, the Adviser will price the Fund’s investments at fair value in accordance with applicable regulatory requirements. The Fund will fair value a security when:
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Trading in the security has been halted;
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The market quotation for the security is clearly erroneous due to a clerical error;
◼
The security’s liquidity decreases such that, in the Adviser’s opinion, the market quotation has become stale; or
◼
An event occurs after the close of the trading market (but before the Fund’s NAV is calculated) that, in the Adviser’s opinion, materially affects the value of the security.
The use of fair value pricing may minimize arbitrage opportunities that attempt to exploit the differences between a security’s market quotation and its fair value. The use of fair value pricing may not, however, always reflect a security’s actual market value in light of subsequent relevant information, and the security’s opening price on the next trading day may be different from the fair value price assigned to the security.
The Fund calculates its NAV per share by adding up the total value of its investments and other assets, subtracting its liabilities, and then dividing that figure by the number of its outstanding shares.
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NAV= |
Total Assets – Liabilities |
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Number of Shares Outstanding |
17
How to Buy Shares
Opening an Account
You cannot buy shares of the Fund directly, but only as an investment option through variable annuity contracts or variable life insurance policies (together, the “contracts”) that are offered by the separate accounts of certain life insurance companies (“participating insurance companies”). You are encouraged to read this Prospectus in conjunction with the accompanying separate account prospectus. Please refer to the separate account prospectus for information on how the participating insurance company buys and redeems shares.
Purchasing Shares
Orders to buy shares of the Fund are placed by the participating insurance company based upon instructions you provide to the participating insurance company. The Fund’s transfer agent processes orders to buy shares of the Fund at its NAV next computed after the order is received in good order, which means that your request contains all the required documentation, and that all documents contain required signatures or signature guarantees from a financial institution. The value of your contract’s investment in the Fund also will be based upon premium payments, surrender and transfer requests, and any other transaction requests from contract owners, annuitants, and beneficiaries. In order to calculate the value of your investment, you would have to determine the number of contract units you own along with the “accrued unit value” of your contract.
Share Classes
The Fund currently offers only Class I shares as described in this Prospectus. At some future date, the Fund may offer additional classes of shares. The Fund or any class may be closed at any time for failure to achieve an economical level of assets or for other reasons.
18
How to Sell Shares
Redemptions
Shares of the Fund may be redeemed by instructing your participating insurance company to terminate your contract’s investment in the Fund. Please refer to the instructions provided in the separate account prospectus. The separate account may redeem shares on any business day at the NAV that is next calculated after the order is placed.
The Fund may suspend your right to redeem your shares in the following circumstances:
◼
During non-routine closings of the NYSE;
◼
When the SEC determines either that trading on the NYSE is restricted or that an emergency prevents the sale or valuation of the Fund’s securities; or
◼
When the SEC orders a suspension to protect the Fund’s shareholders.
The Fund typically uses cash and cash equivalents held in its portfolio or sells portfolio assets to meet redemption requests. In unusual circumstances or under stressed market conditions, the Fund may use other methods to raise cash to meet redemption requests. For example, the Fund may draw funds from a line of credit or borrow available cash held by other Victory Funds under an “interfund lending program” in reliance on an exemptive order from the SEC.
19
Distributions and Taxes
The Fund expects to distribute substantially all of its ordinary income and capital gains each year. Ordinarily, the Fund declares and pays dividends from its net investment income annually. However, the Fund may not always pay a dividend or distribution for a given period. Capital gains distributions, if any, from the Fund will be made annually. In addition, the Fund may occasionally be required to make supplemental dividend or capital gains distributions at some other time during the year.
All dividend and capital gains distributions made by the Fund will be reinvested automatically in additional shares of the Fund.
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The tax status of your insurance company separate account’s investment in the Fund depends upon the
features of your contract. For further information, please refer to the separate account prospectus. |
Important Information About Taxes
The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”), so that it will not be subject to U.S. federal income tax on its net earnings and net capital gains that are distributed to its shareholders. In addition, the Fund intends to comply with the diversification requirements of the Code and Treasury Regulations applicable to segregated asset accounts underlying variable annuity contracts or variable life insurance policies (referred to as “variable contracts”) so that the holders of the contracts receive tax-deferred treatment generally afforded holders of annuities or life insurance policies under the Code.
◼
If a regulated investment company satisfies certain conditions, the regulated investment company will not be treated as a single investment of a segregated asset account for purposes of determining whether the account is adequately diversified, but rather the segregated asset account will be treated as owning its proportionate share of each of the assets of the regulated investment company. The Fund intends to satisfy these conditions so that the segregated asset account will be treated as owning its proportionate share of the Fund’s assets for such purposes.
◼
The Code requires that a segregated asset account underlying a variable contract must be “adequately diversified” in order for the contract to be treated as an annuity or life insurance contract for tax purposes. A segregated asset account invested in the Fund is intended to be treated as owning its proportionate share of the Fund’s assets for purposes of determining whether the account is adequately diversified. If a segregated asset account underlying a contract were not in compliance with these diversification requirements at the end of any calendar quarter, the contract would not be eligible to be treated as an annuity or life insurance contract under the Code for such period and any subsequent period and the contract holder would not be eligible for tax-deferred treatment. See the section titled “TAXES” in the SAI for additional requirements for tax-deferred treatment and other tax considerations.
◼
Investment income received by the Fund from investments in foreign countries may be subject to foreign withholding and other taxes. In that case, the Fund’s yield on those securities would be decreased. While contract owners will bear the cost of any foreign tax withholding, they will not be able to claim a foreign tax credit or deduction for taxes paid by the Fund.
◼
This discussion of U.S. federal income tax consequences is based on tax laws and regulations in effect as of the date of this Prospectus, and may change as a result of legislative, administrative, or judicial action. As this discussion is for general information only, you also should review the more detailed discussion of U.S. federal income tax considerations that is contained in the separate account prospectus and the SAI.
|
You should consult with your own tax adviser regarding the tax consequences of your investment
in the separate account, including the application of state and local taxes, which may differ
from the federal income tax consequences described. |
20
Important Fund Policies
Market Timing
The Fund discourages and does not accommodate frequent purchases and redemptions of Fund shares (“market timing”). We will uniformly deny any request to purchase shares if we believe that the transaction is part of a market timing strategy. In identifying market timing activity, we consider, among other things, the frequency of your trades, even when the trades are combined with those of other investors or shareholders.
Market timing allows investors to take advantage of market inefficiencies, sometimes to the disadvantage of other shareholders. Market timing increases Fund expenses to all shareholders as a result of increased portfolio turnover. In addition, market timing could potentially dilute share value for all other shareholders by requiring the Fund to hold more cash than it normally would.
The Fund’s Board has adopted policies and procedures with respect to market timing. In order to prevent or minimize market timing, the Fund will employ “fair value” pricing, as described in this Prospectus under “Share Price,” to minimize the discrepancies between a security’s market quotation and its perceived market value, which often gives rise to market timing activity.
Because the Fund’s shares are held exclusively by insurance company separate accounts, rather than directly by the individual contract owners of the separate accounts, the Fund is not able to determine directly whether a separate account’s purchase or sale of the Fund’s shares on any given day represents transactions by a single investor or multiple investors. It also is not able to determine directly whether multiple purchases and sales by a separate account over any given period represent the activity of the same or of different investors.
However, the Fund may request that an insurance company cooperate in monitoring transactions to detect potential market timing. There can be no assurance that an insurance company will cooperate in precluding an investor from further purchases of Fund shares. Consistent with applicable laws and agreements, the Fund may stop selling its shares to a separate account to prevent market timing.
Portfolio Holdings Disclosure
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI, which is available upon request and on the Fund’s website at VictoryFunds.com.
Performance
The Victory Funds may advertise the performance of the Fund by comparing it to other mutual funds with similar objectives and policies. Performance information also may appear in various publications. Any fees charged by Investment Professionals may not be reflected in these performance calculations.
Advertising information may include the average annual total return of the Fund calculated on a compounded basis for specified periods of time. Total return information will be calculated according to rules established by the SEC. Such information may include performance rankings and similar information from independent organizations and publications.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more shareholders with the same last name reside, the Fund may send only one copy of any shareholder reports, proxy statements, prospectuses and their supplements, unless you have instructed us to the contrary. You may request that the Fund send these documents to each shareholder individually by calling your participating insurance company.
21
Other Information About the Fund
The Fund issues and sells its shares to separate accounts of insurance companies including those of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) (the “Separate Accounts”) and to affiliates of such insurance companies. The Separate Accounts hold shares of mutual funds, including the Fund, that fund benefits under variable annuity contracts or variable life insurance policies issued by insurance companies including those of GIAC (either, a “Variable Contract”). With respect to matters to be voted on by shareholders of the Fund, GIAC, or other insurance company, as the owner of the assets held in the Separate Accounts, and the affiliates of GIAC or such other insurance company are the shareholders of the Fund and are entitled to vote their shares of the Fund.
GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus. GIAC has informed the Fund that it will vote outstanding shares of the Fund in accordance with instructions received from the owners of the Variable Contracts, which have some or all of the contract or policy value invested in the Fund. GIAC will vote the Fund’s shares attributable to Variable Contracts for which it does not receive voting instructions in the same proportion as the shares for which it does receive voting instructions. GIAC and its affiliates also will vote the Fund’s shares that they own directly due to their contributions or accumulations in the Separate Accounts through which GIAC offers Variable Contracts in proportion to the shares for which GIAC receives timely voting instructions. As a result of the proportional voting described here, a small number of contract owners may determine the outcome of a shareholder vote.
For a shareholder meeting to go forward with respect to the Fund, there must be a quorum. This means that at least one-third of the Fund’s shares outstanding and entitled to vote on the proposal must be represented at a meeting either in person or by proxy. Because GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus, their presence at a meeting in person or by proxy will meet the quorum requirement for the Fund.
The Fund does not currently foresee any disadvantages to contract owners arising from the fact that the Fund offers shares to both variable annuity contract and variable life insurance policy separate accounts. The Board monitors events to ensure that there are no material irreconcilable differences between or among contract owners. If such a conflict should arise, one or more separate accounts may withdraw their investments in the Fund. This could possibly force the Fund to sell portfolio securities at disadvantageous prices.
If circumstances make it necessary to create separate portfolios for variable annuity and variable life insurance separate accounts, GIAC or another insurance company that offers the Fund will bear the expenses involved in setting up the new portfolios. However, the ongoing expenses contract owners ultimately pay would likely increase because of the loss of economies of scale provided by the current arrangement.
While this Prospectus and the SAI describe pertinent information about the Victory Variable Insurance Funds (the “Trust”) and the Fund, neither the Prospectus nor the SAI represents a contract between the Trust or the Fund and any shareholder or any other party.
22
Financial Highlights
The following financial highlights tables reflect historical information about shares of the Fund and is intended to help you understand the Fund's financial performance for the past five years. Certain information shows the results of an investment in one share of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts. If these charges were reflected, returns would be lower than those shown.
The information presented has been audited by Cohen & Company, Ltd., the Fund's independent registered public accounting firm, whose report, along with the Fund's financial statements, are included in the Fund's most recent N-CSR filing to shareholders, which is available upon request.
23
Victory RS International VIP Series
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Class I | ||||
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For a Share Outstanding Throughout Each
Period |
Year
Ended
12/31/24 |
Year
Ended
12/31/23 |
Year
Ended
12/31/22 |
Year
Ended
12/31/21 |
Year
Ended
12/31/20 |
|
Net Asset Value, Beginning of Period |
$17.05 |
$14.59 |
$19.33 |
$17.60 |
$17.48 |
|
Investment Activities: |
|
|
|
|
|
|
Net investment income (loss)(a) |
0.38 |
0.32 |
0.44 |
0.39 |
0.32 |
|
Net realized and unrealized gains (losses) |
0.56 |
2.60 |
(3.46) |
2.13 |
0.75 |
|
Total from Investment Activities |
0.94 |
2.92 |
(3.02) |
2.52 |
1.07 |
|
Distributions to Shareholders from: |
|
|
|
|
|
|
Net investment income |
(0.55) |
(0.46) |
(0.42) |
(0.37) |
(0.45) |
|
Net realized gains |
— |
— |
(1.30) |
(0.42) |
(0.50) |
|
Total Distributions |
(0.55) |
(0.46) |
(1.72) |
(0.79) |
(0.95) |
|
Net Asset Value, End of Period |
$17.44 |
$17.05 |
$14.59 |
$19.33 |
$17.60 |
|
Total Return(b),(c) |
5.50% |
20.02% |
(15.81)% |
14.37% |
6.24% |
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
Net Expenses(d) |
0.93% |
0.93% |
0.93% |
0.93% |
0.93% |
|
Net Investment Income (Loss) |
2.09% |
2.01% |
2.71% |
2.02% |
2.02% |
|
Gross Expenses(d) |
1.09% |
1.10% |
1.10% |
1.01% |
0.98% |
|
Supplemental Data: |
|
|
|
|
|
|
Net Assets at end of period (000's) |
$105,509 |
$119,444 |
$114,272 |
$150,255 |
$147,783 |
|
Portfolio Turnover |
20% |
23% |
27% |
35% |
54% |
(a)
Per share net investment income (loss) has been calculated using the average daily shares method.
(b)
Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. Generally Accepted Accounting Principles and could differ from the reported return.
(c)
Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(d)
Does not include acquired fund fees and expenses, if any.
24
VVIF-RS-IVIP-PRO (05/25)
By mail:
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
P.O. Box 182593
Columbus, OH 43218-2593
Columbus, OH 43218-2593
Statement of Additional Information (SAI): The Fund’s Statement of Additional Information (“SAI”), dated May 1, 2025, as revised from time to time, contains more information about the Fund's operations, investment restrictions, policies, and practices. The SAI is incorporated by reference into this Prospectus, which means that it is legally part of this Prospectus, even if you do not request a copy.
Annual/ Semi Annual Reports and Form N-CSR/Form N-CSRS: Annual and semi annual reports contain more information about the Fund's investments and the market conditions and investment strategies that significantly affected the Fund's performance during the most recent fiscal period. The Fund’s Form N-CSR and Form N-CSRS filings contain the Fund’s annual and semi annual financial statements. The financial statements included in the Fund's Form N-CSR for the fiscal year ended December 31, 2024, are incorporated by reference into this Prospectus.
How to Obtain Information: You may obtain a free copy of the SAI, annual and semi annual reports and other information such as Fund financial statements, or make shareholder inquiries by calling or writing to your participating insurance company at the toll-free number or address listed in the separate account prospectus. Some of the information described herein, including the SAI, annual and semi annual reports and other information such as Fund financial statements, and periodic disclosure of portfolio holdings, are available, free of charge, at VictoryFunds.com.
By telephone:
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
You also can get information about the Fund (including the SAI, other reports, and other information such as Fund financial statements) from the Securities and Exchange Commission (SEC) on the SEC's Edgar database at sec.gov or, after paying a duplicating fee, by electronic request sent to the following e-mail address: [email protected].
Investment Company Act File Number 811-08979
May 1, 2025
Prospectus
|
Victory RS Small Cap Growth Equity VIP Series | ||||||
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Class I |
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Shares are currently offered to insurance company separate accounts funding certain variable annuity contracts and variable life insurance policies issued by life insurance companies. For more information, call your participating insurance company.
The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
vcm.com
800-539-FUND (800-539-3863)
800-539-FUND (800-539-3863)
(fees paid directly from your investment)
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Class I |
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Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) |
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Maximum Deferred Sales Charge (Load)
(as a percentage of the lower of purchase or sale price) |
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(expenses that you pay each year as a percentage of the value of your investment)
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Management Fees |
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Distribution and/or Service (12b-1) Fees |
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Other Expenses |
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Total Annual Fund Operating Expenses |
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Fee Waiver/Expense Reimbursement1
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( |
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Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
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1
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1 Year |
3 Years |
5 Years |
10 Years |
|
Class I |
$ |
$ |
$ |
$ |
1
Victory RS Small Cap Growth Equity VIP Series Summary
2
Victory RS Small Cap Growth Equity VIP Series Summary
3
Victory RS Small Cap Growth Equity VIP Series Summary
4
Victory RS Small Cap Growth Equity VIP Series Summary
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1 Year |
5 Years |
10 Years |
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CLASS I |
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Indices |
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Russell 3000® Index
reflects no deduction for fees, expenses, or taxes |
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Russell 2000® Growth Index
reflects no deduction for fees, expenses, or taxes |
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Russell 2000® Index
reflects no deduction for fees, expenses, or taxes |
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5
Victory RS Small Cap Growth Equity VIP Series Summary
Management of the Fund
Investment Adviser
Victory Capital Management Inc. (the “Adviser”) serves as the Fund’s investment adviser. The portfolio managers jointly and primarily responsible for day-to-day management of the Fund are members of the Adviser's RS Investments investment franchise.
Portfolio Management
|
|
Title |
Tenure with the Fund |
|
D. Scott Tracy, CFA |
Chief Investment Officer |
Since 2009 |
|
Stephen J. Bishop |
Portfolio Manager |
Since 2009 |
|
Melissa Chadwick-Dunn |
Portfolio Manager |
Since 2009 |
|
Paul Leung, CFA |
Portfolio Manager |
Since 2018 |
|
Trevor Martin, CFA |
Portfolio Manager |
Since 2024 |
Purchase and Sale of Fund Shares
Shares of the Fund are currently offered to certain separate accounts to fund variable annuity contracts and variable life insurance policies issued by insurance companies. Shares of the Fund are not offered directly to the public and investors cannot place orders to purchase or sell shares with the Fund directly. Please refer to the separate account prospectus for information on how to manage your investment options in the Fund and any fees that may apply.
Tax Information
Since the Fund is only offered for investment through variable annuity contracts and variable life insurance policies, the Fund’s distributions are not expected to be taxable to holders of such contracts. Holders of such contracts may be taxed later upon withdrawals of monies from those arrangements.
Payments to Insurance Companies
The Fund, through its distributor, may pay fees for activities primarily intended to result in the sale of Fund shares to insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. These payments may create a conflict of interest by influencing insurance companies to include the Fund as an underlying investment option in its variable insurance products. Ask your variable products salesperson or visit the insurance company’s website for more information.
6
Additional Fund Information
The Victory RS Small Cap Growth Equity VIP Series (the “Fund”) is managed by the Adviser, who also manages other funds, each having distinct investment management objectives, strategies, risks, and policies.
The Fund’s investment objective is non-fundamental. In addition, the Fund’s policy to invest at least 80% of its assets in small-capitalization companies is non-fundamental and may be changed by the Board of Trustees (the “Board”) without shareholder approval upon at least 60 days’ prior written notice to shareholders. For purposes of the Fund’s 80% investment policy, “assets” means the Fund’s net assets plus the amount of any borrowings for investment purposes, exclusive of collateral held from securities lending.
The following section describes additional information about the principal investment strategy the Fund will use under normal market conditions to pursue its investment objective, as well as any secondary strategies the Fund may use, and the related risks. This Prospectus does not attempt to describe all of the various investment techniques and types of investments that the Adviser may use in managing the Fund. The Statement of Additional Information (“SAI”) includes more information about the Fund, its investments, and the related risks.
Under adverse, unstable, or abnormal market conditions, the Fund may be unable to pursue or achieve its investment objective and, for temporary purposes, may invest some or all of its assets in a variety of instruments or assets, including high-quality fixed-income securities, cash, and cash equivalents. For cash management purposes, the Fund may hold all or a portion of its assets in cash, short-term money market instruments, or shares of other investment companies. This may reduce the benefit from any upswing in the market, cause the Fund to fail to meet its investment objective, and increase the Fund's expenses.
7
Investments
The following describes the types of securities the Fund may purchase under normal market conditions to achieve its principal investment strategy. The Fund will not necessarily buy all of the securities listed below.
U.S. Equity Securities
Can include common stock, preferred stock, and securities that are convertible or exchangeable into common stock of U.S. corporations.
Foreign Securities
Can include common stock and convertible preferred stock of non-U.S. companies. Also may include American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”), which are receipts issued by a bank or trust company and evidence ownership of underlying securities issued by foreign companies, and exchange-traded funds (“ETFs”) that invest in foreign companies.
Additional Fund Strategies. The Adviser may use other types of investment strategies in pursuing the Fund's overall investment objective. The following describes the types of securities or techniques that the Adviser may purchase or investment techniques the Adviser may employ that are not considered to be a part of the Fund's principal investment strategies. Additional securities and techniques are described in the Fund's SAI.
Initial Public Offerings (“IPOs”)
The Fund may at times have the opportunity to invest in securities offered in IPOs. If the Fund’s portfolio manager believes that a particular IPO is very likely to increase in value immediately after the initial offering, it is possible (although it will not necessarily be the case) that the Fund will invest in the IPO, even if the security is one in which the Fund might not typically otherwise invest. It is possible, however, that the Fund will lose money on an investment in an IPO, even in such a case.
Investment Companies
The Fund may invest in securities of other investment companies, including ETFs, if those companies invest in securities consistent with the Fund's investment objective and policies. ETFs are investment companies the shares of which are bought and sold on a securities exchange.
Securities Lending
To enhance the return on its portfolio, the Fund may lend portfolio securities to brokers, dealers, and financial institutions to realize additional income under guidelines adopted by the Board. Each loan will be secured continuously by collateral in the form of cash, securities issued by the U.S. government or its agencies or instrumentalities.
8
Risk Factors
The following provides additional information about the Fund's principal risks and supplements those risks discussed in the Fund’s Summary section of this Prospectus.
Equity Securities Risk — The market prices of equity securities, which may include common stocks and other stock-related securities such as preferred stocks may fluctuate, sometimes rapidly or unpredictably. The value of a security may decline for reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. Unlike debt securities, which have preference to a company’s assets in case of liquidation, equity securities are entitled to the residual value after the company meets its other obligations. The Fund may continue to accept new subscriptions and to make additional investments in equity securities even under general market conditions that the Fund’s investment team views as unfavorable for equity securities.
Foreign Securities Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
◼
Foreign Investments Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
◼
Political Risk — Foreign securities markets may be more volatile than their counterparts in the United States. Investments in foreign countries could be affected by factors not present in the United States, including expropriation, confiscation of property, and difficulties in enforcing contracts. Foreign settlement procedures may also involve additional risks, and foreign issuers can be impacted by changes to trade policies and trade disputes. These factors can make foreign investments more volatile than U.S. investments.
◼
Currency Risk — Fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates, currency exchange control regulations, and restrictions or prohibitions on the repatriation of foreign currencies may erode or reverse any gains produced by investments denominated in foreign currencies and may widen any losses.
◼
Legal Risk — Legal remedies for investors in foreign countries may be more limited than the legal remedies available in the United States.
9
Risk Factors
General Market Risk — Stock market risk refers to the fact that the prices of equity securities and other exchange traded investments typically fluctuate more than the values of debt and other types of securities, typically in response to changes in the particular company’s financial condition and factors affecting the market in general. Over time, the stock market tends to move in cycles, with periods when stock prices rise, and periods when stock prices decline. A slower-growth or recessionary economic environment could have an adverse effect on stock prices. Consequently, a broad-based market drop may also cause a stock’s price to fall. Portfolio securities may also decline in value due to factors affecting securities markets generally, such as real or perceived adverse economic, political, or regulatory conditions, inflation, changes in interest or currency rates or adverse investor sentiment, or due to factors affecting particular industries represented in the securities markets, such as competitive conditions. Changes in the financial condition of a single issuer can impact a market as a whole, and adverse market conditions may be prolonged and may not have the same impact on all types of securities. In addition, the markets may not favor a particular kind of security, including equity securities. Values of securities may fall due to factors affecting a particular issuer, industry, or the securities market as a whole.
Market turmoil may be reflected in perceptions of economic uncertainty, price volatility in the equity and debt markets, and fluctuating trading liquidity. In response, governments may adopt a variety of fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and changes in interest rates. These policies may not be successful and any unexpected or quick reversal of these policies could increase volatility in the equity and debt markets. Market conditions and economic risks could have a significant effect on domestic and international economies and could add significantly to the risks of increased volatility and decreased liquidity for the Fund's portfolio.
◼
Geopolitical/Natural Disaster Risk — Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, economic sanctions, currency controls or other actions by countries or international bodies, terrorism, trade disputes, embargoes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires, and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Epidemics and/or pandemics, such as COVID-19, may result in, among other things, closing borders, disruptions to health care service preparation and delivery, quarantines, cancellations, disruptions to supply chains and consumer activity, as well as general concern and uncertainty. The impact may last for extended periods.
◼
Information Technology and Operational Risk — Markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. The information technology and other operational systems upon which the Fund’s service providers rely may be subject to cyber-attack or other technological disruptions, and could otherwise disrupt the ability of these service providers to perform essential tasks for the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
10
Risk Factors
Investment Style Risk — Different types of investment styles, for example growth or value, tend to perform differently and shift into and out of favor with investors depending on changes in market and economic sentiment and conditions. “Growth” investments, as a category, or entire industries or sectors associated with such investments, may lose favor with investors as compared to those that are more “value” oriented. As a result, the Fund's performance may at times be worse than the performance of other mutual funds that invest more broadly or that have different investment styles.
Liquidity Risk — Liquidity risk exists when particular investments cannot be disposed of quickly in the normal course of business. Market values for illiquid securities may not be readily available, and there can be no assurance that any fair value assigned to an illiquid investment at any time will accurately reflect the price the Fund might receive upon the sale of that investment. The ability of the Fund to dispose of illiquid securities or other instruments at advantageous prices may be greatly limited, and the Fund may have to continue to hold such securities or instruments during periods when the Adviser would otherwise have sold them (in order, for example, to meet redemption requests or to take advantage of other investment opportunities). Adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer, including rising interest rates, may adversely affect the liquidity of the Fund’s investments. Some securities held by the Fund may be restricted as to resale, and there is often no ready market for such securities. In addition, the Fund, by itself or together with other accounts managed by the Adviser, may hold a position in an investment that is large relative to the typical trading volume for that holding, which can make it difficult for the Fund to dispose of the position at an advantageous time or price. It may also be the case that other market participants may be attempting to liquidate a position at the same time as the Fund is attempting to liquidate the same investment, causing increased supply in the market, and contributing to liquidity risk and downward pricing pressure. In such cases the sale proceeds received by the Fund may be substantially less than if the Fund had been able to sell the securities in more-orderly transactions, and the sale price may be substantially lower than the price previously used by the Fund to value the securities for purposes of determining the Fund’s net asset value. On the whole, foreign exchanges are smaller and less liquid than U.S. exchanges.
Management Risk — The investment process used by the investment team may produce incorrect judgments about the value of a particular asset or the team may implement its investment strategy in a way that may not produce the desired results.
Portfolio Turnover Risk — Portfolio turnover generally involves a number of direct and indirect costs and expenses to the Fund, including, for example, dealer mark-ups and bid/asked spreads and transaction costs on the sale of securities and reinvestment in other securities. Such costs are not reflected in the Fund's Total Annual Fund Operating Expenses set forth under “Fund Fees and Expenses” but do have the effect of reducing the Fund's investment return. Such sales may result in the realization of taxable capital gains, including short-term capital gains, which generally are taxed to shareholders at ordinary income tax rates.
Sector Focus Risk — While the Fund reserves the right to dynamically allocate its assets across economic sectors, the Fund may make significant investments in one or more sectors, each of which entails associated risks. Additionally, the Fund’s performance may be more volatile when the Fund’s investments are focused in a particular sector.
◼
Health Care Sector Risk — To the extent the Fund focuses on the health care sector, the Fund may be more susceptible to the particular risks that may affect companies in the health care sector than if it were invested in a wider variety of companies in unrelated sectors. The profitability of companies in the health care sector may be adversely affected by the following factors, among others: extensive government regulations, restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure, an increased emphasis on outpatient services, changes in the demand for medical products and services, a limited number of products, industry innovation, changes in
11
Risk Factors
technologies and other market developments. A number of issuers in the health care sector have recently merged or otherwise experienced consolidation. The effects of this trend toward consolidation are unknown and may be far-reaching. Many health care companies are heavily dependent on patent protection. The expiration of a company's patents may adversely affect that company's profitability. Many health care companies are subject to extensive litigation based on product liability and similar claims. Health care companies are subject to competitive forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the health care sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly, and such efforts ultimately may be unsuccessful. Companies in the health care sector may be thinly capitalized and may be susceptible to product obsolescence. In addition, a number of legislative proposals concerning health care have been considered by the U.S. Congress in recent years. It is unclear what proposals will ultimately be enacted, if any, and what effect they may have on companies in the health care sector.
◼
Industrials Sector Risk — Stock prices of issuers in the industrials sector are affected by supply and demand both for their specific product or service and for industrials sector products in general. Government regulation, world events and economic conditions will also affect the performance of investments in such issuers. Aerospace and defense companies, a component of the industrials sector, can be significantly affected by government spending policies because companies involved in this industry rely to a significant extent on U.S. and other government demand for their products and services. Thus, the financial condition of, and investor interest in, aerospace and defense companies are heavily influenced by government defense spending policies, which typically are under pressure from efforts to control government spending budgets. Transportation companies, another component of the industrials sector, are subject to cyclical performance and, therefore, investment in such companies may experience occasional sharp price movements which may result from changes in the economy, fuel prices, labor agreements, and insurance costs.
◼
Information Technology Sector Risk — Information technology companies tend to significantly rely on technological events or advances in their product development, production, or operations and are particularly vulnerable to rapid changes in technological product cycles, government regulation, and competition. Information technology companies may be smaller and less experienced companies, with limited product lines, markets, or financial resources and fewer experienced management or marketing personnel. Information technology company stocks, especially those which are internet-related, have experienced extreme price and volume fluctuations that are often unrelated to their operating performance.
Small-Capitalization Stock Risk — A small-sized company may be adversely affected by or fail as a result of its small size. Smaller companies are more likely than larger companies to have limited product lines, markets, or financial resources, or to depend on a small, inexperienced management group. Stocks of these companies often trade less frequently and in limited volume, and their prices may fluctuate more than stocks of larger companies. Stocks of small companies may, therefore, be
more vulnerable to adverse developments than those of larger companies.
12
Risk Factors
Additional Risk Factors. The Adviser may use several types of investment strategies in pursuing the Fund's overall investment objective. The following risks are those that the Adviser does not consider to be principal risks of the Fund. Additional risks are included in the Fund's SAI.
IPO Risk — Investments in IPOs may result in increased transaction costs and expenses and the realization of short-term capital gains and distributions. In addition, in the period immediately following an IPO, investments may be subject to more extreme price volatility than that of other equity investments. The Fund may lose all or part of its investment if the companies making their IPOs fail and their product lines fail to achieve an adequate level of market recognition or acceptance. IPOs may not be available to the Fund at all times, and the Fund may not always invest in IPOs offered to it. Investments in IPOs may have a substantial beneficial effect on the Fund’s investment performance. The Fund's investment return earned during a period of substantial investment in IPOs may not be sustained during other periods when the Fund makes more limited, or no, investments in IPOs.
Investment Company Risk— The Fund’s ability to achieve its investment objective may be directly related to the ability of other investment companies (including ETFs) held by the Fund to meet their investment objectives. In addition, shareholders of the Fund will indirectly bear the fees and expenses of the underlying investment companies. Lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Securities Lending Risk — The risk in lending portfolio securities, as with other extensions of credit, consists of the possibility of loss to the Fund due to (1) the inability of the borrower to return the securities, (2) a delay in receiving additional collateral to adequately cover any fluctuations in the value of securities on loan, (3) a delay in recovery of the securities, or (4) the loss of rights in the collateral should the borrower fail financially. In addition, the Fund is responsible for any loss that might result from its investment of the borrower’s collateral. In determining whether to lend securities, the Adviser or the Fund’s securities lending agent will consider relevant facts and circumstances, including the creditworthiness of the borrower.
13
Organization and Management of the Fund
The Fund's Board has the overall responsibility for overseeing the management of the Fund. The Board monitors the services provided to contract owners.
The Investment Adviser
The Adviser serves as the investment adviser to each of the Victory Funds pursuant to an investment advisory agreement and oversees the operations of the Fund according to investment policies and procedures adopted by the Board. The Adviser is a New York corporation that is registered as an investment adviser with the Securities and Exchange Commission (“SEC”). As of March 31, 2025, the Adviser managed and advised assets totaling in excess of $167.5 billion for individual and institutional clients. The Adviser’s principal address is 15935 La Cantera Parkway, San Antonio, TX 78256.
A discussion regarding the basis of the Board’s approval of the Fund's Advisory Agreement is available in the Fund's most recent Form N-CSR for the period ended December 31.
The Adviser is a diversified global asset manager comprised of multiple investment teams, referred to as investment franchises, each of which utilizes an independent approach to investing. RS Investments, a Victory Capital investment franchise, is responsible for the day-to-day investment management of the Fund.
Advisory fees to be paid annually, before waivers, will be equal to an annual rate of 0.75% of the average daily net assets of the Fund.
See “Fund Fees and Expenses” for information about any contractual agreement by the Adviser to waive fees and/or reimburse expenses with respect to the Fund. From time to time, the Adviser also may voluntarily waive fees and/or reimburse expenses in amounts exceeding those required to be waived or reimbursed under any contractual agreement that may be in place with respect to the Fund.
Portfolio Management
D. Scott Tracy is the Chief Investment Officer of the RS Investments Growth team and has been a co-portfolio manager and analyst of the Fund (including its predecessor fund) since 2009. Mr. Tracy is a CFA charterholder.
Stephen J. Bishop is a member of the RS Investments Growth team and has been a co-portfolio manager and analyst of the Fund (including its predecessor fund) since 2009.
Melissa Chadwick-Dunn is a member of the RS Investments Growth team and has been a co-portfolio manager and analyst of the Fund (including its predecessor fund) since 2009.
Paul Leung has been a co-portfolio manager of the Fund since May 2018. Mr. Leung has been an analyst with the RS Investments Growth team since 2012. Mr. Leung is a CFA charterholder.
Trevor Martin has been a member of the RS Investments Growth team since 2014 and a co-portfolio manager of Victory RS Small Cap Growth Fund, Victory RS Select Growth Fund, Victory RS Mid Cap Growth Fund, Victory RS Growth Fund, and Victory RS Small Cap Equity Fund since 2024. Mr. Martin is a CFA charterholder.
The Fund's SAI provides additional information about the portfolio managers' method of compensation, other accounts they manage, and any ownership interests they may have in the Fund.
14
Investing in the Fund
The Fund is designed as an investment exclusively for contracts that are offered by the separate accounts of participating insurance companies. The participating insurance company will buy and redeem shares according to your instructions, as provided in the contract, and will redeem shares as needed to provide benefits under the contract.
Shares of the Fund may be offered in the future to other separate accounts established by other insurance companies, and they may fund both variable annuity contracts and variable life insurance policies offered by the same or affiliated insurance companies. For additional information about possible conflicts of interest between owners of variable annuity contracts and variable life insurance policies or between owners of variable contracts issued by insurance companies that are not affiliated with the Fund, see the section in this Prospectus titled Other Information About the Fund.
15
Share Price
The Fund calculates its share price, called its net asset value (“NAV”), each business day as of the close of regular trading on the New York Stock Exchange, Inc. (“NYSE”), which is normally 4:00 p.m. Eastern Time. In the event of an emergency or other disruption in trading on the NYSE, the Fund’s share price will be determined based upon the close of the NYSE. You may buy, exchange, and sell your shares on any business day at a price that is based on the NAV that is next calculated after you place your order. A business day is a day on which the NYSE is open. The NYSE is closed on weekends, most national holidays, and Good Friday.
To the extent the Fund’s investments include securities that are traded primarily in foreign markets, the value of those securities may change on days when shareholders are unable to purchase and redeem the Fund’s shares, such as on weekends or other days when the Fund does not price its shares.
The Fund prices its investments based on market value when market quotations are readily available. When these quotations are not readily available, the Adviser will price the Fund’s investments at fair value in accordance with applicable regulatory requirements. The Fund will fair value a security when:
◼
Trading in the security has been halted;
◼
The market quotation for the security is clearly erroneous due to a clerical error;
◼
The security’s liquidity decreases such that, in the Adviser’s opinion, the market quotation has become stale; or
◼
An event occurs after the close of the trading market (but before the Fund’s NAV is calculated) that, in the Adviser’s opinion, materially affects the value of the security.
The use of fair value pricing may minimize arbitrage opportunities that attempt to exploit the differences between a security’s market quotation and its fair value. The use of fair value pricing may not, however, always reflect a security’s actual market value in light of subsequent relevant information, and the security’s opening price on the next trading day may be different from the fair value price assigned to the security.
The Fund calculates its NAV per share by adding up the total value of its investments and other assets, subtracting its liabilities, and then dividing that figure by the number of its outstanding shares.
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NAV= |
Total Assets – Liabilities |
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Number of Shares Outstanding |
16
How to Buy Shares
Opening an Account
You cannot buy shares of the Fund directly, but only as an investment option through variable annuity contracts or variable life insurance policies (together, the “contracts”) that are offered by the separate accounts of certain life insurance companies (“participating insurance companies”). You are encouraged to read this Prospectus in conjunction with the accompanying separate account prospectus. Please refer to the separate account prospectus for information on how the participating insurance company buys and redeems shares.
Purchasing Shares
Orders to buy shares of the Fund are placed by the participating insurance company based upon instructions you provide to the participating insurance company. The Fund’s transfer agent processes orders to buy shares of the Fund at its NAV next computed after the order is received in good order, which means that your request contains all the required documentation, and that all documents contain required signatures or signature guarantees from a financial institution. The value of your contract’s investment in the Fund also will be based upon premium payments, surrender and transfer requests, and any other transaction requests from contract owners, annuitants, and beneficiaries. In order to calculate the value of your investment, you would have to determine the number of contract units you own along with the “accrued unit value” of your contract.
Share Classes
The Fund currently offers only Class I shares as described in this Prospectus. At some future date, the Fund may offer additional classes of shares. The Fund or any class may be closed at any time for failure to achieve an economical level of assets or for other reasons.
17
How to Sell Shares
Redemptions
Shares of the Fund may be redeemed by instructing your participating insurance company to terminate your contract’s investment in the Fund. Please refer to the instructions provided in the separate account prospectus. The separate account may redeem shares on any business day at the NAV that is next calculated after the order is placed.
The Fund may suspend your right to redeem your shares in the following circumstances:
◼
During non-routine closings of the NYSE;
◼
When the SEC determines either that trading on the NYSE is restricted or that an emergency prevents the sale or valuation of the Fund’s securities; or
◼
When the SEC orders a suspension to protect the Fund’s shareholders.
The Fund typically uses cash and cash equivalents held in its portfolio or sells portfolio assets to meet redemption requests. In unusual circumstances or under stressed market conditions, the Fund may use other methods to raise cash to meet redemption requests. For example, the Fund may draw funds from a line of credit or borrow available cash held by other Victory Funds under an “interfund lending program” in reliance on an exemptive order from the SEC.
18
Distributions and Taxes
The Fund expects to distribute substantially all of its ordinary income and capital gains each year. Ordinarily, the Fund declares and pays dividends from its net investment income annually. However, the Fund may not always pay a dividend or distribution for a given period. Capital gains distributions, if any, from the Fund will be made annually. In addition, the Fund may occasionally be required to make supplemental dividend or capital gains distributions at some other time during the year.
All dividend and capital gains distributions made by the Fund will be reinvested automatically in additional shares of the Fund.
|
The tax status of your insurance company separate account’s investment in the Fund depends upon the
features of your contract. For further information, please refer to the separate account prospectus. |
Important Information About Taxes
The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”), so that it will not be subject to U.S. federal income tax on its net earnings and net capital gains that are distributed to its shareholders. In addition, the Fund intends to comply with the diversification requirements of the Code and Treasury Regulations applicable to segregated asset accounts underlying variable annuity contracts or variable life insurance policies (referred to as “variable contracts”) so that the holders of the contracts receive tax-deferred treatment generally afforded holders of annuities or life insurance policies under the Code.
◼
If a regulated investment company satisfies certain conditions, the regulated investment company will not be treated as a single investment of a segregated asset account for purposes of determining whether the account is adequately diversified, but rather the segregated asset account will be treated as owning its proportionate share of each of the assets of the regulated investment company. The Fund intends to satisfy these conditions so that the segregated asset account will be treated as owning its proportionate share of the Fund’s assets for such purposes.
◼
The Code requires that a segregated asset account underlying a variable contract must be “adequately diversified” in order for the contract to be treated as an annuity or life insurance contract for tax purposes. A segregated asset account invested in the Fund is intended to be treated as owning its proportionate share of the Fund’s assets for purposes of determining whether the account is adequately diversified. If a segregated asset account underlying a contract were not in compliance with these diversification requirements at the end of any calendar quarter, the contract would not be eligible to be treated as an annuity or life insurance contract under the Code for such period and any subsequent period and the contract holder would not be eligible for tax-deferred treatment. See the section titled “TAXES” in the SAI for additional requirements for tax-deferred treatment and other tax considerations.
◼
This discussion of U.S. federal income tax consequences is based on tax laws and regulations in effect as of the date of this Prospectus, and may change as a result of legislative, administrative, or judicial action. As this discussion is for general information only, you also should review the more detailed discussion of U.S. federal income tax considerations that is contained in the separate account prospectus and the SAI.
|
You should consult with your own tax adviser regarding the tax consequences of your investment
in the separate account, including the application of state and local taxes, which may differ
from the federal income tax consequences described. |
19
Important Fund Policies
Market Timing
The Fund discourages and does not accommodate frequent purchases and redemptions of Fund shares (“market timing”). We will uniformly deny any request to purchase shares if we believe that the transaction is part of a market timing strategy. In identifying market timing activity, we consider, among other things, the frequency of your trades, even when the trades are combined with those of other investors or shareholders.
Market timing allows investors to take advantage of market inefficiencies, sometimes to the disadvantage of other shareholders. Market timing increases Fund expenses to all shareholders as a result of increased portfolio turnover. In addition, market timing could potentially dilute share value for all other shareholders by requiring the Fund to hold more cash than it normally would.
The Fund’s Board has adopted policies and procedures with respect to market timing. In order to prevent or minimize market timing, the Fund will employ “fair value” pricing, as described in this Prospectus under “Share Price,” to minimize the discrepancies between a security’s market quotation and its perceived market value, which often gives rise to market timing activity.
Because the Fund’s shares are held exclusively by insurance company separate accounts, rather than directly by the individual contract owners of the separate accounts, the Fund is not able to determine directly whether a separate account’s purchase or sale of the Fund’s shares on any given day represents transactions by a single investor or multiple investors. It also is not able to determine directly whether multiple purchases and sales by a separate account over any given period represent the activity of the same or of different investors.
However, the Fund may request that an insurance company cooperate in monitoring transactions to detect potential market timing. There can be no assurance that an insurance company will cooperate in precluding an investor from further purchases of Fund shares. Consistent with applicable laws and agreements, the Fund may stop selling its shares to a separate account to prevent market timing.
Portfolio Holdings Disclosure
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI, which is available upon request and on the Fund’s website at VictoryFunds.com.
Performance
The Victory Funds may advertise the performance of the Fund by comparing it to other mutual funds with similar objectives and policies. Performance information also may appear in various publications. Any fees charged by Investment Professionals may not be reflected in these performance calculations.
Advertising information may include the average annual total return of the Fund calculated on a compounded basis for specified periods of time. Total return information will be calculated according to rules established by the SEC. Such information may include performance rankings and similar information from independent organizations and publications.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more shareholders with the same last name reside, the Fund may send only one copy of any shareholder reports, proxy statements, prospectuses and their supplements, unless you have instructed us to the contrary. You may request that the Fund send these documents to each shareholder individually by calling your participating insurance company.
20
Other Information About the Fund
The Fund issues and sells its shares to separate accounts of insurance companies including those of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) (the “Separate Accounts”) and to affiliates of such insurance companies. The Separate Accounts hold shares of mutual funds, including the Fund, that fund benefits under variable annuity contracts or variable life insurance policies issued by insurance companies including those of GIAC (either, a “Variable Contract”). With respect to matters to be voted on by shareholders of the Fund, GIAC, or other insurance company, as the owner of the assets held in the Separate Accounts, and the affiliates of GIAC or such other insurance company are the shareholders of the Fund and are entitled to vote their shares of the Fund.
GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus. GIAC has informed the Fund that it will vote outstanding shares of the Fund in accordance with instructions received from the owners of the Variable Contracts, which have some or all of the contract or policy value invested in the Fund. GIAC will vote the Fund’s shares attributable to Variable Contracts for which it does not receive voting instructions in the same proportion as the shares for which it does receive voting instructions. GIAC and its affiliates also will vote the Fund’s shares that they own directly due to their contributions or accumulations in the Separate Accounts through which GIAC offers Variable Contracts in proportion to the shares for which GIAC receives timely voting instructions. As a result of the proportional voting described here, a small number of contract owners may determine the outcome of a shareholder vote.
For a shareholder meeting to go forward with respect to the Fund, there must be a quorum. This means that at least one-third of the Fund’s shares outstanding and entitled to vote on the proposal must be represented at a meeting either in person or by proxy. Because GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus, their presence at a meeting in person or by proxy will meet the quorum requirement for the Fund.
The Fund does not currently foresee any disadvantages to contract owners arising from the fact that the Fund offers shares to both variable annuity contract and variable life insurance policy separate accounts. The Board monitors events to ensure that there are no material irreconcilable differences between or among contract owners. If such a conflict should arise, one or more separate accounts may withdraw their investments in the Fund. This could possibly force the Fund to sell portfolio securities at disadvantageous prices.
If circumstances make it necessary to create separate portfolios for variable annuity and variable life insurance separate accounts, GIAC or another insurance company that offers the Fund will bear the expenses involved in setting up the new portfolios. However, the ongoing expenses contract owners ultimately pay would likely increase because of the loss of economies of scale provided by the current arrangement.
While this Prospectus and the SAI describe pertinent information about the Victory Variable Insurance Funds (the “Trust”) and the Fund, neither the Prospectus nor the SAI represents a contract between the Trust or the Fund and any shareholder or any other party.
21
Financial Highlights
The following financial highlights tables reflect historical information about shares of the Fund and is intended to help you understand the Fund's financial performance for the past five years. Certain information shows the results of an investment in one share of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts. If these charges were reflected, returns would be lower than those shown.
The information presented has been audited by Cohen & Company, Ltd., the Fund's independent registered public accounting firm, whose report, along with the Fund's financial statements, are included in the Fund's most recent N-CSR filing to shareholders, which is available upon request.
22
Victory RS Small Cap Growth Equity VIP Series
|
|
Class I | ||||
|
For a Share Outstanding Throughout Each
Period |
Year
Ended
12/31/24 |
Year
Ended
12/31/23 |
Year
Ended
12/31/22 |
Year
Ended
12/31/21 |
Year
Ended
12/31/20 |
|
Net Asset Value, Beginning of Period |
$9.56 |
$7.94 |
$16.38 |
$19.91 |
$16.76 |
|
Investment Activities: |
|
|
|
|
|
|
Net investment income (loss)(a) |
(0.05) |
(0.04) |
(0.06) |
(0.15) |
(0.12) |
|
Net realized and unrealized gains (losses) |
1.18 |
1.66 |
(5.78) |
(1.99) |
6.45 |
|
Total from Investment Activities |
1.13 |
1.62 |
(5.84) |
(2.14) |
6.33 |
|
Distributions to Shareholders from: |
|
|
|
|
|
|
Net realized gains |
— |
— |
(2.60) |
(1.39) |
(3.18) |
|
Total Distributions |
— |
— |
(2.60) |
(1.39) |
(3.18) |
|
Net Asset Value, End of Period |
$10.69 |
$9.56 |
$7.94 |
$16.38 |
$19.91 |
|
Total Return(b),(c) |
11.82% |
20.40% |
(36.36)% |
(10.43)% |
38.06% |
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
Net Expenses(d) |
0.88% |
0.88% |
0.88% |
0.88% |
0.88% |
|
Net Investment Income (Loss) |
(0.50)% |
(0.51)% |
(0.54)% |
(0.75)% |
(0.69)% |
|
Gross Expenses(d) |
0.97% |
0.98% |
1.00% |
0.99% |
1.01% |
|
Supplemental Data: |
|
|
|
|
|
|
Net Assets at end of period (000's) |
$70,182 |
$74,344 |
$70,891 |
$113,234 |
$142,620 |
|
Portfolio Turnover |
124% |
151% |
151%(e) |
92% |
74% |
(a)
Per share net investment income (loss) has been calculated using the average daily shares method.
(b)
Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. Generally Accepted Accounting Principles and could differ from the reported return.
(c)
Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(d)
Does not include acquired fund fees and expenses, if any.
(e)
Reflects an increase in trading activity due to asset allocation shifts.
23
VVIF-RS-SCGEVIP-PRO (05/25)
By mail:
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
P.O. Box 182593
Columbus, OH 43218-2593
Columbus, OH 43218-2593
Statement of Additional Information (SAI): The Fund’s Statement of Additional Information (“SAI”), dated May 1, 2025, as revised from time to time, contains more information about the Fund's operations, investment restrictions, policies, and practices. The SAI is incorporated by reference into this Prospectus, which means that it is legally part of this Prospectus, even if you do not request a copy.
Annual/ Semi Annual Reports and Form N-CSR/Form N-CSRS: Annual and semi annual reports contain more information about the Fund's investments and the market conditions and investment strategies that significantly affected the Fund's performance during the most recent fiscal period. The Fund’s Form N-CSR and Form N-CSRS filings contain the Fund’s annual and semi annual financial statements. The financial statements included in the Fund's Form N-CSR for the fiscal year ended December 31, 2024, are incorporated by reference into this Prospectus.
How to Obtain Information: You may obtain a free copy of the SAI, annual and semi annual reports and other information such as Fund financial statements, or make shareholder inquiries by calling or writing to your participating insurance company at the toll-free number or address listed in the separate account prospectus. Some of the information described herein, including the SAI, annual and semi annual reports and other information such as Fund financial statements, and periodic disclosure of portfolio holdings, are available, free of charge, at VictoryFunds.com.
By telephone:
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
You also can get information about the Fund (including the SAI, other reports, and other information such as Fund financial statements) from the Securities and Exchange Commission (SEC) on the SEC's Edgar database at sec.gov or, after paying a duplicating fee, by electronic request sent to the following e-mail address: [email protected].
Investment Company Act File Number 811-08979
May 1, 2025
Prospectus
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Victory Sophus Emerging Markets VIP Series | ||||||
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Class I |
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Shares are currently offered to insurance company separate accounts funding certain variable annuity contracts and variable life insurance policies issued by life insurance companies. For more information, call your participating insurance company.
The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this Prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
vcm.com
800-539-FUND (800-539-3863)
800-539-FUND (800-539-3863)
(fees paid directly from your investment)
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Class I |
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Management Fees |
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Fee Waiver/Expense Reimbursement1
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Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement1
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3 Years |
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Class I |
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1
Victory Sophus Emerging Markets VIP Series Summary
2
Victory Sophus Emerging Markets VIP Series Summary
3
Victory Sophus Emerging Markets VIP Series Summary
4
Victory Sophus Emerging Markets VIP Series Summary
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1 Year |
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CLASS I |
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Indices |
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MSCI All Country World Index
reflects no deduction for fees, expenses, or taxes, except foreign
withholding taxes |
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MSCI Emerging Markets Index
reflects no deduction for fees, expenses, or taxes, except foreign
withholding taxes |
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Management of the Fund
Investment Adviser
Victory Capital Management Inc. (the “Adviser”) serves as the Fund’s investment adviser. The portfolio managers jointly and primarily responsible for day-to-day management of the Fund are members of the Adviser's Sophus Capital investment franchise.
Portfolio Management
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Title |
Tenure with the Fund |
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Michael Reynal |
Chief Investment Officer |
Since 2013 |
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Maria Freund, CFA |
Senior Portfolio Manager |
Since 2018 |
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Daniel Do Vale |
Portfolio Manager |
Since 2023 |
5
Victory Sophus Emerging Markets VIP Series Summary
Purchase and Sale of Fund Shares
The Fund is closed to new investors and will be liquidated under a Plan of Liquidation on or about June 27, 2025. Shares of the Fund are not offered directly to the public and investors cannot place orders to purchase or sell shares with the Fund directly. Please refer to the separate account prospectus for information on how to manage your investment options in the Fund and any fees that may apply.
Tax Information
Since the Fund is only offered for investment through variable annuity contracts and variable life insurance policies, the Fund’s distributions are not expected to be taxable to holders of such contracts. Holders of such contracts may be taxed later upon withdrawals of monies from those arrangements.
Payments to Insurance Companies
The Fund, through its distributor, may pay fees for activities primarily intended to result in the sale of Fund shares to insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. These payments may create a conflict of interest by influencing insurance companies to include the Fund as an underlying investment option in its variable insurance products. Ask your variable products salesperson or visit the insurance company’s website for more information.
6
Additional Fund Information
The Victory Sophus Emerging Markets VIP Series (the “Fund”) is managed by the Adviser, who also manages other funds, each having distinct investment management objectives, strategies, risks, and policies.
The Fund’s investment objective is non-fundamental. In addition, the Fund’s policy to invest under normal circumstances at least 80% of its assets in securities of emerging market companies, which may include common stocks, preferred stocks, or other securities convertible into common stock, is non-fundamental. The Board of Trustees (the “Board”) may change an objective or policy that is non-fundamental without shareholder approval upon at least 60 days’ prior written notice to shareholders. For purposes of the Fund’s 80% investment policy, “assets” means the Fund’s net assets plus the amount of any borrowings for investment purposes, but exclusive of any collateral held from securities lending.
For purposes of the Fund's investment strategy, the Fund generally defines an emerging market country as one (1) that is included in the MSCI emerging market indices or the MSCI frontier market indices, (2) whose economy or markets are classified by the International Finance Corporation and the World Bank to be emerging or developing, as well as any country classified by the United Nations as developing, or (3) that has economies, industries, and stock markets with similar characteristics. The Fund defines an emerging market company as a company (1) that is organized under the laws of, or has its principal office in, an emerging market country, (2) that derives 50% or more of its revenue from goods produced, services performed, or sales made in emerging market countries, or (3) for which the principal securities market is located in an emerging market country.
The following section describes additional information about the principal investment strategy the Fund will use under normal market conditions to pursue its investment objective, as well as any secondary strategies the Fund may use, and the related risks. This Prospectus does not attempt to describe all of the various investment techniques and types of investments that the Adviser may use in managing the Fund. The Statement of Additional Information (“SAI”) includes more information about the Fund, its investments, and the related risks.
Under adverse, unstable, or abnormal market conditions, the Fund may be unable to pursue or achieve its investment objective and, for temporary purposes, may invest some or all of its assets in a variety of instruments or assets, including high-quality fixed-income securities, cash, and cash equivalents. For cash management purposes, the Fund may hold all or a portion of its assets in cash, short-term money market instruments, or shares of other investment companies. This may reduce the benefit from any upswing in the market, cause the Fund to fail to meet its investment objective, and increase the Fund's expenses.
7
Investments
The following describes the types of securities the Fund may purchase under normal market conditions to achieve its principal investment strategy. The Fund will not necessarily buy all of the securities listed below.
Foreign Securities
Can include common stock and convertible preferred stock of non-U.S. companies. Also may include American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”), which are receipts issued by a bank or trust company and evidence ownership of underlying securities issued by foreign companies, and exchange-traded funds (“ETFs”) that invest in foreign companies.
Additional Fund Strategies. The Adviser may use other types of investment strategies in pursuing the Fund's overall investment objective. The following describes the types of securities or techniques that the Adviser may purchase or investment techniques the Adviser may employ that are not considered to be a part of the Fund's principal investment strategies. Additional securities and techniques are described in the Fund's SAI.
Forward Foreign Currency Exchange Contracts
Contracts that attempt to eliminate currency exposure between the time of a securities transaction and settlement of that transaction. A forward foreign currency exchange contract is an agreement to buy or sell a country’s currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date.
Investment Companies
The Fund may invest in securities of other investment companies, including ETFs, if those companies invest in securities consistent with the Fund's investment objective and policies. ETFs are investment companies the shares of which are bought and sold on a securities exchange.
Securities Lending
To enhance the return on its portfolio, the Fund may lend portfolio securities to brokers, dealers, and financial institutions to realize additional income under guidelines adopted by the Board. Each loan will be secured continuously by collateral in the form of cash, securities issued by the U.S. government or its agencies or instrumentalities.
8
Risk Factors
The following provides additional information about the Fund's principal risks and supplements those risks discussed in the Fund’s Summary section of this Prospectus.
Currency Risk — Since foreign securities often are denominated and traded in foreign currencies, the value of the Fund’s assets may be affected favorably or unfavorably by currency exchange rates, currency exchange control regulations, foreign withholding or other taxes, and restrictions or prohibitions on the repatriation of foreign currencies. To attempt to protect against changes in currency exchange rates, a Fund may, but will not necessarily, engage in forward foreign currency exchange transactions (such as foreign currency forwards or futures contracts, and foreign currency options). The use of foreign currency exchange transactions to reduce foreign currency exposure can eliminate some or all of the benefit of an increase in the value of a foreign currency versus the U.S. dollar.
If the Fund purchases securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of the Fund’s assets and potentially the Fund’s income available for distribution. The values of foreign currencies relative to the U.S. dollar fluctuate in response to, among other factors, interest rate changes, intervention (or failure to intervene) by the U.S. or foreign governments, central banks, or supranational entities such as the International Monetary Fund; the imposition of currency controls; and political and regulatory developments in the United States or abroad. Officials in foreign countries may from time to time take actions in respect of their currencies, which could adversely affect the values of the Fund’s assets denominated in those currencies or the liquidity of such investments. Foreign currency values can decrease significantly both in the short term and over the long term in response to these and other developments.
Emerging Markets Risk — All of the risks associated with investing in foreign securities are increased in connection with investments in securities associated with emerging markets. Generally, emerging market countries are less diverse and mature than those of developed countries and their political systems are less stable. These countries are more likely to experience high levels of inflation, deflation or currency devaluation, which could also hurt their economies and securities markets. The risks of investing in these markets also include the risks of illiquidity, increased price volatility, less government regulation, less extensive and less frequent accounting, financial and other reporting requirements, risk of loss resulting from problems in share registration and custody, and the nationalization of foreign deposits or assets. In addition, countries in emerging markets are more likely to experience instability in their markets due to social and political changes, as well as military interventions and war. Further, due to the smaller securities markets, lower trading volumes and less government regulation of securities markets in emerging market countries compared to those in developed countries, investments in emerging market securities generally are more illiquid and volatile and subject to a higher risk of settlement disruptions than investments in securities of issuers in developed countries. Consequently, emerging market securities may be subject to relatively more abrupt and severe price declines.
Equity Securities Risk — The market prices of equity securities, which may include common stocks and other stock-related securities such as preferred stocks may fluctuate, sometimes rapidly or unpredictably. The value of a security may decline for reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. Unlike debt securities, which have preference to a company’s assets in case of liquidation, equity securities are entitled to the residual value after the company meets its other obligations. The Fund may continue to accept new subscriptions and to make additional investments in equity securities even under general market conditions that the Fund’s investment
team views as unfavorable for equity securities.
9
Risk Factors
Foreign Securities Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
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Foreign Investments Risk — Foreign investments involve certain special risks. For example, compared to U.S. companies, there generally is less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. Foreign issuers may not be subject to the uniform accounting, auditing, and financial reporting standards and practices prevalent in the United States. Certain of these risks may also apply to some extent to U.S. investments that are denominated in foreign currencies and to investments in U.S. companies that have significant foreign operations. Investments in depositary receipts (such as American Depositary Receipts and Global Depositary Receipts) may also involve additional risks associated with the non-uniform terms that apply to depositary receipt programs, credit exposure to the depository bank and to the sponsors and other parties with whom the depository bank establishes the programs, currency risk and the risk of an illiquid market for depositary receipts.
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Political Risk — Foreign securities markets may be more volatile than their counterparts in the United States. Investments in foreign countries could be affected by factors not present in the United States, including expropriation, confiscation of property, and difficulties in enforcing contracts. Foreign settlement procedures may also involve additional risks, and foreign issuers can be impacted by changes to trade policies and trade disputes. These factors can make foreign investments more volatile than U.S. investments.
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Legal Risk — Legal remedies for investors in foreign countries may be more limited than the legal remedies available in the United States.
General Market Risk — Stock market risk refers to the fact that the prices of equity securities and other exchange traded investments typically fluctuate more than the values of debt and other types of securities, typically in response to changes in the particular company’s financial condition and factors affecting the market in general. Over time, the stock market tends to move in cycles, with periods when stock prices rise, and periods when stock prices decline. A slower-growth or recessionary economic environment could have an adverse effect on stock prices. Consequently, a broad-based market drop may also cause a stock’s price to fall. Portfolio securities may also decline in value due to factors affecting securities markets generally, such as real or perceived adverse economic, political, or regulatory conditions, inflation, changes in interest or currency rates or adverse investor sentiment, or due to factors affecting particular industries represented in the securities markets, such as competitive conditions. Changes in the financial condition of a single issuer can impact a market as a whole, and adverse market conditions may be prolonged and may not have the same impact on all types of securities. In addition, the markets may not favor a particular kind of security, including equity securities. Values of securities may fall due to factors affecting a particular issuer, industry, or the securities market as a whole.
Market turmoil may be reflected in perceptions of economic uncertainty, price volatility in the equity and debt markets, and fluctuating trading liquidity. In response, governments may adopt a variety of fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and changes in interest rates. These policies may not be
10
Risk Factors
successful and any unexpected or quick reversal of these policies could increase volatility in the equity and debt markets. Market conditions and economic risks could have a significant effect on domestic and international economies and could add significantly to the risks of increased volatility and decreased liquidity for the Fund's portfolio.
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Geopolitical/Natural Disaster Risk — Global economies and financial markets are increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely affect issuers in another country or region. Geopolitical and other risks, including war, economic sanctions, currency controls or other actions by countries or international bodies, terrorism, trade disputes, embargoes, political or economic dysfunction within some nations, public health crises and related geopolitical events, as well as environmental disasters such as earthquakes, fires, and floods, may add to instability in world economies and markets generally. Changes in trade policies and international trade agreements could affect the economies of many countries in unpredictable ways. Epidemics and/or pandemics, such as COVID-19, may result in, among other things, closing borders, disruptions to health care service preparation and delivery, quarantines, cancellations, disruptions to supply chains and consumer activity, as well as general concern and uncertainty. The impact may last for extended periods.
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Information Technology and Operational Risk — Markets and market participants are increasingly reliant upon both publicly available and proprietary information data systems. Data imprecision, software or other technology malfunctions, programming inaccuracies, unauthorized use or access, and similar circumstances may impair the performance of these systems and may have an adverse impact upon a single issuer, a group of issuers, or the market at large. The information technology and other operational systems upon which the Fund’s service providers rely may be subject to cyber-attack or other technological disruptions, and could otherwise disrupt the ability of these service providers to perform essential tasks for the Fund. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in the Fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Geographic Focus Risk — The Fund may invest a substantial portion of its assets within one or more countries or geographic regions. When the Fund focuses its investments in a country or countries, it is particularly susceptible to the impact of market, economic, political, regulatory, and other factors affecting those countries. Additionally, the Fund’s performance may be more volatile when the Fund’s investments are focused in a country or countries.
Large-Capitalization Stock Risk — Large-sized companies tend to compete in mature product markets and typically do not experience the level of sustained growth of smaller companies and companies competing in less mature product markets. Large-capitalization companies may be unable to respond as quickly as smaller companies to competitive challenges or changes in business, product, financial, or other market conditions. For these and other reasons, a fund that invests in large-capitalization companies may underperform other stock funds (such as funds that focus on the stocks of small- and medium-capitalization companies) when stocks of large-capitalization companies are out of favor.
Liquidity Risk — Liquidity risk exists when particular investments cannot be disposed of quickly in the normal course of business. Market values for illiquid securities may not be readily available, and there can be no assurance that any fair value assigned to an illiquid investment at any time will accurately reflect the price the Fund might receive upon the sale of that investment. The ability of the Fund to dispose of illiquid securities or other instruments at advantageous prices may be greatly limited, and the Fund may have to continue to hold such securities or instruments during periods when the Adviser would otherwise have sold them (in order, for example, to meet redemption requests or to take advantage of other investment opportunities). Adverse market or economic conditions independent of
11
Risk Factors
any specific adverse changes in the conditions of a particular issuer, including rising interest rates, may adversely affect the liquidity of the Fund’s investments. Some securities held by the Fund may be restricted as to resale, and there is often no ready market for such securities. In addition, the Fund, by itself or together with other accounts managed by the Adviser, may hold a position in an investment that is large relative to the typical trading volume for that holding, which can make it difficult for the Fund to dispose of the position at an advantageous time or price. It may also be the case that other market participants may be attempting to liquidate a position at the same time as the Fund is attempting to liquidate the same investment, causing increased supply in the market, and contributing to liquidity risk and downward pricing pressure. In such cases the sale proceeds received by the Fund may be substantially less than if the Fund had been able to sell the securities in more-orderly transactions, and the sale price may be substantially lower than the price previously used by the Fund to value the securities for purposes of determining the Fund’s net asset value. On the whole, foreign exchanges are smaller and less liquid than U.S. exchanges.
Management Risk — The investment process used by the investment team may produce incorrect judgments about the value of a particular asset or the team may implement its investment strategy in a way that may not produce the desired results.
Portfolio Turnover Risk — Portfolio turnover generally involves a number of direct and indirect costs and expenses to the Fund, including, for example, dealer mark-ups and bid/asked spreads and transaction costs on the sale of securities and reinvestment in other securities. Such costs are not reflected in the Fund's Total Annual Fund Operating Expenses set forth under “Fund Fees and Expenses” but do have the effect of reducing the Fund's investment return. Such sales may result in the realization of taxable capital gains, including short-term capital gains, which generally are taxed to shareholders at ordinary income tax rates.
Sector Focus Risk — While the Fund reserves the right to dynamically allocate its assets across economic sectors, the Fund may make significant investments in one or more sectors, each of which entails associated risks. Additionally, the Fund’s performance may be more volatile when the Fund’s investments are focused in a particular sector.
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Information Technology Sector Risk — Information technology companies tend to significantly rely on technological events or advances in their product development, production, or operations and are particularly vulnerable to rapid changes in technological product cycles, government regulation, and competition. Information technology companies may be smaller and less experienced companies, with limited product lines, markets, or financial resources and fewer experienced management or marketing personnel. Information technology company stocks, especially those which are internet-related, have experienced extreme price and volume fluctuations that are often unrelated to their operating performance.
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Financials Sector Risk — Companies in the financials sector are subject to extensive government regulation, which can limit both the amounts and types of loans and other financial commitments that companies in this sector can make, and the interest rates and fees that these companies can charge. Profitability can be largely dependent on the availability and cost of capital and the rate of corporate and consumer debt defaults, and can fluctuate significantly when interest rates change. Financial difficulties of borrowers can negatively affect the financials sector. Insurance companies can be subject to severe price competition. The financials sector can be subject to relatively rapid change as distinctions between financial service segments become increasingly blurred.
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Risk Factors
Smaller-Capitalization Stock Risk — Small- or mid-sized companies often have more limited managerial and financial resources than larger, more established companies and, therefore, may be more susceptible to market downturns or changing economic conditions. In addition, such companies may have been recently organized and have little or no track record of success. Also, the Adviser may not have had an opportunity to evaluate such newer companies’ performance in adverse or fluctuating market conditions. The securities of smaller-sized companies may trade less frequently and in smaller volume than more widely held securities. Prices of small- or mid-sized companies tend to be more volatile than those of larger companies and small- or mid-sized issuers may be subject to greater degrees of changes in their earnings and prospects. Since smaller-company stocks typically have narrower markets and are traded in lower volumes than larger-company stocks, they may be often
more difficult to purchase and sell.
13
Risk Factors
Additional Risk Factors. The Adviser may use several types of investment strategies in pursuing the Fund's overall investment objective. The following risks are those that the Adviser does not consider to be principal risks of the Fund. Additional risks are included in the Fund's SAI.
Forward Foreign Currency Exchange Contracts Risk — A forward foreign currency exchange contract is an agreement to exchange a specified amount of U.S. dollars for a specified amount of a foreign currency on a specific date in the future. The outcome of this transaction depends on changes in the relative values of the currencies subject to the transaction, the ability of the adviser to predict how the U.S. dollar will fare against the foreign currency, and the ability of the Fund’s counterparty to perform its obligation. The Fund may use these contracts to facilitate the settlement of portfolio transactions or to try to manage the risk of changes in currency exchange rates.
Investment Company Risk— The Fund’s ability to achieve its investment objective may be directly related to the ability of other investment companies (including ETFs) held by the Fund to meet their investment objectives. In addition, shareholders of the Fund will indirectly bear the fees and expenses of the underlying investment companies. Lack of liquidity in an ETF could result in an ETF being more volatile than the underlying portfolio of securities.
Securities Lending Risk — The risk in lending portfolio securities, as with other extensions of credit, consists of the possibility of loss to the Fund due to (1) the inability of the borrower to return the securities, (2) a delay in receiving additional collateral to adequately cover any fluctuations in the value of securities on loan, (3) a delay in recovery of the securities, or (4) the loss of rights in the collateral should the borrower fail financially. In addition, the Fund is responsible for any loss that might result from its investment of the borrower’s collateral. In determining whether to lend securities, the Adviser or the Fund’s securities lending agent will consider relevant facts and circumstances, including the creditworthiness of the borrower.
14
Organization and Management of the Fund
The Fund's Board has the overall responsibility for overseeing the management of the Fund. The Board monitors the services provided to contract owners.
The Investment Adviser
The Adviser serves as the investment adviser to each of the Victory Funds pursuant to an investment advisory agreement and oversees the operations of the Fund according to investment policies and procedures adopted by the Board. The Adviser is a New York corporation that is registered as an investment adviser with the Securities and Exchange Commission (“SEC”). As of March 31, 2025, the Adviser managed and advised assets totaling in excess of $167.5 billion for individual and institutional clients. The Adviser’s principal address is 15935 La Cantera Parkway, San Antonio, TX 78256.
A discussion regarding the basis of the Board’s approval of the Fund's Advisory Agreement is available in the Fund's most recent Form N-CSR for the period ended December 31.
The Adviser is a diversified global asset manager comprised of multiple investment teams, referred to as investment franchises, each of which utilizes an independent approach to investing. Sophus Capital, a Victory Capital investment franchise, is responsible for the day-to-day investment management of the Fund.
Advisory fees to be paid annually, before waivers, will be equal to an annual rate of 1.00% of the average daily net assets of the Fund.
See “Fund Fees and Expenses” for information about any contractual agreement by the Adviser to waive fees and/or reimburse expenses with respect to the Fund. From time to time, the Adviser also may voluntarily waive fees and/or reimburse expenses in amounts exceeding those required to be waived or reimbursed under any contractual agreement that may be in place with respect to the Fund.
Portfolio Management
Michael Reynal, Maria Freund, and Daniel Do Vale are the Portfolio Managers of the Fund, who are jointly and primarily responsible for the day-to-day management of the Fund’s portfolio.
Michael Reynal is the Chief Investment Officer of Sophus Capital and has been a portfolio manager of the Fund (including its predecessor fund) since 2013. From 2012 to 2016, he was with RS Investment Management Co. LLC (“RS Investments”), which was acquired by the Adviser in 2016.
Maria Freund, Senior Portfolio Manager of Sophus Capital, has managed the Fund since 2018. She joined the Adviser in 2016 in connection with the Adviser’s acquisition of RS Investments. Ms. Freund is a CFA charterholder.
Daniel Do Vale, Portfolio Manager of Sophus Capital, has managed the Fund since 2023. He joined the Adviser in 2016 in connection with the Adviser’s acquisition of RS Investments. Mr. Vale is a CFA charterholder.
The Fund's SAI provides additional information about the portfolio managers' method of compensation, other accounts they manage, and any ownership interests they may have in the Fund.
15
Investing in the Fund
The Fund is designed as an investment exclusively for contracts that are offered by the separate accounts of participating insurance companies. The participating insurance company will buy and redeem shares according to your instructions, as provided in the contract, and will redeem shares as needed to provide benefits under the contract.
Shares of the Fund may be offered in the future to other separate accounts established by other insurance companies, and they may fund both variable annuity contracts and variable life insurance policies offered by the same or affiliated insurance companies. For additional information about possible conflicts of interest between owners of variable annuity contracts and variable life insurance policies or between owners of variable contracts issued by insurance companies that are not affiliated with the Fund, see the section in this Prospectus titled Other Information About the Fund.
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Share Price
The Fund calculates its share price, called its net asset value (“NAV”), each business day as of the close of regular trading on the New York Stock Exchange, Inc. (“NYSE”), which is normally 4:00 p.m. Eastern Time. In the event of an emergency or other disruption in trading on the NYSE, the Fund’s share price will be determined based upon the close of the NYSE. You may buy, exchange, and sell your shares on any business day at a price that is based on the NAV that is next calculated after you place your order. A business day is a day on which the NYSE is open. The NYSE is closed on weekends, most national holidays, and Good Friday.
To the extent the Fund’s investments include securities that are traded primarily in foreign markets, the value of those securities may change on days when shareholders are unable to purchase and redeem the Fund’s shares, such as on weekends or other days when the Fund does not price its shares.
The Fund prices its investments based on market value when market quotations are readily available. When these quotations are not readily available, the Adviser will price the Fund’s investments at fair value in accordance with applicable regulatory requirements. The Fund will fair value a security when:
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Trading in the security has been halted;
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The market quotation for the security is clearly erroneous due to a clerical error;
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The security’s liquidity decreases such that, in the Adviser’s opinion, the market quotation has become stale; or
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An event occurs after the close of the trading market (but before the Fund’s NAV is calculated) that, in the Adviser’s opinion, materially affects the value of the security.
The use of fair value pricing may minimize arbitrage opportunities that attempt to exploit the differences between a security’s market quotation and its fair value. The use of fair value pricing may not, however, always reflect a security’s actual market value in light of subsequent relevant information, and the security’s opening price on the next trading day may be different from the fair value price assigned to the security.
The Fund calculates its NAV per share by adding up the total value of its investments and other assets, subtracting its liabilities, and then dividing that figure by the number of its outstanding shares.
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NAV= |
Total Assets – Liabilities |
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Number of Shares Outstanding |
17
How to Buy Shares
Opening an Account
You cannot buy shares of the Fund directly, but only as an investment option through variable annuity contracts or variable life insurance policies (together, the “contracts”) that are offered by the separate accounts of certain life insurance companies (“participating insurance companies”). You are encouraged to read this Prospectus in conjunction with the accompanying separate account prospectus. Please refer to the separate account prospectus for information on how the participating insurance company buys and redeems shares.
Purchasing Shares
Orders to buy shares of the Fund are placed by the participating insurance company based upon instructions you provide to the participating insurance company. The Fund’s transfer agent processes orders to buy shares of the Fund at its NAV next computed after the order is received in good order, which means that your request contains all the required documentation, and that all documents contain required signatures or signature guarantees from a financial institution. The value of your contract’s investment in the Fund also will be based upon premium payments, surrender and transfer requests, and any other transaction requests from contract owners, annuitants, and beneficiaries. In order to calculate the value of your investment, you would have to determine the number of contract units you own along with the “accrued unit value” of your contract.
Share Classes
The Fund currently offers only Class I shares as described in this Prospectus. At some future date, the Fund may offer additional classes of shares. The Fund or any class may be closed at any time for failure to achieve an economical level of assets or for other reasons.
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How to Sell Shares
Redemptions
Shares of the Fund may be redeemed by instructing your participating insurance company to terminate your contract’s investment in the Fund. Please refer to the instructions provided in the separate account prospectus. The separate account may redeem shares on any business day at the NAV that is next calculated after the order is placed.
The Fund may suspend your right to redeem your shares in the following circumstances:
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During non-routine closings of the NYSE;
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When the SEC determines either that trading on the NYSE is restricted or that an emergency prevents the sale or valuation of the Fund’s securities; or
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When the SEC orders a suspension to protect the Fund’s shareholders.
The Fund typically uses cash and cash equivalents held in its portfolio or sells portfolio assets to meet redemption requests. In unusual circumstances or under stressed market conditions, the Fund may use other methods to raise cash to meet redemption requests. For example, the Fund may draw funds from a line of credit or borrow available cash held by other Victory Funds under an “interfund lending program” in reliance on an exemptive order from the SEC.
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Distributions and Taxes
The Fund expects to distribute substantially all of its ordinary income and capital gains each year. Ordinarily, the Fund declares and pays dividends from its net investment income annually. However, the Fund may not always pay a dividend or distribution for a given period. Capital gains distributions, if any, from the Fund will be made annually. In addition, the Fund may occasionally be required to make supplemental dividend or capital gains distributions at some other time during the year.
All dividend and capital gains distributions made by the Fund will be reinvested automatically in additional shares of the Fund.
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The tax status of your insurance company separate account’s investment in the Fund depends upon the
features of your contract. For further information, please refer to the separate account prospectus. |
Important Information About Taxes
The Fund intends to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”), so that it will not be subject to U.S. federal income tax on its net earnings and net capital gains that are distributed to its shareholders. In addition, the Fund intends to comply with the diversification requirements of the Code and Treasury Regulations applicable to segregated asset accounts underlying variable annuity contracts or variable life insurance policies (referred to as “variable contracts”) so that the holders of the contracts receive tax-deferred treatment generally afforded holders of annuities or life insurance policies under the Code.
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If a regulated investment company satisfies certain conditions, the regulated investment company will not be treated as a single investment of a segregated asset account for purposes of determining whether the account is adequately diversified, but rather the segregated asset account will be treated as owning its proportionate share of each of the assets of the regulated investment company. The Fund intends to satisfy these conditions so that the segregated asset account will be treated as owning its proportionate share of the Fund’s assets for such purposes.
◼
The Code requires that a segregated asset account underlying a variable contract must be “adequately diversified” in order for the contract to be treated as an annuity or life insurance contract for tax purposes. A segregated asset account invested in the Fund is intended to be treated as owning its proportionate share of the Fund’s assets for purposes of determining whether the account is adequately diversified. If a segregated asset account underlying a contract were not in compliance with these diversification requirements at the end of any calendar quarter, the contract would not be eligible to be treated as an annuity or life insurance contract under the Code for such period and any subsequent period and the contract holder would not be eligible for tax-deferred treatment. See the section titled “TAXES” in the SAI for additional requirements for tax-deferred treatment and other tax considerations.
◼
Investment income received by the Fund from investments in foreign countries may be subject to foreign withholding and other taxes. In that case, the Fund’s yield on those securities would be decreased. While contract owners will bear the cost of any foreign tax withholding, they will not be able to claim a foreign tax credit or deduction for taxes paid by the Fund.
◼
This discussion of U.S. federal income tax consequences is based on tax laws and regulations in effect as of the date of this Prospectus, and may change as a result of legislative, administrative, or judicial action. As this discussion is for general information only, you also should review the more detailed discussion of U.S. federal income tax considerations that is contained in the separate account prospectus and the SAI.
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You should consult with your own tax adviser regarding the tax consequences of your investment
in the separate account, including the application of state and local taxes, which may differ
from the federal income tax consequences described. |
20
Important Fund Policies
Market Timing
The Fund discourages and does not accommodate frequent purchases and redemptions of Fund shares (“market timing”). We will uniformly deny any request to purchase shares if we believe that the transaction is part of a market timing strategy. In identifying market timing activity, we consider, among other things, the frequency of your trades, even when the trades are combined with those of other investors or shareholders.
Market timing allows investors to take advantage of market inefficiencies, sometimes to the disadvantage of other shareholders. Market timing increases Fund expenses to all shareholders as a result of increased portfolio turnover. In addition, market timing could potentially dilute share value for all other shareholders by requiring the Fund to hold more cash than it normally would.
The Fund’s Board has adopted policies and procedures with respect to market timing. In order to prevent or minimize market timing, the Fund will employ “fair value” pricing, as described in this Prospectus under “Share Price,” to minimize the discrepancies between a security’s market quotation and its perceived market value, which often gives rise to market timing activity.
Because the Fund’s shares are held exclusively by insurance company separate accounts, rather than directly by the individual contract owners of the separate accounts, the Fund is not able to determine directly whether a separate account’s purchase or sale of the Fund’s shares on any given day represents transactions by a single investor or multiple investors. It also is not able to determine directly whether multiple purchases and sales by a separate account over any given period represent the activity of the same or of different investors.
However, the Fund may request that an insurance company cooperate in monitoring transactions to detect potential market timing. There can be no assurance that an insurance company will cooperate in precluding an investor from further purchases of Fund shares. Consistent with applicable laws and agreements, the Fund may stop selling its shares to a separate account to prevent market timing.
Portfolio Holdings Disclosure
A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI, which is available upon request and on the Fund’s website at VictoryFunds.com.
Performance
The Victory Funds may advertise the performance of the Fund by comparing it to other mutual funds with similar objectives and policies. Performance information also may appear in various publications. Any fees charged by Investment Professionals may not be reflected in these performance calculations.
Advertising information may include the average annual total return of the Fund calculated on a compounded basis for specified periods of time. Total return information will be calculated according to rules established by the SEC. Such information may include performance rankings and similar information from independent organizations and publications.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more shareholders with the same last name reside, the Fund may send only one copy of any shareholder reports, proxy statements, prospectuses and their supplements, unless you have instructed us to the contrary. You may request that the Fund send these documents to each shareholder individually by calling your participating insurance company.
21
Other Information About the Fund
The Fund issues and sells its shares to separate accounts of insurance companies including those of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) (the “Separate Accounts”) and to affiliates of such insurance companies. The Separate Accounts hold shares of mutual funds, including the Fund, that fund benefits under variable annuity contracts or variable life insurance policies issued by insurance companies including those of GIAC (either, a “Variable Contract”). With respect to matters to be voted on by shareholders of the Fund, GIAC, or other insurance company, as the owner of the assets held in the Separate Accounts, and the affiliates of GIAC or such other insurance company are the shareholders of the Fund and are entitled to vote their shares of the Fund.
GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus. GIAC has informed the Fund that it will vote outstanding shares of the Fund in accordance with instructions received from the owners of the Variable Contracts, which have some or all of the contract or policy value invested in the Fund. GIAC will vote the Fund’s shares attributable to Variable Contracts for which it does not receive voting instructions in the same proportion as the shares for which it does receive voting instructions. GIAC and its affiliates also will vote the Fund’s shares that they own directly due to their contributions or accumulations in the Separate Accounts through which GIAC offers Variable Contracts in proportion to the shares for which GIAC receives timely voting instructions. As a result of the proportional voting described here, a small number of contract owners may determine the outcome of a shareholder vote.
For a shareholder meeting to go forward with respect to the Fund, there must be a quorum. This means that at least one-third of the Fund’s shares outstanding and entitled to vote on the proposal must be represented at a meeting either in person or by proxy. Because GIAC and its affiliates own a substantial amount of the Fund as of the date of this Prospectus, their presence at a meeting in person or by proxy will meet the quorum requirement for the Fund.
The Fund does not currently foresee any disadvantages to contract owners arising from the fact that the Fund offers shares to both variable annuity contract and variable life insurance policy separate accounts. The Board monitors events to ensure that there are no material irreconcilable differences between or among contract owners. If such a conflict should arise, one or more separate accounts may withdraw their investments in the Fund. This could possibly force the Fund to sell portfolio securities at disadvantageous prices.
If circumstances make it necessary to create separate portfolios for variable annuity and variable life insurance separate accounts, GIAC or another insurance company that offers the Fund will bear the expenses involved in setting up the new portfolios. However, the ongoing expenses contract owners ultimately pay would likely increase because of the loss of economies of scale provided by the current arrangement.
While this Prospectus and the SAI describe pertinent information about the Victory Variable Insurance Funds (the “Trust”) and the Fund, neither the Prospectus nor the SAI represents a contract between the Trust or the Fund and any shareholder or any other party.
22
Financial Highlights
The following financial highlights tables reflect historical information about shares of the Fund and is intended to help you understand the Fund's financial performance for the past five years. Certain information shows the results of an investment in one share of the Fund. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts. If these charges were reflected, returns would be lower than those shown.
The information presented has been audited by Cohen & Company, Ltd., the Fund's independent registered public accounting firm, whose report, along with the Fund's financial statements, are included in the Fund's most recent N-CSR filing to shareholders, which is available upon request.
23
Victory Sophus Emerging Markets VIP Series
|
|
Class I | ||||
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For a Share Outstanding Throughout Each
Period |
Year
Ended
12/31/24 |
Year
Ended
12/31/23 |
Year
Ended
12/31/22 |
Year
Ended
12/31/21 |
Year
Ended
12/31/20 |
|
Net Asset Value, Beginning of Period |
$10.57 |
$9.84 |
$16.52 |
$17.76 |
$15.73 |
|
Investment Activities: |
|
|
|
|
|
|
Net investment income (loss)(a) |
0.17 |
0.15 |
0.29 |
0.13 |
0.07 |
|
Net realized and unrealized gains (losses) |
0.38 |
0.93 |
(3.95) |
(0.91) |
2.42 |
|
Total from Investment Activities |
0.55 |
1.08 |
(3.66) |
(0.78) |
2.49 |
|
Distributions to Shareholders from: |
|
|
|
|
|
|
Net investment income |
(0.32) |
(0.35) |
(0.09) |
(0.16) |
(0.32) |
|
Net realized gains |
— |
— |
(2.93) |
(0.30) |
(0.14) |
|
Total Distributions |
(0.32) |
(0.35) |
(3.02) |
(0.46) |
(0.46) |
|
Net Asset Value, End of Period |
$10.80 |
$10.57 |
$9.84 |
$16.52 |
$17.76 |
|
Total Return(b),(c) |
5.24% |
11.03% |
(22.46)% |
(4.42)% |
16.02% |
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
Net Expenses(d) |
1.35% |
1.35% |
1.35% |
1.35% |
1.35% |
|
Net Investment Income (Loss) |
1.50% |
1.44% |
2.07% |
0.68% |
0.49% |
|
Gross Expenses(d) |
1.80% |
1.76% |
1.62% |
1.53% |
1.48% |
|
Supplemental Data: |
|
|
|
|
|
|
Net Assets at end of period (000's) |
$23,823 |
$25,488 |
$26,170 |
$38,014 |
$45,020 |
|
Portfolio Turnover |
83% |
65% |
53% |
85% |
96% |
(a)
Per share net investment income (loss) has been calculated using the average daily shares method.
(b)
Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. Generally Accepted Accounting Principles and could differ from the reported return.
(c)
Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.'s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown.
(d)
Does not include acquired fund fees and expenses, if any.
24
VVIF-RS-SEMVIP-PRO (05/25)
By mail:
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
You may write to your
participating insurance company
at the address listed in the
separate account prospectus.
P.O. Box 182593
Columbus, OH 43218-2593
Columbus, OH 43218-2593
Statement of Additional Information (SAI): The Fund’s Statement of Additional Information (“SAI”), dated May 1, 2025, as revised from time to time, contains more information about the Fund's operations, investment restrictions, policies, and practices. The SAI is incorporated by reference into this Prospectus, which means that it is legally part of this Prospectus, even if you do not request a copy.
Annual/ Semi Annual Reports and Form N-CSR/Form N-CSRS: Annual and semi annual reports contain more information about the Fund's investments and the market conditions and investment strategies that significantly affected the Fund's performance during the most recent fiscal period. The Fund’s Form N-CSR and Form N-CSRS filings contain the Fund’s annual and semi annual financial statements. The financial statements included in the Fund's Form N-CSR for the fiscal year ended December 31, 2024, are incorporated by reference into this Prospectus.
How to Obtain Information: You may obtain a free copy of the SAI, annual and semi annual reports and other information such as Fund financial statements, or make shareholder inquiries by calling or writing to your participating insurance company at the toll-free number or address listed in the separate account prospectus. Some of the information described herein, including the SAI, annual and semi annual reports and other information such as Fund financial statements, and periodic disclosure of portfolio holdings, are available, free of charge, at VictoryFunds.com.
By telephone:
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
Call your participating insurance company at the toll-free
number listed in the separate account prospectus.
You also can get information about the Fund (including the SAI, other reports, and other information such as Fund financial statements) from the Securities and Exchange Commission (SEC) on the SEC's Edgar database at sec.gov or, after paying a duplicating fee, by electronic request sent to the following e-mail address: [email protected].
Investment Company Act File Number 811-08979
VICTORY VARIABLE INSURANCE FUNDS
STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2025
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FUND NAME
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CLASS
|
|
Victory RS Small Cap Growth Equity VIP Series
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I
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Victory RS International VIP Series
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I
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Victory Sophus Emerging Markets VIP Series
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I
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Victory High Yield VIP Series
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I
|
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Victory 500 Index VIP Series
|
I
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(each a “Fund” and together, the “Funds”)
Each Fund is a series of Victory Variable Insurance Funds (the “Trust”)
This Statement of Additional Information (“SAI”) is not a prospectus and should be
read in conjunction with each Fund’s prospectus, dated May 1, 2025, as it may be amended or supplemented from time to time (each, a
“Prospectus”). This SAI is incorporated by reference, in its entirety, into each Prospectus. Copies of the Prospectus of each
Fund can be obtained without charge upon request made to Victory Funds, P.O. Box 182593, Columbus, Ohio 43218-2593, by calling toll free
800-539-FUND (800-539-3863) or at VictoryFunds.com or by calling your participating insurance company at the toll free number indicated
on the separate account prospectus.
This SAI incorporates by reference the Funds’ Financial Statements and Other Information
for the fiscal year ended December 31, 2024, including the reports of Cohen & Company, Ltd., the Funds’ independent registered
public accounting firm, which is available, without charge, at vcm.com. This information is also available by writing to the address
or calling the phone number noted above or by calling your participating insurance company at the toll free number indicated
on the prospectuses related to the insurance company separate accounts for which a Fund is an investment option.
TABLE OF CONTENTS
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58
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The Trust was organized as a Delaware statutory trust on February 11, 1998. The Trust
is an open-end management investment company. The Trust currently consists of six series of units of beneficial interest
(“shares”).
Victory Capital Management Inc. (the “Adviser” or “Victory Capital”) is the Funds’
investment adviser. Each Fund’s investment objective(s), restrictions and policies are more fully described below and in each
Fund’s Prospectus. The Trust’s Board of Trustees (the “Board” or “Trustees”) may organize and offer shares of a new fund or a new share
class of an existing Fund or liquidate a Fund or share class at any time. Each Fund is an open-end, management investment company under
the Investment Company Act of 1940, as amended (the “1940 Act”).
For purposes of this SAI, the Victory RS Small Cap Growth Equity VIP Series, Victory
RS International VIP Series, Victory Sophus Emerging Markets VIP Series and Victory 500 Index VIP Series are referred to as the
“Equity Funds,” and the Victory High Yield VIP Series is referred to as the “Bond Fund.”
Much of the information contained in this SAI expands on subjects discussed in each
Fund’s Prospectus. Capitalized terms not defined herein are used as defined in the Prospectuses. No investment in shares of a Fund
should be made without first reading that Fund’s Prospectus.
INVESTMENT OBJECTIVES, POLICIES, AND LIMITATIONS
Investment Objectives
Each Fund’s investment objective is non-fundamental, meaning it may be changed by
a vote of the Trustees without a vote of the holders of a majority of the Fund’s outstanding voting securities. There can be no
assurance that a Fund will achieve its investment objective.
Investment Policies and Limitations of the Funds
Unless a policy of a Fund is expressly deemed to be a fundamental policy, changeable
only by an affirmative vote of the holders of a majority of that Fund’s outstanding voting securities, the Fund’s policies are non-fundamental
and may be changed without a shareholder vote.
A Fund may, following notice to its shareholders, employ other investment practices
that presently are not contemplated for use by the Fund or that currently are not available but that may be developed to the extent such
investment practices are both consistent with the Fund’s investment objective and legally permissible for the Fund. Such investment
practices, if they arise, may involve risks that exceed those involved in the activities described in the Fund’s Prospectus.
A Fund’s classification and sub-classification is a matter of fundamental policy.
Each Fund is classified as an open-end investment company. Each Fund is sub-classified as a diversified investment company, which under
the 1940 Act means that, with respect to 75% of a Fund’s total assets, the Fund may not invest in securities of any issuer if,
immediately after such investment, (i) more than 5% of the total assets of the Fund (taken at current value) would be invested in the
securities of that issuer or (ii) more than 10% of the outstanding voting securities of the issuer would be held by the Fund (this limitation
does not apply to obligations of the U.S. government, its agencies or instrumentalities, and securities of other investment
companies). A diversified fund is not subject to this limitation with respect to the remaining 25% of its total assets. In addition, each
Fund has elected to qualify as a “regulated investment company” under the United States Internal Revenue Code of 1986, as amended (the “Code”).
To qualify as a regulated investment company, the Funds must meet certain diversification requirements as determined at
the close of each quarter of each taxable year. The Code’s diversification test is described in “TAXES.”
Fundamental Investment Policies and Limitations of the Funds
The following investment policies and limitations are fundamental and may not be changed
without the affirmative vote of the holders of a majority of the Fund’s outstanding shares, as defined under the 1940 Act. Under
the 1940 Act, the vote of a majority of the outstanding shares of the Fund means the affirmative vote of the lesser of (a) 67%
or more of the shares of the Fund present at a meeting at which the holders of more than 50% of the outstanding shares of the Fund are represented
in person or by proxy, or (b) more than 50% of the outstanding shares of the Fund. Portions of the Funds’ fundamental investment
restrictions (e.g., references to “except as permitted under the 1940 Act, and as interpreted or modified from time to time by
regulatory authorities having jurisdiction”) provide the Funds with flexibility to change limitations in connection with changes in applicable
law, rules, regulations or exemptive relief. The language used in these restrictions provides the necessary flexibility to allow the
Board to respond efficiently to these kinds of developments without the delay and expense of a shareholder meeting.
1
Senior Securities
None of the Funds may issue senior securities, except as permitted under the 1940
Act, and as interpreted or modified from time to time by regulatory authorities having jurisdiction.
Rule 18f-4 under the 1940 Act permits a Fund to enter into Derivatives Transactions
(as defined below) and certain other transactions notwithstanding the restrictions on the issuance of “senior securities” under Section
18 of the 1940 Act. Section 18 of the 1940 Act, among other things, prohibits open-end funds, including the Funds, from issuing or
selling any “senior security,” other than borrowing from a bank (subject to a requirement to maintain 300% “asset coverage”).
Under Rule 18f-4, “Derivatives Transactions” include the following: (1) any swap,
security-based swap (including a contract for differences), futures contract, forward contract, option (excluding purchased options),
any combination of the foregoing, or any similar instrument, under which the Fund is or may be required to make any payment or delivery
of cash or other assets during the life of the instrument or at maturity or early termination, whether as margin or settlement payment
or otherwise; (2) any short sale borrowing; (3) reverse repurchase agreements and similar financing transactions (e.g., recourse
and non-recourse tender option bonds, and borrowed bonds), if the Fund elects to treat these transactions as Derivatives Transactions
under Rule 18f-4; and (4) when-issued or forward-settling securities (e.g., firm and standby commitments, including to-be-announced
(“TBA”) commitments, and dollar rolls) and non-standard settlement cycle securities, unless a Fund intends to physically
settle the transaction and the transaction will settle within 35 days of its trade date.
Unless a Fund is relying on the Limited Derivatives User Exception (as defined below),
a Fund must comply with Rule 18f-4 with respect to its Derivatives Transactions. Rule 18f-4, among other things, requires
the Funds to adopt and implement a comprehensive written derivatives risk management program (“DRMP”) and comply with a relative or
absolute limit on Fund leverage risk calculated based on value-at-risk (“VaR”). The DRMP is administered by a “derivatives risk manager,”
who is appointed by the Board, including a majority of Independent Trustees, and periodically reviews the DRMP and reports
to the Board.
Rule 18f-4 provides an exception from the DRMP, VaR limit and certain other requirements
if the Fund’s “derivatives exposure” (as defined in Rule 18f-4) is limited to 10% of its net assets (as calculated in accordance
with Rule 18f-4) and the Fund adopts and implements written policies and procedures reasonably designed to manage its derivatives
risks (the “Limited Derivatives User Exception”). As of the date of this SAI, the Funds rely on the Limited Derivatives
User Exception.
Underwriting
None of the Funds may underwrite securities issued by others, except to the extent
that a Fund may be considered an underwriter within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in the
disposition of restricted securities.
Borrowing
None of the Funds may borrow money, except as permitted under the 1940 Act, or by
order of the SEC and as interpreted or modified from time to time by regulatory authorities having jurisdiction.
A Fund’s ability to borrow money is limited by its investment policies and limitations,
by the 1940 Act, and by applicable exemptions, no action letters, interpretations, and other pronouncements issued from time to time
by regulatory authorities, including the SEC and its staff. Under the 1940 Act, a Fund is required to maintain continuous asset coverage
(that is, total assets including the proceeds of borrowings, less liabilities excluding borrowings) of not less than 300% of the amount
borrowed, with an exception for borrowings not in excess of 5% of the Fund’s total assets made for temporary purposes. Any borrowings
for temporary purposes in excess of 5% are subject to the minimum 300% asset coverage requirement. If the value of the assets
set aside to meet the 300% asset coverage were to decline below 300% due to market fluctuations or other causes, a Fund may be required
to sell some of its portfolio holdings within three days (excluding Sundays and holidays) to reduce the debt and comply with the
300% minimum asset coverage requirement, even in circumstances where it is considered disadvantageous from an investment perspective
to sell securities at that time or at the prices then available.
Real Estate
None of the Funds may purchase or sell real estate unless acquired as a result of
direct ownership of securities or other instruments. This restriction shall not prevent any of these Funds from investing in the following:
(i) securities or other instruments backed by real estate; (ii) securities of real estate operating companies; or (iii) securities of
companies engaged in the real estate business, including real estate investment trusts. This restriction does not preclude any of these Funds
from buying securities backed by mortgages on real estate or securities of companies engaged in such activities.
2
Lending
None of the Funds may make loans, except as permitted under the 1940 Act, and as interpreted
or modified from time to time by regulatory authorities having jurisdiction.
Generally, the 1940 Act prohibits loans if a fund’s investment policies do not permit
loans, and if the loans are made, directly or indirectly, to persons deemed to control or to be under common control with the registered
investment company.
Commodities
None of the Funds may purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent a Fund from purchasing or selling options, futures contracts
or other derivatives instruments, or from investing in securities or other instruments backed by physical commodities).
Diversification
Each Fund is a diversified investment company.
Under the 1940 Act a fund’s sub-categorization as a diversified fund is a fundamental
policy. Diversified under the 1940 Act is defined to mean that the fund may not (as to 75% of the fund’s total assets) purchase any
security (other than obligations of the U.S. government, its agencies or instrumentalities and securities of other investment companies)
if as a result (i) more than 5% of the fund’s total assets (taken at current value) would then be invested in securities of a single
issuer or (ii) more than 10% of the outstanding voting securities of that issuer would be held by the fund.
Concentration
None of the Funds may concentrate its investments in a particular industry, as the
term “concentration” is used in the 1940 Act, and as interpreted or modified from time to time by regulatory authorities having jurisdiction.
For purposes of the 1940 Act, “concentration” means investing more than 25% of a Fund’s net assets in a particular industry or a
specified group of industries.
For purposes of the Funds’ fundamental policy on concentration, (1) loan participations
will be considered investments in the industry of the underlying borrower, rather than that of the seller of the loan participation,
(2) municipal obligations, excluding private activity municipal debts securities, are not considered a separate industry; private activity
municipal debt securities whose principal and interest payments are derived principally from the assets and revenues of a non-governmental
entity will be assigned to the industry related to such non-governmental entity, (3) the Victory 500 Index VIP Series may concentrate
its investments to the extent necessary from time to time to replicate the composition of the Victory US Large Cap 500 Index in
accordance with the Fund’s investment objective, and (4) for purposes of calculating concentration of investments in the utility and
finance categories, each Fund will operate as follows: neither finance companies as a group nor utility companies as a group are
considered a single industry for purposes of the Fund’s concentration policy (i.e., finance companies will be considered a part of
the industry they finance and utilities will be divided according to the types of services they provide).
Non-Fundamental Investment Policies and Limitations of the Funds
The following investment restrictions are non-fundamental and may be changed by a
vote of a majority of the Trustees.
Illiquid Investments
No Fund may invest more than 15% of its net assets in illiquid investments.
Rule 22e-4 under the 1940 Act (the “Liquidity Rule”) requires the Funds to establish
a liquidity risk management program. The Liquidity Rule defines “illiquid investment” as any investment that a Fund reasonably
expects cannot be sold or disposed of in current market conditions in seven or fewer calendar days without the sale or disposition
significantly changing the market value of the investment. Such investments include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Investments that may be resold under the Liquidity Rule, investments offered
pursuant to Section 4(a)(2) of the Securities Act, or investments otherwise subject to restrictions or limitations on resale under the
Securities Act shall not be deemed illiquid solely by reason of being unregistered. Victory Capital, under oversight of the Board, determines
whether a particular investment is deemed to be liquid based on the trading markets for the specific investment and other factors.
3
VICTORY US LARGE CAP 500 INDEX
Index and Index Provider
The Victory US Large Cap 500 Index (the “Victory 500 Index”) is an unmanaged, market-cap
weighted index that consists of the largest 500 companies within the VettaFi US Equity 3000 IndexSM (“Parent Index”). The Parent Index measures the performance of all U.S. equity securities with readily available price data. The Victory 500 Index was created
by the Adviser in conjunction with VettaFi LLC (“Index Provider”), an unaffiliated third party, and it is currently administered,
calculated, and published by the Index Provider. The Index Provider calculates and disseminates the Victory 500 Index on a daily basis.
A description of the Victory 500 Index VIP Series’ (the “500 Fund”) use of the Victory 500 Index is included in that Fund’s Prospectus
under “Principal Investment Strategies,” and additional details about the Victory 500 Index are provided below.
The Victory 500 Index’s performance prior to the first publish date has been back-tested
applying the same methodology based on fundamental criteria that was in effect when the Victory 500 Index was first published
and is considered hypothetical. The Victory 500 Index is not sponsored by the Index Provider or its affiliates.
Rebalancing
The Victory 500 Index is rebalanced semi-annually. In conjunction with rebalancing,
the Victory 500 Index’s rules are applied to its universe of publicly traded securities in order to determine which securities are
eligible for inclusion in the Victory 500 Index. New securities are added to the Victory 500 Index only on the rebalancing dates and only
securities that comply with the Victory 500 Index’s methodology are eligible to be included in the Victory 500 Index. Securities that
no longer meet eligibility for the Victory 500 Index upon rebalancing are omitted.
Maintenance
The Index Provider maintains the Victory 500 Index throughout the year, which includes
monitoring and adjustments for company additions and deletions, stock splits, corporate restructurings, and other corporate
actions. Corporate actions generally are implemented after the close of trading on the day prior to the ex-date of such corporate actions.
A security also may be removed from the Victory 500 Index in between rebalancing if it no longer represents an investable asset due
to legal constraints or other independent factors.
Warranty; Errors
Neither the Adviser nor the 500 Fund make any representation or warranty, express
or implied, including without limitation to the 500 Fund’s shareholders or any member of the public regarding the advisability of investing
in securities generally or in the 500 Fund particularly or the ability of the Victory 500 Index to track general stock market
performance. The 500 Fund does not pay a fee to the Adviser for creating and providing the Victory 500 Index, but the Fund pays a fee
to the Index Provider for its services. The Index Provider has no obligation to take the needs of the 500 Fund’s shareholders into consideration
in determining, composing, or calculating the Victory 500 Index. Neither the Adviser nor the 500 Fund guarantees the accuracy,
completeness, availability or performance of the Victory 500 Index or the data included therein and shall have no liability in connection
with the Victory 500 Index or its calculation, including any errors or omissions in calculating the Victory 500 Index. Errors with
respect to the quality, accuracy, and completeness of the data within the Victory 500 Index may occur from time to time and may not be
identified and corrected for a period of time, if at all. Any gains, losses, or costs to the 500 Fund as a result of errors in the
Index will be borne by the 500 Fund.
INVESTMENT PRACTICES, INSTRUMENTS, AND RISKS
In addition to the principal investment strategies and the principal risks of the
Funds described in the Prospectus, each Fund may, but will not necessarily, employ other investment practices and may be subject to additional
risks which are described further below. Because the following is a combined description of investment strategies and risks
for all of the Funds, certain strategies and/or risks described below may not apply to your Fund. Unless a strategy or policy described
below is specifically prohibited with respect to a particular Fund by the investment restrictions listed in the Prospectus, under “Investment
Objectives, Policies, and Limitations of the Funds” in this SAI, or by applicable law, a Fund may, but will not necessarily, engage
in each of the practices described below.
Victory Capital serves as investment adviser to the Funds. Victory Capital and a Fund’s
sub-adviser, if applicable, are each referred to in this section as an “Adviser.”
Equity Securities
Equity securities represent ownership interests in a company or partnership and consist
of common stocks, preferred stocks, warrants to acquire common stock, securities convertible into common stock, and investments
in master limited partnerships (“MLPs”). Investments in equity securities in general are subject to market risks that may cause
their prices to fluctuate over time. Fluctuations
4
in the value of equity securities in which a Fund invests will cause the net asset
value of a Fund to fluctuate. A Fund may purchase equity securities traded in the United States on registered exchanges or the over-the-counter
market. Among other types of securities described further below, equity securities include:
Common stocks represent an equity or ownership interest in an issuer. In the event an issuer is
liquidated or declares bankruptcy, the claims of owners of bonds and preferred stock take precedence over the claims
of those who own common stock.
Preferred stocks combine qualities both of equity and debt securities. Individual issues of preferred
stock will have those rights and liabilities that are spelled out in the governing document. Preferred stocks usually
pay a fixed dividend per quarter (or annum) and are senior to common stock in terms of liquidation and dividend rights and preferred
stocks typically do not have voting rights.
Warrants give a Fund the right to purchase equity securities from the issuer at a specific
price (the strike price) for a limited period of time. The strike price of warrants typically is much lower than the current market
price of the underlying securities, yet warrants are subject to greater price fluctuations. As a result, warrants may be more volatile
investments than the underlying securities and may offer greater potential for capital appreciation as well as capital loss.
Unlike bondholders, who have preference to a company’s earnings and cash flow, preferred
stockholders, followed by common stockholders in order of priority, are entitled only to the residual amount after
a company meets its other obligations. For this reason, the value of a company’s stock will usually react more strongly to actual or perceived
changes in the company’s financial condition or prospects than its debt obligations. Stockholders of a company that fares poorly
can lose money.
Stock markets tend to move in cycles with short or extended periods of rising and
falling stock prices. The value of a company’s stock may fall because of, among other reasons: factors that directly relate to that company,
such as decisions made by its management or lower demand for the company’s products or services; factors affecting an entire industry,
such as increases in production costs; and changes in general financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency exchange rates or inflation rates. Because preferred stock is generally
junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes
in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics.
Derivatives
A Fund may enter into derivatives transactions for a variety of purposes, including,
but not limited to: hedging risks; taking a net long or short position in certain investments or markets; providing liquidity in the Fund;
equitizing cash; minimizing transaction costs; generating income; adjusting a Fund’s sensitivity to risk; replicating certain direct
investments; and asset and sector allocation.
The use of derivatives is a highly specialized activity that can involve investment
techniques and risks different from, and in some respects greater than, those associated with investing in more traditional investments
such as stocks and bonds. Derivatives may have a return that is tied to a formula based upon an interest rate, index or other measurement,
which may differ from the return of a simple security of the same maturity. A formula may have a cap or other limitation on the
rate of interest to be paid. Derivatives may have varying degrees of volatility at different times, or under different market conditions,
may perform in unanticipated ways, and may create leverage, which may amplify gains or losses.
Rule 18f-4 regulates the use of derivatives for certain funds registered under the
1940 Act. Unless a Fund qualifies as a “limited derivatives user,” Rule 18f-4 requires, among other things, that the Funds establish
a comprehensive derivatives risk management program, to comply with certain value-at-risk based leverage limits, to appoint a
derivatives risk manager and to provide additional disclosure both publicly and to the SEC regarding its derivatives positions. Rule
18f-4 also has eliminated the general asset segregation requirement in connection with certain derivatives transactions, in light of Rule
18f-4’s requirements for funds to establish and maintain derivatives risk management programs that comply with certain risk-based limits. For
Funds that qualify as limited derivatives users, Rule 18f-4 requires policies and procedures to manage aggregate derivatives risk.
These requirements could have an impact on a Fund, including a potential increase in cost to enter into derivatives transactions. The
full impact of Rule 18f-4 on the Funds, however, remains uncertain.
Options. A Fund may purchase and sell put and call options on its portfolio securities to
enhance investment performance and to protect against changes in market prices. There is no assurance that a Fund’s use of put and
call options will achieve its desired objective, and a Fund’s use of options may result in losses to the Fund.
Covered call options. A Fund may write covered call options (as defined below) on its securities to realize
a greater current return through the receipt of premiums than it would realize on its securities alone. Such
option transactions may also be used as a limited form of hedging against a decline in the price of securities owned by the Fund.
A call option gives the holder the right to purchase, and obligates the writer to
sell, a security at the exercise price at any time before the expiration date. A call option is “covered” if the writer, at all times while
obligated as a writer, either owns the underlying securities
5
(or comparable securities satisfying the cover requirements of the securities exchanges),
or has the right to acquire such securities through immediate conversion of securities.
A Fund will receive a premium from writing a call option, which increases the Fund’s
return on the underlying security in the event the option expires unexercised or is closed out at a profit. The amount of the premium
reflects, among other things, the relationship between the exercise price and the current market value of the underlying security,
the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply
and demand in the options market and in the market for the underlying security.
In return for the premium received when it writes a covered call option, a Fund gives
up some or all of the opportunity to profit from an increase in the market price of the securities covering the call option during
the life of the option. The Fund retains the risk of loss should the price of such securities decline. If the option expires unexercised, the
Fund realizes a gain equal to the premium, which may be offset by a decline in price of the underlying security. If the option is exercised,
the Fund realizes a gain or loss equal to the difference between the Fund’s cost for the underlying security and the proceeds of sale (exercise
price minus commissions) plus the amount of the premium.
A Fund may terminate a call option that it has written before it expires by entering
into a closing purchase transaction. A Fund may enter into closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a previously written call option, or protect a security from being
called in an unexpected market rise. Any profits from a closing purchase transaction may be offset by a decline in the value of the
underlying security. Conversely, because increases in the market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
Covered put options. A Fund may write covered put options in order to enhance its current return. Such
options transactions may also be used as a limited form of hedging against an increase in the price of securities
that the Fund plans to purchase. A put option gives the holder the right to sell, and obligates the writer to buy, a security at the exercise
price at any time before the expiration date. A put option may be “covered” if the writer earmarks or otherwise segregates liquid assets
equal to the price to be paid if the option is exercised minus margin on deposit.
In addition to the receipt of premiums and the potential gains from terminating such
options in closing purchase transactions, a Fund also receives interest on the cash and debt securities maintained to cover the exercise
price of the option. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security
for an exercise price higher than its then current market value, resulting in a potential capital loss unless the security later appreciates
in value.
A Fund may terminate a put option that it has written before it expires by entering
into a closing purchase transaction. Any loss from this transaction may be partially or entirely offset by the premium received on the
terminated option.
Purchasing put and call options. A Fund may also purchase put options to protect portfolio holdings against a decline
in market value. This protection lasts for the life of the put option because the Fund, as a holder
of the option, may sell the underlying security at the exercise price regardless of any decline in its market price. In order for a put option
to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the Fund might have realized had it sold the underlying
security instead of buying the put option.
A Fund may purchase call options to hedge against an increase in the price of securities
that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as
holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security’s
market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above
the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized
had it bought the underlying security at the time it purchased the call option.
A Fund may also purchase put and call options to attempt to enhance its current return.
Options on foreign securities. It is expected that risks related to options on foreign securities will not differ
materially from risks related to options on U.S. securities. However, position limits and other rules of foreign
exchanges may differ from those in the United States. In addition, options markets in some countries, many of which are relatively new,
may be less liquid than comparable markets in the United States.
Options on securities indices. Index options are similar to options on individual securities in that the purchaser
of an index option acquires the right to buy (in the case of a call) or sell (in the case of a put),
and the writer undertakes the obligation to sell or buy (as the case may be), units of an index at a stated exercise price during the term of
the option. Instead of giving the right to take or make actual delivery of securities, the holder of an index option has the right to receive
a cash “exercise settlement amount.” This amount
6
is equal to the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of the exercise, multiplied
by a fixed “index multiplier.”
Price movements in securities which a Fund owns or intends to purchase probably will
not correlate perfectly with movements in the level of a securities index and, therefore, a Fund bears the risk of a loss on a securities
index option which is not completely offset by movements in the price of such securities. Because securities index options are
settled in cash, a call writer cannot determine the amount of its settlement obligations in advance and, unlike call writing on a specific
security, cannot provide in advance for, or cover, its potential settlement obligations by acquiring and holding underlying securities.
A Fund may, however, cover call options written on a securities index by holding a mix of securities which substantially replicate the
movement of the index or by holding a call option on the securities index with an exercise price no higher than the call option sold.
A Fund may purchase or sell options on stock indices in order to close out its outstanding
positions in options on stock indices which it has purchased. A Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or put
options on an index involves less potential risk to a Fund because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves risks similar to those risks relating to the purchase
or sale of index futures contracts.
Risks involved in the sale of options. The successful use of a Fund’s options strategies depends on the ability of an Adviser
to forecast correctly interest rate and market movements. For example, if a Fund were to write
a call option based on an Adviser’s expectation that the price of the underlying security would fall, but the price were to rise instead,
the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if a Fund were
to write a put option based on an Adviser’s expectation that the price of the underlying security would rise, but the price were to fall instead,
the Fund could be required to purchase the security upon exercise at a price higher than the current market price.
When a Fund purchases an option, it runs the risk that it will lose its entire investment
in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction before
the option’s expiration. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an
extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option.
This contrasts with an investment by a Fund in the underlying security, since the Fund will not realize a loss if the security’s price
does not change.
The effective use of options also depends on a Fund’s ability to terminate option
positions. There is no assurance that a Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary market in options were to become unavailable, a Fund could no longer
engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options
or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily
unavailable if unusual events — such as volume in excess of trading or clearing capability — were to interrupt its normal
operations.
A market may at times find it necessary to impose restrictions on particular types
of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the
market or the Options Clearing Corporation, new series of options on that security will no longer be opened to replace expiring series,
and opening transactions in existing series may be prohibited. If an options market were to become unavailable, a Fund as a holder
of an option would be able to realize profits or limit losses only by exercising the option, and the Fund, as option writer, would remain
obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options purchased or sold
by a Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security
is normally halted as well. As a result, a Fund as purchaser or writer of an option will be unable to close out its positions until
options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different
price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise
is imposed at the time when trading in the option has also been halted, a Fund as purchaser or writer of an option will be locked into
its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to determine that the available
supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event
of exercise, it may prohibit indefinitely the exercise of put options. A Fund, as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option’s expiration.
Foreign-traded options are subject to many of the same risks presented by internationally
traded securities. In addition, because of time differences between the United States and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S.
markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
7
Over-the-counter (“OTC”) options purchased by a Fund and assets held to cover OTC
options written by a Fund may, under certain circumstances, be considered illiquid securities for purposes of any limitation on
the Fund’s ability to invest in illiquid investments.
Special Expiration Price Options. A Fund may purchase OTC puts and calls with respect to specified securities (“special
expiration price options”) pursuant to which the Funds in effect may create a custom index relating
to a particular industry or sector that an Adviser believes will increase or decrease in value generally as a group. In exchange for
a premium, the counterparty, whose performance is guaranteed by a broker-dealer, agrees to purchase (or sell) a specified number of
shares of a particular stock at a specified price and further agrees to cancel the option at a specified price that decreases straight line
over the term of the option. Thus, the value of the special expiration price option is comprised of the market value of the applicable
underlying security relative to the option exercise price and the value of the remaining premium. If the value of the underlying security
increases (or decreases) by a prenegotiated amount, however, the special expiration price option is canceled and becomes worthless.
A portion of the dividends during the term of the option are applied to reduce the exercise price if the options are exercised.
Brokerage commissions and other transaction costs will reduce these Funds’ profits if the special expiration price options are exercised.
A Fund will not purchase special expiration price options with respect to more than 25% of the value of its net assets, and will limit
premiums paid for such options in accordance with state securities laws.
Swap Contracts
Credit Swaps. The Bond Fund may invest in credit default swaps and credit default index investments.
Credit derivatives allow a Fund to manage credit risk through buying and selling credit protection on specific issuers
or a basket of issuers. In a credit default swap, one party pays, in effect, an insurance premium through a stream of payments to another
party in exchange for the right to receive a specified return in the event of default (or similar events) by one or more third
parties, such as a U.S. or foreign issuer or basket of such issuers, on their obligations. For example, as a purchaser of protection in a
credit default swap, a Fund may pay a premium in return for the right to put specified bonds or loans to the counterparty upon issuer
default (or similar events) at their par (or other agreed-upon) value. As a purchaser in a credit default swap, a Fund would have the
risk that the investment might expire worthless. It also would involve counterparty risk — the risk that the counterparty may fail
to satisfy its payment obligations to the Fund in the event of a default (or similar event). In addition, as a purchaser in a credit default
swap, the Fund’s investment would only generate income in the event of an actual default (or similar event) by the issuer of the underlying
obligation. As a seller of protection in a credit default swap, a Fund would in effect take a long position in the underlying security
since it would be obligated to purchase the security from its counterparty upon issuer default or similar events.
In addition, the Bond Fund may enter into interest rate swaps. Interest rate swaps
involve the exchange between two parties of their respective commitments to pay or receive interest. For example, the Fund may agree
with a counterparty to pay a fixed rate (multiplied by a notional amount) and the counterparty pay a floating rate multiplied by the same
notional amount. Interest rate swaps can take a variety of other forms, such as agreements to pay the net differences between two
different interest indexes or rates, even if the parties do not own the underlying instruments. The function of interest rate swaps generally
is to increase or decrease a Fund’s exposure to long or short-term interest rates. For example, a Fund may enter into an interest
rate swap transaction to preserve a return or spread on a particular investment or a portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later date.
Fixed Income Total Return Swaps. The Bond Fund may enter into total return swaps. Generally, a total return swap
is an agreement between two parties, pursuant to which one pays (and the other receives) an amount
equal to the total return of an underlying reference asset in exchange for a regular payment, at a fixed or floating rate or the total
rate of return of another financial instrument. The payment amount typically includes, among other things, income and capital gains distributions,
principal repayment, or credit losses. Underlying reference assets typically include, among other things, a note, bond, or a securities
index. A Fund may take either side in a total return swap. That is, a Fund may receive or pay the total return on the underlying reference
asset. A fixed income total return swap may be written on many different kinds of underlying reference assets, and may include different
indices for various kinds of debt securities (for example, U.S. investment-grade bonds, high yield bonds, or emerging market bonds).
A fixed income total return swap is similar to other kinds of swaps, such as interest rate swaps involving payment streams that
are exchanged between a fund and the counterparty.
Futures Contracts
A Fund may enter into interest rate futures contracts and securities index futures
contracts (collectively referred to as “financial futures contracts”) for hedging or other purposes. Interest rate futures contracts obligate
the long or short holder to take or make delivery of a specified quantity of a financial instrument during a specified future period at
a specified price. Securities index futures contracts, which are contracts to buy or sell units of a securities index at a specified future
date at a price agreed upon when the contract is made, are similar in economic effect, but they are based on a specific index of securities
(rather than on specified securities) and are settled in cash.
The following example illustrates generally the manner in which index futures contracts
operate. The Standard & Poor’s 100 Stock Index (the “S&P 100 Index”) is composed of 100 selected common stocks, most of which
are listed on the New York Stock Exchange
8
(the “NYSE”). The S&P 100 Index assigns relative weightings to the common stocks included
in the Index, and the Index fluctuates with changes in the market values of those common stocks. In the case of the S&P 100
Index, contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one contract would be worth $18,000
(100 units x $180). The stock index futures contract specifies that no delivery of the actual stocks making up the index will
take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract
to buy 100 units of the S&P 100 Index at a specified future date at a contract price of $180 and the S&P 100 Index is at $184
on that future date, the Fund will gain $400 (100 units x gain of $4). If the Fund enters into a futures contract to sell 100 units
of the stock index at a specified future date at a contract price of $180 and the S&P 100 Index is at $182 on that future date, the Fund will
lose $200 (100 units x loss of $2).
Positions in index futures may be closed out only on an exchange or board of trade
which provides a secondary market for such futures.
There are special risks associated with entering into financial futures contracts.
The skills needed to use financial futures contracts effectively are different from those needed to select a Fund’s investments. There
may be an imperfect correlation between the price movements of financial futures contracts and the price movements of the securities
in which a Fund invests. There is also a risk that a Fund will be unable to close a futures position when desired because there is no
liquid secondary market for it.
The risk of loss in trading financial futures can be substantial due to the low margin
deposits required and the extremely high degree of leverage involved in futures pricing. Relatively small price movements in a financial
futures contract could have an immediate and substantial impact, which may be favorable or unfavorable to a Fund. It is possible
for a price-related loss to exceed the amount of a Fund’s margin deposit.
Although some financial futures contracts by their terms call for the actual delivery
or acquisition of securities at expiration, in most cases the contractual commitment is closed out before expiration. The offsetting of
a contractual obligation is accomplished by purchasing (or selling as the case may be) on a commodities or futures exchange an
identical financial futures contract calling for delivery in the same month. Such a transaction, if effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities. A Fund will incur brokerage fees when it purchases or
sells financial futures contracts, and will be required to maintain margin deposits. If a liquid secondary market does not exist when a Fund
wishes to close out a financial futures contract, it will not be able to do so and will continue to be required to make daily cash payments
of variation margin in the event of adverse price movements.
Margin Payments. When a Fund purchases or sells a futures contract, it is required to deposit with
its futures commission merchant or other clearing broker an amount of cash, U.S. Treasury Bills, or other permissible
collateral equal to a small percentage of the amount of the futures contract. This amount is known as “initial margin.” The nature of initial
margin is different from that of margin in security transactions in that it does not involve borrowing money to finance transactions.
Rather, initial margin is similar to a performance bond or good faith deposit that is returned to a Fund upon termination of the contract,
assuming the Fund satisfies its contractual obligations.
Subsequent payments are received or made by a Fund, depending on the daily fluctuations
in the values of the contract, in a process known as “marking to market.” These payments are called “variation margin.” For example,
when a Fund sells a futures contract and the price of the underlying index rises above the delivery price, the Fund’s position
declines in value. The Fund then pays the broker a variation margin payment equal to the difference between the delivery price of the
futures contract and the value of the index underlying the futures contract. Conversely, if the price of the underlying index
falls below the delivery price of the contract, the Fund’s futures position increases in value. The broker then must make a variation margin
payment equal to the difference between the delivery price of the futures contract and the value of the index underlying the futures contract.
When a Fund terminates a position in a futures contract, a final determination of
variation margin is made, additional cash is paid by or to the Fund, and the Fund realizes a loss or a gain. Such closing transactions
involve additional commission costs.
Options on Financial Futures Contracts. A Fund may purchase and write call and put options on financial futures contracts.
An option on a financial futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option
is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the holder would assume the
underlying futures position and would receive a variation margin payment of cash or securities approximating the increase in the value
of the holder’s option position. If an option is exercised on the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash based on the difference between the exercise price of the option and the closing level of the index
on which the futures contract is based on the expiration date. Purchasers of options who fail to exercise their options prior to
the exercise date suffer a loss of the premium paid.
Special Risks of Transactions in Futures Contracts and Related Options. Financial futures contracts entail risks. If an Adviser’s judgment about the general direction of interest rates or markets is wrong, the Fund’s
overall performance may be poorer than if no
9
financial futures contracts had been entered into. For example, in some cases, securities
called for by a financial futures contract may not have been issued at the time the contract was written. In addition, the market
prices of financial futures contracts may be affected by certain factors.
Liquidity Risks. Positions in futures contracts may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds intend to purchase or sell futures only
on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a liquid secondary market
on an exchange or board of trade will exist for any particular contract or at any particular time. If there is not a liquid secondary
market at a particular time, it may not be possible to close a futures position at such time and, in the event of adverse price movements,
a Fund would continue to be required to make daily cash payments of variation margin. However, in the event financial futures are
used to hedge portfolio securities, such securities will not generally be sold until the financial futures can be terminated. In such
circumstances, an increase in the price of the portfolio securities, if any, may partially or completely offset losses on the financial futures.
The ability to establish and close out positions in options on futures contracts will
be subject to the development and maintenance of a liquid secondary market. It is not certain that such a market will develop. Although
a Fund generally will purchase only those options for which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option or at any particular time. In the event no such market
exists for particular options, it might not be possible to effect closing transactions in such options, with the result that a Fund would
have to exercise the options in order to realize any profit.
Hedging Risks. There are several risks in connection with the use by a Fund of futures contracts
and related options as a hedging device. One risk arises because of the imperfect correlation between movements in the prices
of the futures contracts and options and movements in the underlying securities or index or movements in the prices of a Fund’s
securities which are the subject of a hedge. This risk may be reduced by purchasing and selling, to the extent possible, futures
contracts and related options on securities and indexes the movements of which will generally correlate closely with movements in
the prices of the underlying securities or index and the Fund’s portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Fund for hedging purposes is
also subject to an Adviser’s ability to predict correctly movements in the direction of the market. It is possible that, where a Fund has purchased
puts on futures contracts to hedge its portfolio against a decline in the market, the securities or index on which the puts are purchased
may increase in value and the value of securities held in the portfolio may decline. If this occurred, the Fund would lose money on
the puts and also experience a decline in the value of its portfolio securities. In addition, the prices of futures, for a number of reasons,
may not correlate perfectly with movements in the underlying securities or index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such requirements may cause investors to close futures contracts
through offsetting transactions which could distort the normal relationship between the underlying security or index and futures
markets. Second, the margin requirements in the futures markets are less onerous than margin requirements in the securities markets
in general, and as a result the futures markets may attract more speculators than the securities markets do. Increased participation by
speculators in the futures markets may also cause temporary price distortions. Due to the possibility of price distortion, even a correct
forecast of general market trends by an Adviser still may not result in a successful hedging transaction over a very short time period.
Other Risks. A Fund will incur brokerage fees in connection with its futures and options transactions.
In addition, while futures contracts and options on futures will be purchased and sold to reduce certain risks,
those transactions themselves entail certain other risks. Thus, while a Fund may benefit from the use of futures and related options,
unanticipated changes in interest rates or stock price movements may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions. Moreover, in the event of an imperfect correlation between the futures
position and the portfolio position that is intended to be protected, the desired protection may not be obtained and the Fund may be exposed
to risk of loss.
The risks associated with purchasing and writing put and call options on financial
futures contracts can be influenced by the market for financial futures contracts. An increase in the market value of a financial futures
contract on which the Fund has written an option may cause the option to be exercised. In this situation, the benefit to a Fund would
be limited to the value of the exercise price of the option and, if a Fund closes out the option, the cost of entering into the offsetting
transaction could exceed the premium the Fund initially received for writing the option. In addition, a Fund’s ability to enter
into an offsetting transaction depends upon the market’s demand for such financial futures contracts. If a purchased option expires unexercised,
a Fund would realize a loss in the amount of the premium paid for the option.
The Adviser has claimed an exclusion from the definition of the term “commodity pool
operator” in connection with its operation of the Funds pursuant to Rule 4.5 of the U.S. Commodity Futures Trading Commission (the
“CFTC”), (the “exclusion”). Accordingly, the Adviser is not subject to registration or regulation as a “commodity pool operator”
with respect to the Funds. Each Fund’s ability to invest in certain financial instruments regulated under the Commodity Exchange Act
(“commodity interests”) (including, but not limited to, futures and swaps on broad-based securities indexes and interest rates)
is limited by the Adviser’s intention to operate the Fund in a manner that would permit the Adviser to continue to claim the exclusion
under Rule 4.5, which may adversely affect the Fund’s total return. In the event the Adviser becomes unable to rely on the exclusion
in Rule 4.5 with respect to a Fund, and is unable
10
to rely on a different exemption or exclusion from registration (and the Adviser therefore
is required to register with the CFTC as a commodity pool operator with respect to a Fund), the Fund’s expenses may increase,
adversely affecting that Fund’s total return.
Congress, various exchanges, and regulatory and self-regulatory authorities have undertaken
reviews of options and futures trading in light of market volatility. Among the actions that have been taken or proposed to
be taken are new limits and reporting requirements for speculative positions, particularly in the energy markets, new or more stringent
daily price fluctuation limits for futures and options transactions, and increased margin requirements for various types of futures transactions.
Additional measures may be implemented and, as a result, there may be further actions that adversely affect the regulation
of the instruments in which the Funds invest.
Foreign Currency Transactions
A Fund may engage in currency exchange transactions to protect against uncertainty
in the level of future foreign currency exchange rates and to increase current return.
There can be no assurance that appropriate foreign currency transactions will be available
for a Fund at any time or that a Fund will enter into such transactions at any time or under any circumstances even if appropriate
transactions are available to it.
When a Fund engages in foreign currency transactions for hedging purposes, it may
engage in both “transaction hedging” and “position hedging.” When it engages in transaction hedging, a Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale
of its portfolio securities. A Fund may engage in transaction hedging when it desires to “lock in” the U.S. dollar price of a security
it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction
hedging, a Fund may attempt to protect against a possible loss resulting from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold or on which
the dividend or interest payment is declared, and the date on which such payments are made or received.
A Fund may purchase or sell a foreign currency on a spot (i.e., cash) basis at the
prevailing spot rate in connection with transaction hedging. A Fund may also enter into contracts to purchase or sell foreign currencies
at a future date (“forward contracts”) and purchase and sell foreign currency futures contracts.
For transaction hedging purposes, a Fund may also purchase exchange-listed and over-the-counter
call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract
gives a Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives
a Fund the right to sell a currency at a specified exercise price until the expiration of the option. A call option on a futures contract
gives a Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency
gives a Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, a Fund enters into foreign currency exchange
transactions to protect against a decline in the values of the foreign currencies in which securities held by the Fund are denominated or
are quoted in their principal trading markets or an increase in the value of currency for securities which the Fund expects to purchase.
In connection with position hedging, a Fund may purchase put or call options on foreign currency and foreign currency futures contracts
and buy or sell forward contracts and foreign currency futures contracts. A Fund may also purchase or sell foreign currency on a
spot basis.
The precise matching of the amounts of foreign currency exchange transactions and
the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies
will change as a consequence of market movements in the values of those securities between the dates the currency exchange
transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of a Fund’s portfolio
securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being
hedged is less than the amount of foreign currency a Fund is obligated to deliver and if a decision is made to sell the security or securities
and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities of a Fund if the market value of such security or securities exceeds
the amount of foreign currency the Fund is obligated to deliver. To offset some of the costs of hedging against fluctuations in currency
exchange rates, a Fund may write covered call options on those currencies.
Transaction and position hedging do not eliminate fluctuations in the underlying prices
of the securities that a Fund owns or intends to purchase or sell. They simply establish a rate of exchange that one can achieve
at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of
the hedged currency, they tend to limit any potential gain which might result from the increase in the value of such currency.
11
A Fund may also seek to increase its current return by purchasing and selling foreign
currency on a spot basis, by purchasing and selling options on foreign currencies and on foreign currency futures contracts, and by purchasing
and selling foreign currency forward contracts.
The value of any currency, including U.S. dollars and foreign currencies, may be affected
by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies
(and therefore the values of foreign currency options, forward contracts, and futures contracts) may be affected significantly,
fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in
purchasing or selling foreign currency options, forward contracts, and futures contracts, since exchange rates may not be free to
fluctuate in response to other market forces. Foreign governmental restrictions or taxes could result in adverse changes in the cost of
acquiring or disposing of foreign currencies.
Currency Forward and Futures Contracts. A forward foreign currency exchange contract involves an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of days from the
date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable forward contract,
the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally
has no deposit requirement, and no commissions are charged at any stage for trades. A foreign currency futures contract
is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the
time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the
CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency futures contracts
in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date
of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts
agreed upon by the parties rather than predetermined amounts. Also, forward foreign exchange contracts are traded directly
between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Fund may either accept or make
delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase
or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange;
a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be closed
out only on an exchange or board of trade which provides a secondary market in such contracts or options. Although a Fund will normally
purchase or sell foreign currency futures contracts and related options only on exchanges or boards of trade where there appears
to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for
any particular contract or option or at any particular time. In such event, it may not be possible to close a futures or related option position
and, in the event of adverse price movements, a Fund would continue to be required to make daily cash payments of variation margin
on its futures positions.
Foreign Currency Options. Options on foreign currencies operate similarly to options on securities, and are
traded primarily in the over-the-counter market, although options on foreign currencies have been listed on
several exchanges. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time.
Options on foreign currencies are affected by all of those factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the foreign
currency and the U.S. dollar, and may have no relationship to the investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an odd lot market (generally consisting of transactions
of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last-sale information for foreign currencies and
there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large transactions in the interbank market and thus may not
reflect relatively smaller transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies
is a global, around-the-clock market. To the extent that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the
U.S. options markets.
12
Foreign Currency Conversion. Although foreign exchange dealers do not charge a fee for currency conversion, they
do realize a profit based on the difference (the “spread”) between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange
should a Fund desire to resell that currency to the dealer.
Convertible Securities
Convertible securities include bonds, debentures, notes, preferred stocks, and other
securities that may be converted into or exchanged for, at a specific price or formula within a particular period of time, a prescribed
amount of common stock or other equity securities of the same or a different issuer. Convertible securities entitle the holder to receive
interest paid or accrued on debt or dividends paid or accrued on preferred stock until the security matures or is redeemed, converted,
or exchanged.
The market value of a convertible security is a function of its “investment value”
and its “conversion value.” A security’s “investment value” represents the value of the security without its conversion feature (i.e.,
a nonconvertible fixed income security). The investment value may be determined by reference to its credit quality and the current value of
its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of
interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security
in the issuer’s capital structure. A security’s “conversion value” is determined by multiplying the number of shares the holder is entitled to
receive upon conversion or exchange by the current price of the underlying security.
If the conversion value of a convertible security is significantly below its investment
value, the convertible security will trade like nonconvertible debt or preferred stock and its market value will not be influenced
greatly by fluctuations in the market price of the underlying security. Conversely, if the conversion value of a convertible security
is near or above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the
market price of the underlying security.
A Fund’s investments in convertible securities may at times include securities that
have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock or other equity securities
at a specified date and a specified conversion ratio, or that are convertible at the option of the issuer. Because conversion of
the security is not at the option of the holder, a Fund may be required to convert the security into the underlying common stock even at times
when the value of the underlying common stock or other equity security has declined substantially.
A Fund’s investments in convertible securities, particularly securities that are convertible
into securities of an issuer other than the issuer of the convertible security, may be illiquid. A Fund may not be able to dispose
of such securities in a timely fashion or for a fair price, which could result in losses to the Fund.
Debt Securities
Corporate Obligations. Corporate debt obligations include bonds, debentures, and notes. Debentures represent
unsecured promises to pay, while notes and bonds may be secured by mortgages on real property or security
interests in personal property. Bonds include, but are not limited to, debt instruments with maturities of approximately one year
or more, debentures, mortgage-related securities, stripped government securities and zero-coupon obligations. Bonds, notes and debentures
in which the Funds may invest may differ in interest rates, maturities, and times of issuance. The market value of a Fund’s
fixed income investments will change in response to interest rate changes and other factors. During periods of falling interest rates,
the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of
such securities generally decline. Moreover, while securities with longer maturities tend to produce higher yields, the price of longer
maturity securities also are subject to greater market fluctuations as a result of changes in interest rates.
Changes by nationally recognized statistical rating organizations (“NRSROs”) in the
rating of any fixed income security and in the ability of an issuer to make payments of interest and principal also affect the value
of these investments. Except under conditions of default, changes in the value of a Fund’s securities will not affect cash income derived
from these securities but may affect the Fund’s net asset value per share (“NAV”). Ratings represent a rating agency’s opinion regarding
the quality of the security and are not a guarantee of quality. In addition, rating agencies may fail to make timely changes
to credit ratings in response to subsequent events and a rating may become stale in that it fails to reflect changes in an issuer’s financial
condition. See Appendix A to this SAI for a description of these ratings.
Investment-Grade and High-Quality Securities. The Funds may invest in “investment-grade” obligations, which are those that are
rated at the time of purchase within the four highest rating categories assigned by
an NRSRO or, if unrated, are obligations that the Adviser determines to be of comparable quality. See Appendix A to this SAI for a description
of these ratings. “High-quality” short-term obligations are those obligations that, at the time of purchase, (1) possess a rating
in one of the two highest ratings categories from at least one NRSRO or (2) are unrated by an NRSRO but are determined by the Adviser to
present minimal credit risks and to be of comparable quality to rated instruments eligible for purchase by the Funds under guidelines
adopted by the Board.
13
Lower-Rated Debt Securities. A Fund may purchase lower-rated debt securities, sometimes referred to as “junk bonds.”
For all of the Funds, a security will be considered to be below investment grade if it is rated Ba1
or lower by Moody’s and BB+ or lower by S&P, or if unrated, has been determined by the Adviser to be of comparable quality. See
Appendix A to this SAI for a description of these ratings.
The lower ratings of certain securities held by a Fund reflect a greater possibility
that adverse changes in the financial condition of the issuer, or in general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely make the values of securities held by the Fund more volatile and could
limit the Fund’s ability to sell its securities at prices approximating the values a Fund had placed on such securities. In the absence of a
liquid trading market for securities held by it, the Fund may be unable at times to establish the fair market value of such securities.
The rating assigned to a security by Moody’s or S&P does not reflect an assessment of the volatility of the security’s market value or
of the liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower-rated securities
fluctuate in response to changes in interest rates. Thus, a decrease in interest rates generally will result in an increase in the value of
a Fund’s fixed-income securities. Conversely, during periods of rising interest rates, the value of a Fund’s fixed-income securities generally
will decline. Securities with floating interest rates (which are typically lower-rated securities) generally are less sensitive to interest
rate changes, but may decline in value if their interest rates do not rise as much as interest rates in general. However, extreme increases
in prevailing interest rates may cause an increase in floating rate security issuer defaults, which may cause a further decline in a Fund’s
value. A decrease in interest rates could adversely affect the income earned by a Fund from its floating rate securities. In addition,
the values of lower-rated securities are also affected by changes in general economic conditions and business conditions affecting the specific
industries of their issuers. Changes by recognized rating services in their ratings of any fixed-income security and in the
ability of an issuer to make payments of interest and principal may also affect the value of these investments.
Changes in the values of portfolio securities generally will not affect cash income
derived from such securities, but will affect a Fund’s NAV.
Issuers of lower-rated securities are often highly leveraged, so that their ability
to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. In
addition, such issuers may not have more traditional methods of financing available to them, and may be unable to repay debt at maturity
by refinancing. The risk of loss due to default in payment of interest or principal by such issuers is significantly greater because
such securities frequently are unsecured and subordinated to the prior payment of senior indebtedness. Certain of the lower-rated
securities in which a Fund may invest are issued to raise funds in connection with the acquisition of a company, in so-called “leveraged
buyout” transactions. The highly leveraged capital structure of such issuers may make them especially vulnerable to adverse changes
in economic conditions.
Under adverse market or economic conditions or in the event of adverse changes in
the financial condition of the issuer, a Fund could find it more difficult to sell lower-rated securities or may be able to sell such
securities only at prices lower than might otherwise be available. In many cases, lower-rated securities may be purchased in private placements
and, accordingly, will be subject to restrictions on resale as a matter of contract or under securities laws. Under such circumstances,
it may also be more difficult to determine the fair value of such securities for purposes of computing a Fund’s NAV. In order to enforce
its rights in the event of a default under lower-rated securities, a Fund may be required to take possession of and manage assets
securing the issuer’s obligations on such securities, which may increase the Fund’s operating expenses and adversely affect
a Fund’s NAV. A Fund may also be limited in its ability to enforce its rights and may incur greater costs in enforcing its rights
in the event an issuer becomes the subject of bankruptcy proceedings. In addition, the Funds’ intention to qualify as “regulated investment
companies” under the Code may limit the extent to which a Fund may exercise its rights by taking possession of such assets.
Certain securities held by a Fund may permit the issuer at its option to “call,” or
redeem, its securities. If an issuer were to redeem securities held by a Fund during a time of declining interest rates, the Fund may
not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed.
Lower rated securities may be subject to certain risks not typically associated with
“investment grade” securities, such as the following: (1) reliable and objective information about the value of lower rated obligations
may be difficult to obtain because the market for such securities may be thinner and less active than that for investment
grade obligations; (2) adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values
and liquidity of lower than investment grade obligations, and, in turn, adversely affect their market; (3) companies that issue
lower rated obligations may be in the growth stage of their development, or may be financially troubled or highly leveraged, so they may
not have more traditional methods of financing available to them; (4) when other institutional investors dispose of their holdings
of lower rated debt securities, the general market and the prices for such securities could be adversely affected; and (5) the market for
lower rated securities could be impaired if legislative proposals to limit their use in connection with corporate reorganizations or to limit
their tax and other advantages are enacted.
14
Convertible and Exchangeable Debt Obligations. A convertible debt obligation is typically a bond or preferred stock that may be
converted at a stated price within a specified period of time into a specified number
of shares of common stock of the same or a different issuer. Convertible debt obligations are usually senior to common stock in a corporation’s
capital structure, but usually are subordinate to similar non-convertible debt obligations. While providing a fixed income stream
(generally higher in yield than the income derivable from a common stock but lower than that afforded by a similar non-convertible debt
obligation), a convertible debt obligation also affords an investor the opportunity, through its conversion feature, to participate
in the capital appreciation of the common stock into which it is convertible.
An exchangeable debt obligation is debt that is redeemable in either cash or a specified
number of common shares of a company different from the issuing company. Exchangeable debt obligations have characteristics
and risks similar to those of convertible debt obligations and behave in the market place the same way as convertible debt obligations.
In general, the market value of a convertible debt obligation is at least the higher
of its “investment value” (i.e., its value as a fixed income security) or its “conversion value” (i.e., the value of the underlying share
of common stock if the security is converted). As a fixed-income security, a convertible debt obligation tends to increase in market
value when interest rates decline and tends to decrease in value when interest rates rise. However, the price of a convertible debt obligation
also is influenced by the market value of the security’s underlying common stock. Thus, the price of a convertible debt obligation
tends to increase as the market value of the underlying stock increases, and tends to decrease as the market value of the underlying
stock declines. While no securities investment is without some risk, investments in convertible debt obligations generally entail
less risk than investments in the common stock of the same issuer.
Securities received upon conversion of convertible debt obligations or upon exercise
of call options or warrants forming elements of synthetic convertibles (described below) may be retained temporarily to permit orderly
disposition or to defer realization of gain or loss for federal tax purposes, and will be included in calculating the amount of the Fund’s
total assets invested in true and synthetic convertibles.
The Funds may invest in securities convertible into common stock, such as convertible
bonds, convertible notes, and convertible preferred stocks. In making investment decisions involving convertible securities,
the Adviser considers the attractiveness of the underlying common stock, the financial condition of the issuer, the effect on portfolio
diversification, equity sensitivity or delta, current income or yield, upside/downside analysis (how the Adviser expects the convertible
security to perform over a given time period given a change in the underlying common stock), convertible valuation (convertible price
relative to its theoretical value), and the liquidity of the security.
Certificates of Deposit (“CDs”) are negotiable certificates issued against funds deposited in a commercial
bank or a savings and loan association for a definite period of time and earning a specified return. A Fund may
invest in CDs and demand and time deposits of domestic and foreign banks and savings and loan associations, if (a) at the time of
purchase such financial institutions have capital, surplus and undivided profits in excess of $100 million (as of the date of their most
recently published financial statements) or (b) the principal amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation (FDIC) or the Savings Association Insurance Fund.
Eurodollar CDs are U.S. dollar-denominated CDs issued by branches of foreign and domestic banks
located outside the United States. Eurodollar time deposits are U.S. dollar-denominated deposits in a
foreign branch of a United States bank or a foreign bank.
Yankee CDs are issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States.
Canadian Time Deposits are U.S. dollar-denominated CDs issued by Canadian offices of major Canadian banks.
Commercial Paper consists of short-term (usually from 1 to 270 days) unsecured promissory notes issued
by corporations in order to finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving periodically fluctuating rates of interest under a
letter agreement between a commercial paper issuer and an institutional lender pursuant to which the lender may determine to invest varying
amounts. Except as noted below, with respect to variable amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return. In addition to corporate issuers, borrowers that issue municipal securities
also may issue tax-exempt commercial paper.
Investments in commercial paper are subject to the risk the issuer cannot issue enough
new commercial paper to satisfy its outstanding commercial paper, also known as rollover risk. Commercial paper may become illiquid
or may suffer from reduced liquidity in certain circumstances. Like all fixed-income securities, commercial paper prices are susceptible
to fluctuations in interest rates. If interest rates rise, commercial paper prices will decline. The short-term nature of a commercial
paper investment makes it less susceptible to interest rate risk than many other fixed-income securities because interest rate risk typically
increases as maturity lengths increase. Commercial paper tends to yield smaller returns than longer-term corporate debt because securities
with shorter maturities typically have lower
15
effective yields than those with longer maturities. As with all fixed-income securities,
there is a chance that the issuer will default on its commercial paper obligation.
Where necessary to ensure that an instrument meets, or is of comparable quality to,
a Fund’s rating criteria, the Fund may require that the issuer’s obligation to pay the principal of, and the interest on, the instrument
be backed by insurance or by an unconditional bank letter or line of credit, guarantee, or commitment to lend. In addition, each of the
Funds may acquire commercial paper and corporate bonds of issuers that are not rated but are determined by the Adviser at the time
of purchase to be of comparable quality to instruments of issuers that may be acquired by such Fund as previously described.
Preferred Stocks
Preferred stock combines the qualities of both equity and debt securities and may
be convertible into common stock. Individual issues of preferred stock will have those rights and liabilities that are spelled out in
the governing document. Preferred stocks usually pay a fixed dividend per quarter (or annum) and are senior to common stock in terms of liquidation
and dividend rights. Preferred stocks typically do not have voting rights.
Trust-Preferred Securities
Trust-preferred (or “capital”) securities, which are issued by entities such as special
purpose bank subsidiaries, currently are permitted to treat the interest payments as a tax-deductible cost. Capital securities, which
have no voting rights, have a final stated maturity date and a fixed schedule for periodic payments. In addition, capital securities have provisions
which afford preference over common and preferred stock upon liquidation, although the securities are subordinated to other,
more senior debt securities of the same issuer. The issuers of these securities retain the right to defer interest payments for a period
of up to five years, although interest continues to accrue cumulatively. The deferral of payments may not exceed the stated maturity date of
the securities themselves. The non-payment of deferred interest at the end of the permissible period will be treated as an incidence
of default. At the present time, the Internal Revenue Service (the “IRS”) treats capital securities as debt. In the event that the tax treatment
of interest payments of these types of securities is modified, a Fund will reconsider the appropriateness of continued investment in
these securities.
Some of a Fund’s investments may have variable interest rates. When an instrument
provides for periodic adjustments to its interest rate, fluctuations in principal value may be minimized. However, changes in the coupon
rate can lag behind changes in market rates, which may adversely affect a Fund’s performance.
Income Deposit Securities
Each income deposit security (“IDS”) represents two separate securities, shares of
common stock and subordinated notes issued by the same company, that are combined into one unit that trades like a stock on an exchange.
Holders of IDSs receive dividends on the common shares and interest at a fixed rate on the subordinated notes to produce a
blended yield. An IDS is typically listed on a stock exchange, but the underlying securities typically are not listed on the exchange until
a period of time after the listing of the IDS or upon the occurrence of certain events (e.g., a change of control of the issuer of the IDS).
When the underlying securities are listed, the holders of IDSs generally have the right to separate the components of the IDSs and trade
them separately.
There may be a thinner and less active market for IDSs than that available for other
securities. The value of an IDS will be affected by factors generally affecting common stock and subordinated debt securities, including
the issuer’s actual or perceived ability to pay interest and principal on the notes and pay dividends on the stock.
The U.S. federal income tax treatment of IDSs is not entirely clear and there is no
authority that directly addresses the tax treatment of securities with terms substantially similar to IDSs. Among other things, although
it is expected that the subordinated notes portion of an IDS will be treated as debt, if it is characterized as equity rather than debt,
then interest paid on the notes could be treated as dividends (to the extent paid out of the issuer’s earnings and profits). Such dividends
would not likely qualify for favorable long-term capital gains rates currently available to dividends on other types of equity.
Indexed Securities
A Fund may purchase securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument
or statistic. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting
in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term
debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified
foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting
in a security whose price characteristics are
16
similar to a put option on the underlying currency. Currency-indexed securities also
may have prices that depend on the values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the performance
of the security, currency, commodity or other instrument to which they are indexed, and also may be influenced by interest rate
changes in the United States and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer
of the security, and their values may decline substantially if the issuer’s creditworthiness deteriorates. Issuers of indexed securities
include, among others, banks, corporations, and certain U.S. government agencies.
Loans
A Fund may invest in loans including, for example, corporate loans, loan participations,
direct debt, bank debt and bridge debt. A Fund may invest in a loan by lending money to a borrower directly as part of a syndicate
of lenders. Alternatively, a Fund may invest in loans through novations, assignments and participating interests. In a novation, a Fund
typically assumes all of the rights of a lending institution in a loan, including the right to receive payments of principal and interest
and other amounts directly from the borrower and to enforce its rights as a lender directly against the borrower. When a Fund takes
an assignment of a loan or acquires a participation interest in a loan, the Fund acquires some or all of the interest of another lender
(or assignee) in the loan. In such cases, the Fund may be required generally to rely upon the assignor or participating institution to demand
payment and enforce rights under the loan. (There may be one or more assignors or participating institutions prior in time to the Fund.)
Loans in which a Fund may invest are subject generally to the same risks as debt securities
in which the Fund may invest. In addition, loans in which a Fund may invest, including bridge loans, are generally made to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buyouts and other corporate activities, including bridge loans.
A significant portion of the loans purchased by a Fund may represent interests in loans made to finance highly leveraged corporate
acquisitions, known as “leveraged buyout” transactions, leveraged recapitalization loans and other types of acquisition financing.
The highly leveraged capital structure of the borrowers in such transactions may make such loans especially vulnerable to adverse
changes in economic or market conditions. Further, loans and other forms of direct indebtedness may not be considered “securities”
for certain purposes under the federal securities laws, and purchasers, such as the Fund, therefore may not be entitled to rely on the
anti-fraud and misrepresentation protections of the federal securities laws.
Loans generally are subject to restrictions on transfer, and only limited opportunities
may exist to sell loans in secondary markets. As a result, a Fund may be unable to sell loans at a time when it may otherwise be desirable
to do so or may be able to sell them only at a price that is less than their fair market value.
If a Fund only acquires a participation in the loan made by a third party, the Fund
may not be able to control the exercise of any remedies that the lender would have under the loan. In addition, a Fund may have to
rely on the lender that sold the participation to demand and receive payments in respect of the loans, and to pay those amounts on to
the Fund; the Fund will be subject to the risk that the lender that sold the participation may be unwilling or unable to do so. In
such a case, the Fund would not likely have any rights over against the borrower directly.
Certain of the loans acquired by a Fund may involve revolving credit facilities under
which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Fund
would have an obligation to advance its portion of such additional borrowings upon the terms specified in the loan participation.
A Fund may be required to fund such advances at times and in circumstances where the Fund might not otherwise choose to make a loan to the
borrower.
The value of collateral, if any, securing a loan can decline, or may be insufficient
to meet the borrower’s obligations or difficult to liquidate. In addition, a Fund’s access to collateral may be limited by bankruptcy
or other insolvency laws. If a secured loan is foreclosed, a Fund could become part owner of any collateral, and would bear the costs
and liabilities associated with owning and disposing of the collateral. In addition, under legal theories of lender liability,
a Fund potentially might be held liable as a co-lender.
Repurchase Agreements
A repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund’s cost plus interest). Repurchase agreements may also be viewed as loans
made by a Fund which are collateralized by the securities subject to repurchase. The value of the underlying securities in such transactions
will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller
defaults, a Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest
are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy
or insolvency proceedings, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller’s estate.
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To the extent that a Fund has invested a substantial portion of its assets in repurchase
agreements, the Fund’s investment return on such assets, and potentially the Fund’s ability to achieve its investment objectives, will
depend on the counterparties’ willingness and ability to perform their obligations under the repurchase agreements.
Rule 18f-4 permits a Fund to treat reverse repurchase transactions (and other similar
financing transactions) either as borrowings or as “derivatives transactions” subject to the risk-based limits of Rule 18f-4, and
does not require the Fund to maintain segregated assets to meet its asset coverage requirements.
U.S. Government Agency and Instrumentality Securities
U.S. government agency securities are debt obligations issued by agencies or authorities
controlled by and acting as instrumentalities of the U.S. government established under authority granted by Congress. U.S. government
agency obligations include, but are not limited to, those issued by the Bank for Co-operatives, FHLBs, Federal Intermediate
Credit Banks, and Fannie Mae. U.S. government instrumentality obligations include, but are not limited to, those issued by the Export-Import
Bank and Farmers Home Administration. Some obligations issued or guaranteed by U.S. government agencies and instrumentalities
are supported by the full faith and credit of the U.S. Treasury; others, by the right of the issuer to borrow from the U.S. Treasury;
others, by discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and others,
only by the credit of the agency or instrumentality. No assurance can be given that the U.S. government will provide financial
support to such U.S. government sponsored agencies or instrumentalities in the future, since it is not obligated to do so by
law. To the extent a Fund invests in U.S. government securities that are not backed by the full faith and credit of the U.S. Treasury,
such investments may involve a greater risk of loss of principal and interest since the Fund must look principally or solely to the issuing
or guaranteeing agency or instrumentality for repayment.
U.S. Treasury Bills. U.S. Treasury Bills are issued with maturities of up to one year. Three-month bills
are currently offered by the U.S. Treasury on a 13-week cycle and are auctioned each week by the U.S. Treasury.
Bills are issued in bearer form only and are sold only on a discount basis, and the difference between the purchase price and the maturity
value (or the resale price if they are sold before maturity) constitutes the interest income for the investor. Although a Fund may hold
securities that carry U.S. government guarantees, these guarantees do not extend to shares of the Fund itself and do not guarantee the
market prices of the securities.
Interfund Borrowing and Lending
The Funds have obtained an exemptive order from the SEC allowing them to lend money
to, and borrow money from, each other pursuant to a master interfund lending agreement (the “Interfund Lending Program”).
Under the Interfund Lending Program, the Funds may lend or borrow money for temporary purposes directly to or from one another (an
“Interfund Loan”), subject to meeting the conditions of the SEC exemptive order. All Interfund Loans will consist only of uninvested
cash reserves that the lending fund otherwise would invest in short-term repurchase agreements or other short-term instruments.
If a Fund has outstanding bank borrowings, any Interfund Loans to the Fund would:
(a) be at an interest rate equal to or lower than that of any outstanding bank borrowing, (b) be secured at least on an equal priority
basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral, (c)
have a maturity no longer than any outstanding bank loan (and in any event not over seven days), and (d) provide that, if an event of
default occurs under any agreement evidencing an outstanding bank loan to the Fund, that event of default by the Fund will automatically
(without need for action or notice by the lending fund) constitute an immediate event of default under the master interfund lending
agreement, entitling the lending fund to call the Interfund Loan immediately (and exercise all rights with respect to any collateral),
and that such call will be made if the lending bank exercises its right to call its loan under its agreement with the borrowing fund.
A Fund may borrow on an unsecured basis through the Interfund Lending Program only
if its outstanding borrowings from all sources immediately after the interfund borrowing total 10% or less of its total assets, provided
that if the borrowing fund has a secured loan outstanding from any other lender, including but not limited to another fund, the
lending fund’s Interfund Loan will be secured on at least an equal priority basis with at least an equivalent percentage of collateral
to loan value as any outstanding loan that requires collateral. If a borrowing fund’s total outstanding borrowings immediately after an
Interfund Loan would be greater than 10% of its total assets, the Fund may borrow through the Interfund Lending Program only on a
secured basis. A Fund may not borrow under the Interfund Lending Program or from any other source if its total outstanding borrowings
immediately after the borrowing would be more than 33 1/3% of its total assets or any lower threshold provided for by the Fund’s
fundamental restrictions or non-fundamental policies.
No Fund may lend to another fund through the Interfund Lending Program if the loan
would cause the lending fund’s aggregate outstanding loans through the Interfund Lending Program to exceed 15% of its current
net assets at the time of the loan. A Fund’s Interfund Loans to any one fund shall not exceed 5% of the lending fund’s net assets.
The duration of Interfund Loans will be limited to the time required to receive payment for securities sold, but in no event more
than seven days, and for purposes of this condition, loans effected within seven days of each other will be treated as separate loan transactions.
Each Interfund Loan may be called on one business day’s notice by a lending fund and may be repaid on any day by a borrowing
fund. The limitations detailed above and the
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other conditions of the SEC exemptive order permitting interfund borrowing and lending
are designed to minimize the risks associated with interfund borrowing and lending for both a lending fund and a borrowing fund.
However, no borrowing or lending activity is without risk. When a Fund borrows money from another fund, there is a risk that the
Interfund Loan could be called on one business day’s notice or not renewed, in which case the Fund may have to borrow from a bank
at higher rates if an Interfund Loan is not available from another fund. Interfund Loans are subject to the risk that a borrowing fund could
be unable to repay the loan when due, and a delay in repayment to a lending fund or from a borrowing fund could result in a lost
investment opportunity or additional costs. No Fund may borrow more than the amount permitted by its investment limitations. The
Interfund Lending Program is subject to the oversight and periodic review of the Board.
Short Sales
Short sales are transactions in which the Fund sells a security it does not own. To
complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at the market price at or prior to the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to repay the lender
any dividends or interest that accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold. The net proceeds of the short sale will typically be retained by the
broker until the short position is closed out. The Fund also will incur transaction costs in effecting short sales, including the cost of
making the lender whole for any dividends or interest paid on the securities during the period of the loan.
A Fund will incur a loss as a result of the short sale if the price of the security
increases between the date of the short sale and the date on which the Fund replaces the borrowed security. A Fund will generally realize a
gain if the security declines in price between those dates. The amount of any gain will be decreased, and the amount of any loss increased,
by the amount of the premium, dividends, interest, or expenses the Fund may be required to pay in connection with a short sale.
An increase in the value of a security sold short by a Fund over the price at which it was sold short will result in a loss to the Fund.
There can be no assurance that a Fund will be able to close out the position at any particular time or at an acceptable price. There
is no limit on the amount of money a Fund may lose on a short sale.
A Fund’s ability to engage in short sales may from time to time be limited or prohibited
because of the inability to borrow certain securities in the market, legal restrictions on short sales, or other reasons.
Foreign Investments
Investments in foreign securities may involve considerations different from investments
in domestic securities due to limited publicly available information, non-uniform accounting standards, lower trading volume and
possible consequent illiquidity, greater volatility in price, the possible imposition of withholding or confiscatory taxes, the possible
adoption of foreign governmental restrictions affecting the payment of principal and interest, expropriation of assets, nationalization,
or other adverse political or economic developments. Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies. Foreign brokerage commissions and other fees
are generally higher than in the United States. It may be more difficult to obtain and enforce a judgment against a foreign issuer.
Foreign settlement procedures and trade regulations may involve certain risks (such as delay in payment or delivery of securities or in
the recovery of a Fund’s assets held abroad) and expenses not present in the settlement of domestic investments. Legal remedies available
to investors in certain foreign countries may be more limited than those available with respect to investments in the United States
or in other foreign countries. The laws of some foreign countries may limit a Fund’s ability to invest in securities of certain issuers
located in those foreign countries.
In addition, to the extent that a Fund’s foreign investments are not U.S. dollar-denominated,
the Fund may be affected favorably or unfavorably by changes in currency exchange rates or exchange control regulations
and may incur costs in connection with conversion between currencies.
Several foreign governments permit investments by non-residents only through participation
in certain specifically organized investment companies. Subject to the provisions of the 1940 Act, a Fund may invest
in the shares of such other investment companies.
In addition, a Fund may also invest a portion of their assets in unit trusts organized
in the United Kingdom (which are analogous to U.S. mutual funds) and which invest in smaller foreign markets than those in which
a Fund would ordinarily invest directly.
Developing Countries. The considerations noted above for foreign investments generally are intensified
for investments in developing countries. These risks include (i) volatile social, political, and economic conditions;
(ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in
a lack of liquidity and in greater price volatility; (iii) the existence of national policies which may restrict a Fund’s investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the
absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property;
(vi) the absence, until recently in certain developing
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countries, of a capital market structure or market-oriented economy; (vii) economies
based on only a few industries; (viii) the possibility that recent favorable economic developments, as applicable, in certain
developing countries may be slowed or reversed by unanticipated political or social events in such countries; and (ix) in certain emerging
markets, systems of share registration and custody that create certain risks of loss (including the risk of total loss) that are not
normally associated with investments in other securities markets.
Depositary Receipts. A Fund may invest in sponsored or unsponsored American Depositary Receipts (“ADRs”),
European Depositary Receipts (“EDRs”), GDRs, International Depositary Receipts (“IDRs”) and other types
of depositary receipts (which, together with ADRs, EDRs, GDRs and IDRs are hereinafter referred to as “Depositary Receipts”). Depositary
Receipts provide indirect investment in securities of foreign issuers. Prices of unsponsored Depositary Receipts may be
more volatile than if they were sponsored by the issuer of the underlying securities. Depositary Receipts may not necessarily be denominated
in the same currency as the underlying securities into which they may be converted. In addition, the issuers of the stock
of unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of the Depositary Receipts.
ADRs are depositary receipts which are bought and sold in the United States and are
typically issued by a U.S. bank or trust company which evidences ownership of underlying securities by a foreign corporation. GDRs,
IDRs and other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they may also be issued
by U.S. banks or trust companies, and evidence ownership of underlying securities issued by either a foreign or a United States corporation.
Generally, Depositary Receipts in registered form are designed for use in the U.S. securities markets and Depositary
Receipts in bearer form are designed for use in securities markets outside the United States.
For purposes of a Fund’s investment policies, a Fund’s investments in ADRs, GDRs,
IDRs and other types of Depositary Receipts will be deemed to be investments in the underlying securities. Depositary Receipts, including
those denominated in U.S. dollars will be subject to foreign currency exchange rate risk. However, by investing in U.S. dollar-denominated
ADRs rather than directly in foreign issuers’ stock, a Fund avoids currency risks during the settlement period. In general,
there is a large, liquid market in the United States for most ADRs. However, certain Depositary Receipts may not be listed on an exchange
and therefore may be illiquid investments.
Investing in China. Investments in securities of Chinese issuers involve heightened risks as China is
a statutorily-designated foreign adversary of the United States. These risks are comparable to those of investing in
other designated adversaries such as Iran and Russia, and include market volatility, heavy dependence on exports, which may decrease, sometimes
significantly, when the world economy weakens, and significant oversight and control by the Chinese Government, which may
take actions that affect economic and market practices. These actions may include regulatory measures, which may be adopted with
little or no warning, that can severely restrict a company’s business operations, with potentially dramatic adverse impacts on the
market values of its securities.
Economic and Market Risks. While the Chinese economy has grown rapidly in recent years, the rate of growth
has been declining, and there can be no assurance that China’s economy will continue to grow in the future.
Trade disputes between China and its trading counterparties, including the United States, have arisen and may continue to arise.
Such disputes have resulted in trade tariffs, as well as embargoes, trade limitations, trade wars and other negative consequences. These
consequences could trigger, among other things, a substantial reduction in international trade and adverse effects on, and potential
failure of, individual companies and/or large segments of China’s export industry, which could have potentially significant negative effects
on the Chinese economy as well as the global economy.
Trade and International Relations. In addition, the political climate between the United States and China has recently
deteriorated. The United States government has acted to prohibit U.S. persons, such as a Fund, from
owning, and required them to divest, certain Chinese companies designated as related to the Chinese military and high tech industries,
such as artificial intelligence (AI) and semiconductors. There is no assurance that more such companies will not be so designated in the future,
which could limit a Fund’s opportunities for investment and require the sale of securities at a loss or make them illiquid. If
the political climate between the United States and China continues to deteriorate, economies and markets may be adversely affected. Further,
Chinese companies are subject to the risk of de-listing on U.S. exchanges.
Taiwan and Hong Kong Risk. Taiwan and Hong Kong do not exercise the same level of control over their economies
as does China, but changes to their political and economic relationships with the PRC could adversely
impact investments in Taiwan and Hong Kong. The potential political reunification of China and Taiwan could negatively affect
Taiwan’s economy and stock market. Hong Kong is closely tied to China, economically and through China’s 1997 acquisition of the region
as a Special Autonomous Region. China has committed by treaty to preserve Hong Kong’s autonomy and its economic, political and
social freedoms until 2047. However, China has in recent years curtailed Hong Kong’s autonomy and freedoms, which has led to
political unrest and eroded investor and business confidence in Hong Kong.
Military Conflict Risk. Military conflicts, either in response to internal social unrest or conflicts with
other countries, could disrupt economic development. For example, the Chinese economy is vulnerable to the long-running
disagreements with Hong Kong related
20
to integration and religious and nationalist disputes with Tibet and the Xinjiang
region. Further, China has a complex territorial dispute regarding the sovereignty of Taiwan that has included threats of invasion; Taiwan-based
companies and individuals used to be significant investors in China. Military conflict between China and Taiwan may adversely
affect securities of Chinese, Taiwan-based and other issuers both in and outside the region, adversely impact the economies of
China and other Asian countries, disrupt supply chains, and severely affect global economies and markets. Risks of investments in
issuers based in Hong Kong, a special administrative region of China, include heavy reliance on the U.S. economy and regional economies,
particularly the Chinese economy, which makes these investments vulnerable to changes in these economies. These and related factors
may result in adverse effects on investments in China and Hong Kong and have a negative impact on the performance of a Fund.
Financial Reporting Risk. A Fund’s reported financial metrics may be unreliable as the accounting, auditing
and financial reporting standards and practices applicable to Chinese companies may be less rigorous and such
issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to
which U.S. companies are subject, which may result in significant differences between financial statements prepared in accordance with
Chinese accounting standards and practices and those prepared in accordance with U.S. GAAP. This may severely restrict a Fund’s ability
to verify accuracy of disclosures relating to investments in issuers based in China, affecting a Fund’s performance.
Investing through Stock Connect. A Fund may invest in China A shares of certain Chinese companies listed and traded
through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs (“Stock
Connect”). Stock Connect is a securities trading and clearing program established by Hong Kong Exchanges and Clearing
Limited, the Shanghai Stock Exchange, the Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation Limited,
which seeks to provide mutual stock market access between Mainland China and Hong Kong. Investment through Stock Connect
involves heightened risks beyond standard market mechanisms. For example, Stock Connect is subject to quotas that limit aggregate
net purchases on an exchange on a particular day, which may be adjusted or terminated arbitrarily by the Chinese government, and
an investor cannot purchase and sell the same security through Stock Connect on the same trading day which may adversely impact
a Fund’s ability to trade when it would be otherwise attractive to do so.
A Fund also may invest in Chinese interbank bonds traded on the China Interbank Bond
Market through the China-Hong Kong Bond Connect program (“Bond Connect”). Bond Connect investments face additional risks beyond
Stock Connect. In China, the Hong Kong Monetary Authority Central Moneymarkets Unit holds Bond Connect securities on behalf
of the ultimate investors (such as a Fund) in accounts maintained with a China-based custodian (either the China Central Depository
& Clearing Co. or the Shanghai Clearing House). This recordkeeping system subjects a Fund to numerous risks, including the
risk that a Fund may have a limited ability to enforce its rights as a bondholder and the risks of settlement delays and counterparty
default of the Hong Kong sub-custodian. Furthermore, courts in China have limited experience in applying the concept of beneficial
ownership.
Further, trading through Stock Connect or Bond Connect is subject to a number of restrictions
and risks that could impair a Fund’s ability to invest in or sell China A shares or Chinese interbank bonds, respectively,
and affect investment returns, including limitations on trading and possible imposition of trading suspensions. In addition, both Stock
Connect and Bond Connect are generally only available on business days when both the China and Hong Kong markets are open, which
may limit a Fund’s ability to trade when it would be otherwise attractive to do so. In addition, uncertainties in China’s tax
rules related to the taxation of income and gains from investments in China A shares or Chinese interbank bonds could result in unexpected
tax liabilities for a Fund. Investing in China A shares and Chinese interbank bonds is also subject to the clearance and settlement
procedures associated with Stock Connect and Bond Connect, which could pose risks to a Fund.
All transactions in Stock Connect or Bond Connect securities will be made in renminbi,
and accordingly a Fund will be exposed to renminbi currency risks. The ability to hedge renminbi currency risks may be limited.
In addition, given the renminbi is subject to exchange control restrictions, a Fund could be unable to convert or adversely affected
by delays in converting other currencies into renminbi and vice versa and at times when there are unfavorable market conditions.
Securities purchased through Bond Connect generally may not be sold, purchased or otherwise transferred other than through Bond
Connect in accordance with applicable rules.
Both Stock Connect and Bond Connect are relatively new mutual market access programs
and are subject to regulations promulgated by regulatory authorities and implementation rules made by the stock exchanges, with
respect to Stock Connect, in China and Hong Kong. Furthermore, new regulations may be promulgated from time to time by the regulators
in connection with operations and cross-border legal enforcement under Stock Connect and Bond Connect.
VIE Structure Risk. A Fund may invest in the securities of Chinese issuers that utilize Variable Interest
Entity (“VIE”) structures to circumvent Chinese restrictions on foreign ownership of certain industries. When investing
in such securities, a Fund will not acquire direct ownership interests in the Chinese operating companies. Instead, a Fund will
hold shares in offshore holding companies, typically domiciled in the Cayman Islands or similar jurisdictions, which maintain contractual
rights with the Chinese operating companies. These contractual arrangements may not be as effective as direct ownership in providing
operational control over the VIEs. If the Chinese government deems that these contractual arrangements do not comply with Chinese
regulatory restrictions on foreign investment in the relevant industries, or if these regulations or their interpretation
change in the future, the securities of the Chinese
21
issuer may decline in value or become worthless if the Chinese issuer is unable to
assert contractual control rights over the assets of its affiliated entities that conduct all or substantially all of its operations. There
can be no assurance that Chinese laws and regulations will not change in ways that invalidate VIE structures or otherwise adversely affect
the contractual arrangements of securities of Chinese issuers that utilize VIE structures. The PRC government has increased scrutiny
of VIE structures in recent years and may continue to develop new regulations that could impact the legality, validity and enforceability
of these arrangements. Chinese authorities may also at their discretion restrict or eliminate the ability of foreign
investors to invest in certain industries altogether. If such measures were to be implemented, Chinese issuers may have to relinquish control
over their VIEs or cease operations entirely. Any of these regulatory actions could significantly impact the financial performance
or viability of investments made by a Fund in the securities of Chinese issuers utilizing VIE structures, potentially resulting in substantial
or complete loss of a Fund’s investment.
European Risk. A Fund’s investments may subject it to the risks associated with investing in the
European markets, including the risks associated with the United Kingdom’s (“UK”) exit from the European Union (“Brexit”)
and the armed conflict in Ukraine. Investments in a single region, even though representing a number of different countries within
the region, may be affected by common economic forces and other factors. A number of countries in the European Union (the “EU”) have
experienced, and may continue to experience, severe economic and financial difficulties, increasing the risk of investing in the
European markets. The UK formally withdrew from the EU, effective January 31, 2020. The actual or potential consequences of Brexit,
and the associated uncertainty, could adversely affect economic and market conditions in the UK, in the EU and its member states and
elsewhere, and could contribute to instability in global financial markets. The impact of such events on a Fund is difficult to predict
but they may adversely affect the return on a Fund and its investments. There may be detrimental implications for the value of certain
of a Fund’s investments, its ability to enter into transactions or to value or realize such investments or otherwise to implement
its investment program. It is possible that certain of a Fund’s investments may need to be restructured to enable a Fund’s objectives
to be pursued fully. This may increase costs or make it more difficult for a Fund to pursue its investment objectives.
International and Foreign Debt Securities
International Bonds include Yankee and Euro obligations, which are U.S. dollar-denominated international
bonds for which the primary trading market is in the United States (Yankee Bonds), or for which the primary
trading market is abroad (Eurodollar Bonds). International bonds also include Canadian and supranational agency bonds (e.g., those
issued by the International Monetary Fund). (See “Foreign Debt Securities” for a description of risks associated with investments in
foreign securities.)
Foreign Debt Securities. Investments in securities of foreign companies generally involve greater risks than
are present in U.S. investments. Compared to U.S. companies, there generally is less publicly available
information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers,
and listed companies.
Foreign companies generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those prevalent in the United States Securities of some
foreign companies are less liquid, and their prices more volatile, than securities of comparable U.S. companies. Settlement of transactions
in some foreign markets may be delayed or may be less frequent than in the United States, which could affect the liquidity of
a Fund’s investment.
In addition, with respect to some foreign countries, there is the possibility of nationalization,
expropriation, or confiscatory taxation; limitations on the removal of securities, property, or other assets of a Fund; political
or social instability; increased difficulty in obtaining legal judgments; or diplomatic developments that could affect U.S. investments
in those countries. The Adviser will take such factors into consideration in managing a Fund’s investments.
Since most foreign debt securities are not rated, a Fund will invest in those foreign
debt securities based on the Adviser’s analysis without relying on published ratings. Achievement of a Fund’s goals, therefore, may
depend more upon the abilities of the Adviser than would otherwise be the case. The value of the foreign debt securities held by a Fund,
and thus the NAV of a Fund’s shares, generally will fluctuate with (a) changes in the perceived creditworthiness of the issuers of
those securities, (b) movements in interest rates, and (c) changes in the relative values of the currencies in which a Fund’s investments
in debt securities are denominated with respect to the U.S. dollar. The extent of the fluctuation will depend on various factors, such
as the average maturity of a Fund’s investments in foreign debt securities, and the extent to which a Fund hedges its interest rate,
credit and currency exchange rate risks. A longer average maturity generally is associated with a higher level of volatility in the market value
of such securities in response to changes in market conditions. In the event of default, there may be limited or no legal recourse in
that, generally, remedies for defaults must be pursued in the courts of the defaulting party.
Foreign Currency Considerations. Because investments in foreign securities usually involve currencies of foreign countries,
and because a Fund may hold foreign currencies and forward contracts, futures contracts,
options on foreign currencies and foreign currency futures contracts and other currency related instruments, the value of the assets
of a Fund as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and a Fund may incur costs and experience conversion difficulties and uncertainties in connection with conversions
between various currencies. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign entity
issuing the security.
22
The value of securities denominated in or indexed to foreign currencies and of dividends
and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar.
The strength or weakness of the U.S. dollar against these currencies is responsible for part of a Fund’s investment performance.
If the dollar falls in value relative to the Japanese yen, for example, the dollar value of a Japanese stock held in the portfolio will
rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar
value of the Japanese stock will fall. Many foreign currencies have experienced significant devaluation relative to the dollar.
Although a Fund values its assets daily in terms of U.S. dollars, it does not intend
to convert its holdings of foreign currencies into U.S. dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize
a profit based on the difference (the “spread”) between the prices at which they are buying and selling various currencies. Thus,
a dealer may offer to sell a foreign currency to a Fund at one rate, while offering a lesser rate of exchange should a Fund desire to resell
that currency to the dealer. A Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through entering into options or forward or futures contracts to purchase
or sell foreign currencies.
Other Pooled Investment Vehicles
A Fund may invest in securities of other pooled investment vehicles, including shares
of open- or closed-end investment companies and exchange-traded funds (“ETFs”). Provisions of the 1940 Act may limit the ability
of a Fund to invest in certain investment companies or may limit the amount of its assets that a Fund may invest in any investment
company or investment companies in general.
As an investor in a pooled investment vehicle, a Fund will bear its ratable share
of that investment company’s expenses, in addition to the fees and expenses the Fund bears directly in connection with its own operations.
These securities represent interests in professionally managed portfolios that may invest in various types of instruments
pursuant to a wide range of investment styles. A Fund would also bear the risk of all of the underlying investments held by the other investment
company. An investment company may not achieve its investment objective.
Except for investments in money market funds, a Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more than 3% of the securities of any one investment company
or invest more than 10% of its total assets in the securities of other investment companies. Each Fund may purchase and redeem
shares issued by a money market fund without limit, provided that either: (1) the Fund pays no “sales charge” or “service fee”
(as each of those terms is defined in the FINRA Conduct Rules); or (2) the Adviser waives its advisory fee in an amount necessary to offset
any such sales charge or service fee. For purposes of this investment restriction, a “money market fund” is either: (1) an open-end investment
company registered under the 1940 Act and regulated as a money market fund in accordance with Rule 2a-7 under the 1940 Act;
or (2) a company that is exempt from registration as in investment company under Sections 3(c)(1) or 3(c)(7) of the 1940 Act and that:
(a) limits its investments to those permitted under Rule 2a-7 under the 1940 Act; and (b) undertakes to comply with all the other requirements
of Rule 2a-7, except that, if the company has no board of directors, the company’s investment adviser performs the duties of
the board of directors.
ETFs are investment companies whose shares trade throughout the day on an exchange.
ETF shares are sold directly only to authorized participates in large units (e.g. 50,000 shares or more) (“creation units”). A creation
unit generally represents a bundle of securities or commodities that replicates, or is a representative sample of, a particular index
or commodity and that is deposited with the ETF. Once owned, the individual shares comprising each creation unit are traded on an exchange
in secondary market transactions for cash. The secondary market for ETF shares allows them to be readily converted into cash, like
commonly traded stocks. The combination of primary and secondary markets permits ETF shares to be traded throughout the day close
to the value of the ETF’s underlying portfolio securities. A Fund would purchase and sell individual shares of ETFs in the secondary
market. These secondary market transactions require the payment of commissions. Some ETFs seek is to achieve the same rate of
return as a particular market index or commodity. ETFs that use a “passive” investment strategy and will not attempt to take defensive
positions in volatile or declining markets. Other ETFs are actively managed portfolios rather than being based upon an underlying index.
Absent any other investment restrictions to the contrary, Rule 12d1-4 under the 1940
Act, generally permits a Fund to invest in ETFs in excess of the limits set forth in Section 12(d) of the 1940 Act, subject to the
conditions of the Rule.
Unit investment trusts (“UITs”) are investment companies that hold a fixed portfolio
of securities until the fixed maturity date of the UIT. The Funds would generally only purchase UITs in the secondary market for cash,
which would result in the payment of commissions.
ETF and UIT shares are subject to the same risk of price fluctuation due to supply
and demand as any other stock traded on an exchange, which means that a Fund could receive less from the sale of shares of an
ETF or UIT it holds than it paid at the time it purchased those shares. Furthermore, there may be times when the exchange halts trading,
in which case a Fund owning ETF or UIT shares would be unable to sell them until trading is resumed. There can be no assurance
that an ETF or UIT will continue to meet the listing requirements of the exchange or that an active secondary market will develop
for shares. In addition, because ETFs and UITs
23
invest in a portfolio of common stocks or other instruments or commodities, the value
of an ETF or UIT could decline if prices of those instruments or commodities decline. An overall decline of those instruments or commodities
comprising an ETF’s or UIT’s benchmark index could have a greater impact on the ETF or UIT and investors than might be the
case in an investment company with a more widely diversified portfolio. Losses could also occur if the ETF or UIT is unable
to replicate the performance of the chosen benchmark index. There may be times when the market price for an ETF or UIT and its NAV vary
significantly and a Fund may pay more than (premium) or less than (discount) NAV when buying shares on the secondary market.
The market price of an ETF’s or UIT’s shares includes a “bid-ask spread” charged by the exchange specialists, market makers or
other participants that trade the particular security. In times of severe market disruption, the bid-ask spread often increases significantly.
This means that the shares may trade at a discount to NAV and the discount is likely to be greatest when the price of shares is falling
fastest.
Other risks associated with ETFs and UITs include the possibility that: (i) an ETF’s
or UIT’s distributions may decline if the issuers of the ETF’s or UIT’s portfolio securities fail to continue to pay dividends; and
(ii) under certain circumstances, an ETF or UIT could be terminated. Should termination occur, the ETF or UIT could have to liquidate its
portfolio securities when the prices for those securities are falling. In addition, inadequate or irregularly provided information
about an ETF or UIT or its investments, because ETFs and UITs are generally passively managed, could expose investors in ETFs and UITs
to unknown risks. Actively managed ETFs are also subject to the risk of underperformance relative to their chosen benchmark.
Precious Metals
The value of the investments of certain Funds may be affected by changes in the prices
of gold and other precious metals. Gold and similar assets have been subject to substantial price fluctuations over short periods
of time and may be affected by unpredictable international monetary and other governmental policies, such as currency devaluations
or revaluations; economic and social conditions within a country; trade imbalances; or trade or currency restrictions between countries.
Because much of the world’s known gold reserves are located in South Africa, political and social conditions there may pose
special risks to investments in gold. For instance, social upheaval and related economic difficulties in South Africa could cause a decrease
in the share values of South African issuers. The manner and extent of a Fund’s investments in precious metals may be limited by
provisions of the 1940 Act and the Fund’s intention to qualify as a regulated investment company under Subchapter M of the Code,
and any such investments by the Fund may adversely affect the ability of the Fund to qualify as a regulated investment company.
Master Limited Partnerships
Master limited partnerships (“MLPs”) are limited partnerships in which ownership units
are publicly traded. MLPs often own or own interests in properties or businesses that are related to oil and gas industries,
including pipelines, although MLPs may invest in other types of investments, including credit-related investments. Generally, an MLP is operated
under the supervision of one or more managing general partners. Limited partners (like a Fund when it invests in an MLP)
are not involved in the day-to-day management of the partnership. A Fund also may invest in companies who serve (or whose affiliates
serve) as the general partner of an MLP.
Investments in MLPs are generally subject to many of the risks that apply to partnerships.
For example, holders of the units of MLPs may have limited control and limited voting rights on matters affecting the partnership.
Fewer corporate protections may be afforded to investors in an MLP than investors in a corporation. Conflicts of interest may
exist among unit holders, subordinated unit holders and the general partner of an MLP, including those arising from incentive distribution
payments. MLPs that concentrate in a particular industry or region are subject to risks associated with such industry or region. MLPs
holding credit-related investments are subject to interest rate risk and the risk of default on payment obligations by debt issuers.
Investments held by MLPs may be illiquid. MLP units may trade infrequently and in limited volume, and they may be subject to more abrupt
or erratic price movements than securities of larger or more broadly based companies.
A Fund may also hold investments in limited liability companies that have many of
the same characteristics and are subject to many of the same risks as master limited partnerships.
The manner and extent of a Fund’s investments in MLPs and limited liability companies
may be limited by its intention to qualify as a regulated investment company under the Code, and any such investments by the Fund
may adversely affect the ability of the Fund to so qualify.
Real Estate Investment Trusts
Real estate investment trusts (“REITs”) are pooled investment vehicles that invest
primarily in income-producing real estate or real estate related loans or interests (such as mortgages). The real estate properties
in which REITs invest typically include properties such as office buildings, retail and industrial facilities, hotels, apartment buildings
and healthcare facilities. The yields available from equity investments in REITs depend on the amount of income and capital appreciation generated
by the related properties. Investments in REITs are subject to the risks associated with real estate investments generally,
including economic downturns that have an adverse effect on real estate markets, general and local economic conditions, overbuilding
and increased competition, increases in property
24
taxes and operating expenses, and variations in rental income. Equity REITs may be
affected by changes in the value of the underlying property owned by the REIT, while mortgage REITs may be affected by the quality of
any credit extended. Like regulated investment companies, REITs are generally not subject to U.S. federal income tax on income distributed
to shareholders provided they comply with several requirements of the Code. The affairs of REITs are managed by the REIT’s sponsor
and, as such, the performance of the REIT is dependent on the management skills of the REIT’s sponsor. REITs are not diversified
(except to the extent the Code requires). REITs are also subject to interest rate risks. If a Fund makes an equity investment in a
REIT, the Fund will indirectly bear its proportionate share of any expenses paid by the REIT in addition to the expenses of the Fund. REITs
are subject to the risk of default by borrowers, self-liquidation, and the possibility that the REIT may fail to qualify for the exemption
from tax for distributed income under the Code. Investments in REITs present certain further risks that are unique and in addition
to the risks associated with investing directly in the real estate industry in general. The real estate industry has been subject to substantial
fluctuations and declines on a local, regional and national basis in the past and may continue to be in the future. Real property values
and income from real property may decline due to general and local economic conditions, overbuilding and increased competition,
increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, regulatory limitations on
rents, changes in neighborhoods and in demographics, increases in market interest rates, or other factors. Factors such as
these may adversely affect companies, which own and operate real estate directly, companies which lend to such companies, and companies
which service the real estate industry. In addition, as REITs generally pay a higher rate of dividends (on a pre-tax basis) than
operating companies, to the extent application of the Fund’s investment strategy results in the Fund investing in REIT shares, the percentage
of the Fund’s dividend income received from REIT shares will likely exceed the percentage of the Fund’ s portfolio which
is comprised of REIT shares.
Zero-Coupon Debt Securities and Payment-in-Kind Securities
A Fund may purchase zero-coupon debt securities and payment-in-kind securities (“PIKs”).
The value of both zero-coupon bonds and PIK bonds may be more sensitive to fluctuations in interest rates than other bonds.
Zero-coupon securities are debt obligations which are generally issued at a discount
and payable in full at maturity, and which do not provide for current payments of interest prior to maturity. Zero-coupon securities
usually trade at a deep discount from their face or par value and are subject to greater market value fluctuations from changing interest
rates than debt obligations of comparable maturities that make current distributions of interest. As a result, the NAV of shares
of a Fund investing in zero-coupon securities may fluctuate over a greater range than shares of other mutual funds investing in securities
making current distributions of interest and having similar maturities. When interest rates rise, the values of zero-coupon securities
fall more rapidly than securities paying interest on a current basis, because the zero-coupon securities are locked into rates of reinvestment
that become less attractive the farther rates rise. The converse is true when interest rates fall.
When debt obligations have been stripped of their unmatured interest coupons by the
holder, the stripped coupons are sold separately. The principal or corpus is sold at a deep discount because the buyer receives only
the right to receive a future fixed payment on the security and does not receive any rights to periodic cash interest payments. Once
stripped or separated, the corpus and coupons may be sold separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of stripped obligations acquire, in effect, discount obligations
that are economically identical to the zero-coupon securities issued directly by the obligor.
Zero-coupon securities allow an issuer to avoid the need to generate cash to meet
current interest payments. Even though zero-coupon securities do not pay current interest in cash, a Fund is nonetheless required to
accrue interest income on them and to distribute the amount of that interest at least annually to shareholders. Thus, a Fund could be required
at times to liquidate other investments in order to satisfy its distribution requirement.
A Fund also may purchase PIKs. PIKs pay all or a portion of their interest or dividends
in the form of additional securities. Federal tax law requires that the interest on zero-coupon bonds and PIK bonds be accrued as
income to the Fund regardless of the fact that the Fund will not receive cash until such securities mature. Since the income must
be distributed to shareholders, the Fund may be forced to liquidate other securities in order to make the required distribution.
Private Investments in Public Companies
A Fund may acquire common stock or a security convertible into common stock, such
as a warrant or convertible preferred stock, directly from an issuer seeking to raise capital in a private placement pursuant to
Regulation D under the Securities Act. These transactions are commonly referred to as a private placement in a publicly held company,
or “PIPE.” The issuer’s common stock is usually publicly traded on a U.S. securities exchange or in the OTC market, but the
securities acquired will be subject to restrictions on resale imposed by U.S. securities laws absent an effective registration statement.
In recognition of the illiquid nature of the securities being acquired, the purchase price paid in a PIPE transaction (or the conversion price
of the convertible securities being acquired) will typically be fixed at a discount to the prevailing market price of the issuer’s common
stock at the time of the transaction. As part of a PIPE transaction, the issuer usually will be contractually obligated to seek to
register within an agreed upon period of time for public resale under the U.S. securities laws the common stock or the shares of common stock
issuable upon conversion of the convertible
25
securities. If the issuer fails to so register the shares within that period, the
buyer may be entitled to additional consideration from the issuer (e.g. warrants to acquire additional shares of common stock), but the buyer
may not be able to sell its shares unless and until the registration process is successfully completed. Thus PIPE transactions present
certain risks not associated with open market purchases of equities.
Among the risks associated with PIPE transactions is the risk that the issuer may
be unable to register the shares for public resale in a timely manner or at all, in which case the shares may be sold only in a privately
negotiated transaction, typically at a price less than that paid, assuming a suitable buyer can be found. Disposing of the securities may
involve time-consuming negotiation and legal expenses, and selling them promptly at an acceptable price may be difficult or impossible.
Even if the shares are registered for public resale, the market for the issuer’s securities may nevertheless be “thin” or illiquid,
making the sale of securities at desired prices or in desired quantities difficult or impossible.
While private placements may offer attractive opportunities not otherwise available
in the open market, the securities purchased are usually “restricted securities” or are “not readily marketable.” Restricted securities
cannot be sold without being registered under the Securities Act, unless they are sold pursuant to an exemption from registration (such
as Rules 144 or 144A under the Securities Act). Securities that are not readily marketable are subject to other legal or contractual
restrictions on resale.
Special Purpose Acquisition Companies
A Fund may invest in stock, warrants, and other securities of special purpose acquisition
companies (“SPACs”). A SPAC is typically a publicly traded company that raises funds through an initial public offering (“IPO”)
for the purpose of acquiring or merging with another company to be identified subsequent to the SPAC’s IPO. If a Fund purchases
shares of a SPAC in an IPO it will generally bear a sales commission, which may be significant. The securities of a SPAC are often issued
in “units” that include one share of common stock and one right or warrant (or partial right or warrant) conveying the right to
purchase additional shares or partial shares. Unless and until a transaction is completed, a SPAC generally invests its assets (less a
portion retained to cover expenses) in U.S. government securities, money market funds and similar investments whose returns or yields may
be significantly lower than those of a Fund’s other investments. If an acquisition or merger that meets the requirements for the SPAC
is not completed within a pre-established period of time, the invested funds are returned to the SPAC’s shareholders, less certain permitted
expenses, and any rights or warrants issued by the SPAC will expire worthless.
Because SPACs and similar entities are in essence “blank check” companies without
operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the
ability of the entity’s management to identify and complete a profitable acquisition. An investment in a SPAC is subject to a variety
of risks, including that (i) a portion of the monies raised by the SPAC for the purpose of effecting an acquisition or merger may be expended
prior to the transaction for payment of taxes and other expenses; (ii) a Fund generally will not receive significant income from
its investments in SPACs (both prior to and after any acquisition or merger) and, therefore, the Fund’s investments in SPACs will not
significantly contribute to the Fund’s distributions to shareholders; (iii) an attractive acquisition or merger target may not be identified
at all or a proposed merger or acquisition may be unable to obtain the requisite approval, if any, of SPAC shareholders and/or antitrust
and securities regulators; (iv) the warrants or other rights with respect to the SPAC held by a Fund may expire worthless or may be
redeemed by the SPAC at an unfavorable price; (v) a Fund may be subject to opportunity costs to the extent that alternative investments
would have produced higher returns; (vi) an acquisition or merger once effected may prove unsuccessful and an investment in the
SPAC may lose value; (vii) while a SPAC is seeking a transaction target, its stock may be thinly traded and/or illiquid and there
can be no assurance that a market will develop, leaving a Fund unable to sell its interest in a SPAC or to sell its interest only
at a price below what the Fund believes is the SPAC interest’s intrinsic value (viii) an investment in a SPAC may be diluted by additional
later offerings of interests in the SPAC or by other investors exercising existing rights to purchase shares of the SPAC; and (ix) the
values of investments in SPACs may be highly volatile and may depreciate significantly over time. The proceeds of a SPAC IPO that are placed
in trust are subject to risks, including the risk of insolvency of the custodian, fraud by the trustee, interest rate risk and credit
and liquidity risk relating to the securities and money market funds in which the proceeds are invested.
Additional Risk Factors and Special Considerations
Portfolio Turnover. Many of the Funds have experienced high rates of portfolio turnover in recent years
and may experience high rates of portfolio turnover in the future. Portfolio turnover generally involves a number
of direct and indirect costs and expenses to a Fund, including, for example, dealer markups and bid/asked spreads and transaction costs
on the sale of securities and reinvestment in other securities. Such costs have the effect of reducing a Fund’s investment return. A higher
portfolio turnover rate can cause a Fund to realize increased capital gains including short-term capital gains, taxable to shareholders
as ordinary income when distributed to them.
Temporary Defensive Strategies. At times, an Adviser may judge that market conditions make pursuing a Fund’s basic
investment strategy inconsistent with the best interests of its shareholders. At such times,
an Adviser may (but will not necessarily), without notice, temporarily use alternative strategies, primarily designed to reduce fluctuations
in the values of the Fund’s assets. In implementing these “defensive strategies,” a Fund may hold assets in cash and cash equivalents and in
other investments an Adviser believes to be
26
consistent with the Fund’s best interests. If any such a temporary defensive strategy
is implemented, a Fund may not achieve its investment objective.
New or Smaller Funds. Funds with limited operating history and/or small asset base may involve additional
risk. For example, there can be no assurance that a new or smaller Fund will grow to or maintain an economically
viable size. Should a Fund not grow to or maintain an economically viable size, the Board may determine to liquidate the Fund.
Although the interests of shareholders in each Fund are the principal concern of the Board, in the event the Board determines to
liquidate a Fund, the timing of any possible liquidation might not be favorable to certain individual shareholders.
Impact of Activity by Other Shareholders. The Funds, like all mutual funds, pool the investments of many investors. Actions
by one shareholder or multiple shareholders may have an impact on the Fund and, therefore,
indirectly on other shareholders. For example, significant levels of new investments in the Fund by shareholders may cause the Fund
to have more cash than would otherwise be the case, which may have a positive or negative impact on Fund performance. Similarly,
redemption activity might cause the Fund to sell portfolio securities, which may increase transaction costs that, in effect, would
be borne by all shareholders, not just the redeeming shareholders. The sale of portfolio securities to cover redemption requests may accelerate
the realization of income and cause a Fund to make taxable distributions to shareholders earlier than the Fund otherwise could
have. In addition, under certain circumstances, non-redeeming shareholders may be treated as receiving a disproportionately large
taxable distribution during or with respect to a year in which there are large redemptions. To the extent a larger shareholder invests in
a Fund or the markets are highly volatile, the Fund may experience large inflows or outflows of cash from time to time. This activity
could magnify these adverse effects on the Fund.
Market Risk and Turmoil. The Funds are subject to market risk. Market risk includes unexpected directional
price movements, deviations from historical pricing relationships, changes in the regulatory environment,
changes in market volatility, panicked or forced selling of assets and contraction of available credit or other financing sources.
The success of a Fund’s activities may be affected by general economic and market conditions, such as interest rates, availability of credit,
inflation rates, economic uncertainty, changes in laws and national and international political circumstances. Although globally and
among developed countries there has been a relatively stable political environment for decades, there is no guarantee that such
stability will be maintained in the future. International policies, relationships, and trade agreements, which have generally been perceived
as stable or evolving, appear to be much more in flux. Adjustments in major trade relationships have already been met by retaliatory
measures from other countries and could cause potential escalation in protectionist behavior leading to a drag on growth prospects
as trade and investment and productivity growth are reinforcing and linked. Other drivers of geopolitical, economic and market risk
also may come from, among other things, increased political tension on the domestic and international stages, substantial slowdown and
outright recessions in certain markets, pressure on oil prices, rising corporate leverage, continuous abnormally low global interest rates,
structural stresses in the European Union, international terrorist activity, and armed conflicts and risk of armed conflicts.
Similarly, environmental and public health risks, such as natural disasters, pandemics or epidemics, or widespread fear that such events
may occur, may impact markets adversely and cause market volatility in both the short- and long-term. In addition, the expanded influence
of social media platforms on the market, combined with the access to low cost retail brokerage, can exacerbate the volatility
of particular instruments. Any of these developments, or the perception that any of these developments are likely to occur
or worsen, could have a material adverse effect on economic growth or business activity, result in the relocation of businesses, cause
business interruptions, lead to economic recession (or depression), and impact the stability of financial markets or financial institutions
and the financial and monetary system. A Fund may be affected by these developments in ways that are not foreseeable, and there
is a possibility that such developments could have a significant adverse effect on a Fund and its ability to achieve its investment objective.
Market turmoil may negatively affect a Fund’s performance. Such factors may affect the level and volatility of security prices and
liquidity of a Fund’s investments. Credit markets may become illiquid, credit spreads may widen and the equity markets may lose substantial
value. Such market conditions may cause a Fund to suffer substantial losses and/or implement measures that adversely affect
a Fund. Changes in the value of securities may be temporary or may last for extended periods.
Recent Market Conditions and Events. There have been multiple periods in recent decades of high levels of stress and volatility
in financial markets. Periods of market volatility, restrictive credit conditions, lack
of confidence in key market participants, and broadly negative sentiment, sometimes limited to a particular sector or a geography, continue
to recur. Political changes, trade policies and trade disputes (including sanctions and tariffs), tax and budget policies, debt disputes,
geopolitical developments, environmental and public health events, and central bank actions (including withdrawals, or “tapering,” of
market support and changes in interest rate targets) have all at times represented sources of stress and instability in world economies
and markets. For example, Russia’s military campaign in Ukraine resulted in broad-based sanctions by the U.S. and other countries and rapid
price movements in sectors (such as energy) where Russian companies are important market participants, with related impacts both
globally and regionally. Also for example, the COVID-19 pandemic and related quarantines and restrictions resulted in high unemployment,
disruptions to supply chains and customer activity, and general concern and uncertainty, with corresponding impacts
on financial markets worldwide. COVID-19 remains a risk with the potential that new variants could lead to increased government
restrictions and consumer caution. More recently, a number of major economies, including the United States, adjusted to reduced levels
of market and monetary support following periods
27
of fiscal and monetary interventions. Recent periods of rising inflation and increases
in interest rate targets by central banks have generated significant market stress and volatility, with market sentiment changing
rapidly in response to changes in inflation or interest rate expectations.
Risks Related to Cybersecurity and Information Technology. The Funds and their service providers have administrative and technical safeguards in place with respect to information security. Nevertheless,
the Funds and their service providers are potentially susceptible to operational and information security risks resulting from a cyber-attack
as the Funds are highly dependent upon the effective operation of their computer systems and those of their business partners.
These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, denial
of service on websites and other operational disruption and unauthorized release of confidential customer information. Cyber-attacks affecting
the Funds’ service providers, financial intermediaries and other affiliated or third parties may adversely affect the Funds
and their shareholders. For instance, cyber-attacks may interfere with the processing of Fund transactions, including the processing of
orders, impact a Fund’s ability to calculate NAVs, cause the release and possible destruction of confidential customer or business information,
impede trading, subject a Fund and/or its service providers and intermediaries to regulatory fines and financial losses and/or
cause reputational damage. Cybersecurity risks may also affect the issuers of securities in which a Fund invests, which may cause a Fund’s
investments to lose value. A Fund may also incur additional costs for cybersecurity risk management in the future. Although the Funds
and their service providers have adopted security procedures to minimize the risk of a cyber-attack, there can be no assurance that
the Funds or their service providers will avoid losses affecting the Funds due to cyber-attacks or information security breaches in the future.
Recent technological advances in artificial intelligence, robotics and machine learning
technologies, and their current and potential future applications including in the financial sectors, as well as the legal and regulatory
frameworks within which they operate, continue to rapidly evolve. It is not possible to predict the full extent of current or future
risks of these new technologies. Regulations related to these technologies also may impose certain obligations on organizations, and the
costs of monitoring and responding to such regulations, as well as the consequences of non-compliance, could have an adverse
effect on organizations connected to the Funds and their investments. In addition, the Funds and their investments could be exposed to
risks to the extent third-party service providers or any counterparties use these technologies in their business activities.
Reference Rate Transition Risk. The London Interbank Offered Rate, or “LIBOR,” which had historically been the principal
floating rate benchmark in the financial markets, has been discontinued. Its discontinuation
has affected and will continue to affect the financial markets generally and may also affect a Fund’s operations, finances, and investments
specifically. The UK Financial Conduct Authority, which is the regulator of the LIBOR administrator, has ceased publishing all LIBOR
tenors. As an alternative to LIBOR, the market has generally coalesced around the use of the Secured Overnight Financing Rate (“SOFR”)
as a replacement for U.S. dollar LIBOR. SOFR is a risk-free overnight floating rate that is currently published in multiple
formats, including as an overnight rate, as a compounded average and as an index. In addition to the SOFR rate variations, other
alternative floating rates have been developed and various market participants have adopted these floating rates to various degrees,
although market practice remains in flux. Uncertainty as to the nature of alternative reference rates and as to potential changes or other
reforms to alternative reference rates, or any changes announced with respect to such reforms, may result in a sudden or prolonged increase
or decrease in the reported reference rates and the value of reference rate-based loans and securities. The effects of these potential
changes on the Funds, issuers of instruments in which the Funds invests and financial markets generally and the effectiveness of changes
already made, remain uncertain. . If a Fund invests in instruments that utilize an alternative reference rate that falls out of
favor, the value of such instrument may decline due to a lack of liquidity or other factors.
DETERMINING NET ASSET VALUE (“NAV”) AND VALUING PORTFOLIO SECURITIES
Normally, each Fund’s NAV is determined, and the shares of each Fund are priced as
of the valuation time(s) indicated in the Prospectus on each Business Day. A “Business Day” is a day on which the NYSE is open. In the
case of the Bond Fund, a Business Day is a day on which the NYSE and the bond market are open. The Bond Fund is authorized to close
earlier than is customary for a Business Day upon the recommendation of both the Securities Industry and Financial Markets Association
and the Adviser. In the event that the Bond Fund closes earlier than is customary for a Business Day, the Fund’s NAV calculation
for that day will occur as of the time of the earlier close. The NYSE generally is closed in observance of the following holidays: New Year’s
Day, Dr. Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day,
Thanksgiving, and Christmas Day.
In the event of an emergency or other disruption in trading on the NYSE, a Fund’s
share price normally will be determined based upon the close of the NYSE. In the event of an emergency or other disruption in trading
on the bond market, the Bond Fund's share price normally will be determined based upon the close of the bond market.
The Funds generally value their investments based upon their last reported sale prices,
market quotations, or estimates of value provided by an independent pricing service as of the time as of which a Fund’s share price
is calculated. The Board has designated the Adviser as the “valuation designee” in accordance with Rule 2a-5 under the 1940 Act.
28
Investment Company Securities
Shares of another open-end investment company (mutual fund) held by a Fund are valued
at the latest closing NAV of such mutual fund. Shares of any ETFs held by a Fund are valued in the manner described below under
“Equity Securities.”
Fixed Income Securities
Fixed income securities are valued on the basis of security valuations provided by
an independent pricing service, approved by the Board, that determines value by using, among other things, information with respect
to transactions of a security, quotations from dealers, market transactions in comparable securities and various relationships between
securities. Specific investment securities that are not priced by the approved pricing service will be valued according to quotations
obtained from dealers who are market makers in those securities. Investment securities with less than 60 days to maturity when
purchased are valued at amortized cost that approximates market value. Investment securities not having readily available market
quotations will be priced at fair value using a methodology approved in good faith by the Board or its designee in accordance with
applicable Rules under the 1940 Act subject to Board oversight.
Convertible Fixed Income Securities
Convertible fixed income securities are valued in the same manner as any fixed income
security. Non-convertible fixed income securities are valued on the basis of prices provided by independent pricing services.
Prices provided by the pricing service may be determined without exclusive reliance on quoted prices and may reflect appropriate
factors such as institution-sized trading in similar groups of securities, developments related to special securities, yield, quality,
coupon rate, maturity, type of issue, individual trading characteristics, and other market data. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers in a
manner specially authorized by the Board or its designee in accordance with applicable Rules under the 1940 Act, subject to Board oversight.
Short-term obligations having 60 days or less to maturity are valued on the basis of amortized cost, except for convertible fixed income
securities.
Equity Securities
Each equity security (including ETFs) is valued at the closing price on the exchange
where the security is principally traded. Each security traded in the over-the-counter market (but not including securities the trading
activity of which is reported on Nasdaq’s Automated Confirmation Transaction (“ACT”) System) is valued at the bid based upon
quotes furnished by market makers for such securities. Each security the trading activity of which is reported on Nasdaq’s ACT
System is valued at the Nasdaq Official Closing Price.
Funds that Invest a Significant Amount of their Assets in Foreign Securities
Time zone arbitrage. Funds that invest a significant amount of their assets in foreign securities, may
be exposed to attempts by investors to engage in “time-zone arbitrage.” Using this technique, investors seek to take advantage
of differences in the values of foreign securities that might result from events that occur after the close of the foreign
securities market on which a security is traded and before the close of the NYSE that day, when the Funds calculate their NAV. If successful,
time zone arbitrage might dilute the interests of other shareholders.
The Victory RS International VIP Series and Victory Sophus Emerging Markets VIP Series
(together the “International Funds”) generally invest a significant amount of their assets in foreign securities. The International
Funds use “fair value pricing,” under certain circumstances, to adjust the closing market prices of foreign securities to reflect
what the Board or its designee in accordance with applicable Rules under the 1940 Act subject to Board oversight considers to be their
fair value as of the time the Fund calculates its NAV. Fair value pricing may also help to deter time zone arbitrage.
Fair Value Pricing
If market quotations are not readily available, or (in the Adviser’s judgment) do
not accurately reflect the fair value of a security, or if after the close of the principal market on which a security held by a Fund is traded
and before the time as of which the Funds’ net asset value is calculated that day, an event occurs that the Adviser learns of and
believes in the exercise of its judgment will cause a material change in the value of that security from the closing price of the security
on the principal market on which it is traded, that security may be valued by another method that the Board or its designee in accordance
with applicable Rules under the 1940 Act subject to Board oversight, believes would more accurately reflect the security’s fair value.
The Funds’ use of fair value pricing procedures involves subjective judgments and
it is possible that the fair value determined for a security may be materially different from the value that could be realized upon the
sale of that security. Accordingly, there can be no
29
assurance that a Fund will obtain the fair value assigned to a security if it were
to sell the security at approximately the same time at which the Fund determines its NAV per share.
Other Valuation Information
Under the 1940 Act, a Fund is required to act in good faith in determining the fair
value of portfolio securities. The SEC has recognized that a security’s valuation may differ depending on the method used for determining
value. The fair value ascertained for a security is an estimate and there is no assurance, given the limited information available
at the time of fair valuation, that a security’s fair value will be the same as or close to the subsequent opening market price for that security.
The Board has adopted valuation procedures for the Funds and has delegated the day-to-day
responsibility for fair valuation determinations to the Adviser and the Adviser’s Pricing and Liquidity Committee. Those
determinations may include consideration of recent transactions in comparable securities, information relating to a specific security,
developments in and performance of foreign securities markets, current valuations of foreign or U.S. indices, and adjustment
coefficients based on fair value models developed by independent service providers. The Adviser may, for example, adjust the value of portfolio
securities based on fair value models supplied by the service provider when the Adviser believes that the adjustments better
reflect actual prices as of the close of the NYSE.
Generally, trading in foreign securities, corporate bonds, U.S. government securities
and money market instruments is substantially completed each day at various times prior to the close of the NYSE. The values of
such securities used in computing the NAV of the Fund’s shares generally are determined at such times. Foreign currency exchange rates
are also generally determined prior the close of the NYSE. Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which such values are determined and the close of the NYSE. If events affecting the
value of securities occur during such a period, and the Fund’s NAV is materially affected by such changes in the value of the securities,
then these securities will be valued at their fair value as determined in good faith by or under the supervision of the Board. Other
securities and assets for which market quotations are not readily available or for which valuation cannot be provided are valued as
determined in good faith in accordance with procedures approved by the Board or its designee in accordance with applicable Rules
under the 1940 Act subject to Board oversight.
Other securities and assets for which market quotations are not readily available
or for which valuation cannot be provided are valued as determined in good faith in accordance with procedures approved by the Board or
its designee in accordance with applicable Rules under the 1940 Act subject to Board oversight.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The NYSE holiday closing schedule indicated in this SAI under “Determining Net Asset
Value (“NAV”) and Valuing Portfolio Securities” is subject to change. When the NYSE is closed, or when trading is restricted
for any reason other than its customary weekend or holiday closings, or under emergency circumstances as determined by the
SEC to warrant such action, the Fund may not be able to accept purchase or redemption requests. A Fund’s NAV may be affected to
the extent that its securities are traded on days that are not Business Days.
The Trust has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem shares
of each Fund solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund during any 90-day period for any one separate
account. The remaining portion of the redemption may be made in securities or other property, valued for this purpose as
they are valued in computing the NAV of the Fund. Separate accounts receiving securities or other property on redemption may incur additional
costs as well as the associated inconveniences of holding and/or disposing of such securities or other property.
Purchasing and Redeeming Shares
As described in the Prospectus, shares of the Fund may be purchased and redeemed solely
through variable annuity contracts and variable life insurance policies (collectively, “contracts”) offered by separate accounts
of participating insurance companies. The separate accounts purchase and redeem shares of the Fund based on, among other things,
the amount of premium payments received on that day pursuant to contracts, but only on days when the NYSE is open for trading.
Such purchases and redemptions of Fund shares are effected at the Fund’s NAV determined as of the close of regular trading on the
NYSE (normally 4:00 p.m. Eastern Time) on that same day. No fee is charged to the separate accounts of the participating insurance
companies when they redeem Fund shares.
MANAGEMENT OF THE TRUST
Board Leadership Structure
The Trust is governed by the Board, which is comprised of eight Trustees, seven of
whom are not “interested persons” of the Trust within the meaning of that term under the 1940 Act (the “Independent Trustees”). The
Chair of the Board is an Independent Trustee,
30
who functions as the lead Trustee. The Chair serves as liaison between the Board and
its Committees, the Adviser and other service providers. The Chair is actively involved in setting the Board meeting agenda, and
participates on certain Board Committees.
Board Role in Risk Oversight
In considering risks related to the Funds, the Board consults and receives reports
from officers of the Funds and personnel of the Adviser, who are charged with the day-to-day risk oversight function. Matters regularly
reported to the Board or a designated committee include certain risks involving, among other things, the Funds’ investment portfolios,
trading practices, operational matters, financial and accounting controls, and legal and regulatory compliance. The Board has delegated
to each of the Compliance Committee and Audit and Risk Oversight Committee certain responsibilities for reviewing reports
relating to compliance and enterprise risk, including operational risk, liquidity, and personnel. The Board relies on the Investment Committee
to review reports relating to investment risks, that is, risks to the Funds resulting from pursuing the Funds’ investment strategies
(e.g., credit risk and market risk).
Trustees and Officers
The following tables list the Trustees and Officers, their dates of birth, position
with the Trust, length of time served, principal occupations during the past five years and, where applicable, any directorships of
other investment companies or companies whose securities are registered under the Securities Exchange Act of 1934, as amended (“1934
Act”), or who file reports under the 1934 Act. Under the Trust’s organizational documents, each Trustee serves as a Trustee of the
Trust during the lifetime of the Trust and until its termination except as such Trustee sooner dies, resigns, retires, or is removed. However,
pursuant to a policy adopted by the Board, each elected or appointed Independent Trustee may serve as a Trustee until the Trustee
reaches age 80, and the Interested Trustee may serve as a Trustee until the Trustee reaches age 80. The Board may change or grant
exceptions from this policy at any time without shareholder approval. Each Trustee’s address is c/o Victory Funds, 15935 La Cantera
Parkway, San Antonio, Texas 78256.
Independent Trustees
|
Name and
Date of Birth
|
Position
Held with
the Trust
|
Date
Commenced
Service
|
Principal Occupation
During Past 5 Years
|
Number of Portfolios
in Fund Complex
Overseen by Trustee
|
Other
Directorships
Held During
the
Past 5 Years
|
|
David Brooks
Adcock,
Born October
1951
|
Trustee
|
February 2005
|
Consultant (since 2006)
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
None
|
|
Nigel D.T.
Andrews,
Born April 1947
|
Trustee
|
August 2002
|
Retired
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
Director,
Carlyle Secured
Lending, Inc.
(formerly TCG
BDC I, Inc.)
(since 2012);
Director,
Carlyle Credit
Solutions, Inc.
(formerly TCG
BDC II, Inc.)
(since 2017);
Trustee, Carlyle
Secured
Lending III
(since 2021)
|
|
E. Lee Beard*,
Born August
1951
|
Trustee
|
February 2005
|
Retired
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
None
|
31
|
Name and
Date of Birth
|
Position
Held with
the Trust
|
Date
Commenced
Service
|
Principal Occupation
During Past 5 Years
|
Number of Portfolios
in Fund Complex
Overseen by Trustee
|
Other
Directorships
Held During
the
Past 5 Years
|
|
John L. Kelly,
Born April 1953
|
Chair and
Trustee
|
February 2015
|
Managing Partner,
Active Capital
Partners LLC, a
strategic consultant
(since October 2017)
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
Director,
Caledonia
Mining
Corporation
(since May
2012)
|
|
David L. Meyer,
Born April 1957
|
Trustee
|
December 2008
|
Retired
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
None
|
|
Gloria S.
Nelund,
Born May 1961
|
Trustee
|
July 2016
|
Chair, CEO, and
Co-Founder of TriLinc
Global, LLC, an
investment firm
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
TriLinc Global
Impact Fund,
LLC (since
2012)
|
|
Timothy Pettee,
Born April 1958
|
Trustee
|
January 2023
|
Chief Investment
Officer, Hoya Capital
Real Estate LLC (since
February 2022); Chief
Investment Officer, Sun
America Asset
Management Corp.
(January 2003-July
2021)
|
62 portfolios comprised
of 5 portfolios in the
Trust, 24 portfolios in
Victory Portfolios, and
33 portfolios in Victory
Portfolios II
|
None
|
Interested Trustee
|
Name and
Date of Birth
|
Position
Held with
the Trust
|
Date
Commenced
Service
|
Principal Occupation
During Past 5 Years
|
Number of Portfolios
in Fund Complex
Overseen by Trustee
|
Other
Directorships
Held During
the
Past 5 Years
|
|
David C.
Brown**,
Born May 1972
|
Trustee
|
May 2008
|
Chief Executive Officer
and Chairman
(2013-present), Victory
Capital
Management Inc.; Chief
Executive Officer and
Chairman
(2013-present), Victory
Capital Holdings, Inc.;
Director, Victory Capital
Services, Inc. (2013-
present); Director,
Victory Capital Transfer
Agency, Inc. (2019-
present)
|
143 portfolios
comprised of 5
portfolios in the Trust,
24 portfolios in Victory
Portfolios, 33 portfolios
in Victory Portfolios II,
45 portfolios in Victory
Portfolios III, 29
portfolios in Victory
Portfolios IV, and 7 in
Victory Variable
Insurance Funds II.
|
Trustee, Victory
Portfolios III;
Board Member,
Victory Capital
Services, Inc.
|
*
The Board has designated Ms. Beard as its Audit Committee Financial Expert.
**
Mr. Brown is an “Interested Person” by reason of his relationship with the Adviser.
32
Trustee Qualifications
The following summarizes the experience and qualifications of the Trustees.
• David Brooks Adcock. Mr. Adcock served for many years as general counsel to Duke University and Duke University
Health System, where he provided oversight to complex business transactions such as mergers
and acquisitions and dispositions. He has served for more than 20 years as a public interest arbitrator for, among others,
the New York Stock Exchange, the American Stock Exchange, the National Futures Association, FINRA, and the American Arbitration
Association. The Board believes that Mr. Adcock’s knowledge of complex business transactions and the securities industry
combined with his previous service on the boards of other mutual funds qualifies him to serve on the Board.
• Nigel D.T. Andrews. Mr. Andrews served for many years as a management consultant for a nationally recognized
consulting company and as a senior executive at GE, including Vice President of Corporate Business
Development, reporting to the Chairman, and as Executive Vice President of GE Capital. He also served as a Director
and member of the Audit and Risk Committee of Old Mutual plc, a large publicly traded company whose shares are traded
on the London Stock Exchange. Mr. Andrews also formerly served as the non-executive chairman of Old Mutual’s U.S. asset
management business, where he also served on the audit and risk committee. Mr. Andrews also served as a Governor of the
London Business School. He serves as a director of Carlyle Secured Lending, Inc. (formerly TCG BDC I, Inc.) and Carlyle
Credit Solutions, Inc., (formerly TCG BDC II, Inc.), and as a Trustee for Carlyle Secured Lending III, each a business development
company. The Board believes that his experience in these positions, particularly with respect to oversight of risk and
the audit function of public companies, as well as his previous service on the boards of other mutual funds qualifies him to serve
as a Trustee.
• E. Lee Beard. Ms. Beard, a certified public accountant, has served as the president, chief executive
officer and director, and as a chief financial officer, of public, federally insured depository institutions. As
such, Ms. Beard is familiar with issues relating to audits of financial institutions. The Board believes that Ms. Beard’s experience
as the chief executive officer of a depository institution, her service on the boards of other mutual funds and her knowledge of
audit and accounting matters qualifies her to serve as a Trustee.
• David C. Brown. Mr. Brown serves as the Chairman and Chief Executive Officer (since 2013) of the
Adviser and, as such, is an “interested person” of the Trust. Previously, he served as Co-Chief Executive Officer
(2011 - 2013), and President — Investments and Operations (2010 - 2011) and Chief Operating Officer (2004 - 2011)
of the Adviser. The Board believes that his position and experience with the Adviser and his previous experience in the investment
management business qualifies him to serve as a Trustee.
• John L. Kelly. Mr. Kelly has more than 35 years of experience and leadership roles in the financial
services industry including institutional electronic trading, capital markets, corporate and investment banking,
retail brokerage, private equity, asset/wealth management, institutional services, mutual funds, and related technology enabled services.
He previously served as an Independent Trustee of Victory Portfolios, Victory Institutional Funds, and Victory
Variable Insurance Funds from 2008 to 2011. The Board believes that this experience qualifies him to serve as a Trustee.
• David L. Meyer. For six years, Mr. Meyer served as chief operating officer, Investment Wealth Management
Division, of Mercantile Bankshares Corp (now PNC Financial Services Corp.) and has served as an
officer or on the boards of other mutual funds for many years. The Board believes that his experience, particularly as it related
to the operation of registered investment companies, qualifies him to serve as a Trustee.
• Gloria S. Nelund. Ms. Nelund has executive and investment management industry experience, including
service as chief executive officer of two investment advisory firms. Ms. Nelund also has experience
as a co-founder and chief executive officer of an investment firm. Ms. Nelund previously served as the Chairman and Trustee of
the boards of the RS Investment Trust and RS Variable Products Trust. The Board believes that this experience qualifies
her to serve as a Trustee.
• Timothy Pettee. Mr. Pettee served for many years as Chief Investment Officer and Lead Portfolio Manager
(Rules Based Funds) of SunAmerica Asset Management Corp., where he was responsible for investment oversight,
portfolio management, and securities selection. At SunAmerica, Mr. Pettee also was Chair of the Portfolio Policy
and Brokerage and Soft Dollar Committees, and a member of the Proxy and Executive Committees. The Board believes
that Mr. Pettee’s experience with other mutual funds and his knowledge qualifies him to serve as a Trustee.
Committees of the Board
The following standing Committees of the Board are currently in operation: Audit and
Risk Oversight, Compliance, Continuing Education, Investment, Service Provider, Board Governance and Nominating, and Agenda.
In addition to these standing Committees,
33
the Board may form temporary Sub- or Special Committees to address particular areas
of concern. A Committee may form a Sub-Committee to address particular areas of concern to that Committee.
• The members of the Audit and Risk Oversight Committee, all of whom are Independent
Trustees, are Ms. Beard (Chair), Mr. Andrews, Mr. Kelly, and Ms. Nelund. The primary purpose of this Committee is to oversee
the Trust’s accounting and financial reporting policies, practices, and internal controls, as required by the statutes
and regulations administered by the SEC, including the 1940 Act. The Committee also has overall responsibility for reviewing
periodic reports with respect to compliance and enterprise risk, including operational risk and personnel. The Board has designated
Mr. Meyer and Ms. Beard as its Audit Committee Financial Experts.
• The members of the Compliance Committee are Mr. Adcock (Chair), Mr. Andrews, Ms. Beard,
Mr. Kelly, and Ms. Nelund. The Compliance Committee oversees matters related to the Funds’ compliance program and
compliance with applicable laws, rules and regulations and meets regularly with the Trust’s Chief Compliance Officer.
• The members of the Continuing Education Committee are Mr. Meyer (Chair), Mr. Adcock,
Mr. Andrews, Ms. Beard, Mr. Kelly, and Ms. Nelund. The function of this Committee is to develop programs to educate the
Trustees to enhance their effectiveness as a Board and individually.
• The members of the Investment Committee are Mr. Pettee (Chair), Mr. Adcock, Mr. Kelly,
and Mr. Meyer. The function of this Committee is to oversee the Fund’s compliance with investment objectives, policies,
and restrictions, including those imposed by law or regulation, and assist the Board in its annual review of the Funds’ investment
advisory agreements.
• The members of the Service Provider Committee are Ms. Nelund (Chair), Mr. Andrews,
Ms. Beard, and Mr. Kelly. This Committee oversees the negotiation of the terms of the written agreements with the
Funds’ service providers, evaluates the quality of periodic reports from the service providers (including reports submitted
by sub-service providers) and assists the Board in its review of each Fund’s service providers, other than the investment adviser
and independent auditors.
• The Board Governance and Nominating Committee consists of all of the Independent Trustees.
Mr. Andrews currently serves as the Chair of this Committee. The functions of this Committee are: to oversee Fund
governance, including the nomination and selection of Trustees; to evaluate and recommend to the Board the compensation
and expense reimbursement policies applicable to Trustees; and periodically, to coordinate and facilitate an evaluation
of the performance of the Board.
• The Board Governance and Nominating Committee will consider nominee recommendations
from Fund shareholders, in accordance with procedures established by the Committee. A Fund shareholder should
submit a nominee recommendation in writing to the attention of the Chair of the Trust, 15935 La Cantera Parkway, San
Antonio, Texas 78256. The Committee (or a designated sub-committee) will screen shareholder recommendations in the same manner
as it screens nominations received from other sources, such as current Trustees, management of the Fund or other individuals,
including professional recruiters. The Committee need not consider any recommendations when no vacancy on the Board exists,
but the Committee will consider any such recommendation if a vacancy occurs within six months after receipt of the
recommendation. In administering the shareholder recommendation process, the Chair, in the Chair’s sole discretion, may
retain the services of counsel to the Trust or to the Independent Trustees, management of the Fund or any third party. The Committee
will communicate the results of the evaluation of any shareholder recommendation to the shareholder who made the recommendation.
• The Agenda Committee consists of the Chair of the Board and the Chair of each other
Committee.
During the fiscal year ended December 31, 2024, the Board held eight meetings. The
Audit and Risk Oversight Committee held four meetings; the Compliance Committee held four meetings; the Investment Committee held
four meetings; the Service Provider Committee held four meetings; and the Board Governance and Nominating Committee held
four meetings. The Continuing Education Committee met informally during the fiscal year.
Officers of the Trust
The officers of the Trust are elected by the Board to actively supervise the Trust’s
day-to-day operations. The officers of the Trust, their dates of birth, the length of time served, and their principal occupations during
the past five years, are detailed in the following table. Each individual holds the same position with the other registered investment companies
in the Victory Fund Complex, and each officer serves until the earlier of his or her resignation, removal, retirement, death, or
the election of a successor. The mailing address of each officer of the Trust is 15935 La Cantera Parkway, San Antonio, TX 78256. The officers
of the Trust receive no compensation directly from the Trust for performing the duties of their offices.
34
|
Name and
Date of Birth
|
Position with
the Trust
|
Date
Commenced
Service
|
Principal Occupation
During Past 5 Years
|
|
Thomas
Dusenberry,
Born July 1977
|
President
|
May 2022*
|
Director, Fund Administration, the Adviser; Treasurer
and Principal Financial Officer (May 2023-present);
Manager, Fund Administration, the Adviser; Treasurer
and Principal Financial Officer (2020-2022), Assistant
Treasurer (2019), Salient MF Trust, Salient Midstream,
MLP Fund and Forward Funds; Principal Financial
Officer (2018-2021) and Treasurer (2020-2021), Salient
Private Access Funds and Endowment PMF Funds;
Senior Vice President of Fund Accounting and
Operations, Salient Partners (2020-2022); Director of
Fund Operations, Salient Partners (2016-2019). Mr.
Dusenberry also serves as President of Victory
Portfolios, Victory Portfolios II, Victory Portfolios III,
Victory Portfolios IV, and Victory Variable Insurance
Funds II.
|
|
Scott A. Stahorsky,
Born July 1969
|
Vice President
|
December 2014
|
Director, Third-Party Dealer Services & Reg
Administration, Fund Administration, the Adviser
(5/1/2023-present); Vice President, Victory Capital
Transfer Agency, Inc. (4/20/23-present); Manager, Fund
Administration, the Adviser (4/30/23- 2015). Mr.
Stahorsky also serves as Vice President of Victory
Portfolios, Victory Portfolios II, Victory Portfolios III,
Victory Portfolios IV, and Victory Variable Insurance
Funds II.
|
|
Patricia McClain
Born September
1962
|
Secretary
|
June 2024
|
Director, Regulatory Administration, Fund
Administration, the Adviser (7/1/19-present). Ms.
McClain also serves as Secretary of Victory Portfolios,
Victory Portfolios II, Victory Portfolios III, Victory
Portfolios IV, and Victory Variable Insurance Funds II.
|
|
Carol D. Trevino
Born October 1965
|
Treasurer
|
February 2023**
|
Director, Financial Reporting, Fund Administration
(5/1/23-present); Director, Accounting and Finance, the
Adviser (7/1/19-4/30/23); Accounting/ Financial
Director, USAA (12/13-6/30/19). Ms. Trevino also
serves as Treasurer of Victory Portfolios, Victory
Portfolios II, Victory Portfolios III, Victory Portfolios
IV, and Victory Variable Insurance Funds II.
|
|
Christopher Ponte,
Born March 1984
|
Assistant
Treasurer
|
December 2017
|
Director, Fund and Broker Dealer Finance, Fund
Administration, (5/1/23-present); Victory Capital
Transfer Agency, Inc. (5/23-present); Manager, Fund
Administration, the Adviser (2017-2023); Chief
Financial Officer, Victory Capital Services, Inc. (since
2018). Mr. Ponte also serves as Assistant Treasurer of
Victory Portfolios, Victory Portfolios II, Victory
Portfolios III, Victory Portfolios IV, and Victory
Variable Insurance Funds II.
|
|
Sean Fox,
Born September
1976
|
Chief
Compliance
Officer
|
June 2022
|
Sr. Compliance Officer, the Adviser (2019-Present);
Compliance Officer, the Adviser (2015-2019). Mr. Fox
also serves as Chief Compliance Officer for Victory
Portfolios, Victory Portfolios II, Victory Portfolios III,
Victory Portfolios IV, and Victory Variable Insurance
Funds II.
|
35
|
Name and
Date of Birth
|
Position with
the Trust
|
Date
Commenced
Service
|
Principal Occupation
During Past 5 Years
|
|
D. Brent Rowse,
Born November
1981
|
Anti-Money
Laundering
Compliance
Officer and
Identity Theft
Officer
|
October 2024
|
Sr. Compliance Officer, the Adviser (4/1/23-present);
Compliance Officer, the Adviser (7/1/19-3/31/23). Mr.
Rowse also serves as the Anti-Money Laundering
Compliance Officer and Identity Theft Officer for
Victory Portfolios, Victory Portfolios II, Victory
Portfolios III, Victory Portfolios IV, and Victory
Variable Insurance Funds II, and the Anti-Money
Laundering Compliance Officer for Victory Capital
Services, Inc.
|
|
Jay G. Baris,
Born January 1954
|
Assistant
Secretary
|
February 1998
|
Senior Counsel, Sidley Austin LLP (since 2024);
Partner, Sidley Austin LLP (2020-2024); Partner,
Shearman & Sterling LLP (2018-2020).
|
* Effective June 14, 2024, Mr. Dusenberry resigned as Secretary and accepted the position
of President.
** Effective October 1, 2024, Ms. Trevino resigned as Assistant Treasurer and accepted the position of Treasurer.
** Effective October 1, 2024, Ms. Trevino resigned as Assistant Treasurer and accepted the position of Treasurer.
Fund Ownership
The following tables show the dollar ranges of Fund shares (and of shares of all series
of the Victory Fund Complex) beneficially owned by each Trustee as of December 31, 2024. No Independent Trustee (or any immediate
family member) owns beneficially or of record an interest in the Adviser or the Distributor or in any person directly or indirectly
controlling, controlled by, or under common control with the Adviser or the Distributor (other than Funds in the Victory Funds Complex).
As of December 31, 2024, the Trustees and officers as a group owned beneficially less than 1% of each class of outstanding shares
of those series of the Trust.
Independent Trustees
|
Trustee
|
Dollar Range
of Beneficial Ownership
of Fund Shares
|
Aggregate Dollar Range of Ownership
of Shares of All Series
of the Victory Fund Complex
|
|
Mr. Adcock
|
None
|
Over $100,000
|
|
Mr. Andrews
|
None
|
Over $100,000
|
|
Ms. Beard
|
None
|
Over $100,000
|
|
Mr. Kelly
|
None
|
Over $100,000
|
|
Mr. Meyer
|
None
|
Over $100,000
|
|
Ms. Nelund
|
None
|
Over $100,000
|
|
Mr. Pettee
|
None
|
None
|
Interested Trustee
|
Trustee
|
Dollar Range
of Beneficial Ownership
of Fund Shares
|
Aggregate Dollar Range of Ownership
of Shares of All Series
of the Victory Fund Complex
|
|
Mr. Brown*
|
None
|
Over $100,000
|
*
Mr. Brown is an “Interested Person” by reason of his relationship with the Adviser.
Compensation
Effective January 1, 2025, the Victory Fund Complex pays each Independent Trustee
$375,000 per year for his or her services to the Complex. The Board Chair is paid an additional retainer of $140,000 per year. While
the Board reserves the right to award reasonable compensation to any Interested Trustee, as of the date of this SAI no Interested Trustee
receives compensation for services as a Trustee.
The following tables indicate the compensation received by each Trustee from the Funds
covered in this SAI and from the Victory Fund Complex for the fiscal year ended December 31, 2024. As of December 31, 2024, there
were 70 funds in the Victory Fund Complex for which the Trustees listed below were compensated. The Trust does not maintain
a retirement plan for its Trustees.
36
Independent Trustees
|
Trustee
|
Aggregate Compensation
from the Trust
|
Total Compensation from the
Victory Fund Complex
|
|
Mr. Adcock
|
$5,645
|
$355,000
|
|
Mr. Andrews*
|
$8,064
|
$355,000
|
|
Ms. Beard
|
$5,806
|
$355,000
|
|
Mr. Kelly
|
$11,244
|
$495,000
|
|
Mr. Meyer
|
$8,064
|
$355,000
|
|
Ms. Nelund
|
$8,064
|
$355,000
|
|
Mr. Pettee
|
$8,064
|
$355,000
|
* Mr. Andrews no longer elects to receive a portion of his compensation as deferred
compensation. As of December 31, 2024, the value of Mr. Andrews' deferred compensation account was $652,147.
Interested Trustee
|
Trustee
|
Aggregate Compensation
from the Trust
|
Total Compensation from the
Victory Fund Complex
|
|
Mr. Brown*
|
None.
|
None.
|
*
Mr. Brown is an “Interested Person” by reason of his relationship with the Adviser.
Deferred Compensation
Each Trustee may elect to defer a portion of his or her compensation from the Victory
Fund Complex in accordance with a Deferred Compensation Plan adopted by the Board (the “Plan”). Such amounts are invested in
one or more Funds in the Victory Fund Complex offered under the Plan or a money market fund, as selected by the Trustee.
As of the current fiscal year ended December 31, 2024, the following current Trustees
have elected to defer a portion of his or her compensation from the Victory Fund Complex.
|
Trustee
|
Aggregate Compensation
from the Funds
|
Total Compensation from the
Victory Fund Complex
|
|
Mr. Adcock*
|
$2,332
|
$106,500
|
|
Ms. Beard**
|
$2,176
|
$99,400
|
* As of December 31, 2024, the value of Mr. Adcock’s deferred compensation
account was $482,755.
** As of December 31, 2024, the value of Ms. Beard’s deferred compensation account was $214,573.
** As of December 31, 2024, the value of Ms. Beard’s deferred compensation account was $214,573.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of April 3, 2025, the following shareholders owned 5% or more of the indicated
Funds. Each shareholder that beneficially owns more than 25% of the voting securities of a Fund may be deemed a control person of
the Fund’s outstanding shares and, thereby, may influence the outcome of matters on which shareholders are entitled to vote. Since
the economic benefit of investing in a Fund and related voting authority is passed through to the underlying investors of the record
owners, it is expected that these record owners generally will not be considered the beneficial owners of the Fund’s shares or control
persons of the Fund.
The names and addresses of the record holders and the percentage of the outstanding
shares held by such holders are set forth in the following table.
|
Fund - Class
|
Name and Address of Owner
|
Percentage
Owned of
Record
|
|
Victory 500 Index VIP Series
|
GUARDIAN INSURANCE & ANNUITY
FBO KPA3
ATTN EQUITY ACCOUNTING 3-SOUTH
3900 BURGESS PLACE
BETHLEHEM PA 18017
|
100.00%
|
37
|
Fund - Class
|
Name and Address of Owner
|
Percentage
Owned of
Record
|
|
Victory High Yield VIP Series
|
GUARDIAN INSURANCE & ANNUITY
FBO KPA3
ATTN EQUITY ACCOUNTING 3-SOUTH
3900 BURGESS PLACE
BETHLEHEM PA 18017
|
100.00%
|
|
Victory RS International VIP Series
|
GUARDIAN INSURANCE & ANNUITY
FBO KPA3
ATTN EQUITY ACCOUNTING 3-SOUTH
3900 BURGESS PLACE
BETHLEHEM PA 18017
|
99.27%
|
|
Victory RS Small Cap Growth Equity VIP Series
|
GUARDIAN INSURANCE & ANNUITY
FBO KPA3
ATTN EQUITY ACCOUNTING 3-SOUTH
3900 BURGESS PLACE
BETHLEHEM PA 18017
|
80.20%
|
|
|
MID ATLANTIC TRUST COMPANY FBO
MUTUAL OF AMERICA SEPARATE ACCOUNT
1251 WATERFRONT PLACE SUITE 525
PITTSBURGH PA 15222
|
13.35%
|
|
Victory Sophus Emerging Markets VIP Series
|
GUARDIAN INSURANCE & ANNUITY
FBO KPA3
ATTN EQUITY ACCOUNTING 3-SOUTH
3900 BURGESS PLACE
BETHLEHEM PA 18017
|
99.36%
|
INVESTMENT ADVISER AND OTHER SERVICE PROVIDERS
Investment Adviser
Victory Capital, a New York corporation registered as an investment adviser with the
SEC, serves as investment adviser to the Funds. Victory Capital’s principal business address is 15935 La Cantera Parkway, San Antonio,
TX 78256. Subject to the authority of the Board, the Adviser is responsible for the overall management and administration of
the Funds’ business affairs. Each of the Adviser’s multiple investment teams, referred to separately as investment franchises utilizes
its own independent approach to investing. The Adviser is responsible for selecting each Fund’s investments according to its investment
objective, policies, and restrictions. The Adviser is an indirect wholly owned subsidiary of Victory Capital Holdings, Inc. (“VCH”),
a publicly traded Delaware corporation. As of March 31, 2025, the Adviser managed assets totaling in excess of $167.5 billion
for numerous clients including large corporate and public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.
The Adviser is a diversified global asset manager comprised of multiple investment
teams, referred to as investment franchises, each of which utilizes an independent approach to investing.
The following schedule lists the advisory fees for each Fund, as an annual percentage
of its average daily net assets.
|
Fund
|
Advisory Fee
|
|
Victory RS Small Cap Growth Equity VIP Series
|
0.75%
|
|
Victory RS International VIP Series
|
0.80%
|
|
Victory Sophus Emerging Markets VIP Series
|
1.00%
|
|
Victory High Yield VIP Series
|
0.60%
|
|
Victory 500 Index VIP Series
|
0.25%
|
The Advisory and Sub-Advisory Agreements
The Adviser serves as the Funds’ investment adviser pursuant to an advisory agreement
dated as of July 29, 2016 (the “Advisory Agreement”). Unless sooner terminated, the Advisory Agreement between the Adviser
and the Trust, on behalf of the Funds, provides that it will continue in effect as to the Funds for two years and for consecutive
one-year terms thereafter, provided that such renewal is approved at least annually by the Trustees or by vote of the majority of the outstanding
shares of each such Fund (as defined under “Miscellaneous” below) and, in either case, by a majority of the Trustees who are
not parties to the Advisory Agreement or “interested persons” (as defined in the 1940 Act) of any party to the Advisory Agreement, by votes
cast in person at a meeting called for such
38
purpose. The Advisory Agreement is terminable as to any particular Fund at any time
on 60 days’ written notice without penalty by a vote of the majority of the outstanding shares of a Fund, by vote of the Trustees,
or as to all applicable Funds by the Adviser. The Advisory Agreement also terminates automatically in the event of any assignment, as
defined by the 1940 Act.
The Advisory Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Funds in connection with the performance of the services pursuant
thereto, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith, gross negligence on the part of the Adviser in the performance of its duties, or from reckless
disregard by the Adviser of its duties and obligations thereunder.
Under the Advisory Agreement, the Adviser may delegate a portion of its responsibilities
to a sub-adviser. In addition, the agreements provide that the Adviser may render services through its own employees or the employees
of one or more affiliated companies that are qualified to act as an investment adviser of the Fund provided all such persons are
functioning as part of an organized group of persons, managed by authorized officers of the Adviser.
Management fees paid to the Adviser for the last three fiscal years ended December
31.
|
Fund
|
2024
|
2023
|
2022
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$550,295
|
$530,279
|
$612,735
|
|
Victory RS International VIP Series
|
$928,065
|
$928,984
|
$987,475
|
|
Victory Sophus Emerging Markets VIP Series
|
$252,461
|
$263,244
|
$305,140
|
|
Victory High Yield VIP Series
|
$122,108
|
$131,853
|
$150,725
|
|
Victory 500 Index VIP Series
|
$233,899
|
$222,105
|
$234,048
|
Management Fee Waiver/Expense Reimbursement
The Adviser has contractually agreed to waive its management fee and/or reimburse
Fund expenses so that the total annual operating expenses (excluding any acquired fund fees and expenses and certain other items such
as interest, taxes, dividend, and interest expenses on short sales and brokerage commissions) of a Fund (by share class) do not exceed
a certain percentage for a predetermined amount of time. In these instances, the fee and expense table in the Fund’s Prospectus provides
more details about this arrangement and shows the impact it will have on the Fund’s total annual fund operating expenses. Under
its contractual agreement with the Funds, the Adviser is permitted to recoup advisory fees waived and expenses reimbursed for up to three
years after the date of the waiver or reimbursement, subject to the lesser of any operating expense limits in effect at the time of: (a)
the original waiver or expense reimbursement; or (b) the recoupment, after giving effect to the recoupment amount. This agreement may only
be terminated by the Board. From time to time, the Adviser may also voluntarily waive its management fee and/or reimburse expenses
for a Fund. These voluntary reductions are not reflected in the fee and expense table in the Fund’s Prospectus.
From time to time, the Manager may, without prior notice to shareholders, waive all
or any portion of fees or agree to reimburse expenses incurred by a Fund. As a result of the Funds’ expense limitation agreement,
for the past three fiscal years ended December 31, Victory Capital waived its management fee and/or reimbursed the Funds the amount listed
in the table below.
|
Fund
|
2024
|
2023
|
2022
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$63,624
|
$70,489
|
$96,013
|
|
Victory RS International VIP Series
|
$183,563
|
$199,137
|
$202,948
|
|
Victory Sophus Emerging Markets VIP Series
|
$114,282
|
$107,749
|
$81,408
|
|
Victory High Yield VIP Series
|
$32,585
|
$28,181
|
$30,665
|
|
Victory 500 Index VIP Series
|
$121,708
|
$119,712
|
$124,202
|
For the past three fiscal years ended December 31, Victory Capital recouped management
fees previously waived and/or reimbursed in the amounts listed in the table below.
|
Fund
|
2024
|
2023
|
2022
|
|
Victory RS International VIP Series Class I
|
$ -
|
$ -
|
$7,035
|
|
Victory Sophus Emerging Markets VIP Series Class I
|
$ -
|
$ -
|
$3,400
|
|
Victory High Yield VIP Series Class I
|
$ -
|
$ -
|
$899
|
Compliance Services
The Trust and the Adviser are parties to the Agreement to Provide Compliance Services
(the “Compliance Agreement”) pursuant to which the Adviser furnishes its compliance personnel, including the services of the
CCO, and other resources reasonably necessary to
39
provide the Trust with compliance oversight services related to the design, administration,
and oversight of a compliance program for the Trust in accordance with Rule 38a-1 under 1940 Act. The funds in the Victory Fund
Complex, in the aggregate, compensate the Adviser for these services.
For the past three fiscal years ended December 31, the Funds paid the Adviser the
following fees under the terms of the Compliance Agreement.
|
Fund
|
2024
|
2023
|
2022
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$642
|
$654
|
$677
|
|
Victory RS International VIP Series
|
$1,022
|
$1,062
|
$999
|
|
Victory Sophus Emerging Markets VIP Series
|
$221
|
$241
|
$249
|
|
Victory High Yield VIP Series
|
$180
|
$202
|
$203
|
|
Victory 500 Index VIP Series
|
$822
|
$810
|
$759
|
Administrator and Fund Accountant
Victory Capital serves as the administrator and fund accountant to the Trust pursuant
to an agreement dated July 1, 2006, as amended (the “Administration and Fund Accounting Agreement”). Citi Fund Services Ohio, Inc.
(“Citi”) serves as sub-administrator and sub-fund accountant to the Trust pursuant to an agreement with Victory Capital dated
October 1, 2015, as amended (the “Sub-Administration and Sub-Fund Accounting Agreement”). As administrator, Victory
Capital supervises the Trust’s operations, including the services that Citi provides to the Funds as sub-administrator and sub-fund
accountant, but excluding those that Victory Capital supervises as investment adviser, subject to the supervision of the Board.
Under the Administration and Fund Accounting Agreement, for the administration and
fund accounting services that Victory Capital renders to the Funds, the Trust, Victory Portfolios (“VP”) and Victory Portfolios
II (“VP II”) pay Victory Capital an annual fee, accrued daily and paid monthly, at the following annual rates based on the aggregate average
daily net assets of the Trust, VP and VP II: 0.08% of the first $15 billion in aggregate Trust, VP and VP II net assets, plus 0.05% of
aggregate Trust, VP and VP II net assets in excess of $15 billion to $30 billion, plus 0.04% of aggregate Trust, VP and VP II net assets
in excess of $30 billion. Victory Capital may periodically waive all or a portion of the amount of its fee that is allocated to
any Fund in order to increase the Fund’s net income available for distribution to shareholders. In addition, the Trust, VP and VP II reimburse
Victory Capital for all of its reasonable out-of-pocket expenses incurred as a result of providing the services under the Administration
and Fund Accounting Agreement, including costs associated with implementing new reports required by the new RIC Modernization
rules adopted by the SEC under the 1940 Act.
Except as otherwise provided in the Administration and Fund Accounting Agreement,
Victory Capital pays all expenses that it incurs in performing its services and duties as administrator. Unless sooner terminated,
the Administration and Fund Accounting Agreement continues in effect for a period of three years and for consecutive one-year terms
thereafter, provided that such continuance is approved by the Board or by vote of a majority of the outstanding shares of each Fund and,
in either case, by a majority of the Independent Trustees. The Administration and Fund Accounting Agreement provides that Victory Capital
shall not be liable for any error of judgment or mistake of law or any loss suffered by the Trust in connection with the
matters to which the Agreement relates, except a loss resulting from bad faith, willful misfeasance, negligence or reckless disregard
of its obligations and duties under the Agreement.
Under the Administration and Fund Accounting Agreement, Victory Capital, among other
things, coordinates the preparation, filing and distribution of amendments to the Trust’s registration statement on Form N-1A, supplements
to prospectuses and SAIs, and proxy materials in connection with shareholder meetings; drafts shareholder communications,
including annual and semi-annual reports and financial statements; administers the Trust’s other service provider contracts; monitors
compliance with investment restrictions imposed by the 1940 Act, each Fund’s investment objective, defined investment policies, and
restrictions, tax diversification, and distribution and income requirements; coordinates the Funds’ service arrangements with financial
institutions that make the Funds’ shares available to their customers; assists with regulatory compliance; supplies individuals to serve
as Trust officers; prepares Board meeting materials; and annually determines whether the services that it provides (or the services that
Citi provides as sub-administrator) are adequate and complete.
Victory Capital also performs fund accounting services for each Fund, excluding those
services that Citi performs as sub-fund accountant. The fund accountant calculates each Fund’s NAV, its dividend and capital
gain distribution, if any, and its yield. The fund accountant also provides a current security position report, a summary report of transactions
and pending maturities, a current cash position report, and maintains the general ledger accounting records for the Funds.
The fees that Citi receives for sub-administration and sub-fund accounting services are described in the SAI section entitled “Sub-Administrator
and Sub-Fund Accountant.”
For the past three fiscal years ended December 31, the Funds accrued the following
amounts in administrative, fund accountant fees.
40
|
Fund
|
2024
|
2023
|
2022
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$39,293
|
$39,124
|
$44,471
|
|
Victory RS International VIP Series
|
$62,644
|
$64,264
|
$67,190
|
|
Victory Sophus Emerging Markets VIP Series
|
$13,545
|
$14,566
|
$16,603
|
|
Victory High Yield VIP Series
|
$10,975
|
$12,160
|
$13,673
|
|
Victory 500 Index VIP Series
|
$50,637
|
$49,171
|
$50,959
|
Sub-Administrator and Sub-Fund Accountant
Citi serves as sub-administrator and sub-fund accountant to the Funds pursuant to
the Sub-Administration and Sub-Fund Accounting Agreement. Citi assists in supervising all operations of the Funds (other than those
performed by Victory Capital either as investment adviser or administrator), subject to the supervision of the Board.
Unless sooner terminated, the Sub-Administration and Sub-Fund Accounting Agreement
continues in effect as to each Fund for a period of three years and for consecutive one-year terms thereafter. The Sub-Administration
and Sub-Fund Accounting Agreement provides that Citi shall not be liable for any error of judgment or mistake of law or any loss
suffered by the Trust in connection with the matters to which the Agreement relates, except a loss resulting from bad faith, willful misfeasance,
negligence, or reckless disregard of its obligations and duties under the Agreement.
Under the Sub-Administration and Sub-Fund Accounting Agreement, Citi calculates Trust
expenses and make disbursements; calculates capital gain and distribution information; registers the Funds’ shares
with the states; prepares shareholder reports, financial statements, and reports to the SEC on Forms N-CEN and N-PORT; coordinates dividend
payments; calculates the Funds’ performance information; files the Trust’s tax returns; supplies individuals to serve as Trust
officers; monitors the Funds’ status as regulated investment companies under the Code; assists in developing portfolio compliance procedures;
reports to the Board amounts paid under shareholder service agreements; assists with regulatory compliance; obtains, maintains
and files fidelity bonds and trustees’ and officers’/errors and omissions insurance policies for the Trust; assists with liquidity
and derivatives risk management services; and assists in the annual audit of the Funds, among other services.
Transfer Agent
FIS Investor Services LLC (“FIS”), 4249 Easton Way, Suite 400, Columbus, Ohio 43219,
serves as transfer agent and dividend disbursing agent for the Funds. Under its agreement with the Funds, FIS has agreed
to (1) issue and redeem shares of the Funds; (2) address and mail all communications by the Funds to their shareholders, including
reports to shareholders, dividend and distribution notices, and proxy material for its meetings of shareholders; (3) respond to correspondence
or inquiries by shareholders and others relating to its duties; (4) maintain shareholder accounts and certain sub-accounts;
and (5) make periodic reports to the Board concerning the Funds’ operations.
Custodian
General. Citibank, 388 Greenwich St., New York, New York 10013, (“Citibank” or the “Custodian”)
serves as the custodian of the assets of each Fund pursuant to the Global Custodial Services Agreement dated August
5, 2008, as amended (the “Custody Agreement”). The Custodian’s responsibilities include safeguarding and controlling
each Fund’s cash and securities, handling the receipt and delivery of securities, and collecting interest and dividends on the Fund’s
investments. Pursuant to the Custody Agreement, the Custodian also maintains original entry documents and books of record and general
ledgers; posts cash receipts and disbursements; and records purchases and sales based upon communications from the Adviser. The Custodian
may, with the approval of a Fund and at its own expense, open and maintain a sub-custody account or accounts on behalf
of a Fund, provided that it shall remain liable for the performance of all of its duties under the Custody Agreement.
Foreign Custody. Rule 17f-5 under the 1940 Act, which governs the custody of investment company assets
outside the United States, allows a mutual fund’s board of directors to delegate to a “Foreign Custody Manager”
the selection and monitoring of foreign sub-custodian arrangements for the Trust’s assets. Accordingly, the Board delegated
these responsibilities to the Custodian pursuant to the Custody Agreement. As Foreign Custody Manager, the Custodian must (a) determine
that the assets of the Funds held by a foreign sub-custodian will be subject to reasonable care, based on the standards applicable
to custodians in the relevant market; (b) determine that the Trust’s foreign custody arrangements are governed by written contracts in
compliance with Rule 17f-5 (or, in the case of a compulsory depository, by such a contract and/or established practices or procedures);
and (c) monitor the appropriateness of these arrangements and any material change in the relevant contract, practices or procedures.
In determining appropriateness, the Custodian will not evaluate a particular country’s investment risks, such as (a) the use of
compulsory depositories, (b) such country’s financial infrastructure, (c) such country’s prevailing custody and settlement practices, (d)
nationalization, expropriation or other governmental actions, (e) regulation of the banking or securities industry, (f) currency controls,
restrictions, devaluations, or fluctuations, and (g)
41
market conditions that affect the orderly execution of securities transactions or
affect the value of securities. The Custodian will provide to the Board quarterly written reports regarding the Trust’s foreign custody arrangements.
Line of Credit. Each Fund, along with other funds managed by the Adviser, participates in a 364-day
committed credit facility and a 364-day uncommitted, demand credit facility with Citibank. Each such credit facility
may be renewed if so agreed by the parties. Under the current agreement with Citibank, the Funds may borrow up to $600 million,
of which $300 million is committed and $300 million is uncommitted. Of this amount, $40 million of the committed line of
credit and $60 million of the uncommitted line of credit are reserved for use by the Victory Floating Rate Fund (a series of Victory
Portfolios), with that Fund paying the related commitment fees for that amount. The purpose of each agreement is to meet temporary
or emergency cash needs. For the committed credit facility, Citibank received an annual commitment fee of 0.15%. Each Fund pays
a pro-rata portion (adjusted for the amount of credit reserved for the Victory Floating Rate Fund) of these fees and pays the interest
on any amount that it borrows. Each Fund paid a pro-rata portion of the renewal fee.
Securities Lending
The Funds, through a Securities Lending Agreement with Citibank, N.A. (“Citibank”),
may lend its securities to qualified financial institutions, such as certain broker-dealers and banks, to earn additional income,
net of income retained by Citibank. Borrowers are required to initially secure their loans for collateral in the amount of at least
102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral
shortfalls associated with increases in the valuation of the securities loaned generally are cured the next business day. The collateral
can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. government securities and
other securities as permitted by SEC guidelines. The cash collateral is invested in short-term instruments or cash equivalents, primarily
open-end investment companies. The Funds effectively do not have control of the non-cash collateral. Collateral requirements
are determined daily based on the value of a Fund’s securities on loan as of the end of the prior business day. During the time portfolio
securities are on loan, the borrower will pay the Fund any dividends or interest paid on such securities plus any fee negotiated between
the parties to the lending agreement. A Fund also earns a return from the collateral. A Fund pays Citibank various fees in connection
with the investment of cash collateral and fees based on the investment income received from securities lending activities. Loans
are terminable upon demand and the borrower must return the loaned securities within the lesser of one standard settlement period or
five business days. Although risk is mitigated by the collateral, a Fund could experience a delay in recovering its securities and possible
loss of income or value if the borrower fails to return them. In addition, there is a risk that the value of the short-term investments will
be less than the amount of cash collateral required to be returned to the borrower.
The Funds’ agreement with Citibank does not include master netting provisions. Non-cash
collateral received by a Fund may not be sold or repledged, except to satisfy borrower default.
The following reflects the dollar amounts of income and fees/compensation related
to the Funds’ securities lending activities during the Funds’ most recent fiscal year ended December 31, 2024.
|
Fund
|
Gross income
from securities
lending activities
|
Fees paid to
securities lending
agent from a
revenue split
|
Rebate
(paid to
borrower)
|
Aggregate
fees/compensation
for securities
lending activities
|
Net income
from securities
lending
activities
|
|
Victory Sophus
Emerging Markets
VIP Series
|
$11,143
|
$50
|
$10,648
|
$10,698
|
$445
|
|
Victory High Yield
VIP Series
|
$87,923
|
$3,737
|
$50,391
|
$54,128
|
$33,795
|
|
Victory RS
International VIP
Series
|
$16,182
|
$168
|
$14,504
|
$14,672
|
$1,510
|
|
Victory RS Small Cap
Growth Equity VIP
Series
|
$44,201
|
$317
|
$41,023
|
$41,340
|
$2,861
|
|
Victory S&P 500
Index VIP Series
|
$584
|
$3
|
$549
|
$552
|
$32
|
Distributor
Victory Capital Services, Inc. (the “Distributor”), located at 4900 Tiedeman Road,
4th Floor, Brooklyn, Ohio 44144, serves as distributor for the continuous offering of the shares of the Funds pursuant to a Distribution
Agreement between the Distributor and the Trust dated August 1, 2013, as amended (the “Distribution Agreement”). Unless otherwise
terminated, the Distribution Agreement will
42
remain in effect with respect to each Fund for two years and will continue thereafter
for consecutive one-year terms, provided that the renewal is approved at least annually (1) by the Board or by the vote of a majority
of the outstanding shares of each Fund, and (2) by the vote of a majority of the Trustees who are not parties to the Distribution Agreement
or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Distribution
Agreement will terminate in the event of its assignment, as defined under the 1940 Act.
Contract Owner Administrative Services Agreement
Payments made under the Contract Owner Administrative Services Agreement to contract
owner servicing agents (which may include affiliates of the Adviser), or to insurance companies or their affiliates, are for
administrative support services to individuals who may from time to time own contracts offered by the separate accounts that invest in the
Fund, which services may include: (1) dissemination of Fund prospectuses to existing contract owners; (2) solicitation of Trust proxies
(including facilitating distribution of proxy material to contract owners, tabulation and reporting); (3) telephonic support for contract
owners with respect to inquiries about the Trust (not including information related to sales); (4) communications to contract owners regarding
performance of the separate account and the Fund; (5) aggregating purchase and redemption orders of the separate account for sales
of shares of the Fund; (6) recording issuance and transfers of shares of the Fund held by the separate account; (7) processing and
reinvesting dividends and distributions of the Fund held by the separate account; and (8) providing other administrative support to the
Trust as mutually agreed between the Trust, a life insurance company and the Distributor.
Payments to Insurance Companies
If you purchase Fund shares through an insurance company, a Fund may pay for sub-transfer
agent, recordkeeping and/or similar administrative services (administrative services). These payments currently are calculated
based on average net assets of the Fund that are serviced by the insurance company. Services provided include but are not limited
to the following: transmitting net purchase and redemption orders; maintaining separate records for shareholders that reflect purchases,
redemptions and share balances; mailing shareholder confirmations and periodic statements; and furnishing proxy materials
and periodic fund reports, prospectuses and other communications to shareholders as required.
In addition, the Adviser (or its affiliates), from its own resources, may make substantial
payments to various insurance companies for the sale of Fund shares and related services for investments in the Fund. The Adviser
also may reimburse the Distributor (or the Distributor’s affiliates) for making these payments. These payments currently are
calculated based on average net assets of the Funds that are serviced by the insurance company.
These payments may create a conflict of interest by influencing the insurance company
and its salesperson to recommend a Fund over another investment. Ask your salesperson or visit your insurance company’s website
for more information.
As of December 31, 2024, the Adviser and its affiliates did not have arrangements
in place with respect to the Funds with any insurance companies.
PORTFOLIO MANAGERS
This section includes information about the Funds’ portfolio managers, including information
concerning other accounts they manage, the dollar range of Fund shares they own and how they are compensated.
The following table lists the number and types of accounts managed by each individual
and assets under management in those accounts as of most recent fiscal year ended December 31:
|
|
Registered
Investment
Companies
|
Other Pooled
Investment Vehicles
|
Other Accounts
|
|||
|
Name
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
|
Victory RS Small Cap Growth Equity VIP Series
|
||||||
|
Stephen J. Bishop
|
13
|
$6,110.17
|
2
|
$87.63
|
0
|
$—
|
|
Melissa Chadwick-Dunn
|
12
|
$5,905.30
|
2
|
$87.63
|
0
|
$—
|
|
Paul Leung
|
13
|
$6,110.17
|
2
|
$87.63
|
0
|
$—
|
|
Trevor Martin
|
12
|
$5,905.30
|
2
|
$87.63
|
0
|
$—
|
|
D. Scott Tracy
|
12
|
$5,905.30
|
2
|
$87.63
|
4
|
$51.88
|
|
Victory RS International VIP Series
|
||||||
43
|
|
Registered
Investment
Companies
|
Other Pooled
Investment Vehicles
|
Other Accounts
|
|||
|
Name
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
|
U-Wen Kok
|
6
|
$3,274.03
|
1
|
$454.76
|
5
|
$2,925.04
|
|
Adam Mezan
|
6
|
$3,274.03
|
1
|
$454.76
|
5
|
$2,925.04
|
|
Victory Sophus Emerging Markets VIP Series
|
||||||
|
Michael Reynal
|
4
|
$693.43
|
6
|
$2,021.02
|
2
|
$976.55
|
|
Maria Freund
|
4
|
$693.43
|
6
|
$2,021.02
|
2
|
$976.55
|
|
Daniel Do Vale
|
0
|
$—
|
0
|
$—
|
0
|
$—
|
|
Victory High Yield VIP Series
|
||||||
|
James F. Jackson, Jr. CFA
|
18
|
$23,759.60
|
4
|
$539.47
|
9
|
$311.13
|
|
Kurt Daum, J.D.
|
8
|
$17,248.39
|
0
|
$—
|
0
|
$—
|
|
Jason Lincoln
|
1
|
$60.89
|
0
|
$—
|
0
|
$—
|
|
Victory 500 Index VIP Series
|
||||||
|
Mannik Dhillon
|
60
|
$60,360.52
|
3
|
$66.03
|
19
|
$4,223.91
|
|
Lela Dunlap
|
19
|
$9,905.84
|
0
|
$—
|
0
|
$—
|
The following table lists the number and types of Performance-Based accounts managed
by each individual and assets under management in those accounts as of the last completed fiscal year.
|
|
Registered
Investment
Companies
|
Other Pooled
Investment Vehicles
|
Other Accounts
|
|||
|
Name
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
Number
of
Accounts
|
Total
Assets
(in Millions)
|
|
Victory RS Small Cap Growth Equity VIP Series
|
||||||
|
Stephen J. Bishop
|
4
|
$3,832.44
|
0
|
$—
|
0
|
$—
|
|
Melissa Chadwick-Dunn
|
4
|
$3,832.44
|
0
|
$—
|
0
|
$—
|
|
Paul Leung
|
4
|
$3,832.44
|
0
|
$—
|
0
|
$—
|
|
Trevor Martin
|
4
|
$3,832.44
|
0
|
$—
|
0
|
$—
|
|
D. Scott Tracy
|
4
|
$3,832.44
|
0
|
$—
|
2
|
$51.88
|
|
Victory RS International VIP Series
|
||||||
|
U-Wen Kok
|
3
|
$1,536.75
|
0
|
$—
|
0
|
$—
|
|
Adam Mezan
|
3
|
$1,536.75
|
0
|
$—
|
0
|
$—
|
|
Victory Sophus Emerging Markets VIP Series
|
||||||
|
Michael Reynal
|
3
|
$325.96
|
0
|
$—
|
0
|
$—
|
|
Maria Freund
|
3
|
$325.96
|
0
|
$—
|
0
|
$—
|
|
Daniel Do Vale
|
0
|
$—
|
0
|
$—
|
0
|
$—
|
|
Victory High Yield VIP Series
|
||||||
|
James F. Jackson, Jr. CFA
|
6
|
$14,641.22
|
0
|
$—
|
0
|
$—
|
|
Kurt Daum, J.D.
|
4
|
$14,641.22
|
0
|
$—
|
0
|
$—
|
|
Jason Lincoln
|
0
|
$—
|
0
|
$—
|
0
|
$—
|
|
Victory 500 Index VIP Series
|
||||||
|
Mannik Dhillon
|
14
|
$20,164.83
|
0
|
$—
|
0
|
$—
|
|
Lela Dunlap
|
0
|
$—
|
0
|
$—
|
0
|
$—
|
Fund Ownership
As of December 31, 2024, none of the Funds’ portfolio managers owned any of the Funds’
shares since shares of the Funds may only be owned through contracts offered by separate accounts of participating insurance
companies.
Portfolio Manager Compensation
The Adviser
44
The Adviser has designed the structure of its portfolio managers’ compensation to
(1) align portfolio managers’ interests with those of the Adviser’s clients with an emphasis on long-term, risk-adjusted investment performance,
(2) help the Adviser attract and retain high-quality investment professionals, and (3) contribute to the Adviser’s overall
financial success. Each of the portfolio managers receives a base salary plus an annual incentive bonus for managing a Fund, separate
accounts, other investment companies, other pooled investment vehicles and other accounts (including any accounts for which the
Adviser receives a performance fee) (together, “Accounts”). A portfolio manager’s base salary is dependent on the manager’s level
of experience and expertise. The Adviser monitors each manager’s base salary relative to salaries paid for similar positions with peer
firms by reviewing data provided by various independent third-party consultants that specialize in competitive salary information.
Such data, however, is not considered to be a definitive benchmark.
Each of the Adviser’s investment franchises may earn incentive compensation based
on a percentage of the Adviser’s revenue attributable to fees paid by Accounts managed by the team. The chief investment officer
or a senior member of each team, in coordination with the Adviser, determines the allocation of the incentive compensation
earned by the team among the team’s portfolio managers by establishing a “target” incentive for each portfolio manager based on
the manager’s level of experience and expertise in the manager’s investment style. Individual performance is based on objectives established
annually using performance metrics such as portfolio structure and positioning, research, stock selection, asset growth, client
retention, presentation skills, marketing to prospective clients and contribution to the Adviser’s philosophy and values, such as leadership,
risk management and teamwork. The annual incentive bonus also factors in individual investment performance of each portfolio
manager’s portfolio or Fund relative to a selected peer group(s). The overall performance results for a manager are based on the composite
performance of all Accounts managed by that manager on a combination of one-, three-, and five-year rolling performance periods
as compared to the performance information of a peer group of similarly managed competitors.
The Adviser’s portfolio managers may participate in the equity ownership plan of the
Adviser’s parent company. There is an ongoing annual equity pool granted to certain employees based on their contribution to the
firm. Eligibility for participation in these incentive programs depends on the manager’s performance and seniority.
Conflicts of Interest
The Adviser
The Adviser’s portfolio managers are often responsible for managing one or more Funds
as well as other accounts, such as separate accounts, and other pooled investment vehicles, such as collective trust funds or
unregistered hedge funds. A portfolio manager may manage other accounts which have materially higher fee arrangements than a Fund and
may, in the future, manage other accounts which have a performance-based fee. A portfolio manager also may make personal investments
in accounts he or she manages or supports. The side-by-side management of the Funds along with other accounts may raise potential
conflicts of interest by incenting a portfolio manager to direct a disproportionate amount of: (1) their attention; (2) limited investment
opportunities, such as less-liquid securities or initial public offering; and/or (3) desirable trade allocations, to such other
accounts. In addition, certain trading practices, such as cross-trading between Funds or between a Fund and another account, raise conflict
of interest issues. The Adviser has adopted numerous compliance policies and procedures, including a Code of Ethics, and brokerage
and trade allocation policies and procedures, which seek to address the conflicts associated with managing multiple accounts for
multiple clients. In addition, the Adviser has a designated Chief Compliance Officer (selected in accordance with the federal securities
laws) and compliance staff whose activities are focused on monitoring the activities of the Adviser’s investment franchises and
employees in order to detect and address potential and actual conflicts of interest. However, there can be no assurance that the Adviser’s
compliance program will achieve its intended result.
CODE OF ETHICS
Each of the Trust, the Adviser, and the Distributor has adopted a Code of Ethics in
accordance with Rule 17j-1 under the 1940 Act. The Adviser’s Code of Ethics applies to all of the Adviser’s directors and officers
and employees with investment advisory duties (“Access Personnel”) and all of the Adviser’s directors, officers and employees (“Supervised
Personnel”). Each Code of Ethics provides that Access Personnel must refrain from certain trading practices. Each Code also
requires all Access Personnel (and, in the Adviser Code, all Supervised Personnel) to report certain personal investment activities,
including, but not limited to, purchases or sales of securities that may be purchased or held by a Fund. Violations of any Code of Ethics
can result in penalties, suspension, or termination of employment.
PROXY VOTING POLICIES AND PROCEDURES
In accordance with the 1940 Act, the Trust has adopted policies and procedures for
voting proxies related to equity securities held by the Funds (the “Proxy Voting Policy”). The Trust’s Proxy Voting Policy is designed
to: (i) ensure that proxies are voted in the best interests of shareholders of the Funds with a view toward maximizing the value of
their investments; (ii) address conflicts of interests
45
between these shareholders, on the one hand, and affiliates of the Fund, the Adviser
or the Distributor, on the other, that may arise regarding the voting of proxies; and (iii) provide for the disclosure of the Funds’
proxy voting records and the Proxy Voting Policy.
The Proxy Voting Policy delegates to the Adviser the obligation to vote the Funds’
proxies in the best interests of the Funds and their shareholders, subject to oversight by the Board.
To assist the Adviser in making proxy-voting decisions, the Adviser has adopted a
Proxy Voting Policy (“Policy”) that establishes voting guidelines (“Proxy Voting Guidelines”) with respect to certain recurring issues.
The Policy is reviewed on an annual basis by the Adviser’s Proxy Committee (“Proxy Committee”) and revised when the Committee determines
that a change is appropriate. The Board annually reviews the Trust’s Proxy Voting Policy and the Adviser’s Policy and
determines whether amendments are necessary or advisable. Voting under the Adviser’s Policy may be executed through administrative
screening per established guidelines with oversight by the Proxy Committee or upon vote by a quorum of the Proxy Committee.
The Adviser allows its Investment Franchises to modify their voting instructions against that of the default policy on a case-by-case
basis, provided sufficient justification is provided and approved by the Proxy Committee. The Adviser delegates to Institutional Shareholder
Services (“ISS”), an independent service provider, the non-discretionary administration of proxy voting for the Trust, subject
to oversight by the Adviser’s Proxy Committee. In no circumstances shall ISS have the authority to vote proxies except in accordance
with standing or specific instructions given to it by the Adviser.
The Adviser votes proxies in the best interests of the Funds and their shareholders.
This entails voting client proxies with the objective of increasing the long-term economic value of Fund assets. The Adviser’s Proxy Committee
determines how proxies are voted by following established guidelines, which are intended to assist in voting proxies and
are not considered to be rigid rules. The Proxy Committee is directed to apply the guidelines as appropriate. On occasion, however,
a contrary vote may be warranted when such action is in the best interests of the Funds or if required by the Board or the Funds’ Proxy
Voting Policy. In such cases, the Adviser may consider, among other things:
• the effect of the proposal on the underlying value of the securities
• the effect on marketability of the securities
• the effect of the proposal on future prospects of the issuer
• the composition and effectiveness of the issuer’s board of directors
• the issuer’s corporate governance practices
• the quality of communications from the issuer to its shareholders
The Adviser may also take into account independent third party, general industry guidance
or other corporate governance review sources when making decisions. It may additionally seek guidance from other senior
internal sources with special expertise on a given topic where it is appropriate. The Adviser generally votes on a case-by-case basis,
taking into consideration whether implementation of an Environmental, Social, and Governance (“ESG”)-related proposal is likely to
enhance or protect shareholder value. The investment team’s opinion concerning the management and prospects of the issuer may
be taken into account in determining whether a vote for or against a proposal is in a Fund’s best interests. Insufficient information,
onerous requests or vague, ambiguous wording may indicate that a vote against a proposal is appropriate, even when the general
principal appears to be reasonable.
The following examples illustrate the Adviser’s policy with respect to some common
proxy votes. This summary is not an exhaustive list of all the issues that may arise or of all matters addressed in the Guidelines,
and whether the Adviser supports or opposes a proposal will depend upon the specific facts and circumstances described in the proxy statement
and other available information.
Directors
• The Adviser generally supports the election of directors in uncontested elections,
except when there are issues of accountability, responsiveness, composition, and/or independence.
• The Adviser generally supports proposals for an independent chair taking into account
factors such as the current board leadership structure, the company’s governance practices, and company performance.
• The Adviser generally supports proxy access proposals that are in line with the market
standards regarding the ownership threshold, ownership duration, aggregation provisions, cap on nominees, and do not
contain any other unreasonably restrictive guidelines.
• The Adviser reviews contested elections on a case-by-case basis taking into account
such factors as the company performance, particularly the long-term performance relative to the industry; the management track
record; the nominee qualifications and
46
compensatory arrangements; the strategic plan of the dissident and its critique of
the current management; the likelihood that the proposed goals and objectives can be achieved; the ownership stakes of the relevant
parties; and any other context that is particular to the company and the nature of the election.
Capitalization & Restructuring
• The Adviser generally supports capitalization proposals that facilitate a corporate
transaction that is also being supported and for general corporate purposes so long as the increase is not excessive and there
are no issues of superior voting rights, company performance, previous abuses of capital, or insufficient justification for the need
for additional capital.
Mergers and Acquisitions
• The Adviser reviews mergers and acquisitions on a case-by-case basis to balance the
merits and drawbacks of the transaction and factors such as valuation, strategic rationale, negotiations and process, conflicts
of interest, and the governance profile of the company post-transaction.
Compensation
• The Adviser reviews all compensation proposals for pay-for-performance alignment,
with emphasis on long-term shareholder value; arrangements that risk pay for failure; independence in the setting of compensation;
inappropriate pay to non-executive directors, and the quality and rationale of the compensation disclosure.
• The Adviser will generally vote FOR advisory votes on executive compensation (“say
on pay”) unless there is a pay-for-performance misalignment; problematic pay practice or non-performance based
element; incentive for excessive risk-taking, options backdating; or a lack of compensation committee communication
and/or responsiveness to shareholder concerns.
• The Adviser will vote case-by-case on equity based compensation plans taking into
account factors such as the plan cost; the plan features; and the grant practices as well as any overriding factors that may
have a significant negative impact on shareholder interests.
Social and Environmental Issues
• The Adviser generally will vote in line with the Board’s recommendations, with support
limited to circumstances where it is considered that greater disclosure will directly enhance or protect shareholder value
and is reflective of a clearly established reporting standard in the market.
Occasionally, conflicts of interest arise between the Adviser’s interests and those
of a Fund or another client. When this occurs, the Proxy Committee must document the nature of the conflict and vote the proxy in accordance
with the Proxy Voting Guidelines unless such guidelines are judged by the Proxy Committee to be inapplicable to the proxy
matter at issue. In the event that the Proxy Voting Guidelines are inapplicable or do not mitigate the conflict, the Adviser will seek
the opinion of the Adviser’s Chief Compliance Officer or consult with an external independent adviser. In the case of a Proxy Committee
member having a personal conflict of interest (e.g. a family member is on the board of the issuer), such member will abstain from voting.
Finally, the Adviser reports to the Board annually any proxy votes that took place involving a conflict, including the nature of the
conflict and the basis or rationale for the voting decision made.
The Funds’ Proxy Voting Policy provides that the Funds, in accordance with SEC rules,
annually will disclose on Form N-PX the Funds’ proxy voting record. Information regarding how the Funds voted proxies relating
to portfolio securities during the most recent 12-month period ended June 30th is updated each year by August 31st and is available
without charge, upon request, by calling toll free 800-539-FUND (800-539-3863) or by accessing the SEC’s website at www.sec.gov.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Subject to the general supervision of the Board, the Adviser is responsible for making
decisions with respect to the purchase and sale of portfolio securities on behalf of the Funds. The Adviser is also responsible for
the implementation of those decisions, including the selection of broker/dealers to effect portfolio transactions, the negotiation of commissions,
and the allocation of principal business and portfolio brokerage. Under the terms of the Advisory Agreement, the Adviser may delegate
these responsibilities to a sub-adviser.
Transactions on stock exchanges involve the payment of brokerage commissions. In transactions
on stock exchanges in the United States, these commissions are negotiated. Traditionally, commission rates have
generally been fixed for trades on stock markets outside the United States. In recent years, however, an increasing number of overseas
stock markets have adopted a system of negotiated commission rates. It is expected that equity securities will ordinarily
be purchased in the primary markets for such securities,
47
whether over-the-counter or listed, and that listed securities may be purchased in
the over-the-counter market if such market is deemed the primary market. In the case of securities traded on the over-the- counter markets,
there is generally no stated commission, but the price usually includes an undisclosed commission or markup. In underwritten offerings,
the price includes a disclosed, fixed commission (the underwriter’s concession) or discount.
Fixed income and convertible securities are bought and sold through broker-dealers
acting on a principal basis. These trades generally are not charged a commission, but rather are marked up or marked down by the executing
broker-dealer. The Adviser does not know the actual value of the markup/markdown. However, the Adviser attempts to ascertain
whether the overall price of a security is reasonable through the use of competitive bids.
Subject to its obligation to seek best execution, the Adviser may use brokerage commissions
generated from client transactions to obtain services and/or research from broker-dealers to assist in the Adviser’s investment
management decision-making process. These services and research are in addition to and do not replace the services and research that
the Adviser is required to perform and do not reduce the investment advisory fees payable to the Adviser by the Funds. Such information
may be useful to the Adviser in serving both the Funds and other clients and, conversely, such supplemental research information obtained
by the placement of orders on behalf of other clients may be useful to the Adviser in carrying out its obligations to the Funds.
Brokerage commissions may never be used to compensate a third party for client referrals
unless the client has directed such an arrangement. In addition, brokerage commissions may never be used to obtain research
and/or services for the sole benefit of any employee or non-client entity.
It is the policy of the Adviser to seek the “best execution” of its clients’ securities
transactions. The Adviser strives to execute each client’s securities transactions in such a manner that the client’s total costs or
proceeds in each transaction are the most favorable under the circumstances. Commission rates paid on securities transactions for client accounts
must reflect comparative market rates.
The Adviser will consider the full range and quality of a broker’s services in placing
brokerage including, but not limited to, the value of research provided, execution capability, commission rate, willingness and ability
to commit capital, ownership and responsiveness. The lowest possible commission cost alone does not determine broker selection. The
transaction that represents the best quality execution for a client account will be executed. Commission ranges and the actual
commission paid for trades of listed stocks and over-the-counter stocks may vary depending on, but not limited to, the liquidity and
volatility of the stock and services provided to the Adviser by the broker.
The Adviser will make a good faith determination that the commissions paid are reasonable
in relationship to the value of the services received. The continuous review of stock commissions is the responsibility of the
Adviser’s Head of Capital Markets and client trading, brokerage and soft-dollar oversight is performed by the Trade Oversight Committee.
Quarterly, the Adviser’s research analysts and portfolio managers will participate in a broker vote. The Adviser’s Equity Trading
Desk will utilize the vote results during the broker selection process. Some brokers executing trades for the Adviser’s clients may, from
time to time, receive liquidity rebates in connection with the routing of trades to Electronic Communications Networks. Since
the Adviser is not a broker, however, it is ineligible to receive such rebates and does not obtain direct benefits for its clients
from this broker practice.
Investment decisions for each Fund are made independently from those made for the
other Funds or any other investment company or account managed by the Adviser. Such other investment companies or accounts may
also invest in the same securities and may follow similar investment strategies as the Funds. The Adviser may combine transaction
orders (“bunching” or “blocking” trades) for more than one client account where such action appears to be equitable and potentially
advantageous for each account (e.g., for the purpose of reducing brokerage commissions or obtaining a more favorable transaction
price.) The Adviser will aggregate transaction orders only if it believes that the aggregation is consistent with its duty to seek
best execution for its clients and is consistent with the terms of investment advisory agreements with each client for whom trades are being
aggregated. Both equity and fixed income securities may be aggregated. When making such a combination of transaction orders
for a new issue or secondary market trade in an equity security, the Adviser adheres to the following objectives:
• Fairness to clients both in the participation of execution of orders for their account,
and in the allocation of orders for the accounts of more than one client.
• Allocation of all orders in a timely and efficient manner.
In some rare cases, “bunching” or “blocking” trades may affect the price paid or received
by a Fund or the size of the position obtained by the Fund in an adverse manner relative to the result that would have been obtained
if only that particular Fund had participated in or been allocated such trades.
The aggregation of transactions for advisory accounts and proprietary accounts (including
partnerships and other accounts in which the Adviser or its associated persons are partners or participants, and managed employee
accounts) is permissible. However, no proprietary
48
account may be favored over any other participating account and such practice must
be consistent with the Adviser’s policies and procedures including its Code of Ethics.
Equity trade orders are executed based only on trade instructions received from portfolio
managers by the trading desk. Portfolio managers may enter trades to meet the full target allocation immediately or may meet
the allocation through moves in incremental blocks. Orders are processed on a “first-come, first-served” basis. At times, a rotation
system may determine “first-come, first-served” treatment when the equity trading desk receives the same order for multiple accounts
simultaneously. The Adviser will utilize a rotation whereby the Funds, even if aggregated with other orders, are in the first block(s)
to trade within the rotation. To aggregate orders, the equity trading desk must determine that all accounts in the order will benefit. Any
new trade that can be blocked with an existing open order may be added to the open order to form a larger block. The Adviser receives
no additional compensation or remuneration of any kind as a result of the aggregation of trades. All accounts participating in a block
execution receive the same execution price, an average share price, for securities purchased or sold on a trading day. Execution prices may
not be carried overnight. Any portion of an order that remains unfilled at the end of a given day shall be rewritten (absent contrary
instructions) on the following day as a new order. Accounts with trades executed the next day will receive a new daily average price
to be determined at the end of the following day.
If the order is filled in its entirety, securities purchased in the aggregate transaction
will be allocated among accounts participating in the trade in accordance with an Allocation Statement prepared at the time of order
entry. If the order is partially filled, the securities will be allocated pro rata based on the Allocation Statement. Portfolio managers may
allocate executed trades in a different manner than indicated on the Allocation Statement (e.g., non-pro rata) only if all client accounts
receive fair and equitable treatment.
In some instances, such as trading in fixed income securities, it may not be practical
to complete the Allocation Statement prior to the placement of the order. In that case, the trading desk will complete the Allocation
Statement as soon as practicable, but no later than the end of the same business day on which the securities have been allocated to the
trading desk by the broker.
Where the full amount of a block execution is not executed, the partial amount actually
executed will be allocated on a pro rata basis whenever possible. The following execution methods may be used in place of a pro rata
procedure: relative size allocations, security position weighting, priority for specialized accounts, or a special allocation based
on compliance approval.
In making investment decisions for the Funds, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or sale by a Fund is a customer of the Adviser, its parents,
subsidiaries or affiliates, and, in dealing with their commercial customers, the Adviser, its parents, subsidiaries and affiliates will not
inquire or take into consideration whether securities of such customers are held by the Funds. Portfolio securities will not be purchased
from or sold to the Adviser, or the Distributor, or any affiliated person of any of them acting as principal, except to the extent permitted
by rule or order of the SEC.
|
Fund
|
2024
|
2023
|
2022
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$118,177
|
$165,625
|
$201,942
|
|
Victory RS International VIP Series
|
$60,681
|
$62,615
|
$71,655
|
|
Victory Sophus Emerging Markets VIP Series
|
$53,506
|
$47,325
|
$47,846
|
|
Victory High Yield VIP Series
|
$5,733
|
$106
|
$51
|
|
Victory 500 Index VIP Series
|
$1,988
|
$2,593
|
$2,369
|
Affiliated Brokerage. The Board has authorized the allocation of brokerage to affiliated broker-dealers
on an agency basis to effect portfolio transactions. The Board has adopted procedures incorporating the standards
of Rule 17e-1 under the 1940 Act, which require that the commission paid to affiliated broker-dealers must be “reasonable and fair
compared to the commission, fee or other remuneration received, or to be received, by other broker-dealers in connection with
comparable transactions involving similar securities during a comparable period of time.”
The Trust will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase or reverse repurchase agreements with the Adviser or its affiliates. From time to time, when determined
by the Adviser to be advantageous to the Funds, the Adviser may execute portfolio transactions through affiliated broker-dealers. All
such transactions must be consistent with best execution and completed in accordance with procedures approved by the Board. For the
last three fiscal years ended December 31, the Funds paid no commissions to affiliated broker-dealers.
Allocation of Brokerage in Connection with Research Services. During the most recent fiscal year ended December 31, 2024, the Adviser, through agreements or understandings with brokers, or otherwise through an
internal allocation procedure, directed brokerage transactions of the Funds to brokers due to research services provided.
|
Fund
|
Brokerage
Commissions Paid
|
Total Dollar Amount
of Such Transactions
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$69,907
|
$190,804,916
|
|
Victory RS International VIP Series
|
$30,499
|
$63,343,082
|
49
|
Fund
|
Brokerage
Commissions Paid
|
Total Dollar Amount
of Such Transactions
|
|
Victory Sophus Emerging Markets VIP Series
|
$27,645
|
$43,857,426
|
|
Victory High Yield VIP Series
|
$4,410
|
$6,271,935
|
Securities of Regular Brokers or Dealers. The SEC requires the Trust to provide certain information for those Funds that held
securities of their regular brokers or dealers (or their parent companies) during
the most recent fiscal year. The following table identifies, for each applicable Fund, those brokers or dealers, the type of security
held and the value of the Fund’s aggregate holdings of the securities of each such issuer as of the most recent fiscal year ended December
31:
|
Fund
|
Broker-Dealer
|
Type of Security
(Debt or Equity)
|
Aggregate
Value ($000)
|
|
RS International VIP Series
|
Barclays PLC
|
Equity
|
$2,204
|
|
RS International VIP Series
|
UBS Group AG
|
Equity
|
$1,839
|
|
500 Index VIP Series
|
Bank of America Corp.
|
Equity
|
$597
|
|
500 Index VIP Series
|
Citigroup, Inc.
|
Equity
|
$235
|
|
500 Index VIP Series
|
JPMorgan Chase & Co.
|
Equity
|
$1,192
|
|
500 Index VIP Series
|
Morgan Stanley
|
Equity
|
$274
|
|
500 Index VIP Series
|
The Goldman Sachs Group,
Inc.
|
Equity
|
$317
|
|
500 Index VIP Series
|
Wells Fargo & Co.
|
Equity
|
$414
|
Portfolio Turnover
Each Fund may sell a portfolio investment soon after its acquisition if the Adviser
believes that such a disposition is consistent with attaining the investment objective of the Fund. The Funds’ portfolio turnover rates
stated in the Prospectuses are calculated by dividing the lesser of each Fund’s purchases or sales of portfolio securities for the year
by the monthly average value of the portfolio securities. The calculation excludes all securities whose maturities, at the time of acquisition,
were one year or less. Portfolio turnover is calculated on the basis of a Fund as a whole without distinguishing between the classes of shares
issued.
The turnover rate for a Fund will vary from year-to-year, and, depending on market
conditions, could be greater in periods of unusual market movement and volatility. Transaction costs associated with turnover are borne
directly by the Fund and, ultimately, by its shareholders. A high rate of portfolio turnover (generally, over 100% annually) generally
will involve correspondingly greater transaction costs. High portfolio turnover may result in the realization of substantial
net capital gains. To the extent short-term capital gains are realized, distributions attributable to such gains will be ordinary income
for federal income tax purposes.
The following table shows the portfolio turnover rates for each Fund for the last
two fiscal years ended December 31.
|
Fund
|
2024
|
2023
|
|
Victory RS Small Cap Growth Equity VIP Series
|
124%
|
151%
|
|
Victory RS International VIP Series
|
20%
|
23%
|
|
Victory Sophus Emerging Markets VIP Series
|
83%
|
65%
|
|
Victory High Yield VIP Series
|
109%*
|
52%
|
|
Victory 500 Index VIP Series
|
3%
|
8%
|
*Reflects increased trading activity due to a sub-adviser termination.
DIVIDENDS, CAPITAL GAINS AND DISTRIBUTIONS
The Funds distribute substantially all of their net investment income and net capital
gains, if any, to shareholders within each calendar year as well as on a fiscal year basis to the extent required for the Funds to qualify
for favorable federal tax treatment. If the Fund makes a dividend or capital gains distribution, it is declared and paid annually.
For this purpose, the net income of a Fund, from the time of the immediately preceding
determination thereof, shall consist of all interest income accrued on the portfolio assets of the Fund, dividend income, if any,
income from securities loans, if any and realized capital gains and losses on the Fund’s assets, less all expenses and liabilities of
the Fund chargeable against income. Interest income shall include discount earned, including both original issue and market discount,
on discount paper accrued ratably to the date of maturity. Expenses, including the compensation payable to the Adviser, are accrued
each day. The expenses and liabilities of a Fund shall include those appropriately allocable to the Fund as well as a share of the
general expenses and liabilities of the Trust in proportion to the Fund’s share of the total net assets of the Trust.
50
TAXES
The following is only a summary of certain additional federal income tax considerations
that are not described in the prospectus and generally affect the Fund and its shareholders. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the discussions here and in the prospectus are based on tax
laws and regulations in effect as of the respective dates of this SAI and the prospectus, and may change as a result of legislative, administrative,
and judicial action. These discussions are not intended as substitutes for careful tax planning.
Each Fund intends to qualify as a regulated investment company (“RIC”) under Subchapter
M of the Code. Generally, to qualify as a RIC for federal income tax purposes, the Fund must (i) derive at least 90% of its
annual gross income from dividends, interest, payments with respect to security loans, gains from the sale or other disposition
of stock, securities or foreign currencies, or other income (including, but not limited to, gains from options, futures, or forward contracts)
derived with respect to its business of investing in stock, securities, and currencies, and net income derived from an interest in a
publicly traded partnership; and (ii) diversify its holdings so that, at the close of each quarter of its taxable year, (a) at least 50%
of the market value of the Fund’s total (gross) assets is comprised of cash, cash items, U.S. government securities, and other securities
limited in respect of any one issuer to an amount not greater in value than 5% of the value of such Fund’s total assets and to not more
than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total (gross) assets is invested
in the securities of any one issuer (other than U.S. government securities and securities of other regulated investment companies) or two
or more issuers controlled by the Fund and engaged in the same, similar, or related trades or businesses, or certain publicly
traded partnerships. As a RIC, a Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest,
dividends, and other taxable ordinary income, net of expenses) and net capital gain (i.e., the excess of long-term capital gains
over short-term capital losses) that it distributes to shareholders, provided that it distributes at least the sum of 90% of its investment
company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) and
90% of its tax-exempt income (net of expenses allocable thereto) for the taxable year and satisfies certain other requirements of
the Code that are described below.
Generally, amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a non-deductible 4% excise tax. A Fund, however, will not be subject to the 4% excise
tax for any calendar year even if it fails to distribute at least 98% of its ordinary income (or at least 98.2% of its net capital
gains) in accordance with certain calendar year requirements if, at all times during the calendar year: (i) all of the Fund's shareholders
(other than for organizational shares) are either pension trusts described in section 401(a) of the Code and exempt from U.S. federal
income tax under section 501(a) of the Code or segregated asset accounts of life insurance companies held in connection with variable
contracts, as defined in section 817(d) of the Code and (ii) any shares attributable to an investment in the Fund made in connection
with the organization of the Fund do not exceed $250,000. If the Fund fails to qualify as a RIC, it would be subject to tax at the
applicable corporate tax rate on its net investment income and net capital gains without being able to deduct dividends paid to shareholders,
thereby reducing the amounts available for distribution to the separate accounts invested in the Fund. Additionally, if the Fund
fails to qualify as a RIC, the Fund would be treated as a single investment of the segregated asset account and the account would not be
treated as owning its proportionate share of the Fund's assets for purposes of determining whether the account is adequately diversified,
as described below. Under current tax law, capital gains or dividends from the Fund are not currently taxable to a holder of
a contract when left to accumulate within such contract.
Distributions made by the Fund to a segregated asset account underlying a variable
annuity contract or a variable life insurance policy (referred to as a "variable contract"), and exchanges and redemptions of Fund shares
made by such segregated asset account, are not expected to cause the corresponding holder of the variable contract to recognize income
or gain for U.S. federal income tax purposes. For a discussion of the tax consequences of the variable contract, please refer to
the separate account prospectus. For the variable contract holders to be eligible for such U.S. federal income tax deferral, each segregated
asset account supporting the variable contract must comply with certain asset diversification requirements and investor control prohibitions.
Section 817(h) of the Code requires that investments of a segregated asset account
underlying a variable contract be “adequately diversified,” in accordance with U.S. Treasury Regulations promulgated thereunder,
in order for the holder of the variable contract based on such account to receive the tax-deferred treatment generally afforded holders
of annuities or life insurance policies under the Code. Regulations under section 817(h) provide, among other things, the manner in
which a segregated asset account will treat investments in a RIC for purposes of the applicable diversification requirements.
Under the Regulations, if a RIC satisfies certain conditions, the RIC will not be treated as a single investment of the account for
these purposes, but rather the segregated asset account will be treated as owning its proportionate share of each of the assets of the RIC.
The Fund intends to satisfy these conditions so that the segregated asset account will be treated as owning its proportionate share of
the Fund’s assets for purposes of determining whether the account is adequately diversified. To satisfy the diversification requirements,
as of the end of each calendar quarter or within 30 days thereafter, the segregated asset account must meet one of two tests. First, the
segregated asset account will be treated as being “adequately diversified” if no more than 55% of the value of the assets of the account
are represented by any one investment; no more than 70% of the value of the assets of the account are represented by any two investments;
no more than 80% of the value of the assets of the account are represented by any three investments; and no more than 90% of the
value of the assets of the account are represented by any four investments. For this purpose, securities of a single issuer are treated
as one investment and each U.S. government agency
51
or instrumentality is treated as a separate issuer. Second, the segregated asset account
will be treated as being “adequately diversified” if the account satisfies the diversification requirements under subchapter M and no
more than 55% of the value of the account’s total assets are cash and cash items, U.S. government securities and securities of other
regulated investment companies.
If the segregated asset account upon which a variable contract is based fails to be
adequately diversified pursuant to the foregoing rules for any calendar quarter, then (i) the variable contract would not be treated as an
annuity or life insurance contract under the Code for such period and all subsequent periods and (ii) the holders of such variable contract
would be required to include as ordinary income the “income on the contract” for each taxable year. Additionally, the income on a
variable contract for all prior taxable years is treated as received or accrued during the taxable year of the policyholder in which the contract
ceases to meet the definition of “life insurance contract” under the Code. Generally, the “income of the contract” is the excess of
(i) the sum of the increase in the net surrender value of the contract during the taxable year and the cost of the life insurance protection
provided under the contract during the year, over (ii) the premiums paid under the contract during the taxable year.
In addition, if variable contract owners have an impermissible level of control over
the investments underlying their contracts, it is possible that a contract owner, rather than the insurance company, will be treated
as the owner of the assets of the segregated asset account, with the results that income and gains produced by those investments would
be currently includable in the contract owner’s gross income.
If a Fund has a net capital loss (i.e., an excess of capital losses over capital gains),
the amount thereof may be carried forward and would retain its character as either a short-term capital loss or a long-term capital loss
that can be used to offset such capital gains in future years. There is no limitation on the number of years to which net capital losses may
be carried. However, the amount of capital loss that can be carried forward and used in any single year is subject to an annual limitation
if there is a more than 50% “change in ownership” of the Fund.
The following table summarizes the capital loss carryforwards not subject to expiration
for the applicable Funds as of December 31, 2024.
|
Fund
|
Short-Term
Amount
|
Long-Term
Amount
|
|
Victory High Yield VIP Series
|
$(431,357)
|
$(6,323,539)
|
|
Victory RS Small Cap Growth Equity VIP Series
|
$(11,620,885)
|
$-
|
|
Victory Sophus Emerging Markets VIP Series
|
$(2,443,580)
|
$-
|
Investment income received by the Fund from investments in foreign countries may be
subject to foreign withholding and other taxes. In that case, the Fund’s yield on those securities would be decreased. Withholding
tax rates in countries with which the United States does not have a tax treaty are often as high as 30% or more. The United States has
entered into tax treaties with many foreign countries which entitle certain investors (such as the Fund) to a reduced rate of withholding
tax (generally 10% to 15%) or to certain exemptions from such tax. While contract owners will bear the cost of any foreign tax withholding,
they will not be able to claim a foreign tax credit or deduction for taxes paid by the Fund.
Tax Treatment to Participating Insurance Companies
Dividends paid by the Fund and gains from the sale or exchange of Fund shares may
be included in the participating insurance company's gross income. The tax treatment of these dividends and gains depends on
the insurance company's tax status. A description of an insurance company’s tax status may be contained in the separate account prospectus.
For information concerning the federal income tax consequences to holders of contracts,
such holders should consult the prospectus for their particular contract.
ADDITIONAL INFORMATION
Description of Shares
The Trust is a Delaware statutory trust. The Trust’s Second Amended and Restated Trust
Instrument, dated as of February 26, 2019 (“Trust Instrument”), authorizes the Trustees to issue an unlimited number of shares,
which are units of beneficial interest, with a par value of $0.001 per share. The Trust Instrument authorizes the Trustees to divide
or redivide any unissued shares of the Trust into one or more additional series by setting or changing in any one or more aspects their
respective preferences, conversion or other rights, voting power, restrictions, limitations as to dividends, qualifications and terms
and conditions of redemption.
The Trust currently offers Class I shares of the Funds.
52
Shares have no subscription or preemptive rights and only such conversion or exchange
rights as the Trustees may grant in their discretion. When issued for payment as described in the Prospectuses and this SAI,
the Trust’s shares will be fully paid and non-assessable. In the event of a liquidation or dissolution of the Trust, shares
of each Fund are entitled to receive the assets available for distribution belonging to the Fund, and a proportionate distribution, based upon
the relative asset values of the respective series, of any general assets not belonging to any particular series that are available for
distribution.
Fund shareholders are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote (“share-based voting”). Alternatively (except where the 1940
Act requires share-based voting), the Trustees in their discretion may determine that shareholders are entitled to one vote per dollar of
NAV (with proportional voting for fractional dollar amounts). Shareholders of all series and classes will vote together as a single class
on all matters except (1) when required by the 1940 Act shares shall be voted by individual series or class; and (2) when the Trustees
have determined that the matter affects only the interests of one or more series or class, then only shareholders of such series or
class shall be entitled to vote thereon. The shareholders of the Trust are the insurance company separate accounts using the Funds to fund contracts.
The insurance company separate accounts pass voting rights attributable to shares held for the contracts to the contract owners,
as described in the separate account prospectus.
There will normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders’ meeting for the election of Trustees. A meeting shall be held for such purpose upon
the written request of the holders of not less than 10% of the outstanding shares. Upon written request by 10 or more shareholders of
record meeting the qualifications of Section 16(c) of the 1940 Act, (i.e., persons who have been shareholders of record for at least
six months, and who hold shares having an NAV of at least $25,000 or constituting 1% of the outstanding shares, whichever is less)
stating that such shareholders wish to communicate with the other shareholders for the purpose of obtaining the signatures necessary
to demand a meeting to consider removal of a Trustee, the Trust will provide a list of shareholders or disseminate appropriate materials
(at the expense of the requesting shareholders). Except as set forth above, the Trustees shall continue to hold office and may appoint their
successors.
The Trust Instrument permits the Trustees to take certain actions without obtaining
shareholder approval, if the Trustees determine that doing so would be in the best interests of shareholders. These actions include: (a)
reorganizing a Fund with another investment company or another series of the Trust; (b) liquidating a Fund; (c) restructuring a Fund into
a “master/feeder” structure, in which a Fund (the “feeder”) would invest all of its assets in a separate “master” fund; and (d) amending
the Trust Instrument, unless shareholder consent is required by law.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted to
the holders of the outstanding voting securities of an investment company such as the Trust shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding shares, as defined under the 1940 Act, of the series
affected by the matter. For purposes of determining whether the approval of a majority of the outstanding shares of a Fund will be required
in connection with a matter, a Fund will be deemed to be affected by a matter unless it is clear that the interests of the Fund
and any other series in the matter are identical, or that the matter does not affect any interest of other series of the Trust. Under Rule
18f-2, the approval of an investment advisory agreement or any change in investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding shares of the Fund. However, Rule 18f-2 also provides that the
ratification of independent accountants, the approval of principal underwriting contracts, and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting without regard to series.
Shareholder and Trustee Liability
The Delaware Statutory Trust Act provides that a shareholder of a Delaware statutory
trust shall be entitled to the same limitation of personal liability extended to shareholders of Delaware corporations, and the Trust
Instrument provides that shareholders of the Trust shall not be liable for the obligations of the Trust. The Trust Instrument also provides
for indemnification out of the trust property of any shareholder held personally liable solely by reason of his or her being or having
been a shareholder. The Trust Instrument also provides that the Trust shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust, and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered to be extremely remote.
The Trust Instrument states further that no Trustee, officer, or agent of the Trust
shall be personally liable in connection with the administration or preservation of the assets of the Funds or the conduct of the Trust’s
business; nor shall any Trustee, officer, or agent be personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of his duties. The Trust Instrument also provides that all persons
having any claim against the Trustees or the Trust shall look solely to the assets of the Trust for payment.
53
Derivative Actions Brought by Shareholders
Pursuant to the Trust Instrument, and in addition to the requirements of Delaware
law, a shareholder may bring a derivative action on behalf of the Trust only if the following conditions are met: (a) The shareholder
or shareholders must make a pre-suit demand upon the Trustees to bring the subject action unless an effort to cause the Trustees to
bring such an action is not likely to succeed. For this purpose, a demand on the Trustees shall only be deemed not likely to succeed and therefore
excused if a majority of the Board of Trustees, or a majority of any committee established to consider the merits of such
action, is composed of Trustees who are not “independent trustees” (as such term is defined in the Delaware Act); (b) Unless a
demand is not required under paragraph (a) above, shareholders eligible to bring such derivative action under the Delaware Act who collectively
hold at least 10% of the total combined net asset value of the outstanding shares of the Trust, or 10% of the total combined
net asset value of the outstanding shares of the Fund or Class to which such action relates if it does not relate to all Funds and Classes,
shall join in the request for the Trustees to commence such action; and (c) Unless a demand is not required under paragraph (a) above, the
Trustees must be afforded a reasonable amount of time to consider such shareholder request and to investigate the basis of such
claim. The Trustees shall be entitled to retain counsel or other advisors in considering the merits of the request and shall require an undertaking
by the shareholders making such request to reimburse the Trust for the expense of any such advisors in the event that the Trustees
determine not to bring such action.
The Board may designate a committee of one Trustee to consider a shareholder demand
if necessary to create a committee with a majority of Trustees who do not have a personal financial interest in the transaction
at issue. In addition to all suits, claims, or other actions (collectively, “claims”) that under applicable law must be brought as derivative
claims, each shareholder of the Trust or any Fund or Class agrees that any claim that affects all shareholders of a Fund or Class
equally, that is, proportionately based on their number of shares in such Fund or Class, must be brought as a derivative claim subject
to these provisions irrespective of whether such claim involves a violation of the shareholders’ rights under the Trust Instrument
or any other alleged violation of contractual or individual rights that might otherwise give rise to a direct claim. The provision
requiring at least 10% of the outstanding voting securities of the Trust, applicable Fund or Class to join in the request to bring
the derivative action and the provision requiring an undertaking by the requesting shareholders to reimburse the Trust for the expense
of any advisors retained by the Board in the event that the Trustees determine not to bring such action, may not apply to claims brought
under federal securities laws.
Jurisdiction and Waiver of Jury Trial
In accordance with Section 3804(e) of the Delaware Act, any suit, action or proceeding
brought by or in the right of any shareholder or any person or entity claiming any interest in any Shares seeking to enforce any
provision of, or based on any matter arising out of, or in connection with, this Trust Instrument or the Trust, any Fund or class or any
shares, including any claim of any nature against the Trust, any Fund or class, the Trustees or officers of the Trust, shall be brought
exclusively in the Court of Chancery of the State of Delaware to the extent there is subject matter jurisdiction in such court for the
claims asserted or, if not, then in the Superior Court of the State of Delaware, and all shareholders and other such persons or entities
hereby irrevocably consent to the jurisdiction of such courts (and the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waive, to the fullest extent permitted by law, any objection they may make now or hereafter have to the laying
of the venue of any such suit, action or proceeding in such court or that any such suit, action or proceeding brought in any such court
as been brought in an inconvenient forum and further, in connection with any such suit, action, or proceeding brought in the Superior Court
of the State of Delaware, all shareholders and all other such persons or entities hereby irrevocably waive the right to a trial by
jury to the fullest extent permitted by law. All shareholders and other such persons and entities agree that service of summons, complaint
or other process in connection with any proceedings may be made by registered or certified mail or by overnight courier addressed
to such person or entity at the address shown on the books and records of the Trust for such person or entity or at the address
of the person or entity shown on the books and records of the Trust with respect to the Shares that such person or entity claims an interest
in. Service of process in any such suit, action or proceeding against the Trust or any Trustee or officer of the Trust may be made at
the address of the Trust’s registered agent in the State of Delaware. Any service so made shall be effective as if personally made in
the State of Delaware.
These exclusive jurisdiction provisions may make it more expensive for a shareholder
to bring a suit and may limit a shareholder’s ability to litigate a claim in the jurisdiction and in a manner that may be more favorable
to the shareholder. A court may choose not to enforce this provision of the Trust Instrument. There is a question regarding the
enforceability of the exclusive forum provision in the Trust Instrument because the Securities Act of 1933 and the Investment Company
Act of 1940 permit shareholders to bring claims arising under such statutes in both state and federal courts.
Disclosure of Portfolio Holdings
The Board has adopted policies and procedures with respect to the disclosure of each
Fund’s portfolio holdings by the Fund, the Adviser, or their affiliates. These policies and procedures provide that each Fund’s
portfolio holdings information generally may not be disclosed to any party prior to the information becoming public. Certain limited
exceptions are described below. These policies and procedures apply to disclosures to all categories of persons, including individual
investors, institutional investors, intermediaries who
54
sell shares of a Fund, third parties providing services to the Funds (accounting agent,
print vendors, etc.), rating and ranking organizations (Lipper, Morningstar, etc.) and affiliated persons of the Funds.
The Trust’s Chief Compliance Officer is responsible for monitoring each Fund’s compliance
with these policies and procedures, and for providing regular reports (at least annually) to the Board regarding the adequacy
and effectiveness of the policy and recommend changes, if necessary.
Public Disclosure
The Funds disclose their complete portfolio holdings in their financial statements
and are available upon request on the Funds’ website, VictoryFunds.com. The Funds also file their complete portfolio holdings with the SEC
for the first and third fiscal quarters on Form N-PORT. You can find these filings on the SEC’s website, sec.gov, and the Funds’ portfolio
holdings are available at VictoryFunds.com in accordance with Rule 30e-3 under the 1940 Act.
In addition, the Funds disclose their complete portfolio holdings as of the quarter-end
on the Funds’ website no earlier than the 15th day following the end of the calendar quarter. The Funds may also publish other information
on the Funds’ website relating to its portfolio holdings (e.g., top 10 holdings) on a monthly basis no earlier than the
10th day following the end of the month.
Non-Public Disclosures
The Adviser may authorize the disclosure of non-public portfolio holdings information
under certain limited circumstances. The Funds’ policies provide that non-public disclosures of a Fund’s portfolio holdings may only
be made if: (i) the Fund has a “legitimate business purpose” (as determined by the President of the Trust) for making such disclosure;
and (ii) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to
trade on the non-public information and describes any compensation to be paid to the Fund or any “affiliated person” of the Adviser or Distributor,
including any arrangement to maintain assets in the Fund or in other investment companies or accounts managed by the Adviser
or by any “affiliated person” of the Adviser or Distributor.
The Adviser will consider any actual or potential conflicts of interest between the
Adviser and a Fund’s shareholders and will act in the best interest of the Fund’s shareholders with respect to any such disclosure of
portfolio holdings information. If a potential conflict can be resolved in a manner that does not present detrimental effects to Fund shareholders,
the Adviser may authorize release of portfolio holdings information. Conversely, if the potential conflict cannot be resolved
in a manner that does not present detrimental effects to Fund shareholders, the Adviser will not authorize such release.
Ongoing Arrangements to Disclose Portfolio Holdings
As previously authorized by the Board and/or the Trust’s executive officers, a Fund
periodically discloses non-public portfolio holdings on a confidential basis to various service providers that require such information
in order to assist the Fund in its day-to-day operations, as well as public information to certain ratings organizations. These entities are
described in the following table. The table also includes information as to the timing of these entities receiving the portfolio holdings information
from a Fund. In none of these arrangements does a Fund or any “affiliated person” of the Adviser or Distributor receive any compensation,
including any arrangement to maintain assets in the Fund or in other investment companies or accounts managed by the Adviser
or by any “affiliated person” of the Adviser or Distributor.
|
Type of Service Provider
|
Name of Service Provider
|
Timing of Release of
Portfolio Holdings Information
|
|
Adviser and Fund Accountant
|
Victory Capital Management Inc.
|
Daily.
|
|
Distributor
|
Victory Capital Services, Inc.
|
Daily.
|
|
Custodian
|
Citibank, N.A.
|
Daily.
|
|
Sub-Fund Accountant
|
Citi Fund Services Ohio, Inc.
|
Daily.
|
|
Financial Data Service
|
FactSet Research Systems, Inc.
|
Daily.
|
|
Liquidity Risk Management Service
Provider
|
MSCI, Inc.
|
Daily.
|
|
Independent Registered Public
Accounting Firm
|
Cohen & Company, Ltd.
|
Annual Reporting Period: within 15
business days of end of reporting period.
|
|
Printer for Financial Reports
|
Toppan Merrill LLC
|
Up to 30 days before distribution to
shareholders.
|
|
Legal Counsel, for EDGAR filings on
Forms N-CSR and Form N-PORT
|
Sidley Austin LLP
|
Up to 30 days before filing with the
SEC.
|
55
|
Type of Service Provider
|
Name of Service Provider
|
Timing of Release of
Portfolio Holdings Information
|
|
Ratings Agency
|
Lipper
|
Quarterly, no sooner than 15 calendar
days after the end of the previous
quarter.
|
|
Ratings Agency
|
Morningstar
|
Quarterly, no sooner than 15 calendar
days after the end of the previous
quarter.
|
|
Financial Data Service
|
Bloomberg L.P.
|
Quarterly, no sooner than 15 calendar
days after the end of the previous
quarter.
|
These service providers are required to keep all non-public information confidential
and are prohibited from trading based on the information or otherwise using the information, except as necessary in providing services
to a Fund.
There is no guarantee that a Fund’s policies on use and dissemination of holdings
information will protect the Fund from the potential misuse of holdings by individuals or firms in possession of such information.
Expenses
Unless agreed upon otherwise with a third party, all expenses incurred in administration
of the Funds will be charged to a particular Fund, including investment management fees; fees and expenses of the Board; interest
charges; taxes; brokerage commissions; expenses of valuing assets; expenses of continuing registration and qualification
of the Funds and the shares under federal and state law; share issuance expenses; fees and disbursements of independent accountants and
legal counsel; fees and expenses of custodians, including, transfer agents and shareholder account servicing organizations; expenses
of preparing, printing and mailing prospectuses, reports, proxies, notices and statements sent to shareholders; expenses of shareholder
meetings; costs of investing in underlying funds; and insurance premiums. The Funds are also liable for nonrecurring expenses, including
litigation to which they may from time to time be a party. Expenses incurred for the operation of a particular Fund, including the
expenses of communications with its shareholders, are paid by that Fund.
Legal Counsel
Sidley Austin LLP, 787 Seventh Avenue, New York, New York 10019, serves as counsel
to the Trust.
Independent Registered Public Accounting Firm
Cohen & Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115,
serves as the independent registered public accounting firm for the Funds.
Miscellaneous
As used in the Prospectuses and in this SAI, “assets belonging to a fund” (or “assets
belonging to the Fund”) means the consideration received by the Trust upon the issuance or sale of shares of a Fund, together with
all income, earnings, profits and proceeds derived from the investment thereof, including any proceeds from the sale, exchange, or liquidation
of such investments and any funds or payments derived from any reinvestment of such proceeds and any general assets of
the Trust, which general liabilities and expenses are not readily identified as belonging to a particular series that are allocated
to that series by the Trustees. The Trustees may allocate such general assets in any manner they deem fair and equitable. It is anticipated
that the factor that will be used by the Trustees in making allocations of general assets to a particular series will be the relative NAV
of each respective series at the time of allocation. Assets belonging to a particular series are charged with the direct liabilities and
expenses in respect of that series and with a share of the general liabilities and expenses of each of the series not readily identified
as belonging to a particular series, which are allocated to each series in accordance with its proportionate share of the NAVs of the Trust
at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to a particular
series will be determined by the Trustees and will be in accordance with generally accepted accounting principles. Determinations by the
Trustees as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general
assets with respect to a particular series are conclusive.
As used in the Prospectuses and in this SAI, a “vote of a majority of the outstanding
shares” of the Fund means the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a meeting at
which the holders of more than 50% of the outstanding shares of the Fund are represented in person or by proxy, or (b) more than 50% of
the outstanding shares of the Fund.
The requirement that the Board monitor the Funds for the existence of any material
irreconcilable conflict between the interests of the variable annuity contract owners and the variable life insurance policy owners investing
in the Fund has been delegated to the Board’s
56
Compliance Committee. The Committee carries out this responsibility by monitoring
information from the investment adviser, distributor, administrator, participating insurance companies or counsel concerning
potential or existing material irreconcilable conflicts. Material irreconcilable conflicts may arise for a variety of reasons, including:
(1) action by a state insurance regulatory authority; (2) a change in a federal or state insurance, tax or securities law, regulation
or interpretation; (3) a relevant judicial or administrative decision; (4) the manner in which the investments in the Fund’s portfolio
is managed; (5) a difference in voting instructions given by variable annuity contract owners and variable life insurance
contract owners; or (6) a decision by an insurance company to disregard the voting instructions of contract owners. When informed of
such potential or actual conflicts, the Committee evaluates the facts and circumstances and may recommend appropriate action to the
Board.
Each Prospectus and this SAI are not an offering of the securities described in these
documents in any state in which such offering may not lawfully be made. No salesperson, dealer, or other person is authorized
to give any information or make any representation other than those contained in a Prospectus and this SAI.
While this SAI and each Prospectus describe pertinent information about the Trust
and the Funds, neither this SAI nor any Prospectus represents a contract between the Trust or a Fund and any shareholder.
57
APPENDIX A
Description of Security Ratings
Set forth below are descriptions of the relevant ratings of some of the NRSROs. These
NRSROs and the descriptions of the ratings are as of the date of this SAI and may subsequently change.
Ratings represent a rating agency’s opinion regarding the quality of the security
and are not a guarantee of quality. In addition, rating agencies may fail to make timely changes to credit ratings in response to subsequent
events and a rating may become stale in that it fails to reflect changes in an issuer’s financial condition.
Moody’s Investors Service, Inc. (“Moody’s”)
Global Long-Term Ratings. Ratings assigned on Moody’s global long-term rating scales are forward-looking opinions
of the relative credit risks of financial obligations issued by non-financial corporates, financial
institutions, structured finance vehicles, project finance vehicles, and public sector entities. Moody’s defines credit risk as the risk that
an entity may not meet its contractual financial obligations as they come due and any estimated financial loss in the event of default
or impairment. The contractual financial obligations addressed by Moody’s ratings are those that call for, without regard to
enforceability, the payment of an ascertainable amount, which may vary based upon standard sources of variation (e.g., floating interest
rates), by an ascertainable date. Moody’s rating addresses the issuer’s ability to obtain cash sufficient to service the obligation,
and its willingness to pay. Moody’s ratings do not address non-standard sources of variation in the amount of the principal obligation
(e.g., equity indexed), absent an express statement to the contrary in a press release accompanying an initial rating. Long-term ratings
are assigned to issuers or obligations with an original maturity of 11 months or more and reflect both on the likelihood of a default or impairment
on contractual financial obligations and the expected financial loss suffered in the event of default or impairment. The following
describes the global long- term ratings by Moody’s.
Aaa — Obligations rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk.
Aa — Obligations rated Aa are judged to be of high quality and are subject to very low
credit risk.
A — Obligations rated A are judged to be upper-medium grade and are subject to low credit
risk.
Baa — Obligations rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may possess certain speculative characteristics.
Ba — Obligations rated Ba are judged to be speculative and are subject to substantial
credit risk.
B — Obligations rated B are considered speculative and are subject to high credit risk.
Caa — Obligations rated Caa are judged to be speculative of poor standing and are subject
to very high credit risk.
Ca — Obligations rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest.
C — Obligations rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or interest.
Medium-Term Note Program Ratings. Moody’s assigns provisional ratings to medium-term note (MTN) or similar programs
and definitive ratings to the individual debt securities issued from them (referred to
as drawdowns or notes). MTN program ratings are intended to reflect the ratings likely to be assigned to drawdowns issued from the
program with the specified priority of claim (e.g. senior or subordinated). To capture the contingent nature of a program rating, Moody’s
assigns provisional ratings to MTN programs. A provisional rating is denoted by a (P) in front of the rating.
The rating assigned to a drawdown from a rated MTN or bank/deposit note program is
definitive in nature, and may differ from the program rating if the drawdown is exposed to additional credit risks besides the issuer’s
default, such as links to the defaults of other issuers, or has other structural features that warrant a different rating. In some
circumstances, no rating may be assigned to a drawdown.
Moody’s encourages market participants to contact Moody’s Ratings Desks or visit moodys.com
directly if they have questions regarding ratings for specific notes issued under a medium-term note program. Unrated
notes issued under an MTN program may be assigned an NR (not rated) symbol.
Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification
from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and
58
the modifier 3 indicates a ranking in the lower end of that generic rating category.
Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies, and securities
firms.
Global Short-Term Ratings. Ratings assigned on Moody’s global short-term rating scales
are forward-looking opinions of the relative credit risk of financial obligations issued by non-financial corporates, financial
institutions, structured finance vehicles, project finance vehicles, and public sector entities. Short-term ratings are assigned to obligations
with an original maturity of 13 or fewer months and reflect both on the likelihood of a default or impairment on contractual financial
obligations and the expected financial loss suffered in the event of default or impairment.
Moody’s employs the following designations to indicate the relative repayment ability
of rated issuers:
P-1. — Ratings of Prime-1 reflect a superior ability to repay short-term obligations.
P-2. — Ratings of Prime-2 reflect a strong ability to repay short-term obligations.
P-3. — Ratings of Prime-3 reflect an acceptable ability to repay short-term obligations.
NP. — Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
Speculative Grade Liquidity Ratings. Moody’s Speculative Grade Liquidity Ratings are
opinions of an issuer’s relative ability to generate cash from internal resources and the availability of external sources of
committed financing, in relation to its cash obligations over the coming 12 months. Speculative Grade Liquidity Ratings will consider the likelihood
that committed sources of financing will remain available. Other forms of liquidity support will be evaluated and consideration
will be given to the likelihood that these sources will be available during the coming 12 months. Speculative Grade Liquidity Ratings
are assigned to speculative grade issuers that are by definition Not Prime issuers.
SGL-1 — Issuers rated SGL-1 possess very good liquidity. They are most likely to have the
capacity to meet their obligations over the coming 12 months through internal resources without relying on external sources
of committed financing.
SGL-2 — Issuers rated SGL-2 possess good liquidity. They are likely to meet their obligations
over the coming 12 months through internal resources but may rely on external sources of committed financing. The issuer’s
ability to access committed sources of financing is highly likely based on Moody’s evaluation of near-term covenant compliance.
SGL-3 — Issuers rated SGL-3 possess adequate liquidity. They are expected to rely on external
sources of committed financing. Based on its evaluation of near-term covenant compliance, Moody’s believes there is only
a modest cushion, and the issuer may require covenant relief in order to maintain orderly access to funding lines.
SGL-4 — Issuers rated SGL-4 possess weak liquidity. They rely on external sources of financing
and the availability of that financing is, in Moody’s opinion, highly uncertain.
U.S. Municipal Short-Term Debt and Demand Obligation Ratings. Moody’s uses the global short-term Prime rating scale for commercial paper issued by U.S. municipalities and nonprofits. These commercial paper
programs may be backed by external letters of credit or liquidity facilities, or by an issuer’s self-liquidity. For other short-term
municipal obligations, Moody’s uses one of two other short-term rating scales the Municipal Investment Grade (MIG) and Variable Municipal
Investment Grade (VMIG) scales discussed below.
The MIG scale is used for U.S. municipal cash flow notes, bond anticipation notes
and certain other short-term obligations, which typically mature in three years or less. Under certain circumstances, the MIG scale
is used for bond anticipation notes with maturities of up to five years.
MIG-1. This designation denotes superior credit quality. Excellent protection is afforded
by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG-2. This designation denotes strong credit quality. Margins of protection are ample,
although not as large as in the preceding group.
MIG-3. This designation denotes acceptable credit quality. Liquidity and cash-flow protection
may be narrow, and market access for refinancing is likely to be less well-established.
SG. This designation denotes speculative-grade credit quality. Debt instruments in this
category may lack sufficient margins of protection.
VMIG Ratings. In the case of variable rate demand obligations (VRDOs), a two-component rating is
assigned. The components are a long-term rating and a short-term demand obligation rating. The long-term rating
addresses the issuer’s ability to meet scheduled
59
principal and interest payments. The short-term demand obligation rating addresses
the ability of the issuer or the liquidity provider to make payments associated with the purchase-price-upon-demand feature (“demand feature”)
of the VRDO. The short-term demand obligation rating uses the VMIG scale. VMIG ratings with liquidity support use as
an input the short-term Counterparty Risk Assessment of the support provider, or the long-term rating of the underlying obligor
in the absence of third-party liquidity support. Transitions of VMIG ratings of demand obligations with conditional liquidity support
differ from transitions on the Prime scale to reflect the risk that external liquidity support will terminate if the issuer’s long-term
rating drops below investment grade.
For VRDOs, Moody’s typically assigns the VMIG short-term demand obligation rating
if the frequency of the demand feature is less than every three years. If the frequency of the demand feature is less than three
years but the purchase price is payable only with remarketing proceeds, the short-term demand obligation rating is “NR.”
Industrial development bonds in the United States where the obligor is a corporate
may carry a VMIG rating that reflects Moody’s view of the relative likelihood of default and loss. In these cases, liquidity assessment
is based on the liquidity of the corporate obligor.
VMIG-1. This designation denotes superior credit quality. Excellent protection is afforded
by the superior short-term credit strength of the liquidity provider and structural and legal protections.
VMIG-2. This designation denotes strong credit quality. Good protection is afforded by the
strong short-term credit strength of the liquidity provider and structural and legal protections.
VMIG-3. This designation denotes acceptable credit quality. Adequate protection is afforded
by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections.
SG. This designation denotes speculative-grade credit quality. Demand features rated
in this category may be supported by a liquidity provider that does not have a sufficiently strong short-term rating or may lack the
structural or legal protections.
S&P Global Ratings
An S&P Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness
of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific
financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness
of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which
the obligation is denominated. The opinion reflects S&P Global Ratings’ view of the obligor’s capacity and willingness to meet
its financial commitments as they come due, and this opinion may assess terms, such as collateral security and subordination, which
could affect ultimate payment in the event of default.
Issue credit ratings can be either long-term or short-term. Short-term issue credit
ratings are generally assigned to those obligations considered short-term in the relevant market, typically with an original maturity
of no more than 365 days. Short-term issue credit ratings are also used to indicate the creditworthiness of an obligor with respect
to put features on long-term obligations. S&P Global Ratings would typically assign a long-term issue credit rating to an obligation with
an original maturity of greater than 365 days. However, the ratings assigned by S&P Global Ratings to certain instruments may diverge
from these guidelines based on market practices. Medium-term notes are assigned long-term ratings.
Long-Term Issue Credit Ratings. Issue credit ratings are based, in varying degrees, on S&P Global Ratings analysis
of the following considerations:
• The likelihood of payment—the capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the obligation;
• The nature of and provisions of the financial obligation, and the promise imputed
by S&P Global Ratings; and
• The protection afforded by, and relative position of, the financial obligation in
the event of a bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.
An issue rating is an assessment of default risk but may incorporate an assessment
of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations,
to reflect lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations,
secured and unsecured obligations, or operating company and holding company obligations.)
AAA — An obligation rated “AAA” has the highest rating assigned by S&P Global Ratings.
The obligor’s capacity to meet its financial commitments on the obligation is extremely strong.
AA — An obligation rated “AA” differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
60
A — An obligation rated “A” is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet
its financial commitments on the obligation is still strong.
BBB — An obligation rated “BBB” exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial
commitments on the obligation.
BB, B, CCC, CC, and C — Obligations rated “BB,” “B,” “CCC,” “CC,” and “C” are regarded as having significant
speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest.
While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or
major exposure to adverse conditions.
BB — An obligation rated “BB” is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that
could lead to the obligor’s inadequate capacity to meet its financial commitments on the obligation.
B — An obligation rated “B” is more vulnerable to nonpayment than obligations rated
“BB,” but the obligor currently has the capacity to meet its financial commitments on the obligation. Adverse business, financial,
or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments on the obligation.
CCC — An obligation rated “CCC” is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its
financial commitments on the obligation.
CC — An obligation rated “CC” is currently highly vulnerable to nonpayment. The “CC”
rating is used when a default has not yet occurred, but S&P Global Ratings expects default to be a virtual certainty, regardless
of the anticipated time to default.
C — An obligation rated “C” is currently highly vulnerable to nonpayment, and the obligation
is expected to have lower relative seniority or lower ultimate recovery compared with obligations that are rated higher.
D — An obligation rated “D” is in default or in breach of an imputed promise. For non-hybrid
capital instruments, the “D” rating category is used when payments on an obligation are not made on the date due, unless
S&P Global Ratings believes that such payments will be made within the next five business days in the absence of a stated grace period
or within the earlier of the stated grace period or the next 30 calendar days. The “D” rating also will be used upon the filing of
a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic
stay provisions. A rating on an obligation is lowered to “D” if it is subject to a distressed debt restructuring.
NR — This indicates that a rating has not been assigned or is no longer assigned.
Plus (+) or minus (-) — Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the rating categories.
Short-Term Issue Credit Ratings. The following describes S&P Global Ratings’ short-term issue credit ratings.
A-1 — A short-term obligation rated “A-1” is rated in the highest category by S&P Global
Ratings. The obligor’s capacity to meet its financial commitments on the obligation is strong. Within this category, certain obligations
are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitments on these obligations
is extremely strong.
A-2 — A short-term obligation rated “A-2” is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s
capacity to meet its financial commitments on the obligation is satisfactory.
A-3 — A short-term obligation rated “A-3” exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to weaken an obligor’s capacity to meet its
financial commitment on the obligation.
B — A short-term obligation rated “B” is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties that could lead to the obligor’s inadequate capacity to meet its financial commitments.
C — A short-term obligation rated “C” is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation.
D — A short-term obligation rated “D” is in default or in breach of an imputed promise.
For non-hybrid capital instruments, the “D” rating category is used when payments on an obligation are not made on the date due,
unless S&P Global Ratings believes that such
61
payments will be made within any stated grace period. However, any stated grace period
longer than five business days will be treated as five business days. The “D” rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic
stay provisions. A rating on an obligation is lowered to “D” if it is subject to a distressed debt restructuring.
Municipal Short-Term Note Ratings. The following describes Standard & Poor’s Municipal Short-Term Note Ratings.
An S&P Global Ratings U.S. municipal note rating reflects S&P Global Ratings’ opinion
about the liquidity factors and market access risks unique to the notes. Notes due in three years or less will likely receive a
note rating. Notes with an original maturity of more than three years will most likely receive a long-term debt rating. In determining which
type of rating, if any, to assign, S&P Global Ratings’ analysis will review the following considerations:
• Amortization schedule — the larger the final maturity relative to other maturities,
the more likely it will be treated as a note; and
• Source of payment — the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
SP-1. Strong capacity to pay principal and interest. An issue determined to possess a very
strong capacity to pay debt service is given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
SP-3. Speculative capacity to pay principal and interest.
D. Assigned upon failure to pay the note when due, completion of a distressed debt restructuring,
or the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty,
for example due to automatic stay provisions.
Active Qualifiers
S&P Global Ratings uses the following qualifiers that limit the scope of a rating.
The structure of the transaction can require the use of a qualifier such as a ‘p’ qualifier, which indicates the rating addresses the principal
portion of the obligation only. A qualifier appears as a suffix and is part of the rating.
Federal deposit insurance limit: “L” qualifier — Ratings qualified with “L” apply only to amounts invested up to federal deposit
insurance limits.
Principal: “p” qualifier — This suffix is used for issues in which the credit factors, the terms, or both,
that determine the likelihood of receipt of payment of principal are different from the credit factors, terms or
both that determine the likelihood of receipt of interest on the obligation. The “p” suffix indicates that the rating addresses the principal
portion of the obligation only and that the interest is not rated.
Preliminary ratings: ‘prelim’ qualifier — Preliminary ratings, with the ‘prelim’ suffix, may be assigned to obligors or obligations,
including financial programs, in the circumstances described below. Assignment of
a final rating is conditional on the receipt by S&P Global Ratings of appropriate documentation. S&P Global Ratings reserves the right
not to issue a final rating. Moreover, if a final rating is issued, it may differ from the preliminary rating.
• Preliminary ratings may be assigned to obligations, most commonly structured and project
finance issues, pending receipt of final documentation and legal opinions.
• Preliminary ratings may be assigned to obligations that will likely be issued upon
the obligor’s emergence from bankruptcy or similar reorganization, based on late-stage reorganization plans, documentation, and
discussions with the obligor. Preliminary ratings may also be assigned to the obligors. These ratings consider the anticipated
general credit quality of the reorganized or post-bankruptcy issuer as well as attributes of the anticipated obligation(s).
• Preliminary ratings may be assigned to entities that are being formed or that are
in the process of being independently established when, in S&P Global Ratings’ opinion, documentation is close to final.
Preliminary ratings may also be assigned to the obligations of these entities.
• Preliminary ratings may be assigned when a previously unrated entity is undergoing
a well-formulated restructuring, recapitalization, significant financing, or other transformative event, generally
at the point that investor or lender commitments are invited. The preliminary rating may be assigned to the entity and to its proposed
obligation(s). These preliminary ratings
62
consider the anticipated general credit quality of the obligor, as well as attributes
of the anticipated obligation(s), assuming successful completion of the transformative event. Should the transformative event
not occur, S&P Global Ratings would likely withdraw these preliminary ratings.
• A preliminary recovery rating may be assigned to an obligation that has a preliminary
issue credit rating.
Termination structures: “t” qualifier — This symbol indicates termination structures that are designed to honor their contracts
to full maturity or, should certain events occur, to terminate and cash settle all their contracts
before their final maturity date.
Counterparty instrument rating: “cir” qualifier — This symbol indicates a counterparty instrument rating (CIR), which is a forward-looking opinion about the creditworthiness of an issuer in a securitization
structure with respect to a specific financial obligation to a counterparty (including interest rate swaps, currency swaps, and liquidity
facilities). The CIR is determined on an ultimate payment basis; these opinions do not take into account timeliness of payment.
Fitch Ratings, Inc. (“Fitch”)
International Long-Term Ratings
Investment Grade
Investment Grade
AAA — Highest credit quality. “AAA” ratings denote the lowest expectation of default
risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity
is highly unlikely to be adversely affected by foreseeable events.
AA — Very high credit quality. “AA” ratings denote expectations of very low default risk.
They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A — High credit quality. “A” ratings denote expectations of low default risk. The capacity
for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse
business or economic conditions than is the case for higher ratings.
BBB — Good credit quality. “BBB” ratings indicate that expectations of default risk are
currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions
are more likely to impair this capacity.
Speculative Grade
BB — Speculative. “BB” ratings indicate an elevated vulnerability to default risk, particularly
in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility
exists that supports the servicing of financial commitments.
B — Highly speculative. “B” ratings indicate that material default risk is present,
but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable
to deterioration in the business and economic environment.
CCC — Substantial credit risk. Very low margin for safety. Default is a real possibility.
CC — Very high levels of credit risk. Default of some kind appears probable.
C — Near default. A default or default-like process has begun, or the issuer is in
standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired. Conditions that are indicative of a “C” category
rating for an issuer include:
• The issuer has entered into a grace or cure period following non-payment of a material
financial obligation;
• The issuer has entered into a temporary negotiated waiver or standstill agreement
following a payment default on a material financial obligation;
• The formal announcement by the issuer or their agent of a distressed debt exchange;
• A closed financing vehicle where payment capacity is irrevocably impaired such that
it is not expected to pay interest and/or principal in full during the life of the transaction, but where no payment default
is imminent.
RD — Restricted default. “RD” ratings indicate an issuer that in Fitch’s opinion has
experienced:
• An uncured payment default or distressed debt exchange on a bond, loan, or other material
financial obligation but
63
• Has not entered into bankruptcy filings, administration, receivership, liquidation,
or other formal winding-up procedure, and
• Has not otherwise ceased operating. This would include:
• The selective payment default on a specific class or currency of debt;
• The uncured expiry of any applicable grace period, cure period or default forbearance
period following a payment default on a bank loan, capital markets security or other material financial obligation;
• The extension of multiple waivers or forbearance periods upon a payment default on
one or more material financial obligations, either in series or in parallel; or ordinary execution of a distressed debt exchange
on one or more material financial obligations.
D — Default. “D” ratings indicate an issuer that in Fitch’s opinion has entered into
bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedure or that has otherwise ceased business.
Default ratings are not assigned prospectively to entities or their obligations; within
this context, non-payment on an instrument that contains a deferral feature or grace period will generally not be considered a default
until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance,
or by a distressed debt exchange.
Imminent default, categorized under “C,” typically refers to the occasion where a
payment default has been intimated by the issuer and is all but inevitable. This may, for example, be where an issuer has missed a scheduled
payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an
issuer has formally announced a distressed debt exchange, but the date of the exchange still lies several days or weeks in the immediate
future.
In all cases, the assignment of a default rating reflects the agency’s opinion as
to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default
under the terms of an issuer’s financial obligations or local commercial practice.
International Short-Term Ratings. The following describes Fitch’s two highest short-term ratings:
F1. Highest short-term credit quality. Indicates the strongest intrinsic capacity for
timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.
F2. Good short-term credit quality. Good intrinsic capacity for timely payment of financial
commitments.
Notes to Long- and Short-term ratings:
The modifiers “+” or “-” may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to “AAA” ratings and ratings below the “CCC” category. For the short-term rating
category of “F1,” a “+” may be appended.
Withdrawn —The rating has been withdrawn and the issue or issuer is no longer rated by Fitch.
Ratings that have been withdrawn will be indicated by the symbol “WD.”
Rating Watch — Rating Watches indicate that there is a heightened probability of a rating change
and the likely direction of such a change. These are designated as “Positive,” indicating that a rating could stay at
its present level or potentially be upgraded, “Negative,” to indicate that the rating could stay at its present level or potentially be downgraded,
or “Evolving” if ratings may be raised, lowered, or affirmed. However, ratings can be raised or lowered without being placed on Rating
Watch first.
A Rating Watch is typically event-driven and, as such, it is generally resolved over
a relatively short period. The event driving the Watch may be either anticipated or have already occurred, but in both cases, the exact rating
implications remain undetermined. The Watch period is typically used to gather further information and/or subject the information
to further analysis. A Rating Watch must be reviewed and a RAC be published every six months after a rating has been placed on
Rating Watch, except in the case described below.
Additionally, a Watch may be used where the rating implications are already clear,
but where they remain contingent upon an event (e.g. shareholder or regulatory approval). The Watch will typically extend to cover
the period until the event is resolved or its outcome is predictable with a high enough degree of certainty to permit resolution of the
Watch. In these cases, where it has previously been communicated within the RAC that the Rating Watch will be resolved upon an event and
where there are no material changes to the respective rating up to the event, the Rating Watch may not be reviewed within the
six months interval. In any case, the affected ratings (and the Rating Watch) will remain subject to an annual review cycle.
Rating Outlook — Outlooks indicate the direction a rating is likely to move over a one- to two-year
period. They reflect financial or other trends that have not yet reached or been sustained the level that would cause
a rating action, but which may do so if such trends continue. A Positive Rating Outlook indicates an upward trend on the rating scale.
Conversely, a Negative Rating Outlook signals a
64
negative trend on the rating scale. Positive or Negative Rating Outlooks do not imply
that a rating change is inevitable, and similarly, ratings with Stable Outlooks can be raised or lowered without a prior revision to
the Outlook. Occasionally, where the fundamental trend has strong, conflicting elements of both positive and negative, the Rating Outlook
may be described as “Evolving.”
Outlooks are currently applied on the long-term scale to certain issuer ratings in
corporate finance (including sovereigns, industrials, utilities, financial institutions and insurance companies) and to both issuer ratings
and obligations ratings in public finance in the United States; to issues in infrastructure and project finance; to Insurer Financial
Strength Ratings; to issuer and/or issue ratings in a number of National Rating scales; and to the ratings of structured finance transactions
and covered bonds. Outlooks are not applied to ratings assigned on the short-term scale. For financial institutions, Outlooks
are not assigned to Viability Ratings, Support Ratings and Support Rating Floors. Derivative counterparty ratings are also not assigned Outlooks.
Ratings in the “CCC,” “CC,” and “C” categories typically do not carry Outlooks since
the volatility of these ratings is very high and outlooks would be of limited informational value. Defaulted ratings do not carry Outlooks.
65
Registration Statement
of
VICTORY VARIABLE INSURANCE FUNDS
on
Form N-1A
of
VICTORY VARIABLE INSURANCE FUNDS
on
Form N-1A
PART C. OTHER INFORMATION
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Item 28.
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Exhibits
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(a)
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(b)
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(c)
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(d)
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(1)(a)
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(d)
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(1)(b)
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(e)
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(1)
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(e)
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(2)
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(f)
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Not applicable.
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(g)
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(1)(a)
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(g)
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(1)(b)
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(g)
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(1)(c)
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(g)
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(1)(d)
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(g)
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(1)(e)
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(g)
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(1)(f)
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(g)
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(1)(g)
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(g)
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(1)(h)
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(g)
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(1)(i)
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(g)
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(1)(j)
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(g)
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(1)(k)
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(g)
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(1)(l)
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(g)
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(1)(m)
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(g)
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(1)(n)
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(g)
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(1)(m)
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(h)
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(1)(a)
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(h)
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(1)(b)
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(h)
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(1)(c)
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(h)
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(1)(d)
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(h)
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(1)(e)
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(h)
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(1)(f)
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(h)
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(1)(g)
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(h)
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(1)(h)
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(h)
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(1)(i)
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(h)
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(1)(j)
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(h)
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(1)(k)
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C-1
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(h)
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(1)(l)
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(h)
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(1)(m)
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(h)
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(1)(n)
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(h)
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(1)(o)
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(h)
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(1)(p)
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(h)
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(1)(q)
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(h)
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(1)(r)
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(h)
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(1)(s)
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(h)
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(1)(t)
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(h)
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(2)(a)
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(h)
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(2)(b)
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(h)
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(2)(c)
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(h)
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(2)(d)
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(h)
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(2)(e)
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(h)
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(2)(f)
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(h)
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(2)(g)
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(h)
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(2)(h)
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(h)
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(2)(i)
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(h)
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(2)(j)
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(h)
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(2)(k)
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(h)
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(2)(l)
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(h)
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(2)(m)
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(h)
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(2)(n)
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(h)
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(3)(a)
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(h)
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(3)(b)
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(h)
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(3)(c)
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(h)
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(3)(d)
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(h)
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(3)(e)
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(h)
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(3)(f)
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(h)
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(3)(g)
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(h)
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(3)(h)
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(h)
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(3)(i)
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(h)
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(3)(j)
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(h)
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(4)(a)
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C-2
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(h)
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(4)(b)
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(h)
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(4)(c)
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(h)
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(4)(d)
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(h)
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(5)(a)
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(h)
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(5)(b)
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(h)
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(6)(a)
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(h)
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(6)(b)
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(h)
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(7)(a)
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(h)
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(7)(b)
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(h)
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(7)(c)
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(h)
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(8)(a)
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(h)
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(8)(b)
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(h)
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(9)(a)
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(h)
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(9)(b)
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(h)
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(9)(c)
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(h)
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(10)(a)
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(h)
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(10)(b)
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(h)
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(11)
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(i)
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(j)
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(1)
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Consent of Sidley Austin LLP. (filed herewith)
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(j)
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(2)
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(k)
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Not applicable.
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(l)
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Not applicable.
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(m)
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(1)(a)
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(m)
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(1)(b)
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(m)
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(1)(c)
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(m)
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(1)(d)
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(m)
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(1)(e)
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(m)
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(2)(a)
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(m)
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(2)(b)
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(n)
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(p)
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(1)
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C-3
Item 29. Persons Controlled by or Under Common Control with Registrant
Information pertaining to persons controlled by, or under common control with Registrant
is hereby incorporated by reference to the section captioned “Management of the Trust” in the Statement of Additional Information (“SAI”).
Item 30. Indemnification
Article X, Section 10.02 of Registrant’s Delaware Trust Instrument, as amended, incorporated herein as Exhibits (a) and (b) hereto, provides for the indemnification of Registrant’s Trustees and officers, as follows:
Section 10.02 Indemnification.
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(a)
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Subject to the exceptions and limitations contained in Subsection 10.02(b):
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(i)
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every person who is, or has been, a Trustee or officer of the Trust (hereinafter referred to as a “Covered Person”) shall
be indemnified by the Trust to the fullest extent permitted by law against liability
and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by
him in the settlement thereof;
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(ii)
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the words “claim,” “action,” “suit,” or “proceeding” shall apply to all claims, actions, suits, or proceedings (civil,
criminal, or other, including appeals), actual or threatened while in office or thereafter, and the words “liability” and
“expenses” shall include, without limitation, attorneys’ fees, costs, judgments, amounts paid in settlement, fines, penal-
ties and other liabilities.
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(b)
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No indemnification shall be provided hereunder to a Covered Person:
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(i)
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who shall have been adjudicated by a court or body before which the proceeding was
brought (A) to be liable to the
Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the
duties involved in the conduct of his office or (B) not to have acted in good faith
in the reasonable belief that his
action was in the best interest of the Trust; or
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(ii)
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in the event of a settlement, unless there has been a determination that such Trustee
or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office, (A)
by the court or other body approving the settlement; (B) by at least a majority of
those Trustees who are neither inter-
ested persons of the Trust nor are parties to the matter based upon a review of readily
available facts (as opposed to a
full trial-type inquiry); or (C) by written opinion of independent legal counsel based
upon a review of readily available
facts (as opposed to a full trial-type inquiry).
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(c)
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The rights of indemnification herein provided may be insured against by policies maintained
by the Trust, shall be sev-
erable, shall not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person and
shall inure to the benefit of the
heirs, executors, and administrators of such a person. Nothing contained herein shall
affect any rights to indemnifica-
tion to which Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise
under law.
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(d)
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Expenses in connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of
the character described in Subsection (a) of this Section 10.02 may be paid by the
Trust or Series from time to time
prior to final disposition thereof upon receipt of an undertaking by or on behalf
of such Covered Person that such
amount will be paid over by him to the Trust or Series if it is ultimately determined
that he is not entitled to indemni-
fication under this Section 10.02; provided, however, that either (i) such Covered
Person shall have provided appropri-
ate security for such undertaking, (ii) the Trust is insured against losses arising
out of any such advance payments or
(iii) either a majority of the Trustees who are neither interested persons of the
Trust nor parties to the matter, or inde-
pendent legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as
opposed to a trial-type inquiry or full investigation), that there is reason to believe
that such Covered Person will be
found entitled to indemnification under this Section 10.02. The advancement of any
expenses pursuant to this Sec-
tion 10.02(d) shall under no circumstances be considered a “loan” under the Sarbanes-Oxley Act of 2002 or for any
other reason.
|
Indemnification of the Fund’s principal underwriter, custodian, fund accountant, and transfer agent is provided for, respectively, in Section V of the Distribution Agreement incorporated by reference as Exhibit (e)(1)
hereto, Section 12 of the Global Custodial Services Agreement incorporated by reference as Exhibit (g)(1)(a) hereto, Section
9 of the Administration and Fund Accounting Agreement incorporated by reference as Exhibit (h)(1)(a) hereto and Section 9 of the
Transfer Agency Agreement incorporated by reference as Exhibit (h)(3)(a) hereto. Registrant has obtained from a major insurance carrier a trustees’ and officers’ liability policy covering certain types of errors and omissions. In no event will Registrant indemnify
any of its trustees, officers, employees, or agents against any liability to which such person would otherwise be subject by reason
of his willful misfeasance, bad faith, or
C-5
gross negligence in the performance of his duties, or by reason of his reckless disregard
of the duties involved in the conduct of his office or under his agreement with Registrant. Registrant will comply with Rule
484 under the Securities Act of 1933 and Release 11330 under the Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities Act of 1933
may be permitted to trustees, officers, and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant
has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer, or controlling person of Registrant
in the successful defense of any action, suit, or proceeding) is asserted by such trustee, officer, or controlling person in connection
with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of the Investment Adviser
Information pertaining to business and other connections of the Registrant’s investment adviser, Victory Capital Management Inc. (“VCM” or “Adviser”), is hereby incorporated by reference to the section of the Prospectus captioned “Organization and Management of the Fund” and to the section of the SAI captioned “Investment Adviser and Other Service Providers.” The Adviser is an indirect wholly-owned subsidiary of Victory Capital Holdings, Inc. (“VCH”), a publicly traded Delaware corporation.
The principal executive officers and directors of the Adviser and VCH are as follows:
|
David C. Brown
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Director, Chairman, and Chief Executive Officer of Adviser and VCH
|
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Michael D. Policarpo, II
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President, Chief Financial Officer, and Chief Administrative Officer of
Adviser and VCH, Director of Adviser
|
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Nina Gupta
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Chief Legal Officer and Secretary of Adviser and VCH, Director of
Adviser
|
The business address of the foregoing individuals is 15935 La Cantera Parkway, San
Antonio, Texas 78256.
To the knowledge of Registrant, none of the directors or officers of the Adviser is
or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial
nature.
Item 32. Principal Underwriter
(a)
Victory Capital Services, Inc. (“VCS”) acts as principal underwriter for the shares of Registrant, Victory Portfolios, Victory Portfolios II, and USAA Mutual Funds Trust.
(b)
VCS, 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144, acts solely as distributor
for the investment companies listed above. The officers of VCS, all of whose principal business address is set forth above,
are:
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Name
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Positions and Offices with VCS
|
Position and Offices with Registrant
|
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David C. Brown
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Director
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Trustee
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Michael D. Policarpo, II
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Director
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None
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Charles Mathes
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Director, Chief Compliance
Officer, and AML Officer
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None
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Donald Inks
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Chief Operations Officer
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None
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Christopher Ponte
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Chief Financial Officer
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Assistant Treasurer
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(c)
Not applicable.
Item 33. Location of Accounts and Records
(1)
Victory Capital Management Inc., 15935 La Cantera Parkway, San Antonio, Texas 78256
(records relating to its functions as investment adviser and administrator).
C-6
(2)
Citibank, N.A., 388 Greenwich St., New York, New York 10013 (records relating to its
function as custodian).
(3)
Citi Fund Services Ohio, Inc., 4400 Easton Commons, Suite 200, Columbus, Ohio 43219
(records relating to its functions as sub-administrator and sub-fund accountant).
(4)
FIS Investor Services LLC, 4249 Easton Way, Suite 400, Columbus, Ohio 43219 (records
relating to its functions as transfer agent and dividend disbursing agent).
(5)
Victory Capital Services, Inc., 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144
(records relating to its function as distributor).
Item 34. Management Services
None.
Item 35. Undertakings
Not applicable.
NOTICE
A copy of the Certificate of Trust of Registrant, and all amendments, is on file with
the Secretary of State of Delaware and notice is hereby given that this Post-Effective Amendment to Registrant’s Registration Statement has been executed on behalf of Registrant by officers of, and Trustees of, Registrant as officers and as Trustees,
respectively, and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders of Registrant individually but are binding only upon the assets and property of Registrant.
C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company
Act of 1940, Registrant certifies that it meets all of the requirements for effectiveness of this registration statement under
Rule 485(b) under the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of San Antonio and state of Texas, on the 14th day of April 2025.
VICTORY VARIABLE INSURANCE FUNDS
(Registrant)
(Registrant)
By:/s/ Thomas Dusenberry
Thomas Dusenberry
President
President
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities indicated on the 14th day of April 2025.
|
Signature
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Title
|
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/s/ Thomas Dusenberry
Thomas Dusenberry
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President (Principal Executive Officer)
|
|
/s/ Carol D. Trevino
Carol D. Trevino
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Treasurer (Principal Accounting Officer and Principal Financial Officer)
|
|
*
David Brooks Adcock
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Trustee
|
|
*
Nigel D.T. Andrews
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Trustee
|
|
*
E. Lee Beard
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Trustee
|
|
*
David C. Brown
|
Trustee
|
|
*
John L. Kelly
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Chairman of the Board and Trustee
|
|
*
David L. Meyer
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Trustee
|
|
*
Gloria S. Nelund
|
Trustee
|
|
*
Timothy Pettee
|
Trustee
|
*By: /s/ Jay G. Baris
Jay G. Baris
Attorney-in-Fact
Attorney-in-Fact
ATTACHMENTS / EXHIBITS
EX. (D)(1)(B) - SCHEDULE A TO ADVISORY AGREEMENT CURRENT AS OF 12.5.24
EX. (E)(2) - SCHEDULE I TO DISTRIBUTION AGREEMENT CURRENT AS OF 12.5.24
EX. (G)(1)(N) AMENDMENT TO MASTER GLOBAL CUSTODIAL SERVICES AGREEMENT 6.1.24
EX. (G)(1)(O) AMENDMENT TO MASTER GLOBAL CUSTODIAL SERVICES AGREEMENT 10.29.24
EX. (H)(1(R) AMENDMENT NO. 17 DATED 5.21.24 TO ADMIN AND FUND ACCT AGREEMENT
EX. (H)(1)(S) AMENDMENT NO. 18 DATED 8.27.24 TO ADMIN AND FUND ACCT AGREEMENT
EX. (H)(1)(T) - AMENDMENT NO. 19 TO ADMIN AND FUND ACCT AGREEMENT
EX. (H)(2)(L) - AMENDMENT NO. 14 6.25.24 TO SUB-ADMIN AND SUB-FUND ACCTING AGREE
EX. (H)(2)(L) - AMENDMENT NO. 15 10.1.24 TO SUB-ADMIN AND SUB-FUND ACCTNG AGREE
EX. (H)(10)(B) - SCHEDULE A TO EXPENSE LIMITATION AGREEMENT 2.20.25
EX. (I) - OPINION OF MORRIS NICHOLS ARSHT & TUNNELL LLP
EX. (J0(1) - CONSENT OF SIDLEY AUSTIN LLP
EX. (J)(2) - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX. (M)(1)(D) - THIRD AMENDMENT TO CONTRACT OWNER ADMIN AGREE NATIONWIDE
EX. (M)(1)(E) - FOURTH AMENDMENT TO CONTRACT OWNER ADMIN AGREE NATIONWIDE
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XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
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