UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5017
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Ivy Funds Variable Insurance Portfolios
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(Exact name of registrant as specified in charter)
6300 Lamar Avenue, Overland Park, Kansas 66202
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(Address of principal executive offices) (Zip code)
Mara D. Herrington
6300 Lamar Avenue
Overland Park, Kansas 66202
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(Name and address of agent for service)
Registrant’s telephone number, including area code: 913-236-2000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2014
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report
December 31, 2014
Ivy Funds Variable Insurance Portfolios
Pathfinder Aggressive
Pathfinder Conservative
Pathfinder Moderate
Pathfinder Moderately Aggressive
Pathfinder Moderately Conservative
Pathfinder Moderate - Managed Volatility
Pathfinder Moderately Aggressive - Managed Volatility Pathfinder Moderately Conservative - Managed Volatility
Asset Strategy
Balanced
Bond
Core Equity
Dividend Opportunities
Energy
Global Bond
Global Growth
Global Natural Resources
Growth
High Income
International Core Equity
Limited-Term Bond
Micro Cap Growth
Mid Cap Growth
Money Market
Real Estate Securities
Science and Technology
Small Cap Growth
Small Cap Value
Value
CONTENTS
Ivy Funds VIP
PRESIDENT’S LETTER
Ivy Funds VIP | DECEMBER 31, 2014 (UNAUDITED) |
Henry J. Herrmann, CFA
Dear Shareholder,
In the year since our last report to you, the U.S. was the bright spot across a global economy generally challenged by sluggish growth and rising geopolitical tensions.
After a colder than expected winter put a chill on the U.S. economy at the outset of the fiscal period, U.S. gross domestic product (GDP) charted 4.6% growth in the second quarter and nearly 4% growth in the third. U.S. stocks responded favorably to signs that the six-year economic expansion was self-sustaining. Broad market indexes surpassed previous record highs. Volatility remained, however, as concern continued around global economic growth, geopolitical developments and a dramatic fall in oil prices.
In the fixed income markets, yields on investment-grade securities remained at exceptionally low levels for much of the year with the benchmark 10-year Treasury closing the year yielding 2.17% — more than 80 basis points below where it opened 2014.
Looking ahead, the behavior of the oil market will likely be one of the key stories for 2015. While low oil prices are good for the consumer and have the potential to boost economic growth, they also present challenges. For example, high-yield bonds were hit by concerns late in the year that low oil prices could boost defaults in the energy industry. Other areas of concern include the challenges facing the European economy and a slowdown in China’s growth.
Overall, we expect the U.S. economy will continue to improve. We believe the U.S. is stronger than most of its global counterparts and that U.S. stocks appear to offer investors the best opportunity for positive returns. Corporate earnings are expected to rise, inflation to remain low and the jobs picture to continue to improve. All of this provides a positive backdrop for stocks. The Federal Reserve seems likely to take its time raising interest rates as it weighs the strength of improvement in the economy.
Economic Snapshot
| | | | | | | | |
| | | 12/31/14 | | | 12/31/13 | |
S&P 500 Index | | | 2,058.90 | | | | 1,848.36 | |
MSCI EAFE Index | | | 1,774.89 | | | | 1,915.60 | |
10-Year Treasury Yield | | | 2.17% | | | | 3.04% | |
U.S. unemployment rate | | | 5.60% | | | | 6.70% | |
30-year fixed mortgage rate | | | 3.99% | | | | 4.54% | |
Oil price per barrel | | | $53.27 | | | | $98.42 | |
Sources: Bloomberg, U.S. Department of Labor, MBA, CME
All government statistics shown are subject to periodic revision. The S&P 500 Index is an unmanaged index that tracks the stocks of 500 primarily large-cap U.S. companies. MSCI EAFE Index is an unmanaged index comprised of securities that represent the securities markets in Europe, Australasia and the Far East. It is not possible to invest directly in any of these indexes. Mortgage rates are from BankRate and reflect the overnight national average rate on a conventional 30-year fixed loan. Oil prices reflect the market price of West Texas intermediate grade crude.
As always, we will continue to closely monitor these and other economic developments in the months ahead.
Sincerely,
Henry J. Herrmann, CFA
President
The opinions expressed in this letter are those of the President of the Ivy Funds Variable Insurance Portfolios and are current only through the end of the period of the report, as stated on the cover. The President’s views are subject to change at any time, based on market and other conditions, and no forecasts can be guaranteed.
ILLUSTRATION OF PORTFOLIO EXPENSES
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, redemption fees and exchange fees; and (2) ongoing costs, including management fees, distribution and service fees, and other Fund expenses. The following table is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the six-month period ended December 31, 2014.
Actual Expenses
The first section in the following table provides information about actual account values and actual expenses for each share class. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, a $7,500 account value divided by $1,000 = 7.5), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. There may be additional fees charged to holders of certain accounts that are not included in the expenses shown in the table. These fees apply to Individual Retirement Accounts (IRAs), IRA Rollovers, Roth IRAs, Conversion Roth IRAs, Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE) IRAs, Tax-Sheltered Accounts (TSAs), Keogh Plans, Owner Only 401(k) (Exclusive K) Plans and Final Pay Plans. As of the close of the six months covered by the table, a customer is charged an annual fee of $18 within each plan type. This fee is waived for IRA Rollovers and Conversion Roth IRAs if the customer owns another type of IRA. Coverdell Education Savings Account plans are charged an annual fee of $10 per customer. You should consider the additional fees that were charged to your Fund account over the six-month period when you estimate the total ongoing expenses paid over the period and the impact of these fees on your ending account value as such additional expenses are not reflected in the information provided in the following table. Additional fees have the effect of reducing investment returns.
Hypothetical Example for Comparison Purposes
The second section in the following table provides information about hypothetical account values and hypothetical expenses for each share class based on the Fund’s actual expense ratio and an assumed rate of return of five percent per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this five percent hypothetical example with the five percent hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the second section in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Expenses paid may be impacted by expense reduction arrangements. If those arrangements had not been in place, expenses paid would have been higher. See Note 7 to the Financial Statements for further information.
ILLUSTRATION OF PORTFOLIO EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Actual(1) | | | Hypothetical(2) | | | | |
| Portfolio | | Beginning
Account
Value 6-30-14 | | | Ending
Account
Value 12-31-14 | | | Expenses
Paid During
Period* | | | Beginning
Account
Value 6-30-14 | | | Ending
Account
Value 12-31-14 | | | Expenses
Paid During
Period* | | | Annualized
Expense Ratio
Based on the
Six-Month
Period | |
Pathfinder Aggressive | | $ | 1,000 | | | $ | 1,006.60 | | | $ | 0.30 | | | $ | 1,000 | | | $ | 1,024.94 | | | $ | 0.30 | | | | 0.05% | |
Pathfinder Conservative | | $ | 1,000 | | | $ | 1,011.10 | | | $ | 0.30 | | | $ | 1,000 | | | $ | 1,024.96 | | | $ | 0.30 | | | | 0.05% | |
Pathfinder Moderate | | $ | 1,000 | | | $ | 1,008.60 | | | $ | 0.10 | | | $ | 1,000 | | | $ | 1,025.06 | | | $ | 0.10 | | | | 0.03% | |
Pathfinder Moderately Aggressive | | $ | 1,000 | | | $ | 1,005.90 | | | $ | 0.10 | | | $ | 1,000 | | | $ | 1,025.07 | | | $ | 0.10 | | | | 0.03% | |
Pathfinder Moderately Conservative | | $ | 1,000 | | | $ | 1,010.30 | | | $ | 0.20 | | | $ | 1,000 | | | $ | 1,025.03 | | | $ | 0.20 | | | | 0.04% | |
Pathfinder Moderate — Managed Volatility | | $ | 1,000 | | | $ | 1,004.50 | | | $ | 1.20 | | | $ | 1,000 | | | $ | 1,023.96 | | | $ | 1.21 | | | | 0.25% | (3) |
Pathfinder Moderately Aggressive — Managed Volatility | | $ | 1,000 | | | $ | 1,001.10 | | | $ | 1.50 | | | $ | 1,000 | | | $ | 1,023.66 | | | $ | 1.52 | | | | 0.31% | (4) |
Pathfinder Moderately Conservative — Managed Volatility | | $ | 1,000 | | | $ | 1,004.20 | | | $ | 1.60 | | | $ | 1,000 | | | $ | 1,023.58 | | | $ | 1.62 | | | | 0.32% | (5) |
Asset Strategy | | $ | 1,000 | | | $ | 955.70 | | | $ | 4.69 | | | $ | 1,000 | | | $ | 1,020.36 | | | $ | 4.85 | | | | 0.96% | |
Balanced | | $ | 1,000 | | | $ | 1,018.20 | | | $ | 5.15 | | | $ | 1,000 | | | $ | 1,020.15 | | | $ | 5.15 | | | | 1.00% | |
Bond | | $ | 1,000 | | | $ | 1,007.90 | | | $ | 3.92 | | | $ | 1,000 | | | $ | 1,021.31 | | | $ | 3.94 | | | | 0.77% | |
Core Equity | | $ | 1,000 | | | $ | 1,028.90 | | | $ | 4.87 | | | $ | 1,000 | | | $ | 1,020.45 | | | $ | 4.85 | | | | 0.94% | |
Dividend Opportunities | | $ | 1,000 | | | $ | 1,025.90 | | | $ | 5.06 | | | $ | 1,000 | | | $ | 1,020.19 | | | $ | 5.05 | | | | 1.00% | |
Energy | | $ | 1,000 | | | $ | 746.70 | | | $ | 5.15 | | | $ | 1,000 | | | $ | 1,019.26 | | | $ | 5.96 | | | | 1.18% | |
Global Bond | | $ | 1,000 | | | $ | 963.80 | | | $ | 1.87 | | | $ | 1,000 | | | $ | 1,023.34 | | | $ | 1.92 | | | | 0.37% | |
Global Growth | | $ | 1,000 | | | $ | 946.90 | | | $ | 5.55 | | | $ | 1,000 | | | $ | 1,019.54 | | | $ | 5.76 | | | | 1.12% | |
Global Natural Resources | | $ | 1,000 | | | $ | 760.50 | | | $ | 5.90 | | | $ | 1,000 | | | $ | 1,018.54 | | | $ | 6.76 | | | | 1.32% | |
Growth | | $ | 1,000 | | | $ | 1,063.40 | | | $ | 4.95 | | | $ | 1,000 | | | $ | 1,020.37 | | | $ | 4.85 | | | | 0.96% | |
High Income | | $ | 1,000 | | | $ | 970.70 | | | $ | 4.34 | | | $ | 1,000 | | | $ | 1,020.79 | | | $ | 4.45 | | | | 0.88% | |
International Core Equity | | $ | 1,000 | | | $ | 935.80 | | | $ | 5.61 | | | $ | 1,000 | | | $ | 1,019.41 | | | $ | 5.86 | | | | 1.15% | |
Limited-Term Bond | | $ | 1,000 | | | $ | 997.20 | | | $ | 3.99 | | | $ | 1,000 | | | $ | 1,021.22 | | | $ | 4.04 | | | | 0.79% | |
Micro Cap Growth | | $ | 1,000 | | | $ | 991.70 | | | $ | 6.47 | | | $ | 1,000 | | | $ | 1,018.66 | | | $ | 6.56 | | | | 1.30% | |
Mid Cap Growth | | $ | 1,000 | | | $ | 1,039.30 | | | $ | 5.61 | | | $ | 1,000 | | | $ | 1,019.67 | | | $ | 5.55 | | | | 1.10% | |
Money Market | | $ | 1,000 | | | $ | 1,000.10 | | | $ | 0.70 | | | $ | 1,000 | | | $ | 1,024.46 | | | $ | 0.71 | | | | 0.15% | |
Real Estate Securities | | $ | 1,000 | | | $ | 1,113.60 | | | $ | 6.24 | | | $ | 1,000 | | | $ | 1,019.29 | | | $ | 5.96 | | | | 1.17% | |
Science and Technology | | $ | 1,000 | | | $ | 979.20 | | | $ | 5.64 | | | $ | 1,000 | | | $ | 1,019.53 | | | $ | 5.76 | | | | 1.13% | |
Small Cap Growth | | $ | 1,000 | | | $ | 1,011.00 | | | $ | 5.73 | | | $ | 1,000 | | | $ | 1,019.50 | | | $ | 5.76 | | | | 1.13% | |
Small Cap Value | | $ | 1,000 | | | $ | 1,008.80 | | | $ | 5.83 | | | $ | 1,000 | | | $ | 1,019.43 | | | $ | 5.86 | | | | 1.15% | |
Value | | $ | 1,000 | | | $ | 1,042.30 | | | $ | 5.11 | | | $ | 1,000 | | | $ | 1,020.22 | | | $ | 5.05 | | | | 0.99% | |
| * | Portfolio expenses are equal to the Portfolio’s annualized expense ratio (provided in the table), multiplied by the average account value over the period, multiplied by 184 days in the six-month period ended December 31, 2014, and divided by 365. |
| (1) | This section uses the Portfolio’s actual total return and actual Portfolio expenses. It is a guide to the actual expenses paid by the Portfolio in the period. The “Ending Account Value” shown is computed using the Portfolio’s actual return and the “Expenses Paid During Period” column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Portfolio. A shareholder may use the information here, together with the dollar amount invested, to estimate the expenses that were paid over the period. For every thousand dollars a shareholder has invested, the expenses are listed in the last column of this section. |
| (2) | This section uses a hypothetical five percent annual return and actual Portfolio expenses. It helps to compare the Portfolio’s ongoing costs with other mutual funds. A shareholder can compare the Portfolio’s ongoing costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other Portfolios. |
| (3) | Annualized expense ratio based on the period excluding offering cost was 0.24%. |
| (4) | Annualized expense ratio based on the period excluding offering cost was 0.28%. |
| (5) | Annualized expense ratio based on the period excluding offering cost was 0.29%. |
The above illustrations are based on ongoing costs only.
MANAGEMENT DISCUSSION
Pathfinder Portfolios | (UNAUDITED) |
Michael L. Avery
Below, Michael L. Avery, portfolio manager of each of the five Ivy Funds VIP Pathfinder Portfolios and of the three Ivy Funds VIP Pathfinder Managed Volatility Portfolios, discusses positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Avery has managed each VIP Pathfinder Portfolio since their inception in March 2008 and each VIP Pathfinder Managed Volatility Portfolio since their inception in August 2013. He has 36 years of industry experience. Since their inception, Advantus Capital Management, Inc., has served as the subadvisor for the volatility management strategy of the VIP Managed Volatility Portfolios through portfolio managers David Kuplic, CFA, FRM and Craig Stapleton, CFA. Mr. Kuplic has 31 years of industry experience and Mr. Stapleton has 13 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Pathfinder Aggressive | | | 4.86% | |
Ivy Funds VIP Pathfinder Conservative | | | 3.39% | |
Ivy Funds VIP Pathfinder Moderate | | | 4.24% | |
Ivy Funds VIP Pathfinder Moderately Aggressive | | | 4.61% | |
Ivy Funds VIP Pathfinder Moderately Conservative | | | 3.88% | |
Ivy Funds VIP Pathfinder Moderate — Managed Volatility | | | 3.75% | |
Ivy Funds VIP Pathfinder Moderately Aggressive — Managed Volatility | | | 3.91% | |
Ivy Funds VIP Pathfinder Moderately Conservative — Managed Volatility | | | 3.06% | |
Benchmarks
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
S&P 500 Index | | | 13.69% | |
(generally reflects the performance of large- and medium-sized U.S. stocks) | | | | |
Barclays U.S. Aggregate Bond Index | | | 5.97% | |
(generally reflects the performance of most U.S.-traded investment grade bonds) | | | | |
Barclays U.S. Treasury Bills: 1-3 Month Index | | | 0.02% | |
(generally reflects the performance of investment-grade Treasury bills, representing cash) | | | | |
Past performance is not a guarantee of future results. For additional performance information for each Portfolio, please see the Comparison of Change in Value of a $10,000 Investment and the Average Annual Total Return information for each Portfolio found in this report.
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, each Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Market gains after volatile year
U.S. equities closed a somewhat volatile year with gains after repeatedly reaching record highs in broad market indexes during the period. Global equities in general also finished the year slightly higher. Crude oil prices plunged worldwide late in the year to levels not seen since 2009 on forecasts of reduced global demand along with OPEC’s unwillingness to cut production. The decline pressured stocks globally and raised concerns that a sustained price tumble could stall economic growth in some regions in the coming year. Interest rates remained at historically low levels during the year.
The U.S. Federal Reserve said late in the year that it is likely to hold rates near zero at least through the first quarter of 2015, noting it would be “patient” in its approach to raising rates. The European Central Bank indicated it would consider additional monetary stimulus to support the eurozone, but took no action by year end. Central banks in Japan and China also took easing actions to stimulate their economies. U.S. economic indicators continued to show steady growth and remained the leader among developed countries. Economic growth forecasts for Europe were revised lower late in the year and raised concerns especially about countries on the periphery.
U.S. equities contribute to results
Each Pathfinder Portfolio completed the fiscal year with positive returns. We rebalanced the allocations for each Pathfinder Portfolio in September and November, based on our views of the appropriate mix at each of these periods. The initial change slightly reduced the cash allocations and slightly increased the allocation to U.S. equities. Very similar adjustments then were made in the second rebalancing, slightly decreasing exposure to the underlying Ivy Funds VIP Money Market Portfolio in all Pathfinder Portfolios, and slightly increasing exposure to the underlying Ivy Funds VIP Growth, Ivy Funds VIP Mid Cap Growth, Ivy Funds VIP Small Cap Growth, Ivy Funds VIP Small Cap Value and Ivy Funds VIP Value portfolios. We
took these actions based on our view of a low growth/ low inflation global outlook, with central bank policies providing support for the markets. We believe this required a larger allocation to equities, especially in funds where our active management approach to stock selection offered the potential to benefit returns.
The top-performing underlying portfolios during the fiscal year were focused on U.S. equities, led by Ivy Funds VIP Growth, Ivy Funds VIP Value, Ivy Funds VIP Mid Cap Growth and Ivy Funds VIP Small Cap Value. These portfolios reflected the continued strengthening through the year of equities in the U.S., which also led developed countries in economic growth. The gains in these underlying equities portfolios contributed to performance for the Pathfinder Portfolios for the year. However, the Portfolios overall trailed the performance of the all-equities benchmark index and slightly trailed the benchmark index representing U.S. government bonds. The stocks of U.S. large- and mid-capitalization companies, as measured by the Portfolios’ equities benchmark index, were among the best-performing asset classes in 2014. Small-cap growth stocks underperformed large- and mid-cap stocks and international equities overall had a negative return for the year. Allocations in the Portfolios to asset classes other than large- and mid-cap equities, therefore, provided a drag on overall performance for the year.
We also rebalanced the allocations for each Pathfinder Managed Volatility Portfolio at the same times and in the same manner. These portfolios had slightly lower returns in the year versus the Pathfinder Portfolios because of the cost of applying the managed-volatility strategy in a year that experience periodic volatility increases, especially later in the period.
Potential for improving growth
We believe U.S. growth in real terms could accelerate in the year ahead. The breadth of the U.S. economic recovery is demonstrated, in part, by the slow, steady improvement in employment. We think steady job growth will be followed by upward pressure on wages as the labor market tightens. In our view, higher wages would be especially beneficial for individuals in the lower-income segments of the economy who largely have not benefitted from previous stimulus measures. We think lower energy prices have provided an additional boon to consumers in the U.S. and globally, especially in India and China. Consumer sentiment and business confidence are stabilizing and even have shown improvement in some surveys. We think all of these factors will be incrementally positive in the U.S. for both consumer spending and business investment.
Late in the fiscal year, global central banks outside of the U.S. implemented or indicated their intent to provide more accommodative monetary policies to stimulate their economies. We believe this looser-money bias will continue in 2015 and work to weaken their respective currencies.
We remain concerned about the large allocation to fixed income by investors in general, in an environment that is approaching seven years with interest rates near zero. Uncertainty about what may follow and the implications of investors pursuing yield via complicated and more risky credit securities raise concerns for us about the time when interest rates eventually rise.
Past performance is not a guarantee of future results. As with any mutual fund, the value of each Portfolio’s shares will change, and you could lose money on your investment.
The ability of the Portfolio to meet its investment objective depends both on the allocation of its assets among the Underlying Funds and the ability of those funds to meet their respective investment objectives. The Portfolio’s share price will likely change daily based on the performance of the Underlying Funds in which it invests. In general, the Portfolio is subject to the same risks as those of the Underlying Funds it holds. Because the Portfolio is weighted towards Underlying Funds that invest in stocks, both U.S. and foreign, including mid cap and small cap stocks, as well as bonds and short-term instruments, the Portfolio is more subject to the risks associated with those investments.
Advantus Capital may be unsuccessful in managing volatility, and there is a risk that the Ivy Funds VIP Managed Volatility Portfolios may experience a high level of volatility in their returns. The Portfolios’ holdings are subject to price volatility, and the Portfolios may not be any less volatile than the market as a whole and could be more volatile. In addition, there can be no guarantee that the Portfolios will achieve their goal of managing the volatility of their equity returns. Furthermore, while the management of volatility seeks competitive returns with more consistent volatility, the management of volatility does not ensure that the Portfolios will deliver competitive returns. Additionally, even if successful, the Portfolios’ management of volatility may also generally result in the Portfolios’ NAV increasing to a lesser degree than the markets (for example, in a rising market with relatively high volatility) or decreasing to a greater degree than the market (for example, in a declining market with relatively low volatility). The Portfolios’ managed volatility strategy may expose the Portfolios to losses (some of which may be sudden) to which it would not have otherwise been exposed if invested only in Underlying Funds. Additionally, the derivatives used by Advantus Capital to hedge the value of the Portfolios are not identical to the Underlying Funds, and as a result, the Portfolios’ investment in derivatives may decline in value at the same time as the Portfolios’ investment in Underlying Funds. Advantus Capital does not intend to attempt to manage the volatility of the Portfolios’ fixed-income returns. It is possible that the fixed-income portion of the Portfolios, whose volatility would not be managed by the volatility management strategy, could become more volatile than the equity portion of the Portfolios.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The indexes noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of any Ivy Funds VIP Pathfinder Portfolio.
PORTFOLIO HIGHLIGHTS
Pathfinder Portfolios | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Pathfinder Aggressive – Asset Allocation
| | | | |
Ivy Funds VIP Growth | | | 19.9 | % |
Ivy Funds VIP Global Growth | | | 14.9 | % |
Ivy Funds VIP Limited-Term Bond | | | 14.3 | % |
Ivy Funds VIP Small Cap Value | | | 10.2 | % |
Ivy Funds VIP Mid Cap Growth | | | 10.2 | % |
Ivy Funds VIP Small Cap Growth | | | 10.0 | % |
Ivy Funds VIP Value | | | 9.9 | % |
Ivy Funds VIP International Core Equity | | | 9.8 | % |
Cash and Cash Equivalents | | | 0.8 | % |
Pathfinder Conservative – Asset Allocation
| | | | |
Ivy Funds VIP Money Market | | | 34.2 | % |
Ivy Funds VIP Limited-Term Bond | | | 19.5 | % |
Ivy Funds VIP Dividend Opportunities | | | 13.3 | % |
Ivy Funds VIP Growth | | | 13.3 | % |
Ivy Funds VIP Small Cap Growth | | | 5.1 | % |
Ivy Funds VIP International Core Equity | | | 5.0 | % |
Ivy Funds VIP Value | | | 4.0 | % |
Ivy Funds VIP Mid Cap Growth | | | 3.1 | % |
Ivy Funds VIP Small Cap Value | | | 2.1 | % |
Cash and Cash Equivalents | | | 0.4 | % |
Pathfinder Moderate – Asset Allocation
| | | | |
Ivy Funds VIP Money Market | | | 19.4 | % |
Ivy Funds VIP Dividend Opportunities | | | 15.3 | % |
Ivy Funds VIP Limited-Term Bond | | | 14.5 | % |
Ivy Funds VIP Growth | | | 14.1 | % |
Ivy Funds VIP Global Growth | | | 10.1 | % |
Ivy Funds VIP Small Cap Growth | | | 7.1 | % |
Ivy Funds VIP Small Cap Value | | | 5.2 | % |
Ivy Funds VIP Value | | | 5.0 | % |
Ivy Funds VIP International Core Equity | | | 4.9 | % |
Ivy Funds VIP Mid Cap Growth | | | 4.1 | % |
Cash and Cash Equivalents | | | 0.3 | % |
Pathfinder Moderately Aggressive – Asset Allocation
| | | | |
Ivy Funds VIP Dividend Opportunities | | | 15.2 | % |
Ivy Funds VIP Limited-Term Bond | | | 14.5 | % |
Ivy Funds VIP Growth | | | 14.1 | % |
Ivy Funds VIP Global Growth | | | 10.0 | % |
Ivy Funds VIP International Core Equity | | | 9.9 | % |
Ivy Funds VIP Money Market | | | 9.7 | % |
Ivy Funds VIP Small Cap Value | | | 8.3 | % |
Ivy Funds VIP Small Cap Growth | | | 8.0 | % |
Ivy Funds VIP Mid Cap Growth | | | 5.2 | % |
Ivy Funds VIP Value | | | 5.0 | % |
Cash and Cash Equivalents | | | 0.1 | % |
Pathfinder Moderately Conservative – Asset Allocation
| | | | |
Ivy Funds VIP Money Market | | | 24.4 | % |
Ivy Funds VIP Limited-Term Bond | | | 19.4 | % |
Ivy Funds VIP Growth | | | 14.2 | % |
Ivy Funds VIP Dividend Opportunities | | | 13.3 | % |
Ivy Funds VIP Small Cap Growth | | | 6.1 | % |
Ivy Funds VIP Global Growth | | | 5.1 | % |
Ivy Funds VIP Value | | | 5.0 | % |
Ivy Funds VIP International Core Equity | | | 5.0 | % |
Ivy Funds VIP Mid Cap Growth | | | 4.2 | % |
Ivy Funds VIP Small Cap Value | | | 3.1 | % |
Cash and Cash Equivalents | | | 0.2 | % |
Pathfinder Moderate – Managed Volatility – Asset Allocation
| | | | |
Ivy Funds VIP Money Market | | | 18.9 | % |
Ivy Funds VIP Dividend Opportunities | | | 14.8 | % |
Ivy Funds VIP Limited-Term Bond | | | 14.2 | % |
Ivy Funds VIP Growth | | | 13.7 | % |
Ivy Funds VIP Global Growth | | | 9.7 | % |
Ivy Funds VIP Small Cap Growth | | | 6.8 | % |
Ivy Funds VIP Small Cap Value | | | 5.0 | % |
Ivy Funds VIP Value | | | 4.9 | % |
Ivy Funds VIP International Core Equity | | | 4.8 | % |
Ivy Funds VIP Mid Cap Growth | | | 4.0 | % |
Cash and Cash Equivalents | | | 3.2 | % |
Pathfinder Moderately Aggressive – Managed Volatility – Asset Allocation
| | | | |
Ivy Funds VIP Dividend Opportunities | | | 14.7 | % |
Ivy Funds VIP Limited-Term Bond | | | 14.1 | % |
Ivy Funds VIP Growth | | | 13.7 | % |
Ivy Funds VIP Global Growth | | | 9.7 | % |
Ivy Funds VIP International Core Equity | | | 9.6 | % |
Ivy Funds VIP Money Market | | | 9.4 | % |
Ivy Funds VIP Small Cap Value | | | 8.0 | % |
Ivy Funds VIP Small Cap Growth | | | 7.8 | % |
Ivy Funds VIP Mid Cap Growth | | | 5.0 | % |
Ivy Funds VIP Value | | | 4.9 | % |
Cash and Cash Equivalents | | | 3.1 | % |
PORTFOLIO HIGHLIGHTS
Pathfinder Portfolios | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Pathfinder Moderately Conservative – Managed Volatility – Asset Allocation
| | | | |
Ivy Funds VIP Money Market | | | 23.7 | % |
Ivy Funds VIP Limited-Term Bond | | | 18.9 | % |
Ivy Funds VIP Growth | | | 13.8 | % |
Ivy Funds VIP Dividend Opportunities | | | 12.9 | % |
Ivy Funds VIP Small Cap Growth | | | 5.9 | % |
Ivy Funds VIP Value | | | 4.9 | % |
Ivy Funds VIP Global Growth | | | 4.9 | % |
Ivy Funds VIP International Core Equity | | | 4.8 | % |
Ivy Funds VIP Mid Cap Growth | | | 4.0 | % |
Ivy Funds VIP Small Cap Value | | | 3.0 | % |
Cash and Cash Equivalents | | | 3.2 | % |
The percentages of investments in the underlying funds may not currently be within the target allocation ranges disclosed in the Portfolios’ prospectus due to market movements; these percentages are expected to change over time, and deviation from the target allocation ranges due to market movements is permitted by the prospectus.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Pathfinder Portfolios | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Pathfinder Portfolios | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Pathfinder Portfolios | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | | | | | | | | | | | | | | | | | |
| Average Annual Total Return(2) | | Pathfinder
Aggressive | | | Pathfinder
Conservative | | | Pathfinder
Moderate | | | Pathfinder
Moderately
Aggressive | | | Pathfinder
Moderately
Conservative | |
1-year period ended 12-31-14 | | | 4.86% | | | | 3.39% | | | | 4.24% | | | | 4.61% | | | | 3.88% | |
5-year period ended 12-31-14 | | | 10.61% | | | | 6.93% | | | | 8.89% | | | | 9.76% | | | | 8.02% | |
10-year period ended 12-31-14 | | | — | | | | — | | | | — | | | | — | | | | — | |
Since inception of Portfolio(3) through 12-31-14 | | | 6.69% | | | | 5.14% | | | | 5.78% | | | | 6.57% | | | | 5.71% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (3) | 3-4-08 Pathfinder Aggressive, 3-4-08 Pathfinder Moderate, 3-4-08 Pathfinder Moderately Aggressive, 3-12-08 Pathfinder Moderately Conservative and 3-13-08 Pathfinder Conservative (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Pathfinder Portfolios | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Pathfinder Portfolios | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | | | | | | | | | |
| Average Annual Total Return(2) | | Pathfinder Moderate –
Managed Volatility | | | Pathfinder Moderately
Aggressive – Managed
Volatility | | | Pathfinder Moderately
Conservative – Managed
Volatility | |
1-year period ended 12-31-14 | | | 3.75% | | | | 3.91% | | | | 3.06% | |
5-year period ended 12-31-14 | | | — | | | | — | | | | — | |
10-year period ended 12-31-14 | | | — | | | | — | | | | — | |
Since inception of Portfolio(3) through 12-31-14 | | | 8.01% | | | | 8.67% | | | | 6.65% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (3) | 8-1-13 Pathfinder Moderate – Managed Volatility, 8-1-13 Pathfinder Moderately Aggressive – Managed Volatility and 8-1-13 Pathfinder Moderately Conservative – Managed Volatility (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Pathfinder Portfolios (in thousands) | DECEMBER 31, 2014 |
Pathfinder Aggressive
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Growth | | | 1,398 | | | $ | 16,894 | |
Ivy Funds VIP International Core Equity | | | 460 | | | | 8,285 | |
Ivy Funds VIP Global Growth | | | 1,429 | | | | 12,636 | |
Ivy Funds VIP Limited-Term Bond | | | 2,478 | | | | 12,147 | |
Ivy Funds VIP Mid Cap Growth | | | 799 | | | | 8,665 | |
Ivy Funds VIP Small Cap Growth | | | 694 | | | | 8,438 | |
Ivy Funds VIP Small Cap Value | | | 483 | | | | 8,691 | |
Ivy Funds VIP Value | | | 1,133 | | | | 8,368 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 99.2% | | | $ | 84,124 | |
(Cost: $79,928) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | | Principal | | | | | |
Master Note – 0.7% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (A) | | $ | 610 | | | | 610 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 0.7% | | | $ | 610 | |
(Cost: $610) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.9% | | | $ | 84,734 | |
(Cost: $80,538) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% | | | | 102 | |
| |
NET ASSETS – 100.0% | | | $ | 84,836 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 84,124 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 610 | | | | — | |
| | | | |
Total | | $ | 84,124 | | | $ | 610 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
Pathfinder Conservative
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 1,801 | | | $ | 16,295 | |
Ivy Funds VIP Growth | | | 1,339 | | | | 16,183 | |
Ivy Funds VIP International Core Equity | | | 339 | | | | 6,104 | |
Ivy Funds VIP Limited-Term Bond | | | 4,871 | | | | 23,872 | |
Ivy Funds VIP Mid Cap Growth | | | 353 | | | | 3,831 | |
Ivy Funds VIP Money Market | | | 41,837 | | | | 41,837 | |
Ivy Funds VIP Small Cap Growth | | | 511 | | | | 6,216 | |
Ivy Funds VIP Small Cap Value | | | 142 | | | | 2,561 | |
Ivy Funds VIP Value | | | 668 | | | | 4,932 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 99.6% | | | $ | 121,831 | |
(Cost: $116,694) | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Master Note – 0.5% | |
Toyota Motor Credit
Corp.,
0.126%, 1-7-15 (A) | | $ | 575 | | | | 575 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM SECURITIES – 0.5% | | | $ | 575 | |
(Cost: $575) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 100.1% | | | $ | 122,406 | |
(Cost: $117,269) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER ASSETS – (0.1)% | | | | (128 | ) |
| |
NET ASSETS – 100.0% | | | $ | 122,278 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 121,831 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 575 | | | | — | |
| | | | |
Total | | $ | 121,831 | | | $ | 575 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
Pathfinder Moderate
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 15,656 | | | $ | 141,632 | |
Ivy Funds VIP Growth | | | 10,865 | | | | 131,277 | |
Ivy Funds VIP International Core Equity | | | 2,555 | | | | 45,987 | |
Ivy Funds VIP Global Growth | | | 10,571 | | | | 93,504 | |
Ivy Funds VIP Limited-Term Bond | | | 27,528 | | | | 134,916 | |
Ivy Funds VIP Mid Cap Growth | | | 3,547 | | | | 38,467 | |
Ivy Funds VIP Money Market | | | 180,149 | | | | 180,149 | |
Ivy Funds VIP Small Cap Growth | | | 5,395 | | | | 65,563 | |
Ivy Funds VIP Small Cap Value | | | 2,683 | | | | 48,235 | |
Ivy Funds VIP Value | | | 6,289 | | | | 46,458 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 99.7% | | | $ | 926,188 | |
(Cost: $858,842) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Master Note – 0.1% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (A) | | $ | 831 | | | | 831 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM SECURITIES – 0.1% | | | $ | 831 | |
(Cost: $831) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 99.8% | | | $ | 927,019 | |
(Cost: $859,673) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.2% | | | | 1,476 | |
| |
NET ASSETS – 100.0% | | | $ | 928,495 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 926,188 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 831 | | | | — | |
| | | | |
Total | | $ | 926,188 | | | $ | 831 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
See Accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
Pathfinder Portfolios (in thousands) | DECEMBER 31, 2014 |
Pathfinder Moderately Aggressive
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 18,472 | | | $ | 167,099 | |
Ivy Funds VIP Growth | | | 12,818 | | | | 154,879 | |
Ivy Funds VIP International Core Equity | | | 6,029 | | | | 108,506 | |
Ivy Funds VIP Global Growth | | | 12,472 | | | | 110,315 | |
Ivy Funds VIP Limited-Term Bond | | | 32,471 | | | | 159,145 | |
Ivy Funds VIP Mid Cap Growth | | | 5,231 | | | | 56,733 | |
Ivy Funds VIP Money Market | | | 106,252 | | | | 106,252 | |
Ivy Funds VIP Small Cap Growth | | | 7,274 | | | | 88,401 | |
Ivy Funds VIP Small Cap Value | | | 5,064 | | | | 91,056 | |
Ivy Funds VIP Value | | | 7,420 | | | | 54,809 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 99.9% | | | $ | 1,097,195 | |
(Cost: $1,005,256) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 99.9% | | | $ | 1,097,195 | |
(Cost: $1,005,256) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.1% | | | | 737 | |
| |
NET ASSETS – 100.0% | | | $ | 1,097,932 | |
Notes to Schedule of Investments
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 1,097,195 | | | $ | — | | | $ | — | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
Pathfinder Moderately Conservative
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 4,280 | | | $ | 38,714 | |
Ivy Funds VIP Growth | | | 3,426 | | | | 41,400 | |
Ivy Funds VIP International Core Equity | | | 806 | | | | 14,501 | |
Ivy Funds VIP Global Growth | | | 1,667 | | | | 14,745 | |
Ivy Funds VIP Limited-Term Bond | | | 11,568 | | | | 56,696 | |
Ivy Funds VIP Mid Cap Growth | | | 1,119 | | | | 12,135 | |
Ivy Funds VIP Money Market | | | 70,976 | | | | 70,976 | |
Ivy Funds VIP Small Cap Growth | | | 1,458 | | | | 17,721 | |
Ivy Funds VIP Small Cap Value | | | 508 | | | | 9,129 | |
Ivy Funds VIP Value | | | 1,983 | | | | 14,649 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 99.8% | | | $ | 290,666 | |
(Cost: $274,327) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Master Note – 0.2% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (A) | | $ | 562 | | | | 562 | |
| | | | | | | | |
| | |
TOTAL SHORT-TERM SECURITIES – 0.2% | | | | | | $ | 562 | |
(Cost: $562) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.0% | | | $ | 291,228 | |
(Cost: $274,889) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.0% | | | | 120 | |
| |
NET ASSETS – 100.0% | | | $ | 291,348 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 290,666 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 562 | | | | — | |
| | | | |
Total | | $ | 290,666 | | | $ | 562 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
Pathfinder Moderate – Managed Volatility
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 3,314 | | | $ | 29,978 | |
Ivy Funds VIP Growth | | | 2,302 | | | | 27,815 | |
Ivy Funds VIP International Core Equity | | | 542 | | | | 9,752 | |
Ivy Funds VIP Global Growth | | | 2,237 | | | | 19,789 | |
Ivy Funds VIP Limited-Term Bond | | | 5,880 | | | | 28,819 | |
Ivy Funds VIP Mid Cap Growth | | | 749 | | | | 8,121 | |
Ivy Funds VIP Money Market | | | 38,465 | | | | 38,465 | |
Ivy Funds VIP Small Cap Growth | | | 1,144 | | | | 13,899 | |
Ivy Funds VIP Small Cap Value | | | 567 | | | | 10,199 | |
Ivy Funds VIP Value | | | 1,336 | | | | 9,866 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 96.8% | | | $ | 196,703 | |
(Cost: $197,082) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Master Note – 3.2% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (A) | | $ | 6,492 | | | | 6,492 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 3.2% | | | $ | 6,492 | |
(Cost: $6,492) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.0% | | | $ | 203,195 | |
(Cost: $203,574) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER
ASSETS(B) – 0.0% | | | | (83 | ) |
| |
NET ASSETS – 100.0% | | | $ | 203,112 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
| (B) | Cash of $152 has been pledged as collateral on open futures contracts. |
The following futures contracts were outstanding at December 31, 2014 (contracts unrounded):
| | | | | | | | | | | | | | | | | | |
| Description | | Type | | Expiration
Date | | Number of
Contracts | | | Value | | | Unrealized
Depreciation | | | |
S&P
500 Index | | Short | | 3-19-15 | | | 6 | | | $ | (3,078 | ) | | $ | (13 | ) | | |
E-mini S&P 500 Index | | Short | | 3-20-15 | | | 3 | | | | (308 | ) | | | — | * | | |
| | | | | | | | | | | |
| | | | | | | | | | $ | (3,386 | ) | | $ | (13 | ) | | |
| | | | | | | | | | | |
See Accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
Pathfinder Portfolios (in thousands) | DECEMBER 31, 2014 |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 196,703 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 6,492 | | | | — | |
| | | | |
Total | | $ | 196,703 | | | $ | 6,492 | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Futures Contracts | | $ | 13 | | | $ | — | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
Pathfinder Moderately Aggressive – Managed Volatility
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 698 | | | $ | 6,315 | |
Ivy Funds VIP Growth | | | 485 | | | | 5,857 | |
Ivy Funds VIP International Core Equity | | | 228 | | | | 4,106 | |
Ivy Funds VIP Global Growth | | | 471 | | | | 4,169 | |
Ivy Funds VIP Limited-Term Bond | | | 1,234 | | | | 6,050 | |
Ivy Funds VIP Mid Cap Growth | | | 197 | | | | 2,140 | |
Ivy Funds VIP Money Market | | | 4,038 | | | | 4,038 | |
Ivy Funds VIP Small Cap Growth | | | 275 | | | | 3,345 | |
Ivy Funds VIP Small Cap Value | | | 191 | | | | 3,438 | |
Ivy Funds VIP Value | | | 281 | | | | 2,076 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 96.9% | | | $ | 41,534 | |
(Cost: $42,074) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | Principal | | | | |
Master Note – 3.2% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (A) | | $ | 1,381 | | | | 1,381 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 3.2% | | | $ | 1,381 | |
(Cost: $1,381) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 100.1% | | | $ | 42,915 | |
(Cost: $43,455) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER ASSETS(B) – (0.1)% | | | | (24 | ) |
| |
NET ASSETS – 100.0% | | | $ | 42,891 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
| (B) | Cash of $51 has been pledged as collateral on open futures contracts. |
The following futures contracts were outstanding at December 31, 2014 (contracts unrounded):
| | | | | | | | | | | | | | | | | | |
| Description | | Type | | Expiration
Date | | Number of
Contracts | | | Value | | | Unrealized
Depreciation | | | |
S&P 500 Index | | Short | | 3-19-15 | | | 1 | | | $ | (513 | ) | | $ | (4 | ) | | |
E-mini S&P 500 Index | | Short | | 3-20-15 | | | 6 | | | | (616 | ) | | | (2 | ) | | |
| | | | | | | | | | | |
| | | | | | | | | | $ | (1,129 | ) | | $ | (6 | ) | | |
| | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 41,534 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 1,381 | | | | — | |
| | | | |
Total | | $ | 41,534 | | | $ | 1,381 | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Futures Contracts | | $ | 6 | | | $ | — | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
See Accompanying Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
Pathfinder Portfolios (in thousands) | DECEMBER 31, 2014 |
Pathfinder Moderately Conservative – Managed Volatility
| | | | | | | | |
AFFILIATED MUTUAL
FUNDS | | Shares | | | Value | |
Ivy Funds VIP Dividend Opportunities | | | 443 | | | $ | 4,004 | |
Ivy Funds VIP Growth | | | 354 | | | | 4,283 | |
Ivy Funds VIP International Core Equity | | | 83 | | | | 1,502 | |
Ivy Funds VIP Global Growth | | | 173 | | | | 1,526 | |
Ivy Funds VIP Limited-Term Bond | | | 1,201 | | | | 5,886 | |
Ivy Funds VIP Mid Cap Growth | | | 116 | | | | 1,254 | |
Ivy Funds VIP Money Market | | | 7,368 | | | | 7,368 | |
Ivy Funds VIP Small Cap Growth | | | 151 | | | | 1,834 | |
Ivy Funds VIP Small Cap Value | | | 52 | | | | 943 | |
Ivy Funds VIP Value | | | 205 | | | | 1,517 | |
| | | | | | | | |
| |
TOTAL AFFILIATED MUTUAL FUNDS – 96.8% | | | $ | 30,117 | |
(Cost: $30,170) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | Principal | | | | |
Master Note – 3.0% | | | | | | | | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (A) | | $ | 935 | | | | 935 | |
| | | | | | | | |
| | |
TOTAL SHORT-TERM SECURITIES – 3.0% | | | | | | $ | 935 | |
(Cost: $935) | | | | | | | | |
| | |
TOTAL INVESTMENT SECURITIES – 99.8% | | | | | | $ | 31,052 | |
(Cost: $31,105) | | | | | | | | |
| | |
CASH AND OTHER ASSETS, NET OF LIABILITIES(B) –
0.2% | | | | | | | 52 | |
| | |
NET ASSETS – 100.0% | | | | | | $ | 31,104 | |
Notes to Schedule of Investments
| (A) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
| (B) | Cash of $60 has been pledged as collateral on open futures contracts. |
The following futures contracts were outstanding at December 31, 2014 (contracts unrounded):
| | | | | | | | | | | | | | | | |
| Description | | Type | | Expiration
Date | | Number
of
Contracts | | | Value | | | Unrealized
Appreciation
(Depreciation) | |
S&P 500 Index | | Short | | 3-19-15 | | | 1 | | | $ | (513 | ) | | $ | 2 | |
E-mini S&P 500 Index | | Short | | 3-20-15 | | | 8 | | | | (821 | ) | | | (3 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | $ | (1,334 | ) | | $ | (1 | ) |
| | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Affiliated Mutual Funds | | $ | 30,117 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 935 | | | | — | |
| | | | |
Total | | $ | 30,117 | | | $ | 935 | | | $ | — | |
| | | | |
Futures Contracts | | $ | 2 | | | $ | — | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Futures Contracts | | $ | 3 | | | $ | — | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Asset Strategy | (UNAUDITED) |
Michael L. Avery
Cynthia P. Prince-Fox
Chace Brundige
Below, Michael L. Avery, Cynthia P. Prince-Fox and Chace Brundige, CFA, portfolio managers of Ivy Funds VIP Asset Strategy, discuss positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Avery has managed the Portfolio for 18 years and has 36 years of industry experience. Ms. Prince-Fox and Mr. Brundige became portfolio managers on August 4, 2014. Ms. Prince-Fox has 31 years of industry experience and Mr. Brundige has 21 years of industry experience. Ryan C. Caldwell, who had served as co-portfolio manager of the Portfolio since 2007, left the company effective June 15, 2014.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Asset Strategy | | | –5.26% | |
Benchmark(s) and/or Lipper Category | | | | |
S&P 500 Index | | | 13.69% | |
(generally reflects the performance of large- and medium-sized U.S. stocks) | | | | |
Barclays U.S. Aggregate Bond Index | | | 5.97% | |
(generally reflects the performance of most U.S.-traded investment grade bonds) | | | | |
Barclays U.S. Treasury Bills: 1-3 Month Index | | | 0.02% | |
(generally reflects the performance of investment-grade Treasury bills, representing cash) | | | | |
Lipper Variable Annuity Alternative Other Funds | | | 2.01% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that the Portfolio returns include applicable investment fees and expense, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios. Multiple indexes are shown because the Portfolio invests in multiple asset classes.
Market gains after volatile year
U.S. equities closed a somewhat volatile year with gains after repeatedly reaching record highs in broad market indexes during the period. Global equities in general also finished the year slightly higher. Crude oil prices plunged worldwide late in the year to levels not seen since 2009 on forecasts of reduced global demand along with OPEC’s unwillingness to cut production. The decline pressured stocks globally and raised concerns that a sustained price tumble could stall economic growth in some regions in the coming year. Interest rates remained at historically low levels during the year.
The U.S. Federal Reserve said late in the year that it is likely to hold rates near zero at least through the first quarter of 2015, noting it would be “patient” in its approach to raising rates. The European Central Bank indicated it would consider additional monetary stimulus to support the eurozone, but took no action by year end. Central banks in Japan and China also took easing actions to stimulate their economies. U.S. economic indicators continued to show steady growth and remained the leader among developed countries. Economic growth forecasts for Europe were revised lower late in the year and raised concerns especially about countries on the periphery.
Reviewing Portfolio returns
The Portfolio reported a negative return for the fiscal year, trailing the positive return of its all-equities benchmark, the S&P 500 Index. We began the year with a cautious outlook given the unknown risks of an extended period of monetary policy which resulted in the reflation of asset prices. Our investment process led us to use the Portfolio’s flexibility to begin increasing the cash allocation in 2013 and that continued in 2014, based on this outlook. We also maintained an elevated allocation to equities and viewed equity valuations as more attractive than other asset classes. We focused on increasing the Portfolio’s stock-specific risk based on valuation spreads and factors we believed would be rewarded by the markets. This belief led to a significant overweight in the consumer discretionary sector in the year, relative to the benchmark index.
Exposure to the China-focused gaming and media subsectors along with negative security selection meaningfully detracted from performance in the year. In China, a severe anti-corruption campaign and decreased access to liquidity led to significant declines in gaming revenues and negatively affected gaming stocks, including Galaxy Entertainment Group and Sands China. Sands China is no longer a holding in the Portfolio. We reduced the weighting to the region throughout the year.
We continue to believe there are investment opportunities benefitting from an increased number of emerging market consumers with rising incomes and an affinity for global consumer brands, but think the prospects are not as numerous as has been the case historically.
Other detractors from performance compared to the benchmark index were higher cash in a rising equity market; exposure to the financials sector, particularly Japanese banks; allocation to some areas in media; and the Portfolio’s investment in gold. We believe holding a higher cash allocation in more volatile markets provides opportunities to benefit from mispricing in market corrections.
Gold has been a long-term holding in the Portfolio and we continue to view it as a hedge against aggressive monetary policy and desirable in environments of negative real interest rates or rising inflation. Neither of those scenarios has yet developed.
Energy and telecommunications sectors both contributed to performance for the year relative to the benchmark index, although both sectors were underweight during the year.
The derivatives usage throughout the year was relatively low and generally used to opportunistically increase exposure to equities. The contribution to performance from derivatives was virtually flat.
Potential for improving growth
We believe U.S. growth in real terms could accelerate in the year ahead. The breadth of the U.S. economic recovery is demonstrated, in part, by the slow, steady improvement in employment. We think steady job growth will be followed by upward pressure on wages as the labor market tightens. In our view, higher wages would be especially beneficial for individuals in the lower-income segments of the economy who largely have not benefitted from previous stimulus measures. We think lower energy prices have provided an additional boon to consumers in the U.S. and globally, especially in India and China. Consumer sentiment and business confidence are stabilizing and even have shown improvement in some surveys. We think all of these factors should be incrementally positive in the U.S. for both consumer spending and business investment
Late in the fiscal year, global central banks outside of the U.S. implemented or indicated their intent to provide more accommodative monetary policies to stimulate their economies. We believe this looser-money bias will continue in 2015 and work to weaken their respective currencies.
We remain concerned about the large allocation to fixed income by investors in general, in an environment that is approaching seven years with interest rates near zero. Uncertainty about what may follow and the implications of investors pursuing yield via complicated and more risky credit securities raise concerns for us about the time when interest rates eventually rise.
We believe the U.S. economy is the most attractive globally. In our view, the prospect for rising domestic consumption combined with reasonable valuations and a lack of favorable alternatives make U.S.-exposed stocks our preferred asset class in 2015. We continue to actively look for global companies that can capitalize on these expectations.
The Portfolio’s equity holdings represent companies we believe have relatively unlevered balance sheets, are growing fast enough to generate free cash flow and increase dividends or share buybacks, and have a business model that can generate acceptable revenue growth.
These companies fit our theme focused on the rising prosperity of a growing global middle class with greater discretionary income, and we thus remain optimistic about consumer-related sectors and industries. We continue to focus on brands that may be relevant in the U.S. and in other parts of the world.
We increasingly are seeking opportunities in technology focused on helping companies maintain or improve efficiency or increase productivity, and on helping individuals communicate, transact or share information more effectively. In general, we also believe there is significant growth potential in e-commerce in China and India.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
The Portfolio may allocate from 0-100% of its assets between stocks, bonds and short-term instruments of issuers around the globe and investments with exposure to various foreign securities. Subject to diversification limits, the Portfolio also may invest up to 25% of its total assets in precious metals.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets.
Fixed-income securities are subject to interest-rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds.
The Portfolio may focus its investments in certain regions or industries, thereby increasing its potential vulnerability to market volatility.
Investing in commodities is generally considered speculative because of the significant potential for investment loss due to cyclical economic conditions, sudden political events, and adverse international monetary policies. Markets for commodities are likely to be volatile and the Portfolio may pay more to store and accurately value its commodity holdings than it does with other holdings. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The indexes noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Asset Strategy.
PORTFOLIO HIGHLIGHTS
Asset Strategy | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 75.2% | |
Information Technology | | | 21.5% | |
Consumer Discretionary | | | 15.0% | |
Financials | | | 10.3% | |
Health Care | | | 7.5% | |
Energy | | | 6.6% | |
Industrials | | | 6.6% | |
Consumer Staples | | | 5.9% | |
Materials | | | 1.8% | |
Bullion (Gold) | | | 7.5% | |
Purchased Options | | | 0.0% | |
Bonds | | | 3.5% | |
Corporate Debt Securities | | | 3.5% | |
United States Government and Government Agency Obligations | | | 0.0% | |
Cash and Cash Equivalents | | | 13.8% | |
Country Weightings
| | | | |
North America | | | 57.2% | |
United States | | | 57.2% | |
Pacific Basin | | | 11.5% | |
Macau | | | 3.9% | |
Other Pacific Basin | | | 7.6% | |
Europe | | | 10.0% | |
United Kingdom | | | 8.1% | |
Other Europe | | | 1.9% | |
Bullion (Gold) | | | 7.5% | |
Cash and Cash Equivalents and Options | | | 13.8% | |
Top 10 Equity Holdings
| | | | | | |
| Company | | Country | | Sector | | Industry |
Galaxy Entertainment Group | | Macau | | Consumer Discretionary | | Casinos & Gaming |
AIA Group Ltd. | | Hong Kong | | Financials | | Life & Health Insurance |
Apple, Inc. | | United States | | Information Technology | | Technology Hardware, Storage & Peripherals |
Microsoft Corp. | | United States | | Information Technology | | Systems Software |
Delta Topco Ltd. | | United Kingdom | | Consumer Discretionary | | Movies & Entertainment |
Citigroup, Inc. | | United States | | Financials | | Other Diversified Financial Services |
Applied Materials, Inc. | | United States | | Information Technology | | Semiconductor Equipment |
ConocoPhillips | | United States | | Energy | | Oil & Gas Exploration & Production |
Wal-Mart Stores, Inc. | | United States | | Consumer Staples | | Hypermarkets & Super Centers |
Caterpillar, Inc. | | United States | | Industrials | | Construction Machinery & Heavy Trucks |
See your advisor for more information on the Portfolio’s most recent published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Asset Strategy
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | –5.26 | % |
5-year period ended 12-31-14 | | | 7.34 | % |
10-year period ended 12-31-14 | | | 11.02 | % |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
CONSOLIDATED SCHEDULE OF INVESTMENTS
Asset Strategy (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 1.0% | |
Limited Brands, Inc. | | | 190 | | | $ | 16,479 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 1.1% | |
Continental AG (A) | | | 85 | | | | 18,013 | |
| | | | | | | | |
| |
Broadcasting – 1.1% | |
CBS Corp., Class B | | | 312 | | | | 17,253 | |
| | | | | | | | |
| |
Casinos & Gaming – 3.9% | |
Galaxy Entertainment
Group (A) | | | 11,087 | | | | 61,607 | |
| | | | | | | | |
| |
Home Improvement Retail – 1.4% | |
Home Depot, Inc. (The) | | | 218 | | | | 22,873 | |
| | | | | | | | |
| |
Leisure Facilities – 0.0% | |
Circuit of the Americas LLC,
Class B (B) | | | — | * | | | — | |
| | | | | | | | |
| |
Leisure Products – 2.3% | |
Media Group Holdings LLC,
Series H (B)(C)
(D)(E) | | | 32 | | | | 18,532 | |
Media Group Holdings LLC,
Series I (B)(C)
(D)(E) | | | 19 | | | | 10,597 | |
Media Group
Holdings LLC,
Series T (B)(C)
(D)(E) | | | 4 | | | | 7,147 | |
| | | | | | | | |
| | | | | | | 36,276 | |
| | | | | | | | |
| |
Movies & Entertainment – 4.2% | |
Delta Topco Ltd. (C) | | | 56,728 | | | | 40,775 | |
Legend Pictures
LLC (B)(C)(D) | | | 10 | | | | 15,561 | |
Twenty-First Century
Fox, Inc., Class A | | | 268 | | | | 10,288 | |
| | | | | | | | |
| | | | | | | 66,624 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 15.0% | | | | 239,125 | |
Consumer Staples | |
| |
Brewers – 2.9% | |
InBev N.V. (A) | | | 184 | | | | 20,651 | |
SABMiller plc (A) | | | 505 | | | | 26,332 | |
| | | | | | | | |
| | | | | | | 46,983 | |
| | | | | | | | |
| |
Hypermarkets & Super Centers – 1.7% | |
Wal-Mart Stores, Inc. | | | 317 | | | | 27,232 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 1.3% | |
Mead Johnson
Nutrition Co. | | | 205 | | | | 20,621 | |
| | | | | | | | |
| |
Total Consumer
Staples – 5.9% | | | | 94,836 | |
Energy | |
| |
Integrated Oil & Gas – 2.1% | |
Chevron Corp. | | | 119 | | | | 13,338 | |
Occidental Petroleum Corp. | | | 257 | | | | 20,717 | |
| | | | | | | | |
| | | | | | | 34,055 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Oil & Gas Exploration &
Production – 1.8% | |
ConocoPhillips | | | 408 | | | $ | 28,156 | |
| | | | | | | | |
| |
Oil & Gas Refining & Marketing – 1.4% | |
Phillips 66 | | | 321 | | | | 23,037 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 1.3% | |
Plains GP Holdings
L.P., Class A | | | 794 | | | | 20,395 | |
| | | | | | | | |
| |
Total Energy – 6.6% | | | | 105,643 | |
Financials | |
| |
Diversified Banks – 1.2% | |
Wells Fargo & Co. | | | 336 | | | | 18,425 | |
| | | | | | | | |
| |
Life & Health Insurance – 5.8% | |
AIA Group Ltd. (A) | | | 9,117 | | | | 50,283 | |
MetLife, Inc. (F) | | | 398 | | | | 21,512 | |
Prudential Financial, Inc. | | | 236 | | | | 21,339 | |
| | | | | | | | |
| | | | | | | 93,134 | |
| | | | | | | | |
| |
Multi-Line Insurance – 1.4% | |
American
International Group, Inc. | | | 387 | | | | 21,681 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 1.8% | |
Citigroup, Inc. | | | 546 | | | | 29,566 | |
| | | | | | | | |
| |
Total Financials – 10.2% | | | | 162,806 | |
Health Care | |
| |
Biotechnology – 3.7% | |
Amgen, Inc. | | | 147 | | | | 23,368 | |
Biogen Idec, Inc. (B) | | | 56 | | | | 19,111 | |
Gilead Sciences,
Inc. (B) | | | 176 | | | | 16,599 | |
| | | | | | | | |
| | | | | | | 59,078 | |
| | | | | | | | |
| |
Managed Health Care – 0.8% | |
Humana, Inc. | | | 87 | | | | 12,525 | |
| | | | | | | | |
| |
Pharmaceuticals – 3.0% | |
Actavis plc (B) | | | 85 | | | | 21,854 | |
Bristol-Myers Squibb Co. | | | 189 | | | | 11,163 | |
GlaxoSmithKline plc ADR | | | 203 | | | | 8,680 | |
Roche Holdings AG,
Genusscheine (A) | | | 27 | | | | 7,261 | |
| | | | | | | | |
| | | | | | | 48,958 | |
| | | | | | | | |
| |
Total Health Care – 7.5% | | | | 120,561 | |
Industrials | |
| |
Aerospace & Defense – 2.9% | |
Boeing Co. (The) | | | 134 | | | | 17,456 | |
Lockheed Martin Corp. | | | 38 | | | | 7,222 | |
Precision Castparts Corp. | | | 88 | | | | 21,246 | |
| | | | | | | | |
| | | | | | | 45,924 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Airlines – 0.6% | |
Japan Airlines Corp. (A) | | | 313 | | | $ | 9,271 | |
| | | | | | | | |
| |
Construction Machinery & Heavy
Trucks – 1.6% | |
Caterpillar, Inc. | | | 291 | | | | 26,635 | |
| | | | | | | | |
| |
Railroads – 1.5% | |
Union Pacific Corp. | | | 206 | | | | 24,507 | |
| | | | | | | | |
| |
Total Industrials – 6.6% | | | | 106,337 | |
Information Technology | |
| |
Application Software – 2.9% | |
Adobe Systems,
Inc. (B)(F) | | | 305 | | | | 22,137 | |
Intuit, Inc. (G) | | | 257 | | | | 23,711 | |
| | | | | | | | |
| | | | | | | 45,848 | |
| | | | | | | | |
| |
Data Processing & Outsourced
Services – 2.2% | |
Alliance Data Systems Corp. (B) | | | 62 | | | | 17,735 | |
Visa, Inc., Class A | | | 65 | | | | 16,965 | |
| | | | | | | | |
| | | | | | | 34,700 | |
| | | | | | | | |
| |
Internet Software & Services – 3.1% | |
Alibaba Group
Holding Ltd.
ADR (B) | | | 74 | | | | 7,640 | |
Baidu.com, Inc.
ADR (B) | | | 92 | | | | 21,008 | |
Tencent Holdings
Ltd. (A) | | | 1,482 | | | | 21,436 | |
| | | | | | | | |
| | | | | | | 50,084 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 1.6% | |
Cognizant Technology Solutions Corp., Class A (B)(G) | | | 479 | | | | 25,239 | |
| | | | | | | | |
| |
Semiconductor Equipment – 2.2% | |
Applied Materials, Inc. | | | 1,168 | | | | 29,111 | |
ASML Holding N.V.,
NY Registry Shares | | | 59 | | | | 6,330 | |
| | | | | | | | |
| | | | | | | 35,441 | |
| | | | | | | | |
Semiconductors – 4.0% | |
Intel Corp. | | | 562 | | | | 20,380 | |
Micron Technology, Inc.(B) | | | 314 | | | | 10,976 | |
Taiwan Semiconductor Manufacturing Co. Ltd.(A) | | | 2,923 | | | | 12,877 | |
Texas Instruments, Inc. | | | 376 | | | | 20,114 | |
| | | | | | | | |
| | | | | | | 64,347 | |
| | | | | | | | |
Systems Software – 2.7% | |
Microsoft Corp. | | | 913 | | | | 42,423 | |
| | | | | | | | |
| |
Technology Hardware, Storage &
Peripherals – 2.8% | |
Apple, Inc. (G) | | | 408 | | | | 45,046 | |
| | | | | | | | |
| |
Total Information Technology –21.5% | | | | 343,128 | |
CONSOLIDATED SCHEDULE OF INVESTMENTS
Asset Strategy (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Materials | |
| |
Diversified Chemicals – 1.0% | |
Dow Chemical Co. (The)(F) | | | 327 | | | $ | 14,928 | |
| | | | | | | | |
| |
Specialty Chemicals – 0.8% | |
LyondellBasell Industries N.V., Class A | | | 166 | | | | 13,155 | |
| | | | | | | | |
| |
Total Materials – 1.8% | | | | 28,083 | |
| |
TOTAL COMMON
STOCKS – 75.1% | | | $ | 1,200,519 | |
(Cost: $1,137,942) | | | | | | | | |
| |
PREFERRED STOCKS | | | | | |
Financials | |
| |
Reinsurance – 0.1% | |
WMI Holdings Corp., Class B,
3.000%(B) | | | 2 | | | | 2,021 | |
| | | | | | | | |
| |
Total Financials – 0.1% | | | | 2,021 | |
| | |
TOTAL PREFERRED STOCKS – 0.1% | | | | | | $ | 2,021 | |
(Cost: $2,000) | | | | | | | | |
| | |
PURCHASED
OPTIONS | | Number of
Contracts
(Unrounded) | | | | |
Apple, Inc.: | |
Call $130.00, Expires 1-16-15, OTC (Ctrpty: Deutsche Bank AG) | | | 122 | | | | 1 | |
Call $135.00, Expires 2-20-15, OTC (Ctrpty: Deutsche Bank AG) | | | 122 | | | | 3 | |
Dow Chemical Co. (The), | | | | | | | | |
Call $55.00, Expires 1-16-15, OTC (Ctrpty: Societe Generale Bank) | | | 674 | | | | — | * |
Exxon Mobil Corp., | | | | | | | | |
Call $95.00, Expires 4-17-15, OTC (Ctrpty: Deutsche Bank AG) | | | 441 | | | | 109 | |
| | | | | | | | |
PURCHASED OPTIONS (Continued) | | Number of
Contracts
(Unrounded) | | | Value | |
S&P 500 Index: | | | | | | | | |
Call $2,175.00, Expires
1-16-15, OTC (Ctrpty: Bank of America N.A.) | | | 770 | | | $ | 27 | |
Call $2,200.00, Expires
3-19-15, OTC (Ctrpty: JPMorgan Chase Bank N.A.) | | | 775 | | | | 407 | |
Schlumberger Ltd.: | | | | | | | | |
Call $87.50, Expires
2-20-15, OTC (Ctrpty: Societe Generale Bank) | | | 220 | | | | 64 | |
Call $90.00, Expires
5-15-15, OTC (Ctrpty: Societe Generale Bank) | | | 275 | | | | 107 | |
| | | | | | | | |
| |
TOTAL PURCHASED
OPTIONS – 0.0% | | | $ | 718 | |
(Cost: $1,176) | | | | | | | | |
| | |
CORPORATE DEBT
SECURITIES | | Principal | | | | |
Consumer Discretionary | |
| |
Automobile Manufacturers – 0.4% | |
Aston Martin Holdings Ltd., | | | | | |
10.250%, 7-15-18(I)(H) | | $ | 6,511 | | | | 5,896 | |
| | | | | | | | |
| |
Leisure Facilities – 0.1% | |
Circuit of the Americas LLC,
Series C, | | | | | |
0.000%,
12-31-20(J) | | | 3,845 | | | | 2,364 | |
| | | | | | | | |
| |
Movies & Entertainment – 3.0% | |
Delta Topco Ltd., | | | | | | | | |
10.000%, 11-24-60(C)(H) | | | 47,573 | | | | 47,573 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 3.5% | | | | 55,833 | |
| |
TOTAL CORPORATE DEBT SECURITIES – 3.5% | | | $ | 55,833 | |
(Cost: $60,121) | | | | | | | | |
| | |
UNITED STATES
GOVERNMENT
AGENCY
OBLIGATIONS | | | | | | |
Mortgage-Backed Obligations – 0.0% | |
Federal Home Loan Mortgage Corp. Agency REMIC/CMO: | | | | | |
5.500%,
9-15-17(K) | | | 25 | | | | — | * |
5.500%,
3-15-23(K) | | | 76 | | | | 7 | |
| | | | | | | | |
UNITED STATES
GOVERNMENT AGENCY
OBLIGATIONS
(Continued) | | Principal | | | Value | |
Mortgage-Backed Obligations (Continued) | |
5.500%, 10-15-25(K) | | $ | 290 | | | $ | 39 | |
6.000%, 11-15-35(K) | | | 172 | | | | 33 | |
Federal National Mortgage Association Agency REMIC/CMO: | | | | | |
5.500%, 6-25-23(K) | | | 124 | | | | 17 | |
5.500%, 8-25-33(K) | | | 188 | | | | 33 | |
5.500%, 4-25-34(K) | | | 316 | | | | 59 | |
5.500%, 11-25-36(K) | | | 409 | | | | 70 | |
Government National
Mortgage Association
Agency REMIC/CMO: | | | | | |
5.500%, 3-20-32(K) | | | 66 | | | | 2 | |
5.000%, 7-20-33(K) | | | 15 | | | | — | * |
5.500%,11-20-33(K) | | | 115 | | | | 3 | |
5.500%, 7-20-35(K) | | | 148 | | | | 26 | |
| | | | | | | | |
| | | | | | | 289 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 0.0% | | | $ | 289 | |
(Cost: $882) | | | | | | | | |
| | |
BULLION – 7.5% | |
| Troy
Ounces |
| | | | |
Gold | | | 102 | | | | 120,386 | |
| | | | | | | | |
(Cost: $134,921) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Certificate Of Deposit – 0.4% | |
Citibank N.A.,
0.180%, 3-9-15 | | $ | 6,500 | | | | 6,500 | |
| | | | | | | | |
| |
Commercial Paper(L) – 11.2% | |
Baxter International, Inc.,
0.270%, 2-3-15 | | | 4,000 | | | | 3,999 | |
BHP Billiton Finance (USA) Ltd. (GTD by BHP Billiton Ltd.),
0.110%, 1-8-15 | | | 5,000 | | | | 5,000 | |
BorgWarner, Inc.,
0.330%, 1-9-15 | | | 5,000 | | | | 4,999 | |
Campbell Soup Co.,
0.410%, 1-20-15 | | | 5,725 | | | | 5,724 | |
Corporacion Andina de Fomento,
0.140%, 1-26-15 | | | 10,000 | | | | 9,999 | |
CVS Caremark Corp.,
0.450%, 1-13-15 | | | 10,000 | | | | 9,998 | |
Diageo Capital plc (GTD by Diageo plc),
0.440%, 1-7-15 | | | 12,000 | | | | 11,999 | |
Federal Home Loan Bank:
0.055%, 1-9-15 | | | 10,000 | | | | 10,000 | |
0.020%, 1-26-15 | | | 1,000 | | | | 1,000 | |
CONSOLIDATED SCHEDULE OF INVESTMENTS
Asset Strategy (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| | |
SHORT-TERM SECURITIES (Continued) | | | Principal | | | | Value | |
Commercial Paper(L) (Continued) | |
General Mills, Inc.,
0.350%, 1-27-15 | | $ | 5,000 | | | $ | 4,999 | |
Harley-Davidson Financial Services (GTD by Harley-Davidson Credit Corp.):
0.230%, 1-8-15 | | | 10,000 | | | | 9,999 | |
0.220%, 1-15-15 | | | 5,000 | | | | 4,999 | |
0.230%, 1-27-15 | | | 5,000 | | | | 4,999 | |
Intel Corp.,
0.140%, 1-14-15 | | | 5,000 | | | | 5,000 | |
J.M. Smucker Co. (The),
0.330%, 1-14-15 | | | 10,000 | | | | 9,999 | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | | 5,696 | | | | 5,696 | |
Microsoft Corp.,
0.100%, 1-14-15 | | | 20,000 | | | | 19,999 | |
Siemens Capital Co. LLC (GTD by Siemens AG),
0.150%, 1-12-15 | | | 10,000 | | | | 9,999 | |
St. Jude Medical, Inc.:
0.200%, 1-9-15 | | | 7,000 | | | | 7,000 | |
0.220%, 1-13-15 | | | 3,250 | | | | 3,250 | |
0.220%, 1-15-15 | | | 6,000 | | | | 5,999 | |
Toronto-Dominion Holdings USA, Inc. (GTD by Toronto Dominion Bank),
0.120%, 1-15-15 | | | 5,000 | | | | 5,000 | |
Virginia Electric and Power Co.,
0.315%, 1-8-15 | | | 5,000 | | | | 5,000 | |
| | | | | | | | |
| | |
SHORT-TERM SECURITIES (Continued) | | | Principal | | | | Value | |
Commercial Paper(L) (Continued) | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | $ | 3,000 | | | $ | 3,000 | |
Wisconsin Electric
Power Co.,
0.200%, 1-9-15 | | | 3,868 | | | | 3,868 | |
Wisconsin Gas LLC:
0.160%, 1-6-15 | | | 5,000 | | | | 5,000 | |
0.170%, 1-8-15 | | | 3,000 | | | | 3,000 | |
| | | | | | | | |
| | | | | | | 179,524 | |
| | | | | | | | |
Master Note – 0.3% | | | | | | | | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (M) | | | 4,814 | | | | 4,814 | |
| | | | | | | | |
Municipal Obligations – 1.1% | |
MS Business Fin Corp., Gulf Opp Zone Indl Dev Rev Bonds (Chevron USA, Inc. Proj), Ser 2007B (GTD by Chevron Corp.),
0.010%, 1-1-15 (M) | | | 12,200 | | | | 12,200 | |
MS Business Fin Corp., Gulf Opp Zone Indl Dev Rev Bonds (Chevron USA, Inc. Proj), Ser 2007D (GTD by Chevron Corp.),
0.010%, 1-1-15 (M) | | | 5,000 | | | | 5,000 | |
| | | | | | | | |
| | | | | | | 17,200 | |
| | | | | | | | |
| | | | | | | | |
| | |
SHORT-TERM SECURITIES (Continued) | | | Principal | | | | Value | |
United States Government Agency Obligations – 0.4% | |
Overseas Private Investment Corp. (GTD by U.S. Government), 0.110%, 1-29-15 (M) | | $ | 6,200 | | | $ | 6,192 | |
| |
TOTAL SHORT-TERM SECURITIES – 13.4% | | | $ | 214,230 | |
(Cost: $214,238) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 99.6% | | | $ | 1,593,996 | |
(Cost: $1,551,280) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.4% | | | | 5,607 | |
NET ASSETS – 100.0% | | | $ | 1,599,603 | |
Notes to Schedule of Investments
| * | Not shown due to rounding. |
| (A) | Listed on an exchange outside the United States. |
| (B) | No dividends were paid during the preceding 12 months. |
| (C) | Restricted securities. At December 31, 2014, the Portfolio owned the following restricted securities: |
| | | | | | | | | | | | | | | | | | |
| Security | | Acquisition Date(s) | | | Shares | | | Cost | | | Market Value | | | |
Delta Topco Ltd. | | | 1-23-12 to 5-1-12 | | | | 56,728 | | | $ | 29,297 | | | $ | 40,775 | | | |
Legend Pictures LLC | | | 12-18-12 | | | | 10 | | | | 18,160 | | | | 15,561 | | | |
Media Group Holdings LLC, Series H | | | 8-29-13 to 10-31-13 | | | | 32 | | | | 22,374 | | | | 18,532 | | | |
Media Group Holdings LLC, Series I | | | 4-23-13 to 11-8-13 | | | | 19 | | | | 10,478 | | | | 10,597 | | | |
Media Group Holdings LLC, Series T | | | 7-2-13 to 10-31-13 | | | | 4 | | | | 8,012 | | | | 7,147 | | | |
| | | | | | | Principal | | | | | | | | | | | |
Delta Topco Ltd., 10.000%, 11-24-60 | | | 1-23-12 to 6-18-12 | | | $ | 47,573 | | | | 48,063 | | | | 47,573 | | | |
| | | | | | | | | | | |
| | | | | | | | | | $ | 136,384 | | | $ | 140,185 | | | |
| | | | | | | | | | | |
| The | total value of these securities represented 8.8% of net assets at December 31, 2014. |
| (D) | Investment is owned by an entity that is treated as a corporation for U.S. tax purposes and is owned by the Portfolio and consolidated as described in Note 6 of the Notes to Financial Statements. |
| (E) | Deemed to be an affiliate due to the Fund owning at least 5% of the voting securities. |
| (F) | All or a portion of securities with an aggregate value of $44 are held in collateralized accounts for OTC derivatives collateral as governed by International Swaps and Derivatives Association, Inc. Master Agreements. |
| (G) | All or a portion of securities with an aggregate value of $30,654 are held in collateralized accounts to cover potential obligations with respect to outstanding written options. |
| (H) | Payment-in-kind bonds. |
CONSOLIDATED SCHEDULE OF INVESTMENTS
Asset Strategy (in thousands) | DECEMBER 31, 2014 |
| (I) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $5,896 or 0.4% of net assets. |
| (K) | Interest-only security. Amount shown as principal represents notional amount for computation of interest. |
| (L) | Rate shown is the yield to maturity at December 31, 2014. |
| (M)Variable | rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
| The | following forward foreign currency contracts were outstanding at December 31, 2014: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Currency to be
Delivered | | | | Currency to be
Received | | | Settlement
Date | | | Counterparty | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
Japanese Yen | | 1,117,903 | | U.S. Dollar | | | 9,438 | | | | 1-14-15 | | | | Morgan Stanley International | | | $ | 105 | | | $ | — | |
| The | following written options were outstanding at December 31, 2014 (contracts and exercise prices unrounded): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Security | | Counterparty, if OTC | | Type | | | Number of
Contracts | | | Expiration Month | | | Exercise Price | | | Premium
Received | | | Value | | | |
Dow Chemical Co. (The) | | Societe Generale Bank | | | Put | | | | 674 | | | | January 2015 | | | $ | 47.00 | | | $ | 37 | | | $ | (124 | ) | | |
| | Societe Generale Bank | | | Call | | | | 674 | | | | January 2015 | | | | 60.00 | | | | 9 | | | | — | * | | |
Exxon Mobil Corp. | | Deutsche Bank AG | | | Put | | | | 441 | | | | April 2015 | | | | 75.00 | | | | 76 | | | | (31 | ) | | |
S&P 500 Index | | Bank of America N.A. | | | Put | | | | 154 | | | | January 2015 | | | | 1,825.00 | | | | 473 | | | | (32 | ) | | |
| | JPMorgan Chase Bank N.A. | | | Put | | | | 155 | | | | March 2015 | | | | 1,800.00 | | | | 642 | | | | (223 | ) | | |
Schlumberger Ltd. | | Societe Generale Bank | | | Put | | | | 220 | | | | February 2015 | | | | 70.00 | | | | 42 | | | | (12 | ) | | |
| | Societe Generale Bank | | | Call | | | | 220 | | | | February 2015 | | | | 100.00 | | | | 11 | | | | (7 | ) | | |
| | Societe Generale Bank | | | Put | | | | 220 | | | | May 2015 | | | | 70.00 | | | | 77 | | | | (33 | ) | | |
| | Societe Generale Bank | | | Call | | | | 275 | | | | May 2015 | | | | 105.00 | | | | 25 | | | | (20 | ) | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 1,392 | | | $ | (482 | ) | | |
| | | | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Consumer Discretionary | | $ | 66,893 | | | $ | 79,620 | | | $ | 92,612 | |
Consumer Staples | | | 47,853 | | | | 46,983 | | | | — | |
Energy | | | 105,643 | | | | — | | | | — | |
Financials | | | 112,523 | | | | 50,283 | | | | — | |
Health Care | | | 113,300 | | | | 7,261 | | | | — | |
Industrials | | | 97,066 | | | | 9,271 | | | | — | |
Information Technology | | | 308,815 | | | | 34,313 | | | | — | |
Materials | | | 28,083 | | | | — | | | | — | |
| | | | |
Total Common Stocks | | $ | 880,176 | | | $ | 227,731 | | | $ | 92,612 | |
| | | | |
Preferred Stocks | | | — | | | | 2,021 | | | | — | |
Purchased Options | | | — | | | | 718 | | | | — | |
Corporate Debt Securities | | | — | | | | 8,260 | | | | 47,573 | |
United States Government Agency Obligations | | | — | | | | 289 | | | | — | |
Bullion | | | 120,386 | | | | — | | | | — | |
Short-Term Securities | | | — | | | | 214,230 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 1,000,562 | | | $ | 453,249 | | | $ | 140,185 | |
| | | | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 105 | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Written Options | | $ | — | | | $ | 482 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, securities totaling $168,527 were transferred from Level 1 to Level 2. These transfers were the result of fair value prodedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
CONSOLIDATED SCHEDULE OF INVESTMENTS
Asset Strategy (in thousands) | DECEMBER 31, 2014 |
The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
| | | | | | | | | | | | |
| | | Common
Stocks | | | Corporate
Debt
Securities | | | Loans | |
Beginning Balance 1-1-14 | | $ | 129,492 | | | $ | 50,731 | | | $ | 11,479 | |
Net realized gain (loss) | | | — | | | | — | | | | 123 | |
Net change in unrealized appreciation (depreciation) | | | (27,821 | ) | | | — | | | | (562 | ) |
Purchases | | | 41 | | | | 4,690 | | | | — | |
Sales | | | (9,100 | ) | | | (4,020 | ) | | | (11,050 | ) |
Amortization/Accretion of premium/discount | | | — | | | | — | | | | 10 | |
Transfers into Level 3 during the period | | | — | | | | (3,828 | ) | | | — | |
Transfers out of Level 3 during the period | | | — | | | | — | | | | — | |
Ending Balance 12-31-14 | | $ | 92,612 | | | $ | 47,573 | | | $ | — | |
Net change in unrealized appreciation (depreciation) for all Level 3 investments still held as of 12-31-14 | | $ | (27,821 | ) | | $ | — | | | $ | — | |
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information. As shown above, transfers in and out of Level 3 represent the values as of the beginning of the reporting period.
Information about Level 3 fair value measurements:
| | | | | | | | | | | | | | | | |
| | | Fair Value at 12-31-14 | | | Valuation Technique(s) | | | Unobservable Input(s) | | | Input Value(s) | |
Assets | | | | | | | | | | | | | | | | |
Common Stocks | | $ | 85,465 | | | | Discounted cash flows model | | | | Long-term growth rate | | | | 2.5% | |
| | | | | | | | | | | Weighted average cost of capital | | | | 8.3 to 15% | |
| | | | | | | | | | | Illiquidity discount | | | | 2.5 to 10% | |
| | | 7,147 | | | | Transaction | | | | Price | | | | $1,982 | |
| | | | | | | | | | | Illiquidity discount | | | | 10% | |
Corporate Debt Securities | | | 47,573 | | | | Discounted cash flows model | | | | Long-term growth rate | | | | 2.5% | |
| | | | | | | | | | | Weighted average cost of capital | | | | 8.3% | |
| | | | | | | | | | | Illiquidity discount | | | | 10% | |
Significant increase in long-term growth rate inputs could result in a higher fair value measurement. However, significant increase in weighted average cost of capital or illiquidity discount inputs could result in a lower fair value measurement.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
OTC = Over the Counter
REMIC = Real Estate Mortgage Investment Conduit
Country Diversification
| | | | |
(as a % of net assets) | | | | |
United States | | | 57.2% | |
United Kingdom | | | 8.1% | |
Macau | | | 3.9% | |
Hong Kong | | | 3.1% | |
China | | | 3.1% | |
Germany | | | 1.1% | |
Other Countries | | | 2.2% | |
Other+ | | | 21.3% | |
+Includes gold bullion, options, cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Matthew A. Hekman
Matthew A. Hekman, who has 16 years of industry experience, became portfolio manager of Ivy Funds VIP Balanced in August 2014. Prior to August 2014, the Portfolio was managed by Cynthia P. Prince-Fox. Below, Mr. Hekman discusses positioning, performance and results for the fiscal year ended December 31, 2014.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Balanced | | | 7.57% | |
Benchmark(s) and/or Lipper Category | | | | |
S&P 500 Index | | | 13.69% | |
(generally reflects the performance of large- and medium-sized U.S. stocks) | | | | |
Lipper Variable Annuity Mixed-Asset Target Allocation Growth Funds Universe Average | | | 6.05% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Barclays U.S. Government/Credit Index | | | 6.01% | |
(generally reflects the performance of securities in the bond market) | | | | |
Please note that Portfolio returns include applicable fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios. Multiple indexes are shown because the Portfolio invests in multiple asset classes.
Key drivers
2014 was a year that saw an increasing amount of volatility as investors grappled with a sluggish global growth environment; the end of the Federal Reserve’s (Fed) program of quantitative easing (commonly referred to as QE); ongoing geopolitical unrest in Eurasia and the Middle East; and a dramatic decline in the price of oil. As a result, longer-term interest rates, while volatile, declined over the course of the year and traditionally defensive sectors of the equity market outperformed.
Contributors and detractors
The Portfolio outperformed its peers in the Lipper Variable Annuity Mixed-Asset Target Allocation Growth universe, posting a total return of 7.57%. Relative performance was driven by the allocation decision to target equity exposure at 75%, the maximum amount allowed by prospectus. The Portfolio’s equity benchmark, the S&P 500, was up 13.69% for the year. The Portfolio’s fixed-income benchmark, the Barclays U.S. Government /Credit Index was up 6.01% for the year.
The equity portfolio advanced approximately 11% in 2014, which lagged the benchmark return due in large part to sector selection. In particular, the Portfolio was overweight energy through the year, which was the only sector in the S&P 500 to post a negative return. In addition, the Portfolio was underweight health care and utilities stocks, which were the two best performing sectors in the index. A final driver of relative underperformance during the year was poor stock selection in the financials sector.
The fixed-income portfolio advanced approximately 4% in 2014, which lagged the benchmark return due to the Portfolio’s shorter duration. The Portfolio has long been short duration relative to its benchmark given the absolute low level of interest rates. The Portfolio is substantially overweight credit given the good health of corporate balance sheets and abundant liquidity available within the financial system, which helped to mitigate the underperformance from duration but was unable to make up the entire shortfall.
Top contributors to performance came from the consumer discretionary and industrials sectors, which were areas of emphasis in 2014. Specifically, Limited Inc., Southwest Airlines, Union Pacific and Home Depot were notable contributors. In addition, Applied Materials and Apple Inc. posted strong performance during the year. In each case, we feel that the outlook for each of these companies continues to be promising. At Limited, the Victoria’s Secret and PINK brands continue to resonate with consumers and a global growth opportunity appears to be emerging as international consumers look for affordable luxury. At Southwest Airlines, domestic demand for travel has steadily improved with falling fuel prices a growing tailwind for margins. At Union Pacific, strong domestic rail volumes coupled with growing pricing power and a unique geographic position have conspired to drive earnings higher. And at Home Depot, ongoing improvement in the home repair and remodeling market in the U.S., coupled with an emphasis on cost management, has produced strong results that we believe will prove sustainable.
Detractors to performance were Noble Energy, Amazon.com, Las Vegas Sands and GlaxoSmithKline. Noble Energy shares fell as global oil prices declined in the third and fourth quarters due to oversupply. Amazon.com exhibited relatively strong growth in user metrics but is investing heavily for future growth, which is eroding current profitability. Las Vegas Sands was negatively impacted by a dramatic decline in Macau casino visitation and spending as Asian economies cooled and the Chinese government cracked down on corruption. GlaxoSmithKline declined as disappointing performance of the companies drugs combined with a relatively uninspiring pipeline caused concerns to build over future revenue and cash-flow growth.
Outlook
As we look ahead to 2015, it seems volatility is likely to remain at an elevated level in the near term. The Portfolio was adjusted slightly during the fourth quarter of 2014 in reaction to the growing risks to economic growth and potential economic disruption resulting from the dramatic decline in oil prices. The targeted equity allocation was reduced from 75% to 70% with the balance allocated to fixed income and cash.
We believe global growth will improve modestly in 2015 as clarity around fiscal spending and monetary policy improve; strengthened balance sheets and higher consumer and corporate confidence readings begin to translate into higher consumer and corporate spending; and the lagged effect of historical stimulus continues to provide a persistent tailwind to growth. We continue to be encouraged by modest inflation rates and subdued inflation expectations, which provide an environment conducive for central banks to provide support to their local economies, if needed.
In addition, we see encouraging signs from the U.S. housing market as well as growing evidence of an acceleration in consumer spending as significant positives for the domestic economy. As the U.S. economy gradually improves, the Fed will begin to raise interest rates, though the timing of that inflection point is elusive. While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding high-quality, growing companies whose securities are trading at a reasonable valuation with visible catalysts to drive relative outperformance over the next 12 months. This approach has served investors well over time, and our confidence in it has not waned.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Fund’s shares will change, and you could lose money on your investment.
Fixed-income securities are subject to interest rate risk and, as such, the Portfolio’s net asset value may fall as interest rates rise. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Ivy Funds VIP Balanced.
PORTFOLIO HIGHLIGHTS
Balanced | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 69.6 | % |
Consumer Discretionary | | | 15.4 | % |
Information Technology | | | 12.7 | % |
Industrials | | | 12.1 | % |
Financials | | | 10.7 | % |
Health Care | | | 5.5 | % |
Energy | | | 4.9 | % |
Consumer Staples | | | 4.5 | % |
Materials | | | 3.8 | % |
Bonds | | | 26.5 | % |
Corporate Debt Securities | | | 23.1 | % |
United States Government and Government Agency Obligations | | | 3.4 | % |
Cash and Cash Equivalents | | | 3.9 | % |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Limited Brands, Inc. | | Consumer Discretionary | | Apparel Retail |
Union Pacific Corp. | | Industrials | | Railroads |
PNC Financial Services Group, Inc. (The) | | Financials | | Regional Banks |
Apple, Inc. | | Information Technology | | Technology Hardware, Storage & Peripherals |
Southwest Airlines Co. | | Industrials | | Airlines |
JPMorgan Chase & Co. | | Financials | | Other Diversified Financial Services |
Applied Materials, Inc. | | Information Technology | | Semiconductor Equipment |
Home Depot, Inc. (The) | | Consumer Discretionary | | Home Improvement Retail |
Boeing Co. (The) | | Industrials | | Aerospace & Defense |
PPG Industries, Inc. | | Materials | | Diversified Chemicals |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 7.57 | % |
5-year period ended 12-31-14 | | | 12.46 | % |
10-year period ended 12-31-14 | | | 7.89 | % |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Balanced (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 2.5% | |
Limited Brands, Inc. | | | 119 | | | $ | 10,299 | |
| | | | | | | | |
| |
Broadcasting – 1.0% | |
CBS Corp., Class B | | | 76 | | | | 4,219 | |
| | | | | | | | |
Cable & Satellite – 2.3% | |
Comcast Corp., Class A | | | 100 | | | | 5,795 | |
Time Warner Cable, Inc. | | | 25 | | | | 3,817 | |
| | | | | | | | |
| | | | | | | 9,612 | |
| | | | | | | | |
| |
Casinos & Gaming – 0.8% | |
Las Vegas Sands, Inc. | | | 55 | | | | 3,170 | |
| | | | | | | | |
| |
Department Stores – 0.1% | |
Kohl’s Corp. | | | 4 | | | | 232 | |
| | | | | | | | |
| |
Home Improvement Retail – 1.7% | |
Home Depot, Inc. (The) | | | 68 | | | | 7,159 | |
| | | | | | | | |
Hotels, Resorts & Cruise Lines – 2.0% | |
Carnival Corp. | | | 85 | | | | 3,867 | |
Hyatt Hotels Corp.,
Class A (A) | | | 77 | | | | 4,654 | |
| | | | | | | | |
| | | | | | | 8,521 | |
| | | | | | | | |
| |
Internet Retail – 1.0% | |
Amazon.com, Inc. (A) | | | 13 | | | | 4,128 | |
| | | | | | | | |
| |
Motorcycle Manufacturers – 1.3% | |
Harley-Davidson, Inc. | | | 82 | | | | 5,378 | |
| | | | | | | | |
| |
Movies & Entertainment – 1.6% | |
Twenty-First Century Fox, Inc. | | | 175 | | | | 6,467 | |
| | | | | | | | |
| |
Specialty Stores – 1.1% | |
Ulta Salon, Cosmetics & Fragrance, Inc. (A) | | | 36 | | | | 4,628 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 15.4% | | | | 63,813 | |
Consumer Staples | |
| |
Brewers – 1.3% | |
Anheuser-Busch InBev S.A. ADR | | | 49 | | | | 5,459 | |
| | | | | | | | |
Distillers & Vintners – 2.1% | |
Brown-Forman Corp.,
Class B | | | 40 | | | | 3,491 | |
Constellation Brands, Inc. (A) | | | 53 | | | | 5,223 | |
| | | | | | | | |
| | | | | | | 8,714 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 1.1% | |
Mead Johnson
Nutrition Co. | | | 47 | | | | 4,765 | |
| | | | | | | | |
| |
Total Consumer
Staples – 4.5% | | | | 18,938 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Energy | |
| |
Oil & Gas Equipment & Services – 0.5% | |
National Oilwell Varco, Inc. | | | 28 | | | $ | 1,861 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 2.1% | |
ConocoPhillips | | | 78 | | | | 5,414 | |
Noble Energy, Inc. | | | 73 | | | | 3,482 | |
| | | | | | | | |
| | | | | | | 8,896 | |
| | | | | | | | |
| |
Oil & Gas Refining & Marketing – 0.7% | |
Phillips 66 | | | 43 | | | | 3,094 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 1.6% | |
Plains GP Holdings L.P., Class A | | | 100 | | | | 2,573 | |
Regency Energy
Partners L.P. | | | 171 | | | | 4,092 | |
| | | | | | | | |
| | | | | | | 6,665 | |
| | | | | | | | |
| |
Total Energy – 4.9% | | | | 20,516 | |
Financials | |
| |
Asset Management & Custody
Banks – 1.5% | |
Northern Trust Corp. | | | 92 | | | | 6,187 | |
| | | | | | | | |
| |
Consumer Finance – 1.5% | |
American Express Co. | | | 66 | | | | 6,103 | |
| | | | | | | | |
| |
Multi-Line Insurance – 1.4% | |
American International Group, Inc. | | | 104 | | | | 5,820 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 3.3% | |
Citigroup, Inc. | | | 117 | | | | 6,331 | |
JPMorgan Chase & Co. | | | 117 | | | | 7,347 | |
| | | | | | | | |
| | | | | | | 13,678 | |
| | | | | | | | |
| |
Regional Banks – 2.1% | |
PNC Financial Services Group, Inc. (The) | | | 95 | | | | 8,685 | |
| | | | | | | | |
| |
Specialized REITs – 0.9% | |
Crown Castle International Corp. | | | 51 | | | | 3,990 | |
| | | | | | | | |
| |
Total Financials – 10.7% | | | | 44,463 | |
Health Care | |
| |
Biotechnology – 0.5% | |
Biogen Idec, Inc. (A) | | | 5 | | | | 1,833 | |
| | | | | | | | |
| |
Managed Health Care – 1.0% | |
UnitedHealth Group, Inc. | | | 42 | | | | 4,246 | |
| | | | | | | | |
| |
Pharmaceuticals – 4.0% | |
GlaxoSmithKline plc ADR | | | 112 | | | | 4,800 | |
Johnson & Johnson | | | 59 | | | | 6,201 | |
Teva Pharmaceutical
Industries Ltd. ADR | | | 99 | | | | 5,693 | |
| | | | | | | | |
| | | | | | | 16,694 | |
| | | | | | | | |
| |
Total Health Care – 5.5% | | | $ | 22,773 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Industrials | |
| |
Aerospace & Defense – 4.0% | |
Boeing Co. (The) | | | 53 | | | $ | 6,915 | |
Lockheed Martin Corp. | | | 18 | | | | 3,447 | |
Precision Castparts Corp. | | | 25 | | | | 6,022 | |
| | | | | | | | |
| | | | | | | 16,384 | |
| | | | | | | | |
| |
Airlines – 1.8% | |
Southwest Airlines Co. | | | 176 | | | | 7,448 | |
| | | | | | | | |
| |
Construction Machinery & Heavy
Trucks – 1.6% | |
Cummins, Inc. | | | 46 | | | | 6,618 | |
| | | | | | | | |
| |
Electrical Components &
Equipment – 1.3% | |
Rockwell Automation, Inc. | | | 50 | | | | 5,549 | |
| | | | | | | | |
| |
Industrial Conglomerates – 1.2% | |
3M Co. | | | 30 | | | | 4,995 | |
| | | | | | | | |
| |
Railroads – 2.2% | |
Union Pacific Corp. | | | 76 | | | | 9,066 | |
| | | | | | | | |
| |
Total Industrials – 12.1% | | | | 50,060 | |
Information Technology | |
| |
Application Software – 1.4% | |
Autodesk, Inc. (A) | | | 93 | | | | 5,579 | |
| | | | | | | | |
| |
Data Processing & Outsourced
Services –2.9% | |
Alliance Data
Systems Corp. (A) | | | 22 | | | | 6,379 | |
FleetCor Technologies, Inc. (A) | | | 38 | | | | 5,666 | |
| | | | | | | | |
| | | | | | | 12,045 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 1.5% | |
Cognizant Technology Solutions Corp.,
Class A (A) | | | 117 | | | | 6,135 | |
| | | | | | | | |
| |
Semiconductor Equipment – 1.7% | |
Applied Materials, Inc. | | | 289 | | | | 7,194 | |
| | | | | | | | |
| |
Semiconductors – 3.4% | |
Broadcom Corp., Class A | | | 99 | | | | 4,281 | |
Microchip Technology, Inc. | | | 101 | | | | 4,570 | |
Texas Instruments, Inc. | | | 96 | | | | 5,154 | |
| | | | | | | | |
| | | | | | | 14,005 | |
| | | | | | | | |
| |
Technology Hardware,
Storage & Peripherals – 1.8% | |
Apple, Inc. | | | 69 | | | | 7,583 | |
| | | | | | | | |
| |
Total Information
Technology – 12.7% | | | | 52,541 | |
SCHEDULE OF INVESTMENTS
Balanced (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Materials | |
| |
Diversified Chemicals – 2.8% | |
Dow Chemical Co. (The) | | | 107 | | | $ | 4,885 | |
PPG Industries, Inc. | | | 29 | | | | 6,634 | |
| | | | | | | | |
| | | | | | | 11,519 | |
| | | | | | | | |
Industrial Gases – 1.0% | |
Praxair, Inc. | | | 32 | | | | 4,172 | |
| | | | | | | | |
| |
Total Materials – 3.8% | | | | 15,691 | |
| |
TOTAL COMMON
STOCKS – 69.6% | | | $ | 288,795 | |
(Cost: $205,831) | | | | | | | | |
| | |
CORPORATE DEBT
SECURITIES | | Principal | | | | |
Consumer Discretionary | |
| |
Apparel Retail – 0.6% | |
Limited Brands, Inc.:
6.900%,
7-15-17 | | $ | 250 | | | | 275 | |
6.625%,
4-1-21 | | | 1,460 | | | | 1,642 | |
5.625%,
2-15-22 | | | 414 | | | | 445 | |
| | | | | | | | |
| | | | | | | 2,362 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 0.1% | |
Delphi Corp.,
5.000%,
2-15-23 | | | 411 | | | | 439 | |
| | | | | | | | |
| |
Automobile Manufacturers – 0.4% | |
Toyota Motor Credit Corp.,
2.000%,
10-24-18 | | | 400 | | | | 404 | |
Volkswagen Group of America, Inc.,
2.125%,
5-23-19(B) | | | 1,250 | | | | 1,243 | |
| | | | | | | | |
| | | | | | | 1,647 | |
| | | | | | | | |
| |
Broadcasting – 0.0% | |
Discovery
Communications LLC,
3.300%,
5-15-22 | | | 200 | | | | 198 | |
| | | | | | | | |
| |
Cable & Satellite – 0.4% | |
Pearson Funding Five plc,
3.250%,
5-8-23(B) | | | 300 | | | | 288 | |
Viacom, Inc.:
2.500%,
9-1-18 | | | 100 | | | | 101 | |
2.200%,
4-1-19 | | | 700 | | | | 690 | |
2.750%,
12-15-19 | | | 500 | | | | 501 | |
| | | | | | | | |
| | | | | | | 1,580 | |
| | | | | | | | |
| |
Distributors – 0.1% | |
LKQ Corp.,
4.750%,
5-15-23 | | | 282 | | | | 271 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
General Merchandise Stores – 0.1% | |
Dollar General Corp.:
4.125%,
7-15-17 | | $ | 100 | | | $ | 103 | |
1.875%,
4-15-18 | | | 250 | | | | 242 | |
| | | | | | | | |
| | | | | | | 345 | |
| | | | | | | | |
Homebuilding – 0.1% | |
Toll Brothers Finance Corp.,
4.375%, 4-15-23 | | | 500 | | | | 490 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 0.1% | |
Hyatt Hotels Corp.,
3.375%, 7-15-23 | | | 250 | | | | 245 | |
| | | | | | | | |
| |
Internet Retail – 0.1% | |
Amazon.com, Inc.,
2.600%, 12-5-19 | | | 450 | | | | 455 | |
| | | | | | | | |
| |
Movies & Entertainment – 0.2% | |
News American, Inc.,
3.000%, 9-15-22 | | | 1,000 | | | | 993 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 2.2% | | | | 9,025 | |
Consumer Staples | |
| |
Brewers – 0.2% | |
Heineken N.V.,
1.400%,
10-1-17(B) | | | 250 | | | | 249 | |
SABMiller Holdings, Inc.,
2.200%,
8-1-18(B) | | | 500 | | | | 501 | |
| | | | | | | | |
| | | | | | | 750 | |
| | | | | | | | |
| |
Distillers & Vintners – 0.5% | |
Beam, Inc.,
1.750%, 6-15-18 | | | 250 | | | | 247 | |
Brown-Forman Corp.,
1.000%, 1-15-18 | | | 1,000 | | | | 981 | |
Constellation Brands, Inc.,
3.750%, 5-1-21 | | | 925 | | | | 916 | |
| | | | | | | | |
| | | | | | | 2,144 | |
| | | | | | | | |
| |
Drug Retail – 0.1% | |
Walgreens Boots Alliance, Inc.,
2.700%,
11-18-19 | | | 300 | | | | 301 | |
| | | | | | | | |
| |
Food Distributors – 0.2% | |
Campbell Soup Co.,
2.500%, 8-2-22 | | | 700 | | | | 669 | |
ConAgra Foods, Inc.,
1.900%, 1-25-18 | | | 200 | | | | 199 | |
| | | | | | | | |
| | | | | | | 868 | |
| | | | | | | | |
| |
Household Products – 0.1% | |
Church & Dwight Co., Inc.,
2.875%, 10-1-22 | | | 250 | | | | 246 | |
| | | | | | | | |
| |
Personal Products – 0.1% | |
Estee Lauder Co., Inc. (The),
2.350%, 8-15-22 | | | 600 | | | | 577 | |
| | | | | | | | |
| |
Total Consumer
Staples – 1.2% | | | | 4,886 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Energy | | | | | | | | |
| |
Oil & Gas Drilling – 0.1% | |
Transocean, Inc.,
2.500%,
10-15-17 | | $ | 500 | | | $ | 442 | |
| | | | | | | | |
Oil & Gas Equipment & Services – 0.0% | |
National Oilwell Varco, Inc.,
1.350%, 12-1-17 | | | 250 | | | | 247 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 0.6% | |
BP Capital Markets plc (GTD by BP plc),
2.241%, 9-26-18 | | | 400 | | | | 401 | |
ConocoPhillips,
1.050%, 12-15-17 | | | 400 | | | | 395 | |
Devon Energy Corp.,
2.250%, 12-15-18 | | | 500 | | | | 498 | |
Stone Energy Corp., Convertible,
1.750%, 3-1-17 | | | 1,200 | | | | 1,043 | |
| | | | | | | | |
| | | | | | | 2,337 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 0.2% | |
Buckeye Partners L.P.,
2.650%, 11-15-18 | | | 400 | | | | 394 | |
Kinder Morgan Energy Partners L.P.,
2.650%, 2-1-19 | | | 500 | | | | 493 | |
| | | | | | | | |
| | | | | | | 887 | |
| | | | | | | | |
| |
Total Energy – 0.9% | | | | 3,913 | |
Financials | | | | | | | | |
| |
Asset Management & Custody
Banks – 0.5% | |
Ares Capital Corp.:
4.875%, 11-30-18 | | | 1,200 | | | | 1,262 | |
3.875%, 1-15-20 | | | 750 | | | | 748 | |
| | | | | | | | |
| | | | | | | 2,010 | |
| | | | | | | | |
| |
Consumer Finance – 1.1% | |
American Express Credit Corp.,
2.125%, 7-27-18 | | | 100 | | | | 101 | |
American Honda Finance Corp.,
2.125%, 10-10-18 | | | 150 | | | | 151 | |
Capital One Bank USA N.A.:
2.150%, 11-21-18 | | | 500 | | | | 497 | |
2.250%, 2-13-19 | | | 1,000 | | | | 993 | |
Capital One N.A.,
2.400%, 9-5-19 | | | 650 | | | | 647 | |
Charles Schwab Corp. (The),
2.200%, 7-25-18 | | | 300 | | | | 304 | |
Hyundai Capital America,
2.875%, 8-9-18(B) | | | 250 | | | | 255 | |
IntercontinentalExchange Group, Inc.,
2.500%, 10-15-18 | | | 100 | | | | 102 | |
SLM Corp.,
4.875%, 6-17-19 | | | 500 | | | | 501 | |
Total System Services, Inc.,
2.375%, 6-1-18 | | | 1,100 | | | | 1,091 | |
| | | | | | | | |
| | | | | | | 4,642 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Balanced (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Diversified Banks – 4.4% | |
ABN AMRO Bank N.V.,
2.500%,
10-30-18(B) | | $ | 800 | | | $ | 808 | |
Banco Hipotecario Nacional: | | | | | | | | |
7.916%,
7-25-09
(B)(C) | | | 17 | | | | — | |
8.000%,
3-31-11
(B)(C) | | | 4 | | | | — | |
Bank of America Corp.,
2.000%,
1-11-18 | | | 400 | | | | 400 | |
Bank of New York Mellon
Corp. (The),
2.100%,
1-15-19 | | | 500 | | | | 502 | |
Bank of Nova Scotia (The): | | | | | | | | |
1.450%,
4-25-18 | | | 500 | | | | 494 | |
2.050%,
10-30-18 | | | 200 | | | | 200 | |
Barclays Bank plc,
2.500%,
2-20-19 | | | 1,000 | | | | 1,013 | |
BNP Paribas S.A.: | | | | | | | | |
2.450%,
3-17-19 | | | 900 | | | | 912 | |
5.186%,
6-29-49(B) | | | 1,350 | | | | 1,350 | |
Commonwealth Bank of Australia,
2.250%,
3-13-19 | | | 1,350 | | | | 1,356 | |
DBS Group Holdings Ltd.,
2.246%,
7-16-19(B) | | | 1,000 | | | | 998 | |
ING Bank N.V.,
2.500%,
10-1-19(B) | | | 1,100 | | | | 1,107 | |
KeyBank N.A.,
2.500%,
12-15-19 | | | 500 | | | | 502 | |
Lloyds Bank plc,
2.350%,
9-5-19 | | | 600 | | | | 600 | |
Mizuho Bank Ltd.,
2.650%,
9-25-19(B) | | | 1,300 | | | | 1,306 | |
National Australia Bank Ltd.,
2.400%,
12-9-19(B) | | | 1,250 | | | | 1,249 | |
Skandinaviska Enskilda Banken AB,
2.375%,
3-25-19(B) | | | 1,000 | | | | 1,006 | |
Societe Generale S.A.,
5.922%,
4-29-49(B) | | | 1,000 | | | | 1,037 | |
Swedbank AB (publ),
1.750%,
3-12-18(B) | | | 300 | | | | 299 | |
UBS Preferred Funding
Trust V,
6.243%,
5-29-49 | | | 1,250 | | | | 1,291 | |
Wells Fargo & Co.: | | | | | | | | |
1.500%,
1-16-18 | | | 250 | | | | 249 | |
2.150%,
1-15-19 | | | 500 | | | | 501 | |
Westpac Banking Corp.,
2.250%,
7-30-18 | | | 1,000 | | | | 1,015 | |
| | | | | | | | |
| | | | | | | 18,195 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Investment Banking &
Brokerage – 0.6% | |
BGC Partners, Inc.,
5.375%,
12-9-19(B) | | $ | 500 | | | $ | 491 | |
Goldman Sachs Group,
Inc. (The): | | | | | | | | |
2.900%,
7-19-18 | | | 450 | | | | 462 | |
2.625%,
1-31-19 | | | 1,000 | | | | 1,006 | |
Morgan Stanley,
2.125%,
4-25-18 | | | 500 | | | | 500 | |
| | | | | | | | |
| | | | | | | 2,459 | |
| | | | | | | | |
| |
Life & Health Insurance – 0.2% | |
AIA Group Ltd.,
2.250%,
3-11-19(B) | | | 800 | | | | 796 | |
| | | | | | | | |
| |
Mortgage REITs – 0.3% | |
Mubadala GE Capital,
3.000%,
11-10-19(B) | | | 1,250 | | | | 1,237 | |
| | | | | | | | |
| |
Multi-Line Insurance – 0.1% | |
American International Group, Inc.,
2.300%, 7-16-19 | | | 300 | | | | 300 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 2.3% | |
Citigroup, Inc.: | | | | | | | | |
3.875%, 2-19-19 | | | 1,000 | | | | 998 | |
2.550%, 4-8-19 | | | 3,250 | | | | 3,271 | |
Daimler Finance North America LLC,
2.375%,
8-1-18(B) | | | 150 | | | | 152 | |
Fidelity National Financial, Inc.,
6.600%, 5-15-17 | | | 800 | | | | 880 | |
Fifth Street Finance Corp.,
4.875%, 3-1-19 | | | 1,300 | | | | 1,327 | |
JPMorgan Chase & Co.,
7.900%, 4-29-49 | | | 500 | | | | 538 | |
Moody’s Corp.,
2.750%, 7-15-19 | | | 250 | | | | 252 | |
PennantPark Investment Corp.,
4.500%, 10-1-19 | | | 1,650 | | | | 1,653 | |
Total Capital,
2.125%, 8-10-18 | | | 300 | | | | 302 | |
Total Capital Canada Ltd.,
1.450%, 1-15-18 | | | 200 | | | | 199 | |
| | | | | | | | |
| | | | | | | 9,572 | |
| | | | | | | | |
| |
Property & Casualty Insurance – 0.1% | |
Berkshire Hathaway Finance Corp.,
2.000%, 8-15-18 | | | 250 | | | | 253 | |
Berkshire Hathaway, Inc.,
1.550%, 2-9-18 | | | 250 | | | | 250 | |
| | | | | | | | |
| | | | | | | 503 | |
| | | | | | | | |
| |
Regional Banks – 0.4% | |
BB&T Corp.,
1.450%, 1-12-18 | | | 300 | | | | 297 | |
PNC Bank N.A.,
2.200%, 1-28-19 | | | 750 | | | | 751 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Regional Banks (Continued) | |
SunTrust Banks, Inc.,
2.350%,
11-1-18 | | $ | 500 | | | $ | 503 | |
| | | | | | | | |
| | | | | | | 1,551 | |
| | | | | | | | |
| |
Specialized REITs – 0.9% | |
Aircastle Ltd., | | | | | | | | |
5.125%,
3-15-21 | | | 1,626 | | | | 1,626 | |
CNL Lifestyles Properties, Inc.,
7.250%,
4-15-19 | | | 1,626 | | | | 1,663 | |
Crown Castle International Corp.,
5.250%,
1-15-23 | | | 623 | | | | 635 | |
| | | | | | | | |
| | | | | | | 3,924 | |
| | | | | | | | |
| |
Total Financials – 10.9% | | | | 45,189 | |
Health Care | | | | | | | | |
| |
Biotechnology – 0.3% | |
Amgen, Inc.,
2.200%,
5-22-19 | | | 1,300 | | | | 1,295 | |
| | | | | | | | |
| |
Health Care Equipment – 0.2% | |
Mallinckrodt International Finance S.A.,
3.500%,
4-15-18 | | | 250 | | | | 242 | |
Medtronic, Inc.,
2.500%,
3-15-20(B) | | | 500 | | | | 501 | |
| | | | | | | | |
| | | | | | | 743 | |
| | | | | | | | |
| |
Health Care Supplies – 0.6% | |
C.R. Bard, Inc.,
1.375%,
1-15-18 | | | 500 | | | | 494 | |
Cardinal Health, Inc.,
2.400%,
11-15-19 | | | 700 | | | | 698 | |
Express Scripts Holding Co.,
2.250%,
6-15-19 | | | 1,500 | | | | 1,484 | |
| | | | | | | | |
| | | | | | | 2,676 | |
| | | | | | | | |
| |
Managed Health Care – 0.4% | |
Aetna, Inc.,
2.200%,
3-15-19 | | | 800 | | | | 794 | |
WellPoint, Inc.,
1.875%,
1-15-18 | | | 1,000 | | | | 1,000 | |
| | | | | | | | |
| | | | | | | 1,794 | |
| | | | | | | | |
| |
Pharmaceuticals – 0.6% | |
Forest Laboratories, Inc.,
5.000%,
12-15-21(B) | | | 1,258 | | | | 1,362 | |
Perrigo Co. Ltd.,
2.300%,
11-8-18 | | | 945 | | | | 944 | |
| | | | | | | | |
| | | | | | | 2,306 | |
| | | | | | | | |
| |
Total Health Care – 2.1% | | | | 8,814 | |
SCHEDULE OF INVESTMENTS
Balanced (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Industrials | | | | | | | | |
| |
Aerospace & Defense – 0.6% | |
General Dynamics Corp.,
1.000%,
11-15-17 | | $ | 500 | | | $ | 495 | |
Northrop Grumman Corp.,
1.750%,
6-1-18 | | | 250 | | | | 248 | |
TransDigm Group, Inc.,
7.500%, 7-15-21 | | | 1,626 | | | | 1,732 | |
| | | | | | | | |
| | | | | | | 2,475 | |
| | | | | | | | |
| |
Environmental & Facilities
Services – 0.1% | |
Ecolab, Inc.,
1.450%, 12-8-17 | | | 500 | | | | 496 | |
| | | | | | | | |
| |
Industrial Machinery – 0.8% | |
Dynacast International LLC and Dynacast Finance, Inc.,
9.250%, 7-15-19 | | | 1,266 | | | | 1,358 | |
Eaton Corp.,
1.500%, 11-2-17 | | | 1,940 | | | | 1,929 | |
| | | | | | | | |
| | | | | | | 3,287 | |
| | | | | | | | |
| |
Railroads – 0.2% | |
Kansas City Southern de Mexico S.A. de C.V.,
2.350%, 5-15-20 | | | 300 | | | | 288 | |
Union Pacific Corp.,
2.250%, 2-15-19 | | | 250 | | | | 253 | |
| | | | | | | | |
| | | | | | | 541 | |
| | | | | | | | |
| |
Trucking – 0.1% | |
Ryder System, Inc.:
2.450%, 11-15-18 | | | 100 | | | | 100 | |
2.350%, 2-26-19 | | | 400 | | | | 397 | |
| | | | | | | | |
| | | | | | | 497 | |
| | | | | | | | |
| |
Total Industrials – 1.8% | | | | 7,296 | |
Information Technology | |
| |
Data Processing & Outsourced
Services – 0.1% | |
Fidelity National Information Services, Inc.,
2.000%, 4-15-18 | | | 250 | | | | 249 | |
| | | | | | | | |
| |
It Consulting & Other Services – 0.4% | |
iGATE Corp.,
4.750%, 4-15-19 | | | 1,626 | | | | 1,626 | |
| | | | | | | | |
| |
Semiconductors – 0.7% | |
Broadcom Corp.,
2.700%, 11-1-18 | | | 250 | | | | 256 | |
Canadian Solar, Inc., Convertible,
4.250%, 2-15-19 (B) | | | 1,000 | | | | 882 | |
Micron Technology, Inc.,
5.500%, 2-1-25 (B) | | | 1,626 | | | | 1,642 | |
| | | | | | | | |
| | | | | | | 2,780 | |
| | | | | | | | |
| |
Systems Software – 0.3% | |
CA, Inc.,
2.875%, 8-15-18 | | | 150 | | | | 152 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Systems Software (Continued) | |
Oracle Corp.,
2.250%, 10-8-19 | | $ | 1,200 | | | $ | 1,209 | |
| | | | | | | | |
| | | | | | | 1,361 | |
| | | | | | | | |
| |
Total Information
Technology – 1.5% | | | | 6,016 | |
Materials | | | | | | | | |
| |
Diversified Metals & Mining – 0.3% | |
Anglo American plc,
4.125%, 4-15-21(B) | | | 500 | | | | 502 | |
BHP Billiton Finance (USA) Ltd. (GTD by BHP Billiton plc and BHP Billiton Ltd.),
2.050%, 9-30-18 | | | 100 | | | | 100 | |
Freeport-McMoRan Copper & Gold, Inc.,
2.375%, 3-15-18 | | | 150 | | | | 148 | |
Glencore Funding LLC,
3.125%, 4-29-19 (B) | | | 500 | | | | 501 | |
Teck Resources,
3.000%, 3-1-19 | | | 100 | | | | 98 | |
| | | | | | | | |
| | | | | | | 1,349 | |
| | | | | | | | |
| |
Fertilizers & Agricultural
Chemicals – 0.2% | |
Monsanto Co., | | | | | | | | |
2.125%, 7-15-19 | | | 600 | | | | 598 | |
| | | | | | | | |
Industrial Gases – 0.3% | |
Airgas, Inc.,
1.650%, 2-15-18 | | | 500 | | | | 493 | |
Praxair, Inc.:
1.250%, 11-7-18 | | | 400 | | | | 391 | |
3.000%, 9-1-21 | | | 500 | | | | 512 | |
| | | | | | | | |
| | | | | | | 1,396 | |
| | | | | | | | |
| |
Metal & Glass Containers – 0.1% | |
BlueScope
Steel (Finance) Ltd. and BlueScope Steel Finance (USA) LLC,
7.125%, 5-1-18 (B) | | | 555 | | | | 574 | |
| | | | | | | | |
| |
Specialty Chemicals – 0.1% | |
Albemarle Corp. (GTD by Albemarle Holdings
Corp. and Albemarle Holdings II Corp.),
3.000%, 12-1-19 | | | 150 | | | | 150 | |
RPM International, Inc.,
3.450%, 11-15-22 | | | 250 | | | | 246 | |
| | | | | | | | |
| | | | | | | 396 | |
| | | | | | | | |
| |
Total Materials – 1.0% | | | | 4,313 | |
Telecommunication Services | |
| |
Integrated Telecommunication
Services – 0.9% | |
AT&T, Inc.,
2.300%, 3-11-19 | | | 3,750 | | | | 3,746 | |
Verizon Communications, Inc.,
2.625%, 2-21-20 (B) | | | 107 | | | | 106 | |
| | | | | | | | |
| | | | | | | 3,852 | |
| | | | | | | | |
| |
Wireless Telecommunication
Service – 0.3% | |
American Tower Corp.,
4.700%, 3-15-22 | | | 995 | | | | 1,043 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Wireless Telecommunication
Service (Continued) | |
Virgin Media Finance plc,
4.875%, 2-15-22 | | $ | 200 | | | $ | 185 | |
| | | | | | | | |
| | | | | | | 1,228 | |
| | | | | | | | |
| |
Total Telecommunication
Services – 1.2% | | | | 5,080 | |
Utilities | |
| |
Electric Utilities – 0.2% | |
Electricite de France S.A.,
2.150%, 1-22-19 (B) | | | 500 | | | | 501 | |
PPL Energy Supply LLC,
4.600%, 12-15-21 | | | 100 | | | | 91 | |
Southern Co. (The),
2.450%, 9-1-18 | | | 150 | | | | 153 | |
| | | | | | | | |
| | | | | | | 745 | |
| | | | | | | | |
| |
Multi-Utilities – 0.1% | |
Dominion Resources, Inc.,
2.500%, 12-1-19 | | | 500 | | | | 501 | |
| | | | | | | | |
| |
Total Utilities – 0.3% | | | | 1,246 | |
| |
TOTAL CORPORATE
DEBT SECURITIES – 23.1% | | | $ | 95,778 | |
(Cost: $95,198) | | | | | | | | |
| | |
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS | | | | | | | | |
Mortgage-Backed Obligations – 0.8% | |
Federal National Mortgage Association Fixed Rate Pass-Through Certificates: | | | | | | | | |
6.000%, 9-1-17 | | | 62 | | | | 64 | |
5.000%, 1-1-18 | | | 27 | | | | 28 | |
5.500%, 4-1-18 | | | 2 | | | | 3 | |
5.000%, 5-1-18 | | | 21 | | | | 22 | |
4.500%, 7-1-18 | | | 360 | | | | 379 | |
7.000%, 9-1-25 | | | 57 | | | | 63 | |
6.500%, 10-1-28 | | | 132 | | | | 152 | |
6.500%, 2-1-29 | | | 69 | | | | 80 | |
7.500%, 4-1-31 | | | 76 | | | | 88 | |
7.000%, 7-1-31 | | | 88 | | | | 102 | |
7.000%, 9-1-31 | | | 153 | | | | 179 | |
6.500%, 2-1-32 | | | 320 | | | | 377 | |
7.000%, 2-1-32 | | | 201 | | | | 235 | |
7.000%, 3-1-32 | | | 81 | | | | 96 | |
7.000%, 7-1-32 | | | 127 | | | | 148 | |
6.000%, 9-1-32 | | | 598 | | | | 687 | |
6.000%, 2-1-33 | | | 71 | | | | 81 | |
5.500%, 5-1-33 | | | 154 | | | | 174 | |
5.500%, 6-1-33 | | | 94 | | | | 106 | |
U.S. Department of Veterans Affairs, Guaranteed REMIC Pass-Through Certificates, Vendee Mortgage Trust 1997-A, Class 3-A,
8.293%, 12-15-26 | | | 48 | | | | 58 | |
| | | | | | | | |
| | | | | | | 3,122 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 0.8% | | | $ | 3,122 | |
(Cost: $2,789) | | | | | | | | |
SCHEDULE OF INVESTMENTS
Balanced (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
UNITED STATES
GOVERNMENT
OBLIGATIONS | | Principal | | | Value | |
Treasury Obligations – 2.6% | |
U.S. Treasury Notes: | | | | | | | | |
0.625%, 2-15-17 | | $ | 9,200 | | | $ | 9,174 | |
0.625%, 5-31-17 | | | 1,500 | | | | 1,491 | |
| | | | | | | | |
| | | | | | | 10,665 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS – 2.6% | | | $ | 10,665 | |
(Cost: $10,668) | | | | | | | | |
| |
| SHORT-TERM SECURITIES | | | | |
Commercial Paper(D) – 2.3% | |
CVS Caremark Corp.,
0.450%, 1-13-15 | | | 2,000 | | | | 1,999 | |
Federal Home Loan Bank,
0.020%, 1-26-15 | | | 1,000 | | | | 1,000 | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | | 1,749 | | | | 1,749 | |
| | | | | | | | |
SHORT-TERM
SECURITIES (Continued) | | Principal | | | Value | |
Commercial Paper(D) (Continued) | |
Wal-Mart Stores, Inc.,
0.090%,
1-13-15 | | $ | 5,000 | | | $ | 5,000 | |
| | | | | | | | |
| | | | | | | 9,748 | |
| | | | | | | | |
| |
Master Note – 1.4% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (E) | | | 5,716 | | | | 5,716 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 3.7% | | | $ | 15,464 | |
(Cost: $15,464) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.8% | | | $ | 413,824 | |
(Cost: $329,950) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF
LIABILITIES – 0.2% | | | | 864 | |
| |
NET ASSETS – 100.0% | | | $ | 414,688 | |
Notes to Schedule of Investments
| * | Not shown due to rounding. |
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $20,943 or 5.0% of net assets. |
| (C) | Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy. |
| (D) | Rate shown is the yield to maturity at December 31, 2014. |
| (E) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 288,795 | | | $ | — | | | $ | — | |
Corporate Debt Securities | | | — | | | | 92,563 | | | | 3,215 | |
United States Government Agency Obligations | | | — | | | | 3,122 | | | | — | |
United States Government Obligations | | | — | | | | 10,665 | | | | — | |
Short-Term Securities | | | — | | | | 15,464 | | | | — | |
Total | | $ | 288,795 | | | $ | 121,814 | | | $ | 3,215 | |
During the period ended December 31, 2014, securities totaling $683 were transferred from Level 2 to Level 3 due to decreased availability of observable market data due to decreased market activity or information for these securities. There were no transfers between Level 1 and 2 during the period.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
GTD = Guaranteed
REMIC = Real Estate Mortgage Investment Conduit
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Mark J. Otterstrom
Susan Regan
Below, Mark J. Otterstrom, CFA, and Susan K. Regan, portfolio managers of Ivy Funds VIP Bond, discuss positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Otterstrom has managed the Portfolio since 2008 and has 28 years of industry experience. Ms. Regan was named portfolio manager in August 2014 and has 27 years industry experience.
Fiscal Year Performance
| | | | |
For the 12 months ended December 31, 2014 | | | | |
Ivy Funds VIP Bond | | | 4.34% | |
Benchmark(s) and/or Lipper Category | | | | |
Barclays U.S. Aggregate Bond Index | | | 5.97% | |
(generally reflects the performance of securities representing the bond market) | | | | |
Lipper Variable Annuity Corporate Debt Funds A Rated Funds Universe Average | | | 6.12% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Our biggest challenge in 2014 was positioning the Portfolio to take advantage of major market moves. Given the strength of the U.S. economy in the fourth quarter of 2013 and the Federal Reserve’s (Fed’s) stated intention to begin removing a major source of excess liquidity in the market (known as QE3), we put the Portfolio in a very defensive position. We had anticipated rates to continue to grind higher in 2014. We underappreciated the economic weakness during the first quarter of 2014 and the severity of the geopolitical risks that were arising worldwide. While the U.S. economy rebounded sharply in the second half of 2014, the flight-to-quality trade into the longer dated U.S. Treasury bonds dominated the bond market. Our defensive positions in the Portfolio and our short duration relative to our benchmark led to the Portfolio underperforming both its benchmark and Lipper peer group during this major market move.
The International Monetary Fund has significantly lowered its global growth projections for 2015. The expected better economic growth in the U.S., while still rather anemic, is one of the few bright spots in their forecasts. This led to a flattening of the U.S. Treasury yield curve over the last months of the year. In the fourth quarter of 2014 we began to shift to a barbell structure in the Portfolio to take advantage of this yield curve flattening.
Global weakness has led to an increased flight-to-quality trade and helped lower the yields on the long end of the U.S. Treasury curve. The strength in our domestic economy and improvement in our job market has led the Fed to contemplate raising U.S. short-term interest rates in 2015. While the 10-year Treasury rallied over 80 basis points for fiscal year 2014, the yield on the two-year Treasury sold off nearly 30 basis points. The five-year Treasury remained relatively flat over the same time period. We think the dynamics leading to this flatter yield curve will be with us well into next year.
The Fed officially ended QE3 in December. The focus now is on the timing of the first fed funds rate increase next year. The current expectation is for a 25 basis point rate increase in June or July of 2015. However, this date is very data dependent. Given the strong revision to third quarter gross domestic product (GDP) growth and what looks like a fairly strong fourth quarter, the June start date for Fed tightening seems to be firmly in place. If U.S. economic growth in early 2015 is brought down by the extreme weakness in Europe and the emerging markets, then the lift off date for Fed tightening could be delayed.
The dramatic collapse in the price of oil has had both negative and positive effects to U.S. economic growth. States whose economies are dependent on oil exploration and production could easily fall into a recession in 2015. States who are net consumers of oil have already begun to see a very positive effect of lower oil prices. The cost of gasoline has declined to half of where it was a year ago. This has the very real effect of increasing the buying power of U.S. consumers. We believe that consumer spending, excluding gasoline, should continue to be robust going into 2015.
Even as the Fed begins to raise the fed funds rate, we believe the strong flight-to-quality trade should continue to keep Treasury yields at the long end relatively low. We have been overweight corporates over the last few years and plan to continue this overweight position as we move into 2015. With economic conditions improving in the U.S., we should see relatively stable corporate bond spreads on investment-grade bonds. The new normal appears to be significantly less net new issuance of mortgage-backed securities. As a result, mortgage spreads continue to be tight. Our mortgage holdings are structured to experience less extension risk during periods of rising interest rates.
During the fourth quarter we saw another dramatic rally at the long end of the Treasury bond market. Continued weakness in Europe, and a dramatic sell-off in emerging market bonds, led to a strong flight-to-quality trade into the Treasury market. As we move forward in a very unpredictable market the elevated level of volatility seen over the last few years could easily persist. With the short end of the yield curve anchored by the low fed funds rate, we expect to see continued volatility in the middle and longer end of the curve. Even slight changes in the U.S. economic outlook can have significant short-term effects on longer duration securities.
While the Fed still appears to be willing to keep rates low for a long time, they have indicated a growing desire to begin to normalize monetary policy. They have indicated the risk of higher inflation is less of a concern than the threat of renewed economic weakness. The portfolio’s duration is currently neutral its benchmark duration and we expect to maintain this position going into 2015. We anticipate continued demand for spread product within the high-grade bond market. We are willing to take additional credit risk when we believe we are being compensated to do so.
Past performance is no guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. These and other risks are more fully described in the Portfolio’s prospectus.
Certain U.S. government securities in which the Portfolio may invest, such as Treasury securities and securities issued by the Government National Mortgage Association (Ginnie Mae), are backed by the full faith and credit of the U.S. government. However, other U.S. government securities in which the Portfolio may invest, such as securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB) are not backed by the full faith and credit of the U.S. government, are not insured or guaranteed by the U.S. government and, instead, may be supported only by the right of the issuer to borrow from the U.S. Treasury or by the credit of the issuer.
Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. These and other risks are more fully described in the fund’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Bond.
PORTFOLIO HIGHLIGHTS
Bond | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Bonds | | | 91.3% | |
Corporate Debt Securities | | | 57.0% | |
United States Government and Government Agency Obligations | | | 29.2% | |
Municipal Bonds | | | 2.7% | |
Other Government Securities | | | 1.8% | |
Mortgage-Backed Securities | | | 0.6% | |
Cash and Cash Equivalents | | | 8.7% | |
Quality Weightings
| | | | |
Investment Grade | | | 81.1% | |
AAA | | | 1.4% | |
AA | | | 31.9% | |
A | | | 15.7% | |
BBB | | | 32.1% | |
Non-Investment Grade | | | 10.2% | |
BB | | | 5.8% | |
B | | | 0.7% | |
Below CCC | | | 0.1% | |
Non-rated | | | 3.6% | |
Cash and Cash Equivalents | | | 8.7% | |
Our preference is to always use ratings obtained from Standard & Poor’s. For securities not rated by Standard & Poor’s, ratings are obtained from Moody’s. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 4.34% | |
5-year period ended 12-31-14 | | | 4.22% | |
10-year period ended 12-31-14 | | | 3.99% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES | | Principal | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 2.6% | |
Limited Brands, Inc.: | | | | | | | | |
8.500%,
6-15-19 | | $ | 3,485 | | | $ | 4,130 | |
7.000%, 5-1-20 | | | 1,000 | | | | 1,135 | |
5.625%,
2-15-22 | | | 2,665 | | | | 2,865 | |
| | | | | | | | |
| | | | | | | 8,130 | |
| | | | | | | | |
| |
Automobile Manufacturers – 1.1% | |
General Motors Co.: | | | | | | | | |
3.500%,
10-2-18 | | | 1,458 | | | | 1,487 | |
5.000%, 4-1-35 | | | 2,000 | | | | 2,084 | |
| | | | | | | | |
| | | | | | | 3,571 | |
| | | | | | | | |
| |
Broadcasting – 0.8% | |
CBS Corp. (GTD by CBS Operations, Inc.),
2.300%,
8-15-19 | | | 2,550 | | | | 2,520 | |
| | | | | | | | |
| |
Cable & Satellite – 1.9% | |
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc.: | | | | | | | | |
3.800%,
3-15-22 | | | 1,619 | | | | 1,647 | |
3.950%,
1-15-25 | | | 815 | | | | 822 | |
Time Warner, Inc., | | | | | | | | |
4.750%,
3-29-21 | | | 3,000 | | | | 3,274 | |
| | | | | | | | |
| | | | | | | 5,743 | |
| | | | | | | | |
| |
Department Stores – 1.0% | |
Macy’s Retail Holdings, Inc., | | | | | | | | |
3.875%,
1-15-22 | | | 3,000 | | | | 3,118 | |
| | | | | | | | |
| |
Distributors – 1.0% | |
QVC, Inc., | | | | | | | | |
5.125%, 7-2-22 | | | 3,000 | | | | 3,157 | |
| | | | | | | | |
| |
Homebuilding – 1.3% | |
Toll Brothers Finance Corp.,
4.375%,
4-15-23 | | | 4,055 | | | | 3,974 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 0.4% | |
Marriott International, Inc.,
3.375%,
10-15-20 | | | 1,277 | | | | 1,307 | |
| | | | | | | | |
| |
Internet Retail – 1.5% | |
Amazon.com, Inc., | | | | | | | | |
4.800%,
12-5-34 | | | 4,370 | | | | 4,570 | |
| | | | | | | | |
| |
Total Consumer Discretionary – 11.6% | | | | 36,090 | |
Consumer Staples | |
| |
Brewers – 1.1% | |
SABMiller plc, | | | | | | | | |
6.500%,
7-15-18(A) | | | 3,000 | | | | 3,425 | |
| | | | | | | | |
| |
Drug Retail – 0.3% | |
Walgreen Co., | | | | | | | | |
1.800%,
9-15-17 | | | 1,000 | | | | 1,001 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Food Retail – 0.9% | |
Kroger Co. (The), | | | | | | | | |
6.800%,
12-15-18 | | $ | 2,245 | | | $ | 2,618 | |
| | | | | | | | |
| |
Household Products – 0.9% | |
Procter & Gamble Co. (The), | | | | | | | | |
8.000%, 9-1-24 | | | 2,000 | | | | 2,807 | |
| | | | | | | | |
| |
Total Consumer
Staples – 3.2% | | | | 9,851 | |
Energy | | | | | | | | |
| |
Coal & Consumable Fuels – 0.6% | |
Peabody Energy Corp., | | | | | | | | |
6.500%, 9-15-20 | | | 2,000 | | | | 1,735 | |
| | | | | | | | |
| |
Oil & Gas Equipment & Services – 1.6% | |
Enterprise Products Operating LLC (GTD by Enterprise Products Partners L.P.), | | | | | | | | |
6.500%, 1-31-19 | | | 2,000 | | | | 2,292 | |
Schlumberger Investment S.A. (GTD by Schlumberger Ltd.), | | | | | | | | |
3.300%,
9-14-21(A) | | | 2,725 | | | | 2,797 | |
| | | | | | | | |
| | | | | | | 5,089 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 2.9% | |
ConocoPhillips Co. (GTD by ConocoPhillips), | | | | | | | | |
4.150%,
11-15-34 | | | 2,500 | | | | 2,565 | |
EQT Corp., | | | | | | | | |
8.125%, 6-1-19 | | | 3,494 | | | | 4,212 | |
Plains Exploration & Production Co., | | | | | | | | |
6.125%, 6-15-19 | | | 1,922 | | | | 2,081 | |
| | | | | | | | |
| | | | | | | 8,858 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 2.2% | |
Copano Energy LLC and Copano Energy Finance Corp., | | | | | | | | |
7.125%, 4-1-21 | | | 984 | | | | 1,069 | |
Plains All American Pipeline L.P. and PAA FinanceCorp., | | | | | | | | |
3.600%, 11-1-24 | | | 3,000 | | | | 2,945 | |
Tennessee Gas Pipeline Co., | | | | | | | | |
7.000%, 3-15-27 | | | 2,000 | | | | 2,387 | |
Williams Co., Inc. (The), | | | | | | | | |
4.550%, 6-24-24 | | | 460 | | | | 428 | |
| | | | | | | | |
| | | | | | | 6,829 | |
| | | | | | | | |
| |
Total Energy – 7.3% | | | | 22,511 | |
Financials | | | | | | | | |
| |
Asset Management & Custody
Banks – 0.9% | |
Ares Capital Corp., | | | | | | | | |
3.875%, 1-15-20 | | | 2,780 | | | | 2,772 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Consumer Finance – 1.2% | |
Discover Financial Services, | | | | | | | | |
3.950%, 11-6-24 | | $ | 2,800 | | | $ | 2,815 | |
General Motors Financial Co., Inc. (GTD by AmeriCredit Financial Services, Inc.), | | | | | | | | |
3.500%, 7-10-19 | | | 800 | | | | 817 | |
| | | | | | | | |
| | | | | | | 3,632 | |
| | | | | | | | |
| |
Diversified Banks – 1.1% | |
Bank of America Corp., | | | | | | | | |
5.650%, 5-1-18 | | | 2,000 | | | | 2,222 | |
HSBC Holdings plc, | | | | | | | | |
5.100%, 4-5-21 | | | 1,150 | | | | 1,300 | |
| | | | | | | | |
| | | | | | | 3,522 | |
| | | | | | | | |
| |
Investment Banking &
Brokerage – 0.3% | |
Morgan Stanley, | | | | | | | | |
3.700%, 10-23-24 | | | 1,000 | | | | 1,014 | |
| | | | | | | | |
Other Diversified Financial
Services – 1.3% | |
Citigroup, Inc., | | | | | | | | |
2.550%, 4-8-19 | | | 1,668 | | | | 1,679 | |
TIAA Asset Management Finance Co. LLC, | | | | | | | | |
4.125%, 11-1-24(A) | | | 2,400 | | | | 2,459 | |
| | | | | | | | |
| | | | | | | 4,138 | |
| | | | | | | | |
| |
Regional Banks – 0.5% | |
PNC Bank N.A., | | | | | | | | |
3.300%, 10-30-24 | | | 1,500 | | | | 1,526 | |
| | | | | | | | |
| |
Specialized REITs – 0.4% | |
Crown Castle International Corp., | | | | | | | | |
5.250%, 1-15-23 | | | 1,027 | | | | 1,047 | |
| | | | | | | | |
| |
Total Financials – 5.7% | | | | 17,651 | |
Health Care | | | | | | | | |
| |
Health Care Equipment – 1.0% | |
Medtronic, Inc., | | | | | | | | |
4.375%, 3-15-35(A) | | | 2,940 | | | | 3,119 | |
| | | | | | | | |
| |
Health Care Services – 1.1% | |
Medco Health Solutions, Inc., | | | | | | | | |
4.125%, 9-15-20 | | | 3,180 | | | | 3,377 | |
| | | | | | | | |
| |
Health Care Supplies – 0.9% | |
DENTSPLY International, Inc., | | | | | | | | |
4.125%, 8-15-21 | | | 2,500 | | | | 2,621 | |
| | | | | | | | |
| |
Pharmaceuticals – 0.4% | |
Mylan, Inc.,
2.550%, 3-28-19 | | | 1,300 | | | | 1,295 | |
| | | | | | | | |
| |
Total Health Care – 3.4% | | | | 10,412 | |
SCHEDULE OF INVESTMENTS
Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Industrials | | | | | | | | |
|
Aerospace & Defense – 0.7% | |
BAE Systems Holdings, Inc., | | | | | | | | |
3.800%,
10-7-24(A) | | $ | 2,000 | | | $ | 2,050 | |
| | | | | | | | |
| | |
Airlines – 0.4% | | | | | | | | |
Southwest Airlines Co., | | | | | | | | |
5.125%, 3-1-17 | | | 1,180 | | | | 1,264 | |
| | | | | | | | |
| |
Electrical Components &
Equipment – 0.8% | |
WESCO Distribution, Inc., | | | | | | | | |
5.375%,
12-15-21 | | | 2,375 | | | | 2,396 | |
| | | | | | | | |
| | |
Environmental & Facilities Services – 3.2% | | | | | | | | |
Republic Services, Inc., | | | | | | | | |
4.750%, 5-15-23 | | | 3,000 | | | | 3,334 | |
Waste Management, Inc.: | | | | | | | | |
4.600%, 3-1-21 | | | 3,600 | | | | 3,987 | |
7.100%, 8-1-26 | | | 2,065 | | | | 2,704 | |
| | | | | | | | |
| | | | | | | 10,025 | |
| | | | | | | | |
| | |
Railroads – 0.3% | | | | | | | | |
Burlington Northern Santa Fe LLC, | | | | | | | | |
3.400%, 9-1-24 | | | 1,000 | | | | 1,018 | |
| | | | | | | | |
| |
Trading Companies &
Distributors – 0.7% | |
HD Supply, Inc., | | | | | | | | |
5.250%,
12-15-21(A) | | | 2,007 | | | | 2,042 | |
| | | | | | | | |
| | |
Trucking – 0.6% | | | | | | | | |
Penske Truck Leasing Co. L.P., | | | | | | | | |
2.875%,
7-17-18(A) | | | 2,000 | | | | 2,034 | |
| | | | | | | | |
| |
Total Industrials – 6.7% | | | | 20,829 | |
Information Technology | |
| |
Data Processing & Outsourced Services – 1.9% | |
Alliance Data Systems Corp.: | | | | | | | | |
5.250%,
12-1-17(A) | | | 4,500 | | | | 4,635 | |
5.375%,
8-1-22(A) | | | 1,269 | | | | 1,253 | |
| | | | | | | | |
| | | | | | | 5,888 | |
| | | | | | | | |
| |
Electronic Equipment &
Instruments – 1.3% | |
Xerox Corp., | | | | | | | | |
6.350%, 5-15-18 | | | 3,452 | | | | 3,903 | |
| | | | | | | | |
| |
Electronic Manufacturing
Services – 1.2% | |
Jabil Circuit, Inc., | | | | | | | | |
8.250%, 3-15-18 | | | 3,150 | | | | 3,581 | |
| | | | | | | | |
| |
Internet Software & Services – 0.6% | |
Alibaba Group Holdings Ltd., | | | | | | | | |
3.600%,
11-28-24(A) | | | 2,040 | | | | 2,023 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Systems Software – 0.9% | |
CA, Inc., | | | | | | | | |
5.375%,
12-1-19 | | $ | 2,580 | | | $ | 2,856 | |
| | | | | | | | |
| |
Total Information Technology – 5.9% | | | | 18,251 | |
Materials | | | | | | | | |
| |
Diversified Chemicals – 1.3% | |
Dow Chemical Co. (The), | | | | | | | | |
3.500%,
10-1-24 | | | 4,000 | | | | 3,960 | |
| | | | | | | | |
| |
Diversified Metals & Mining – 1.4% | |
Glencore Funding LLC, | | | | | | | | |
3.125%,
4-29-19(A) | | | 2,500 | | | | 2,506 | |
Rio Tinto Finance (USA) Ltd., | | | | | | | | |
3.750%,
9-20-21 | | | 1,834 | | | | 1,885 | |
| | | | | | | | |
| | | | | | | 4,391 | |
| | | | | | | | |
|
Forest Products – 1.4% | |
Georgia-Pacific LLC, | | | | | | | | |
5.400%,
11-1-20(A) | | | 4,000 | | | | 4,501 | |
| | | | | | | | |
|
Specialty Chemicals – 0.7% | |
Methanex Corp., | | | | | | | | |
5.250%, 3-1-22 | | | 1,904 | | | | 2,045 | |
| | | | | | | | |
| |
Total Materials – 4.8% | | | | 14,897 | |
Telecommunication Services | |
| |
Integrated Telecommunication
Services – 2.7% | |
Telefonos de Mexico S.A.B de C.V. (GTD by America Movil S.A.B. de C.V.), | | | | | | | | |
5.500%,
11-15-19 | | | 3,500 | | | | 3,916 | |
Verizon
Communications,
Inc., | | | | | | | | |
5.150%,
9-15-23 | | | 4,000 | | | | 4,417 | |
| | | | | | | | |
| | | | | | | 8,333 | |
| | | | | | | | |
|
Wireless Telecommunication
Service – 1.0% | |
American Tower Corp., | | | | | | | | |
4.700%,
3-15-22 | | | 3,000 | | | | 3,146 | |
| | | | | | | | |
| |
Total Telecommunication Services – 3.7% | | | | 11,479 | |
Utilities | | | | | | | | |
|
Electric Utilities – 1.1% | |
Detroit Edison Co. (The), | | | | | | | | |
3.900%, 6-1-21 | | | 3,000 | | | | 3,246 | |
| | | | | | | | |
|
Multi-Utilities – 2.9% | |
Dominion Resources, Inc., Series F, | | | | | | | | |
5.250%, 8-1-33 | | | 2,500 | | | | 2,933 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Multi-Utilities (Continued) | |
Duke Energy Indiana, Inc., | |
3.750%,
7-15-20 | | $ | 3,000 | | | $ | 3,179 | |
NorthWestern Corp., | | | | | | | | |
6.340%, 4-1-19 | | | 2,400 | | | | 2,793 | |
| | | | | | | | |
| | | | | | | 8,905 | |
| | | | | | | | |
| |
Water Utilities – 0.7% | | | | | |
California Water Service Co., | | | | | | | | |
5.875%, 5-1-19 | | | 2,000 | | | | 2,290 | |
| | | | | | | | |
| |
Total Utilities – 4.7% | | | | 14,441 | |
| |
TOTAL CORPORATE DEBT SECURITIES – 57.0% | | | $ | 176,412 | |
(Cost: $169,730) | | | | | | | | |
| | |
MORTGAGE-BACKED SECURITIES | | | | | | | | |
|
Non-Agency REMIC/CMO – 0.6% | |
MASTR Adjustable Rate Mortgage Trust 2005-1, | | | | | | | | |
2.724%,
3-25-35 (B) | | | 1,810 | | | | 171 | |
Merrill Lynch Mortgage Trust 2005-CIP1, | | | | | | | | |
4.949%,
7-12-38 (B) | | | 1,606 | | | | 1,605 | |
Structured Adjustable Rate Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2004-1, | | | | | | | | |
2.531%,
2-25-34 (B) | | | 437 | | | | 35 | |
Structured Adjustable Rate Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2004-3AC, | | | | | | | | |
2.398%,
3-25-34 (B) | | | 794 | | | | 57 | |
| | | | | | | | |
| | | | | | | 1,868 | |
| | | | | | | | |
| |
TOTAL MORTGAGE-BACKED
SECURITIES – 0.6% | | | $ | 1,868 | |
(Cost: $4,602) | | | | | | | | |
| | |
MUNICIPAL BONDS | | | | | | | | |
Massachusetts – 0.9% | | | | | |
Cmnwlth of MA, Fed Hwy Grant Anticipation Notes (Accelerated Bridge Prog), Ser 2010A, | | | | | | | | |
4.285%,
12-15-18 | | $ | 2,500 | | | | 2,724 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| MUNICIPAL BONDS (Continued) | | Principal | | | Value | |
| |
New York – 1.8% | |
NYC Indl Dev Agy, Rental Rev Bonds (Yankee Stadium Proj), Ser 2009,
11.000%, 3-1-29 (A) | | $ | 4,000 | | | $ | 5,658 | |
| | | | | | | | |
| |
TOTAL MUNICIPAL BONDS – 2.7% | | | $ | 8,382 | |
(Cost: $6,569) | | | | | | | | |
| |
OTHER GOVERNMENT SECURITIES(C) | | | | | |
Canada – 1.1% | |
Province de Quebec,
7.140%, 2-27-26 | | | 2,500 | | | | 3,381 | |
| | | | | | | | |
| |
Israel – 0.7% | |
State of Israel,
4.000%, 6-30-22 | | | 2,165 | | | | 2,346 | |
| | | | | | | | |
| |
TOTAL OTHER GOVERNMENT SECURITIES – 1.8% | | | $ | 5,727 | |
(Cost: $4,968) | | | | | | | | |
| |
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS | | | | | |
Agency Obligations – 1.5% | |
Federal National Mortgage Association,
1.500%, 4-25-28 | | | 4,750 | | | | 4,686 | |
| | | | | | | | |
| |
Mortgage-Backed Obligations – 22.8% | |
Federal Home Loan Mortgage Corp. Agency REMIC/CMO: | | | | | | | | |
4.000%, 6-15-26 | | | 4,567 | | | | 4,899 | |
4.000%, 11-15-36 | | | 1,177 | | | | 1,232 | |
4.500%, 9-15-37 | | | 982 | | | | 1,001 | |
4.500%, 8-15-39 | | | 1,482 | | | | 1,554 | |
4.349%, 12-25-44(A)(B) | | | 1,000 | | | | 1,056 | |
3.656%, 10-25-45(A)(B) | | | 2,000 | | | | 2,025 | |
3.502%, 11-25-45(A)(B) | | | 1,000 | | | | 992 | |
4.595%, 11-25-46(A)(B) | | | 2,055 | | | | 2,204 | |
4.421%, 12-25-48(A)(B) | | | 1,000 | | | | 1,065 | |
Federal Home Loan Mortgage Corp. Fixed Rate Participation Certificates: | | | | | | | | |
4.186%, 12-25-20 | | | 4,000 | | | | 4,410 | |
3.000%, 1-1-33 | | | 858 | | | | 884 | |
Federal Home Loan Mortgage Corp. Fixed Rate Pass-Through Certificates: | | | | | | | | |
3.000%, 8-1-28 | | | 4,589 | | | | 4,757 | |
3.500%, 10-1-28 | | | 5,001 | | | | 5,276 | |
Federal National Mortgage Association Agency REMIC/CMO: | | | | | | | | |
3.000%, 2-25-25 | | | 3,697 | | | | 3,842 | |
| | | | | | | | |
UNITED STATES
GOVERNMENT AGENCY
OBLIGATIONS (Continued) | | Principal | | | Value | |
Mortgage-Backed Obligations (Continued) | |
5.500%, 11-25-36(D) | | $ | 1,609 | | | $ | 275 | |
5.500%, 4-25-37 | | | 827 | | | | 888 | |
4.000%, 5-25-39 | | | 1,060 | | | | 1,101 | |
4.500%, 6-25-40 | | | 888 | | | | 942 | |
Federal National Mortgage Association Fixed Rate Pass-Through Certificates: | | | | | | | | |
4.514%, 12-1-19 | | | 7,270 | | | | 8,054 | |
5.500%, 10-1-21 | | | 1,401 | | | | 1,532 | |
6.000%, 7-1-22 | | | 975 | | | | 1,065 | |
6.000%, 9-1-22 | | | 1,577 | | | | 1,713 | |
3.000%, 7-1-28 | | | 4,436 | | | | 4,611 | |
5.500%, 2-1-35 | | | 1,020 | | | | 1,158 | |
4.000%, 10-1-43 | | | 5,039 | | | | 5,403 | |
Government National Mortgage Association Agency REMIC/CMO: | | | | | | | | |
2.500%, 9-20-40 | | | 3,820 | | | | 3,872 | |
2.000%, 3-16-42 | | | 4,705 | | | | 4,596 | |
0.362%, 6-17-45(B)(D) | | | 95 | | | | 1 | |
| | | | | | | | |
| | | | | | | 70,408 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 24.3% | | | $ | 75,094 | |
(Cost: $76,188) | | | | | | | | |
| |
UNITED STATES GOVERNMENT OBLIGATIONS | | | | | |
Treasury Obligations – 4.9% | |
U.S. Treasury Notes: | | | | | | | | |
2.125%, 8-15-21 | | | 10,000 | | | | 10,116 | |
2.000%, 2-15-23 | | | 5,000 | | | | 4,976 | |
| | | | | | | | |
| | | | | | | 15,092 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS – 4.9% | | | $ | 15,092 | |
(Cost: $15,024) | | | | | | | | |
| |
SHORT-TERM SECURITIES | | | | | |
Commercial Paper(E) – 6.7% | |
Coca-Cola Co. (The),
0.130%, 2-12-15 | | | 5,000 | | | | 4,999 | |
Federal Home Loan Bank,
0.020%, 1-26-15 | | | 1,000 | | | | 1,000 | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | | 1,674 | | | | 1,674 | |
Mondelez International, Inc.,
0.520%, 1-21-15 | | | 2,200 | | | | 2,199 | |
St. Jude Medical, Inc.: | | | | | | | | |
0.220%, 1-15-15 | | | 5,000 | | | | 5,000 | |
0.250%, 1-26-15 | | | 5,000 | | | | 4,999 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 1,000 | | | | 1,000 | |
| | | | | | | | |
| | | | | | | 20,871 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM
SECURITIES (Continued) | | Principal | | | Value | |
| |
Master Note – 1.3% | |
Toyota Motor Credit Corp., 0.126%, 1-7-15 (F) | | $ | 3,917 | | | $ | 3,917 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM SECURITIES – 8.0% | | | $ | 24,788 | |
(Cost: $24,788) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 99.3% | | | $ | 307,363 | |
(Cost: $301,869) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.7% | | | | 2,189 | |
| |
NET ASSETS – 100.0% | | | $ | 309,552 | |
SCHEDULE OF INVESTMENTS
Bond (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| (A) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $45,844 or 14.8% of net assets. |
| (B) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. |
| (C) | Other Government Securities include emerging markets sovereign, quasi-sovereign, corporate and supranational agency and organization debt securities. |
| (D) | Interest-only security. Amount shown as principal represents notional amount for computation of interest. |
| (E) | Rate shown is the yield to maturity at December 31, 2014. |
| (F) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Corporate Debt Securities | | $ | — | | | $ | 176,412 | | | $ | — | |
Mortgage-Backed Securities | | | — | | | | 1,868 | | | | — | |
Municipal Bonds | | | — | | | | 8,382 | | | | — | |
Other Government Securities | | | — | | | | 5,727 | | | | — | |
United States Government Agency Obligations | | | — | | | | 75,094 | | | | — | |
United States Government Obligations | | | — | | | | 15,092 | | | | — | |
Short-Term Securities | | | — | | | | 24,788 | | | | — | |
Total | | $ | — | | | $ | 307,363 | | | $ | — | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronyms are used throughout this schedule:
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
REITS = Real Estate Investment Trusts
REMIC = Real Estate Mortgage Investment Conduit
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Erik R. Becker
Gustaf C. Zinn
Below, Erik R. Becker, CFA, and Gustaf C. Zinn, CFA, portfolio managers of Ivy Funds VIP Core Equity, discuss positioning, performance and results for the fiscal year ended December 31, 2014. They have each managed the Portfolio since 2006. Both have 16 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Core Equity | | | 9.68% | |
Benchmark(s) and/or Lipper Category | | | | |
S&P 500 Index | | | 13.69% | |
(generally reflects the performance of large- and medium-sized U.S. stocks) | | | | |
Lipper Variable Annuity Large-Cap Core Funds Universe Average | | | 11.51% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers
The S&P 500 increased 13.69% in 2014. During the year, the market experienced relatively minor corrections in late January and October. The January correction was related to an extraordinary cold winter and the corresponding negative effect on economic activity. The October correction was related to the growing Ebola outbreak and Russian aggression in the Ukraine. Market leadership was unusual in a year that saw double-digit returns with mostly defensive sectors driving above average returns and more cyclical sectors underperforming. Utilities, health care, information technology and consumer staples drove the 2014 rally while energy, telecommunications and materials fared the worst. The unusual market leadership, we believe, was driven by continued weakness in economic growth outside the U.S. that led to another year of significant declines in interest rates. Indeed, the 10-year Treasury Bond began the year around 3.0% and finished below 2.2%. The rapid decline in interest rates led a continued flight toward income-oriented investments, including utilities, domestic consumer staples and even mega-cap technology stocks. Investors preferred domestic exposure over international and generally lower volatility earnings streams and lower beta stocks.
Contributors and detractors
The Portfolio underperformed the benchmark in period ended December 31, 2014. Negative performance was almost evenly split between negative sector selection and negative stock selection within each sector. From a sector standpoint, our worst decisions for the year were to overweight the consumer discretionary and industrials sectors while taking an underweight position in Utilities.
From and individual stock standpoint, Noble Energy, Flowserve, CBS Corp., Amazon.com and Pentair together drove more than 200 basis points of underperformance. The Portfolio has exited its position in Pentair. While we certainly feel that we could have performed better in the market environment we witnessed in 2014, continued money flows into yield vehicles irrespective of any change in underlying earnings power is not something we embrace within the Portfolio’s management philosophy.
Outlook
We believe the U.S. economy outlook has improved modestly since our last update. Third quarter growth at 5% surprised to the upside and all indications point to 2.5% to 3% growth in fourth quarter, which could make for strong consecutive quarter growth. Labor markets continue to slowly tighten. While average hourly earnings are still experiencing around 2% growth, an increase in hours worked has led to accelerating aggregate wages. The decline in gasoline prices should serve as a meaningful stimulus: Perhaps as much as $150 billion domestically and over $1 trillion globally. Along with better wages, we expect to see a broadening of economic prosperity this year to segments of the population that have experienced little benefit this cycle. We have structured Portfolio exposure to the consumer discretionary, consumer staples and financials sectors accordingly.
Under the leadership of Janet Yellen, the Federal Reserve (Fed) has made abundantly clear it will maintain accommodative policy until it sees progress on the employment and wage front. Previous interest rate cycles usually began when wage growth accelerated toward 4%, which we don’t expect anytime soon. While the current consensus calls for the Fed to increase short-term policy rates sometime around mid-year, the rapid decline in commodity prices (and therefore declining inflationary pressures), falling longer-term interest rates in most developed markets, and rapidly changing currency values have increased the uncertainty around central bank policy in our view. We believe policymakers understand the risk of stoking instability around the world by exaggerating already rising currency volatility and capital flight from emerging economies. Clearly, they face a difficult task because most of the world needs more of the accelerator while the U.S. might need the brakes before too long.
2014 capped another year in which stock prices in the U.S. rose faster than underlying earnings growth. The dramatic decline in energy prices and 15% increase in the U.S. Dollar Index on a year-over-year basis will likely dent earnings growth expectations in 2015. We are skeptical that another year of price-to-earnings (P/E) expansion is in the cards in 2015 and expect modest returns in the U.S. equity market as a whole. Though we have been wrong over the past 12 months, we believe the P/E expansion in low growth and low volatility names is unsustainable. We think we can be successful in 2015 by investing in companies with market-like P/E multiples that offer growth rates superior to the S&P as a whole. Of course, the Portfolio’s overriding philosophy of investing in competitively advantaged companies capable of exceeding multi-year earnings estimates still holds.
Over the past three months, we have decreased the cyclicality of the Portfolio by reducing exposure to the energy sector and companies exposed to the general level of capital investment in and around the energy patch. This also translates into reduced investments in the industrials and materials sectors, and reduced exposure to the North American manufacturing renaissance theme, at least temporarily. Ultimately, we view current oil prices as unsustainable over a longer time frame, as even $100-$115 oil failed to lead to any consistent production growth globally other than in North America. We have increased weightings within the health care, consumer discretionary and information technology sectors, and we believe a broadening in economic prosperity for the mid- and low-end of the economy will be a growing area of thematic investment.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Core Equity.
PORTFOLIO HIGHLIGHTS
Core Equity | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 97.2% | |
Consumer Discretionary | | | 22.1% | |
Health Care | | | 18.0% | |
Information Technology | | | 17.5% | |
Financials | | | 11.2% | |
Industrials | | | 8.7% | |
Consumer Staples | | | 6.9% | |
Energy | | | 6.7% | |
Telecommunication Services | | | 3.4% | |
Materials | | | 2.7% | |
Cash and Cash Equivalents | | | 2.8% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Applied Materials, Inc. | | Information Technology | | Semiconductor Equipment |
Citigroup, Inc. | | Financials | | Other Diversified Financial Services |
Bank of America Corp. | | Financials | | Diversified Banks |
MasterCard, Inc., Class A | | Information Technology | | Data Processing & Outsourced Services |
Medtronic, Inc. | | Health Care | | Health Care Equipment |
Canadian Pacific Railway Ltd. | | Industrials | | Railroads |
American International Group, Inc. | | Financials | | Multi-Line Insurance |
Dollar General Corp. | | Consumer Discretionary | | General Merchandise Stores |
Shire Pharmaceuticals Group plc ADR | | Health Care | | Pharmaceuticals |
Anheuser-Busch InBev S.A. ADR | | Consumer Staples | | Brewers |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 9.68% | |
5-year period ended 12-31-14 | | | 16.37% | |
10-year period ended 12-31-14 | | | 9.64% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Core Equity (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel, Accessories & Luxury
Goods – 1.1% | |
Polo Ralph Lauren Corp. | | | 29 | | | $ | 5,333 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 1.6% | |
Delphi Automotive plc | | | 109 | | | | 7,934 | |
| | | | | | | | |
| |
Automobile Manufacturers – 1.5% | |
Ford Motor Co. | | | 479 | | | | 7,421 | |
| | | | | | | | |
| |
Broadcasting – 1.8% | |
CBS Corp., Class B | | | 168 | | | | 9,308 | |
| | | | | | | | |
| |
Cable & Satellite – 5.7% | |
Charter Communications, Inc., Class A (A) | | | 51 | | | | 8,453 | |
Comcast Corp., Class A | | | 183 | | | | 10,610 | |
Time Warner Cable, Inc. | | | 66 | | | | 9,991 | |
| | | | | | | | |
| | | | | | | 29,054 | |
| | | | | | | | |
| |
General Merchandise Stores – 2.8% | |
Dollar General
Corp. (A) | | | 201 | | | | 14,189 | |
| | | | | | | | |
| |
Home Improvement Retail – 2.2% | |
Home Depot, Inc. (The) | | | 107 | | | | 11,263 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 1.4% | |
Hilton Worldwide Holdings, Inc. (A) | | | 278 | | | | 7,240 | |
| | | | | | | | |
| |
Internet Retail – 1.0% | |
Amazon.com, Inc. (A) | | | 17 | | | | 5,307 | |
| | | | | | | | |
| |
Motorcycle Manufacturers – 2.0% | |
Harley-Davidson, Inc. | | | 151 | | | | 9,922 | |
| | | | | | | | |
| |
Restaurants – 1.0% | |
Chipotle Mexican Grill, Inc., Class A (A) | | | 7 | | | | 4,928 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 22.1% | | | | 111,899 | |
Consumer Staples | |
| |
Brewers – 2.7% | |
Anheuser-Busch InBev S.A. ADR | | | 122 | | | | 13,681 | |
| | | | | | | | |
| |
Hypermarkets & Super Centers – 2.3% | |
Costco Wholesale Corp. | | | 81 | | | | 11,435 | |
| | | | | | | | |
| |
Tobacco – 1.9% | |
Philip Morris
International, Inc. | | | 119 | | | | 9,673 | |
| | | | | | | | |
| |
Total Consumer
Staples – 6.9% | | | | 34,789 | |
Energy | |
| |
Oil & Gas Exploration & Production – 3.1% | |
Cabot Oil & Gas Corp. | | | 266 | | | | 7,879 | |
Noble Energy, Inc. | | | 160 | | | | 7,568 | |
| | | | | | | | |
| | | | | | | 15,447 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Oil & Gas Refining & Marketing – 1.7% | |
Phillips 66 | | | 122 | | | $ | 8,749 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 1.9% | |
MarkWest Energy Partners L.P. | | | 145 | | | | 9,736 | |
| | | | | | | | |
| | |
Total Energy – 6.7% | | | | | | | 33,932 | |
Financials | |
| |
Consumer Finance – 1.2% | |
Capital One Financial Corp. | | | 75 | | | | 6,224 | |
| | | | | | | | |
| |
Diversified Banks – 3.3% | |
Bank of America Corp. | | | 930 | | | | 16,640 | |
| | | | | | | | |
| |
Multi-Line Insurance – 2.8% | |
American International
Group, Inc. | | | 255 | | | | 14,266 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 3.9% | |
Citigroup, Inc. | | | 364 | | | | 19,701 | |
| | | | | | | | |
| |
Total Financials – 11.2% | | | | 56,831 | |
Health Care | |
| |
Biotechnology – 2.4% | |
Alexion Pharmaceuticals,
Inc. (A) | | | 34 | | | | 6,272 | |
Biogen Idec, Inc. (A) | | | 17 | | | | 5,601 | |
| | | | | | | | |
| | | | | | | 11,873 | |
| | | | | | | | |
| |
Health Care Equipment – 3.1% | |
Medtronic, Inc. | | | 220 | | | | 15,913 | |
| | | | | | | | |
| |
Managed Health Care – 2.4% | |
Humana, Inc. | | | 83 | | | | 11,943 | |
| | | | | | | | |
| |
Pharmaceuticals – 10.1% | |
Actavis plc (A) | | | 45 | | | | 11,687 | |
Bristol-Myers Squibb Co. | | | 220 | | | | 12,998 | |
Shire Pharmaceuticals
Group plc ADR | | | 66 | | | | 14,028 | |
Teva Pharmaceutical
Industries Ltd. ADR | | | 215 | | | | 12,353 | |
| | | | | | | | |
| | | | | | | 51,066 | |
| | | | | | | | |
| |
Total Health Care – 18.0% | | | | 90,795 | |
Industrials | |
| |
Industrial Machinery – 1.3% | |
Flowserve Corp. | | | 108 | | | | 6,432 | |
| | | | | | | | |
| |
Railroads – 7.4% | |
Canadian Pacific
Railway Ltd. | | | 82 | | | | 15,828 | |
Kansas City Southern | | | 94 | | | | 11,434 | |
Union Pacific Corp. | | | 84 | | | | 10,007 | |
| | | | | | | | |
| | | | | | | 37,269 | |
| | | | | | | | |
| | |
Total
Industrials – 8.7% | | | | | | | 43,701 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Information Technology | |
| |
Application Software – 4.0% | |
Adobe Systems,
Inc. (A) | | | 169 | | | $ | 12,257 | |
Autodesk, Inc. (A) | | | 136 | | | | 8,156 | |
| | | | | | | | |
| | | | | | | 20,413 | |
| | | | | | | | |
| |
Data Processing & Outsourced
Services ��� 4.7% | |
Alliance Data Systems Corp. (A) | | | 27 | | | | 7,766 | |
MasterCard, Inc., Class A | | | 188 | | | | 16,181 | |
| | | | | | | | |
| | | | | | | 23,947 | |
| | | | | | | | |
| |
Semiconductor Equipment – 4.7% | |
Applied Materials, Inc. | | | 954 | | | | 23,766 | |
| | | | | | | | |
| |
Semiconductors – 1.9% | |
Texas Instruments, Inc. | | | 177 | | | | 9,474 | |
| | | | | | | | |
| |
Systems Software – 2.2% | |
Microsoft Corp. | | | 237 | | | | 11,018 | |
| | | | | | | | |
| |
Total Information
Technology – 17.5% | | | | 88,618 | |
Materials | |
| |
Diversified Chemicals – 1.7% | |
PPG Industries, Inc. | | | 37 | | | | 8,622 | |
| | | | | | | | |
| |
Industrial Gases – 1.0% | |
Air Products and Chemicals, Inc. | | | 35 | | | | 5,091 | |
| | | | | | | | |
| | |
Total Materials – 2.7% | | | | | | | 13,713 | |
Telecommunication Services | |
| |
Alternative Carriers – 1.3% | |
Level 3 Communications,
Inc. (A) | | | 136 | | | | 6,691 | |
| | | | | | | | |
| |
Wireless Telecommunication
Service – 2.1% | |
American Tower Corp., Class A | | | 106 | | | | 10,448 | |
| | | | | | | | |
| |
Total Telecommunication
Services – 3.4% | | | | 17,139 | |
| | |
TOTAL COMMON STOCKS – 97.2% | | | | | | $ | 491,417 | |
(Cost: $399,555) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Commercial Paper(B) – 0.9% | |
CVS Caremark Corp.,
0.450%, 1-13-15 | | | $1,000 | | | | 1,000 | |
SCHEDULE OF INVESTMENTS
Core Equity (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
SHORT-TERM SECURITIES (Continued) | | Principal | | | Value | |
Commercial Paper(B) (Continued) | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | $ | 1,416 | | | $ | 1,416 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| | | | | | | 4,416 | |
| | | | | | | | |
| |
Master Note – 0.9% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (C) | | | 4,662 | | | | 4,662 | |
| | | | | | | | |
| | | | | | |
| | | | | Value | |
| |
TOTAL SHORT-TERM
SECURITIES – 1.8% | | $ | 9,078 | |
(Cost: $9,078) | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.0% | | $ | 500,495 | |
(Cost: $408,633) | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF
LIABILITIES – 1.0% | | | 4,846 | |
| |
NET ASSETS – 100.0% | | $ | 505,341 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Rate shown is the yield to maturity at December 31, 2014. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 491,417 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 9,078 | | | | — | |
Total | | $ | 491,417 | | | $ | 9,078 | | | $ | — | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Dividend Opportunities | (UNAUDITED) |
Christopher J. Parker
Christopher J. Parker, CFA, who has 19 years of industry experience, became portfolio manager of Ivy Funds VIP Dividend Opportunities in August 2014. The Portfolio was managed by Cynthia P. Prince-Fox from July 2013 to July 2014 and prior that, it was managed by David P. Ginther, CFA. Below, Mr. Parker discusses positioning, performance and results for the fiscal year ended December 31, 2014.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Dividend Opportunities | | | 9.84% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell 1000 Index | | | 13.24% | |
(generally reflects the performance of stocks that represent the equity market) | | | | |
Lipper Variable Annuity Equity Income Funds Universe Average | | | 9.48% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers
2014 was another good year for large-cap equities, as the Russell 1000 Index increased by 13.24% over the course of the period. The U.S. economy continued to make solid progress and created more jobs than any year thus far this century (which might say more about job growth in U.S. this century than unusual strength in 2014). But it was definitely a year of fits and starts. Unusually poor weather across a large portion of the country during the first quarter caused economic growth to grind to a halt and led to concerns that the U.S. economy could be tipping back into recession four years into a sluggish recovery. Strong growth during the second and third quarter allayed these concerns and corporate earnings also showed solid trends over that period as well.
This strength in employment and the U.S. economy gave the Federal Reserve (Fed) sufficient confidence in the strength of the outlook to complete its objective of ending its asset purchase programs and also begin to pivot toward an eventual move off the zero bound of Fed Funds rates. Just as we all settled in to play these cards the deck was reshuffled by a tectonic shift in the energy markets. Sluggish global demand for oil, combined with strong production growth from unconventional U.S. resources and unexpected production from previously supply constrained OPEC members had been putting pressure on the commodity since June. This decline in price then picked up steam during the fall, but was also moderated by the consensus view that OPEC would cut production to defend price at its scheduled meeting in late November. In a significant surprise to the market OPEC did not cut production and the price of the commodity proceeded to plummet from the high $70s to the mid $55s in the final month of the year.
The creeping weakness in the commodity, as well as weakness in agricultural commodities, caused a broad reassessment of the likely level of spending in these areas. This caused companies directly and indirectly impacted by this spending to underperform. The persistent downward pressure on prices, combined with decelerating growth in Europe and numerous emerging markets caused investors to broadly re-assess expectations with respect to corporate earnings growth across sectors more levered to energy investment. This deflation also caused a simultaneous reassessment of thinking with regard to the ability and willingness of the Fed to increase interest rates.
The market performed well in 2014, despite this environment, though the events and cross-currents discussed above did have a noteworthy impact on sector performance and individual stock performance over the period. Sectors typically characterized by defensive characteristics and/or the ability to generate growth in an uncertain economic environment (or at least those areas least directly impacted by likely declines in energy prices) were the best performers this year. While those sectors more dependent on growth and more closely linked to the U.S. unconventional oil revolution were amongst the weakest performers.
Utilities was the best performing sector, doubling the return of the overall index. Health care was the second best performing sector as both large-cap pharmaceutical and biotechnology names generated strong results on the back of progress in both sectors in numerous breakthrough products.
Returns in information technology exceeded the benchmark by about 5%, and consumer staples and financials slightly exceeded the benchmark. Energy was the worst performing sector for the year. Materials, industrials and consumer discretionary all rose by single-digit percentages.
Contributors and detractors
The Portfolio underperformed its benchmark for the period ended December 31, 2014, with relative performance being adversely impacted by both sector allocation and in stock selection. From a sector allocation perspective the Portfolio’s underweight positions in utilities and information technology both were a drag on performance, as was overweight positions in consumer discretionary and materials. Stock selection had a negative impact on relative performance in consumer staples, health care and financials. Stock selection was most favorable to results in energy, materials and consumer discretionary.
With respect to the performance of individual stocks the greatest positive contributors to performance were Union Pacific Corp, Applied Materials, Limited Brands, Apple Inc., and Home Depot. The greatest detractors from performance on an individual stock basis were Wynn Resorts, Kansas City Southern, Diageo, Occidental Petroleum and Eaton Corp. Diageo is no longer a holding of the Portfolio.
General strategy going forward
Dividends are a source of income for investors and can provide some stability of returns as well. The objective of the Portfolio is to provide total return one part of which is providing an attractive level of income for our investors relative to the overall equity market (we also look to offer an income stream that grows over time as well). However, dividend yields and changes in dividend policy are also signals of how the market is thinking about the future prospects of a particular company or how management is thinking about its business and its relationship with its shareholders. In addition to generating income for our investors, our approach will be centered around exploiting those aforementioned signals to generate an attractive total return for Portfolio investors.
The first signal is above average dividend yields. This can signal some skepticism about the future prospects of a business (in much the same way a low price-to-earnings ratio can communicate this) or it may communicate that growth expectations are substantially lower than average. Using the dividend yield alone is highly susceptible to value traps and is a blunt instrument. However, when an above-average dividend yield is combined with an attractive valuation on free-cash-flow and earnings before interest, taxes, depreciation and amortization (EBITDA) metrics, the combination can create a rich universe of potential investments. Our bias here is also for companies that can grow the dividend at a reasonable rate either due to a below average, but rising payout ratio or attractive underlying earnings growth. We are basically using additional valuation metrics to confirm the signal of potential cheapness created by the above-average yield, but also using the bias toward growth to avoid instances where yield is the vast source of return (and where our growth in income would be uninspiring).
The second signal is changes in dividend and capital return policy, or simply rapid dividend growth. In this case we are still using cash flow and EBITDA-based metrics to evaluate relative cheapness, but are much more focused on prospects for noteworthy changes in dividend policy (rapid increases in dividends from an initial low level or initiation) or simply rapid dividend growth driven by strong earnings growth. Such changes in policy are often an indication of management’s greater confidence in its business prospects or the durability of cash generation or an increased focus on rewarding shareholders. Both of these are strong positive signals that, when combined with an attractive valuation, can lead to outsized returns (and also provide good income growth).
Finally, we must note that the above criteria merely defines our approach and universe. Each name is then subject to thorough fundamental research, an estimate of intrinsic value and potential return is determined. Additionally, near and medium risks and catalysts are also evaluated before stocks enter the Portfolio and are considered in sizing of positions.
Outlook
After three years of very solid returns in the equity markets, it is becoming increasingly difficult to find truly attractive ideas, and multiples in general have expanded to a level that, in our view, requires a pick-up in the pace of overall earnings growth to prevent some potential compression. Generally speaking we believe that appreciation potential is still positive though the current environment is not conducive to the level of appreciation we have seen in the last three years. We also expect the dispersion of returns across sectors and individual securities to increase — thus rewarding good stock selection (and also the avoidance of substantial underperformers).
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investments.
Dividend-paying instruments may not experience the same price appreciation as non-dividend paying investments. There is no guarantee that the companies in which the Portfolio invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend paid by the company may fluctuate significantly. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Dividend Opportunities.
PORTFOLIO HIGHLIGHTS
Dividend Opportunities | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 93.8% | |
Financials | | | 15.8% | |
Industrials | | | 15.6% | |
Health Care | | | 14.9% | |
Information Technology | | | 14.7% | |
Consumer Discretionary | | | 14.0% | |
Energy | | | 7.6% | |
Consumer Staples | | | 4.9% | |
Materials | | | 4.6% | |
Utilities | | | 1.7% | |
Cash and Cash Equivalents | | | 6.2% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Applied Materials, Inc. | | Information Technology | | Semiconductor Equipment |
Teva Pharmaceutical Industries Ltd. ADR | | Health Care | | Pharmaceuticals |
Bristol-Myers Squibb Co. | | Health Care | | Pharmaceuticals |
Medtronic, Inc. | | Health Care | | Health Care Equipment |
JPMorgan Chase & Co. | | Financials | | Other Diversified Financial Services |
Wells Fargo & Co. | | Financials | | Diversified Banks |
Honeywell International, Inc. | | Industrials | | Aerospace & Defense |
Union Pacific Corp. | | Industrials | | Railroads |
Eaton Corp. | | Industrials | | Industrial Machinery |
Microsoft Corp. | | Information Technology | | Systems Software |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Dividend Opportunities | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 9.84% | |
5-year period ended 12-31-14 | | | 12.31% | |
10-year period ended 12-31-14 | | | 7.52% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Dividend Opportunities (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Advertising – 1.9% | |
Omnicom Group, Inc. | | | 127 | | | $ | 9,800 | |
| | | | | | | | |
| |
Apparel Retail – 2.1% | |
Limited Brands, Inc. | | | 122 | | | | 10,585 | |
| | | | | | | | |
| |
Automobile Manufacturers – 1.8% | |
Ford Motor Co. | | | 597 | | | | 9,260 | |
| | | | | | | | |
| |
Cable & Satellite – 2.6% | |
Comcast Corp., Class A | | | 189 | | | | 10,987 | |
Time Warner Cable, Inc. | | | 17 | | | | 2,623 | |
| | | | | | | | |
| | | | | | | 13,610 | |
| | | | | | | | |
| |
Casinos & Gaming – 1.0% | |
Wynn Resorts Ltd. | | | 34 | | | | 5,077 | |
| | | | | | | | |
| |
Consumer Electronics – 1.1% | |
Garmin Ltd. | | | 109 | | | | 5,735 | |
| | | | | | | | |
| |
Home Improvement Retail – 2.2% | |
Home Depot, Inc. (The) | | | 106 | | | | 11,106 | |
| | | | | | | | |
| |
Specialty Stores – 1.3% | |
Tiffany & Co. | | | 61 | | | | 6,497 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 14.0% | | | | 71,670 | |
Consumer Staples | |
| |
Brewers – 2.2% | |
Anheuser-Busch InBev S.A. ADR | | | 102 | | | | 11,412 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 1.0% | |
Mead Johnson Nutrition Co. | | | 51 | | | | 5,138 | |
| | | | | | | | |
| |
Tobacco – 1.7% | |
Philip Morris International, Inc. | | | 105 | | | | 8,524 | |
| | | | | | | | |
| |
Total Consumer
Staples – 4.9% | | | | 25,074 | |
Energy | |
| |
Integrated Oil & Gas – 1.6% | |
Occidental Petroleum Corp. | | | 101 | | | | 8,105 | |
| | | | | | | | |
| |
Oil & Gas Equipment & Services – 1.0% | |
Schlumberger Ltd. | | | 60 | | | | 5,099 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 5.0% | |
Energy Transfer Equity L.P. | | | 176 | | | | 10,082 | |
MarkWest Energy Partners L.P. | | | 145 | | | | 9,739 | |
Plains GP Holdings L.P., Class A | | | 229 | | | | 5,875 | |
| | | | | | | | |
| | | | | | | 25,696 | |
| | | | | | | | |
| |
Total Energy – 7.6% | | | | 38,900 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Financials | |
| |
Asset Management & Custody
Banks – 1.0% | |
Northern Trust Corp. | | | 76 | | | $ | 5,095 | |
| | | | | | | | |
| |
Diversified Banks – 2.7% | |
Wells Fargo & Co. | | | 249 | | | | 13,645 | |
| | | | | | | | |
| |
Industrial REITs – 1.5% | |
ProLogis | | | 183 | | | | 7,857 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 5.2% | |
Citigroup, Inc. | | | 215 | | | | 11,653 | |
JPMorgan Chase & Co. | | | 238 | | | | 14,920 | |
| | | | | | | | |
| | | | | | | 26,573 | |
| | | | | | | | |
| |
Property & Casualty Insurance – 2.0% | |
ACE Ltd. | | | 91 | | | | 10,397 | |
| | | | | | | | |
| |
Regional Banks – 1.7% | |
PNC Financial Services Group, Inc. (The) | | | 95 | | | | 8,694 | |
| | | | | | | | |
| |
Specialized REITs – 1.7% | |
Crown Castle International Corp. | | | 110 | | | | 8,618 | |
| | | | | | | | |
| |
Total Financials – 15.8% | | | | 80,879 | |
Health Care | |
| |
Health Care Equipment – 3.0% | |
Medtronic, Inc. | | | 210 | | | | 15,173 | |
| | | | | | | | |
| |
Pharmaceuticals – 11.9% | |
Bristol-Myers Squibb Co. | | | 258 | | | | 15,221 | |
Johnson & Johnson | | | 95 | | | | 9,887 | |
Merck & Co., Inc. | | | 143 | | | | 8,098 | |
Pfizer, Inc. | | | 364 | | | | 11,346 | |
Teva Pharmaceutical Industries Ltd. ADR | | | 284 | | | | 16,324 | |
| | | | | | | | |
| | | | | | | 60,876 | |
| | | | | | | | |
| |
Total Health Care – 14.9% | | | | 76,049 | |
Industrials | |
| |
Aerospace & Defense – 4.5% | |
Boeing Co. (The) | | | 75 | | | | 9,723 | |
Honeywell International, Inc. | | | 134 | | | | 13,349 | |
| | | | | | | | |
| | | | | | | 23,072 | |
| | | | | | | | |
| |
Commercial Printing – 1.0% | |
Corrections Corp. of America | | | 137 | | | | 4,989 | |
| | | | | | | | |
| |
Construction Machinery & Heavy Trucks – 3.5% | |
Allison Transmission Holdings, Inc. | | | 256 | | | | 8,692 | |
Caterpillar, Inc. | | | 100 | | | | 9,157 | |
| | | | | | | | |
| | | | | | | 17,849 | |
| | | | | | | | |
| |
Industrial Machinery – 2.5% | |
Eaton Corp. | | | 192 | | | | 13,035 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
| |
Railroads – 2.6% | |
Union Pacific Corp. | | | 111 | | | $ | 13,246 | |
| | | | | | | | |
| |
Research & Consulting
Services – 1.5% | |
Nielsen Holdings N.V. | | | 171 | | | | 7,640 | |
| | | | | | | | |
| |
Total Industrials – 15.6% | | | | 79,831 | |
Information Technology | |
| |
Data Processing & Outsourced
Services – 1.4% | |
Paychex, Inc. | | | 151 | | | | 6,969 | |
| | | | | | | | |
| |
Semiconductor Equipment – 3.5% | |
Applied Materials, Inc. | | | 708 | | | | 17,649 | |
| | | | | | | | |
| |
Semiconductors – 4.3% | |
Analog Devices, Inc. | | | 144 | | | | 7,981 | |
Microchip Technology, Inc. | | | 169 | | | | 7,635 | |
Texas Instruments, Inc. | | | 122 | | | | 6,526 | |
| | | | | | | | |
| | | | | | | 22,142 | |
| | | | | | | | |
| |
Systems Software – 2.4% | |
Microsoft Corp. | | | 261 | | | | 12,119 | |
| | | | | | | | |
| |
Technology Hardware, Storage &
Peripherals – 3.1% | |
Apple, Inc. | | | 87 | | | | 9,587 | |
Seagate
Technology | | | 96 | | | | 6,377 | |
| | | | | | | | |
| | | | | | | 15,964 | |
| | | | | | | | |
| |
Total Information
Technology – 14.7% | | | | 74,843 | |
Materials | |
| |
Diversified Chemicals – 3.6% | |
Dow Chemical Co. (The) | | | 172 | | | | 7,843 | |
PPG Industries, Inc. | | | 47 | | | | 10,748 | |
| | | | | | | | |
| | | | | | | 18,591 | |
| | | | | | | | |
| |
Industrial Gases – 1.0% | |
Airgas, Inc. | | | 44 | | | | 5,080 | |
| | | | | | | | |
| |
Total Materials – 4.6% | | | | 23,671 | |
Utilities | |
| |
Electric Utilities – 1.7% | |
PPL Corp. | | | 236 | | | | 8,565 | |
| | | | | | | | |
| |
Total Utilities – 1.7% | | | | 8,565 | |
| |
TOTAL COMMON
STOCKS – 93.8% | | | $ | 479,482 | |
(Cost: $381,524) | | | | | | | | |
SCHEDULE OF INVESTMENTS
Dividend Opportunities (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
SHORT-TERM SECURITIES | | Principal | | | Value | |
Commercial Paper(A) – 5.8% | |
CVS Caremark Corp.,
0.450%, 1-13-15 | | $ | 3,000 | | | $ | 2,999 | |
Emerson Electric Co.,
0.140%, 1-15-15 | | | 6,000 | | | | 6,000 | |
Exxon Mobil Corp.,
0.010%, 1-2-15 | | | 4,644 | | | | 4,644 | |
Illinois Tool Works, Inc.,
0.100%, 1-7-15 | | | 4,665 | | | | 4,665 | |
John Deere Financial, Inc.
(GTD by John Deere Capital Corp.),
0.140%, 1-15-15 | | | 2,000 | | | | 2,000 | |
NBCUniversal Enterprise, Inc.,
0.340%, 1-13-15 | | | 6,000 | | | | 5,999 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 3,000 | | | | 3,000 | |
| | | | | | | | |
| | | | | | | 29,307 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM SECURITIES (Continued) | | Principal | | | Value | |
Master Note – 0.3% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (B) | | $ | 1,786 | | | $ | 1,786 | |
| |
TOTAL SHORT-TERM
SECURITIES – 6.1% | | | $ | 31,093 | |
(Cost: $31,093) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.9% | | | $ | 510,575 | |
(Cost: $412,617) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET
OF LIABILITIES – 0.1% | | | | 649 | |
| |
NET ASSETS – 100.0% | | | $ | 511,224 | |
Notes to Schedule of Investments
| (A) | Rate shown is the yield to maturity at December 31, 2014. |
| (B) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 479,482 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 31,093 | | | | — | |
Total | | $ | 479,482 | | | $ | 31,093 | | | $ | — | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
GTD = Guaranteed
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
David P. Ginther
Below, David P. Ginther, CPA, portfolio manager of Ivy Funds VIP Energy, discusses positioning, performance and results for the fiscal year ended December 31, 2014. He has managed the Portfolio since its inception in 2006 and has 19 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Energy | | | –10.56% | |
Benchmark(s) and/or Lipper Category | | | | |
S&P 1500 Energy Sector Index | | | –9.16% | |
(generally reflects the performance of stocks that represent the energy market | | | | |
Lipper Variable Annuity Natural Resources Funds Universe Average | | | –12.58% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Oil prices fall late in year
U.S. equities closed the fiscal year with gains across the broad market indexes, again reaching record-high levels late in the final quarter of the year. Global equities in general also finished slightly higher. Crude oil prices plunged worldwide late in the year on forecasts of reduced global demand along with a decision in November by OPEC that it would not reduce production. Prices fell to levels not seen since 2009, pressuring stocks and raising concerns that the price tumble, if sustained, could stall economic growth in some regions.
U.S. economic indicators continued to show steady growth and the U.S. remained the leader among developed countries. Economic growth forecasts for Europe were revised lower again late in the year. The continued turmoil in Russia — which prompted economic sanctions by western countries — and across the Middle East unsettled global markets at various times during the year. The steadily improving economy in the U.S., including growth in shale oil production that helped hold down costs for business and consumers, provided support to energy markets through most of the year. Worldwide oil production in general again increased. Slow global economic growth meant that energy demand also slowed its rate of increase in the second half of the year.
Portfolio feels effects of price drop
The Portfolio had a negative return for the fiscal year, slightly trailing its benchmark index, despite having outpaced the benchmark during most of the year. Despite this underperformance, the Portfolio’s return was not quite as bad as its peer group average.
The underperformance to the benchmark index primarily was because of the Portfolio’s allocations to “upstream” energy companies when compared to the benchmark. The benchmark index holds what the Portfolio manager considers to be an outsized allocation to large integrated oil companies. For example, the Portfolio averaged a 1.67% allocation to Exxon Mobil during the year versus the index average of 23%. (As of 12/31/2014, Exxon Mobil was 1.53% of the Portfolio’s net assets). Typically, the Portfolio does not exceed a 5% allocation to a single company. Historically, integrated companies often underperform when the energy sector performs well as a whole, but they tend to do relatively better when the sector is in decline. This held true in 2014, as the Portfolio outpaced its benchmark through the first three-quarters of the year but trailed in the fourth quarter as the energy sector experienced broad declines on concerns about a global oversupply of oil stemming from slower global demand and growth in global production, mostly from the U.S.
The five greatest relative contributors to the Portfolio’s performance in the year were Phillips 66, MPLX (no longer in the Portfolio as of 12/31/2014), Athlon Energy, Energy Transfer Equity and Canadian Pacific Railway. The five greatest relative detractors were Core Laboratories, Exxon Mobil, Patterson-UTI Energy, Oasis Petroleum and Bonanza Creek Energy (Patterson-UTI Energy, Oasis Petroleum and Bonanza Creek Energy were no longer in the Portfolio as of 12/31/2014).
Outlook for continue slow growth
We think the U.S. will continue to have steady economic growth and low inflation in 2015 and expect it to lead the developed countries. We also believe economic growth will continue globally, although also at a mild rate. We think global energy demand will continue to grow, likely at a slower pace than previously forecast. In our view, lower oil prices will prompt cuts in capital expenditures at energy firms, which in turn will reduce the growth rate of global production. We also think the plunge in crude oil prices is unlikely to be sustainable in the long term.
We believe the U.S. will continue to increase oil and gas production but at a slower rate because of the price decline. We also think exploration & production companies, oil service companies and infrastructure providers will remain the main beneficiaries of this growth.
We remain concerned about heightened geopolitical risks related to the Mideast and Russia and believe these will continue to overhang markets and generate uncertainty in the coming year.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. These and other risks are more fully described in the Portfolio’s prospectus.
Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater sector diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Energy.
PORTFOLIO HIGHLIGHTS
Energy | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 97.3 | % |
Energy | | | 88.5 | % |
Industrials | | | 7.3 | % |
Financials | | | 1.5 | % |
Cash and Cash Equivalents | | | 2.7 | % |
Country Weightings
| | | | |
North America | | | 92.1 | % |
United States | | | 85.2 | % |
Canada | | | 6.9 | % |
Europe | | | 4.6 | % |
Pacific Basin | | | 0.6 | % |
Cash and Cash Equivalents | | | 2.7 | % |
Top 10 Equity Holdings
| | | | | | |
| Company | | Country | | Sector | | Industry |
Schlumberger Ltd. | | United States | | Energy | | Oil & Gas Equipment & Services |
Halliburton Co. | | United States | | Energy | | Oil & Gas Equipment & Services |
EOG Resources, Inc. | | United States | | Energy | | Oil & Gas Exploration & Production |
Baker Hughes, Inc. | | United States | | Energy | | Oil & Gas Equipment & Services |
Cimarex Energy Co. | | United States | | Energy | | Oil & Gas Exploration & Production |
Marathon Petroleum Corp. | | United States | | Energy | | Oil & Gas Refining & Marketing |
Phillips 66 | | United States | | Energy | | Oil & Gas Refining & Marketing |
Anadarko Petroleum Corp. | | United States | | Energy | | Oil & Gas Exploration & Production |
Phillips 66 Partners L.P. | | United States | | Energy | | Oil & Gas Storage & Transportation |
Marathon Petroleum Corp. L.P. | | United States | | Energy | | Oil & Gas Refining & Marketing |
See your advisor for more information on the Portfolio’s most recent published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | -10.56% | |
5-year period ended 12-31-14 | | | 5.13% | |
10-year period ended 12-31-14 | | | — | |
Since inception of Portfolio(3) through 12-31-14 | | | 3.70% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (3) | 5-1-06 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Energy (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Energy | | | | | | | | |
Coal & Consumable Fuels – 1.2% | |
Cameco Corp. | | | 43 | | | $ | 698 | |
Foresight Energy L.P. | | | 43 | | | | 724 | |
| | | | | | | | |
| | | | | | | 1,422 | |
| | | | | | | | |
Integrated Oil & Gas – 6.3% | | | | | |
Chevron Corp. | | | 12 | �� | | | 1,295 | |
Exxon Mobil Corp. | | | 20 | | | | 1,803 | |
Occidental Petroleum Corp. | | | 21 | | | | 1,705 | |
Royal Dutch Shell plc,
Class A(A) | | | 37 | | | | 1,238 | |
Suncor Energy, Inc. | | | 45 | | | | 1,424 | |
| | | | | | | | |
| | | | | | | 7,465 | |
| | | | | | | | |
Oil & Gas Drilling – 1.2% | | | | | |
Helmerich & Payne, Inc. | | | 21 | | | | 1,409 | |
| | | | | | | | |
| |
Oil & Gas Equipment & Services – 23.2% | |
Baker Hughes, Inc. | | | 62 | | | | 3,493 | |
Cameron International Corp.(B) | | | 39 | | | | 1,928 | |
Core Laboratories N.V. | | | 19 | | | | 2,281 | |
Dril-Quip, Inc.(B) | | | 25 | | | | 1,891 | |
FMC Technologies,
Inc.(B) | | | 28 | | | | 1,330 | |
Forum Energy Technologies,
Inc.(B) | | | 82 | | | | 1,698 | |
Halliburton Co. | | | 101 | | | | 3,953 | |
National Oilwell Varco, Inc. | | | 30 | | | | 1,976 | |
Oceaneering International, Inc. | | | 9 | | | | 509 | |
Schlumberger Ltd. | | | 58 | | | | 4,915 | |
Superior Energy Services, Inc. | | | 74 | | | | 1,495 | |
Weatherford International Ltd.(B) | | | 160 | | | | 1,831 | |
| | | | | | | | |
| | | | | | | 27,300 | |
| | | | | | | | |
Oil & Gas Exploration &
Production – 31.6% | |
Anadarko Petroleum Corp. | | | 33 | | | | 2,731 | |
Antero Resources
Corp.(B) | | | 20 | | | | 828 | |
Cabot Oil & Gas Corp. | | | 59 | | | | 1,732 | |
Canadian Natural Resources Ltd. | | | 72 | | | | 2,213 | |
Cimarex Energy Co. | | | 32 | | | | 3,371 | |
CNOOC Ltd. ADR | | | 6 | | | | 772 | |
Concho Resources,
Inc.(B) | | | 22 | | | | 2,219 | |
ConocoPhillips | | | 27 | | | | 1,882 | |
Continental Resources, Inc.(B) | | | 56 | | | | 2,141 | |
EOG Resources, Inc. | | | 39 | | | | 3,572 | |
Gulfport Energy Corp.(B) | | | 27 | | | | 1,137 | |
Memorial Resource Development Corp.(B) | | | 59 | | | | 1,061 | |
Newfield Exploration
Co.(B) | | | 61 | | | | 1,665 | |
Noble Energy, Inc. | | | 49 | | | | 2,343 | |
Parsley Energy, Inc.,
Class A(B) | | | 137 | | | | 2,189 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Oil & Gas Exploration & Production (Continued) | |
Pioneer Natural Resources Co. | | | 17 | | | $ | 2,560 | |
Rice Energy, Inc.(B) | | | 101 | | | | 2,126 | |
RSP Permian, Inc.(B) | | | 60 | | | | 1,520 | |
Southwestern Energy Co.(B) | | | 46 | | | | 1,242 | |
| | | | | | | | |
| | | | | | | 37,304 | |
| | | | | | | | |
Oil & Gas Refining & Marketing – 11.4% | |
HollyFrontier Corp. | | | 15 | | | | 579 | |
Marathon Petroleum Corp. | | | 32 | | | | 2,920 | |
Marathon Petroleum Corp. L.P. | | | 35 | | | | 2,605 | |
Phillips 66 | | | 39 | | | | 2,775 | |
Tesoro Corp. | | | 34 | | | | 2,550 | |
Valero Energy Corp. | | | 41 | | | | 2,037 | |
| | | | | | | | |
| | | | | | | 13,466 | |
| | | | | | | | |
Oil & Gas Storage &
Transportation – 13.6% | |
Enbridge, Inc. | | | 30 | | | | 1,553 | |
Energy Transfer Equity L.P. | | | 41 | | | | 2,376 | |
MarkWest Energy Partners L.P. | | | 31 | | | | 2,059 | |
Phillips 66 Partners L.P. | | | 39 | | | | 2,668 | |
Plains GP Holdings L.P., Class A | | | 34 | | | | 864 | |
Rice Midstream Partners L.P.(B) | | | 40 | | | | 676 | |
Shell Midstream Partners L.P.(B) | | | 17 | | | | 703 | |
Targa Resources Corp. | | | 20 | | | | 2,147 | |
Valero Energy Partners L.P. | | | 23 | | | | 997 | |
Williams Co., Inc. (The) | | | 45 | | | | 2,038 | |
| | | | | | | | |
| | | | | | | 16,081 | |
| | | | | | | | |
| | |
Total Energy – 88.5% | | | | | | | 104,447 | |
Financials | | | | | | | | |
Specialized Finance – 1.5% | | | | | |
CME Group, Inc. | | | 20 | | | | 1,782 | |
| | | | | | | | |
| |
Total Financials – 1.5% | | | | 1,782 | |
Industrials | | | | | | | | |
Construction &
Engineering – 1.7% | | | | | |
Fluor Corp. | | | 34 | | | | 2,037 | |
| | | | | | | | |
Electrical Components &
Equipment – 1.0% | |
SolarCity Corp.(B) | | | 22 | | | | 1,201 | |
| | | | | | | | |
Industrial Machinery – 1.7% | | | | | |
Flowserve Corp. | | | 32 | | | | 1,929 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Railroads – 2.9% | |
Canadian Pacific Railway Ltd. | | | 11 | | | $ | 2,168 | |
Kansas City Southern | | | 10 | | | | 1,208 | |
| | | | | | | 3,376 | |
| | | | | | | | |
| |
Total Industrials – 7.3% | | | | 8,543 | |
| | |
TOTAL COMMON STOCKS – 97.3% | | | | | | $ | 114,772 | |
(Cost: $114,167) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Master Note – 2.5% | | | | | | | | |
Toyota Motor Credit Corp., | | | | | | | | |
0.126%, 1-7-15 (C) | | $ | 2,967 | | | | 2,967 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 2.5% | | | $ | 2,967 | |
(Cost: $2,967) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.8% | | | $ | 117,739 | |
(Cost: $117,134) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.2% | | | | 228 | |
| |
NET ASSETS – 100.0% | | | $ | 117,967 | |
SCHEDULE OF INVESTMENTS
Energy (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| (A) | Listed on an exchange outside the United States. |
| (B) | No dividends were paid during the preceding 12 months. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Energy | | $ | 103,209 | | | $ | 1,238 | | | $ | — | |
Financials | | | 1,782 | | | | — | | | | — | |
Industrials | | | 8,543 | | | | — | | | | — | |
| | | | |
Total Common Stocks | | $ | 113,534 | | | $ | 1,238 | | | $ | — | |
Short-Term Securities | | | — | | | | 2,967 | | | | — | |
| | | | |
Total | | $ | 113,534 | | | $ | 4,205 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, securities totaling $501 were transferred from Level 1 to Level 2. These transfers were the result of fair value prodedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
Country Diversification
| | | | |
(as a % of net assets) | | | | |
United States | | | 85.2% | |
Canada | | | 6.9% | |
Netherlands | | | 1.9% | |
Switzerland | | | 1.6% | |
United Kingdom | | | 1.1% | |
Other Countries | | | 0.6% | |
Other+ | | | 2.7% | |
+Includes cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Mark G. Beischel
Below, Mark G. Beischel, CFA, portfolio manager of the Ivy Funds VIP Global Bond, discusses positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Beischel has managed the portfolio for 4 years and has 21 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 months ended December 31, 2014 | | | | |
Ivy Funds VIP Global Bond | | | 0.18% | |
Benchmark(s) and/or Lipper Category | | | | |
Barclays Capital Multiverse Index | | | 0.48% | |
(generally reflects the performance of the global bond market) | | | | |
Lipper Variable Annuity Global Income Funds Universe Average | | | 1.54% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Performance
Ivy Funds VIP Global Bond underperformed against its Lipper average and its benchmark index for the year ending December 31, 2014. The Portfolio’s shorter duration relative to its Lipper peer group and index hurt its performance with U.S. long-duration assets outperforming shorter duration assets as the market priced in the normalization of domestic interest rates. Additionally, the Portfolio had no exposure to the European bond market, which witnessed 10-year sovereign yields dropping anywhere from 100 to 300 basis points. Finally, the Portfolio’s overweight in corporate credit hurt the performance as credit spreads were wider over the past year. The deterioration in credit was primarily in the energy sector due to the collapse in oil prices.
The Portfolio’s performance was enhanced versus the Lipper universe and benchmark by its high exposure to the U.S. dollar. The Portfolio had 91% of its assets in the U.S. dollar. The euro and yen had a negative 9.26 % and negative 11.06% return, respectively, as their central banks moved toward more aggressive non-conventional monetary policies. Asian and emerging market (EM) commodity currencies underperformed the U.S. dollar as the markets priced in a slowing China.
Slower global recovery
The global recovery has experienced setbacks over the last half of 2014. Although we believe the gradual recovery will continue, global growth in 2015 is now expected to be weaker and more uneven than earlier forecasts. The U.S. is emerging as the main driver for global growth. On the backdrop of a sharp rebound in growth during the third quarter, the outlook for the U.S. seems to be the most solid, even if it is falling short of the more bullish consensus expectations. In the September Federal Reserve (Fed) meeting, the Fed reinforced its thoughts on the importance of U.S. economic data on monetary policy decisions. Fed participants are leaning toward an earlier start of the hiking cycle, but with a more gradual pace of normalization.
The U.K. outperformed Europe with a 3% growth rate in 2014. There is enough momentum to sustain this rate throughout 2015. After much speculation about the Bank of England raising rates in the first quarter of 2015, the market began discounting a rate hike in the second half of the year. Regardless of when the hikes commence, officials have emphasized that the pace of normalization in the U.K. is likely to be gradual as well.
In the Euro area, the European Central Bank (ECB) is struggling with weaker-than-expected growth and falling inflation expectations. The risks of deflation have increased. It is now expected that the ECB will extend its asset purchase program. This injection of liquidity should improve investor confidence. The market now expects the ECB to remain on hold for an extended period of time.
In Japan, the economy is still adjusting to the large increase in the value-added tax (VAT) which occurred in April 2014. It severely weakened consumption because wage growth has been too modest to keep up with the higher tax rate.
In China, the economy’s potential growth rate is slowing significantly. The country has not been able to continue its rapid growth pace without an even faster increase in its debt. We believe that the increasing debt load is problematic for the Chinese banking system, and ultimately, government fiscal policy. It is likely that the new Chinese administration will be forced to deal with the growth in debt, and we believe this will slow real and potential growth in years ahead. With the policy emphasis shifting towards reform, higher tolerance for lower growth will be allowed in the short run. Officials now speak about a “new normal” of slower growth, but they would like to hold growth close to 7%.
And finally, Russia’s annexation of Crimea has put downward pressure on Russia’s credit and currency. Moscow’s recent action in the Eastern Ukraine has tarnished a lot the goodwill that has been built up in the capital markets over the past 12 years. International investors are currently reevaluating the new risk premium that needs to be placed on this “invasive” country. It is also dealing with the sudden collapse in oil prices that is putting pressure on its internal and external accounts.
Seeking low volatility
Amid this volatility, we are currently maintaining a low duration in the Portfolio and have built what we believe to be plenty of liquidity. We believe shorter duration will enable the Portfolio to focus on higher yielding corporate bonds while greater liquidity will allow us to be more responsive to changing market environments.
We continue to focus on maintaining what we believe to be proper diversification for the Portfolio. The Portfolio has the opportunity to invest in different securities, sectors, countries and currencies. This flexibility allows us to seek less volatility with a reasonable yield that we believe will reward investors over the longer term.
Given the extreme volatility and uncertainty in global markets, the Portfolio’s currency exposure remains overwhelmingly in the U.S. dollar. We believe there will be better opportunities to add foreign currency bonds to the portfolio going forward, especially in the emerging markets.
We continue to search for value in the corporate bond space. Some of the best returns have been, and we think will continue to be, from emerging market bonds. There will be more opportunities to redeploy liquidity due to the volatility associated with Washington’s politics and the Fed’s normalization of interest rates.
Looking ahead
Given our expectation of slow growth globally in calendar 2015, we expect interest rates to remain low overall. The Fed has indicated that it will keep its policy rate low until mid-2015. The short end of the Treasury yield curve (five years and in) is expected to be less volatile due to the Fed’s commitment to low policy rates. However, longer term Treasury rates are expected to be more volatile and subject to market emotions regarding fiscal and monetary policies. The structural change in the financial markets has led us to build up more liquidity in the portfolio. Wall Street’s incentives to carry high inventory levels of corporate bonds have been reduced by higher capital requirements. As a result, market liquidity has been reduced and there are more opportunities for dislocations in corporate bonds going further.
The Eurozone’s growth outlook has stagnated. Macroeconomic adjustments are still underway in the peripheral countries, and the debt overhang remains a major impediment to economic activities. The Euro area is still dependent on the global economic environment and remains vulnerable to any external shock. Geopolitical risks remain elevated; in particular, the Russia-Ukraine conflict, which will affect the European economy through trade and confidence.
The Bank of Japan will continue its easing policy throughout 2015. We expect consumption to sustain modest growth from a general improvement in employment and incomes. Since the VAT hike has already been decided by law, it is believed that any signs of a weaker-than-expected economic performance will likely bring more fiscal stimulus. The market is also expecting Japan’s Prime Minister Abe Shinzo to continue to pursue a cut to the corporate tax rate.
Growth in emerging market economies remains generally lackluster, albeit with large regional differences. Despite China’s loss of momentum, the rest of EM Asia is holding up well, while Latin America remains below trend and Europe, the Middle East and Africa suffer from a weaker Europe and geopolitics. The wild card will be the price of oil throughout the year. With a 50% decline from its peak, oil producers are just now starting to reduce capital expenditures to get an appropriate supply response.
Past performance is no guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. These and other risks are more fully described in the Portfolio’s prospectus.
Certain U.S. government securities in which the Portfolio may invest, such as Treasury securities and securities issued by the Government National Mortgage Association (GinnieMae), are backed by the full faith and credit of the U.S. government. However, other U.S. government securities in which the Portfolio may invest, such as securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB), are not backed by the full faith and credit of the U.S. government, are not insured or guaranteed by the U.S. government and, instead, may be supported only by the right of the issuer to borrow from the U.S. Treasury or by the credit of the issuer.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed income securities are subject to interest rate risk, especially securities with longer maturities, and, as such, the net asset value of the Portfolio may fall as interest rates rise, especially securities with longer maturities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. The Portfolio may seek to manage exposure to various foreign currencies, which may involve additional risks. The value of securities, as measured in U.S. dollars, may be unfavorably affected by changes in foreign currency exchange rates or exchange control regulations. Investing in foreign securities involves a number of risks that may not be associated with the U.S. markets and that could affect the Portfolio’s performance unfavorably, and could result in greater price volatility; comparatively weak supervision and regulation of securities exchanges, fluctuation in foreign currency exchange rates and related conversion costs, adverse foreign tax consequences, or different and/or less stringent financial reporting standards. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and is current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Ivy Funds VIP Global Bond.
PORTFOLIO HIGHLIGHTS
Global Bond | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 7.0% | |
Health Care | | | 2.1% | |
Utilities | | | 1.5% | |
Financials | | | 1.4% | |
Energy | | | 1.2% | |
Information Technology | | | 0.8% | |
Bonds | | | 88.9% | |
Corporate Debt Securities | | | 66.2% | |
United States Government and Government Agency Obligations | | | 16.2% | |
Other Government Securities | | | 4.6% | |
Loans | | | 1.9% | |
Cash and Cash Equivalents | | | 4.1% | |
Quality Weightings
| | | | |
Investment Grade | | | 48.2% | |
AA | | | 18.3% | |
A | | | 2.1% | |
BBB | | | 27.8% | |
Non-Investment Grade | | | 40.7% | |
BB | | | 23.3% | |
B | | | 11.3% | |
CCC | | | 2.6% | |
Non-rated | | | 3.5% | |
Cash and Cash Equivalents and Equities | | | 11.1% | |
Our preference is to always use ratings obtained from Standard & Poor’s. For securities not rated by Standard & Poor’s, ratings are obtained from Moody’s. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
Country Weightings
| | | | |
North America | | | 37.3% | |
United States | | | 30.3% | |
Mexico | | | 4.0% | |
Other North America | | | 3.0% | |
Europe | | | 29.3% | |
United Kingdom | | | 7.7% | |
Luxembourg | | | 5.0% | |
Netherlands | | | 4.6% | |
Russia | | | 3.6% | |
Other Europe | | | 8.4% | |
South America | | | 18.1% | |
Brazil | | | 8.2% | |
Other South America | | | 9.9% | |
Pacific Basin | | | 6.6% | |
Singapore | | | 3.9% | |
Other Pacific Basin | | | 2.7% | |
Bahamas/Caribbean | | | 2.9% | |
Other | | | 1.7% | |
Cash and Cash Equivalents | | | 4.1% | |
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 0.18% | |
5-year period ended 12-31-14 | | | — | |
10-year period ended 12-31-14 | | | — | |
Since inception of Portfolio(3) through 12-31-14 | | | 1.88% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (3) | 8-23-10 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Global Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Brazil | |
| |
Utilities – 0.7% | |
Alupar Investimento S.A. | | | 11 | | | $ | 74 | |
Transmissora Alianca de Energia Eletrica S.A. | | | 10 | | | | 71 | |
| | | | | | | | |
| | | | | | | 145 | |
| | | | | | | | |
| |
Total Brazil – 0.7% | | | $ | 145 | |
Chile | |
| |
Utilities – 0.1% | |
Aguas Andinas S.A. | | | 34 | | | | 20 | |
| | | | | | | | |
| |
Total Chile – 0.1% | | | $ | 20 | |
Panama | |
| |
Financials – 1.4% | |
Banco Latinoamericano de Comercio Exterior S.A. | | | 9 | | | | 268 | |
| | | | | | | | |
| |
Total Panama – 1.4% | | | $ | 268 | |
United Kingdom | |
| |
Energy – 1.2% | |
Royal Dutch Shell plc, Class A | | | 5 | | | | 158 | |
Seadrill Partners LLC | | | 4 | | | | 62 | |
| | | | | | | | |
| | | | | | | 220 | |
| | | | | | | | |
| |
Health Care – 1.3% | |
GlaxoSmithKline plc | | | 12 | | | | 253 | |
| | | | | | | | |
| |
Total United Kingdom – 2.5% | | | $ | 473 | |
United States | |
| |
Health Care – 0.8% | |
Bristol-Myers Squibb Co. | | | 3 | | | | 148 | |
| | | | | | | | |
| |
Information Technology – 0.8% | |
Intel Corp. | | | 4 | | | | 163 | |
| | | | | | | | |
| |
Utilities – 0.7% | |
PPL Corp. | | | 4 | | | | 131 | |
| | | | | | | | |
| |
Total United States – 2.3% | | | $ | 442 | |
| |
TOTAL COMMON
STOCKS – 7.0% | | | $ | 1,348 | |
(Cost: $1,277) | | | | | | | | |
| | |
CORPORATE DEBT
SECURITIES | | Principal | | | | |
Argentina | |
| |
Consumer Discretionary – 0.5% | |
Arcos Dorados Holdings, Inc. | | | | | | | | |
10.250%, 7-13-16(A) | | | BRL250 | | | | 89 | |
| | | | | | | | |
| |
Energy – 0.9% | |
Pan American Energy LLC | | | | | | | | |
7.875%, 5-7-21 | | $ | 100 | | | | 101 | |
YPF Sociedad Anonima
8.875%, 12-19-18(B) | | | 80 | | | | 83 | |
| | | | | | | | |
| | | | | | | 184 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Argentina (Continued) | | | | | | | | |
| |
Industrials – 0.3% | |
Aeropuertos Argentina 2000 S.A. | | | | | | | | |
10.750%, 12-1-20(B) | | $ | 49 | | | $ | 50 | |
| | | | | | | | |
| |
Total Argentina – 1.7% | | | $ | 323 | |
Austria | |
| |
Consumer Staples – 1.1% | |
JBS Investments GmbH (GTD by JBS S.A. and JBS Hungary Holdings Kft.) | | | | | | | | |
7.750%, 10-28-20(B) | | | 200 | | | | 207 | |
| | | | | | | | |
| |
Industrials – 0.3% | |
OAS Investments GmbH
8.250%, 10-19-19(B) | | | 200 | | | | 68 | |
| | | | | | | | |
| |
Total Austria – 1.4% | | | $ | 275 | |
Brazil | |
| |
Consumer Discretionary – 2.2% | |
Globo Comunicacoe e Participacoes S.A. | | | | | | | | |
6.250%, 12-20-49(C) | | | 300 | | | | 307 | |
Net Servicos de Comunicacao S.A. | | | | | | | | |
7.500%, 1-27-20 | | | 120 | | | | 123 | |
| | | | | | | | |
| | | | | | | 430 | |
| | | | | | | | |
| |
Consumer Staples – 1.1% | |
BFF International Ltd. | | | | | | | | |
7.250%, 1-28-20 | | | 100 | | | | 112 | |
JBS Finance II Ltd. | | | | | | | | |
8.250%, 1-29-18(B) | | | 100 | | | | 102 | |
| | | | | | | | |
| | | | | | | 214 | |
| | | | | | | | |
| |
Energy – 0.2% | |
Lancer Finance Co. (SPV) Ltd. | | | | | | | | |
5.850%, 12-12-16(B) | | | 30 | | | | 30 | |
| | | | | | | | |
| |
Financials – 1.2% | |
Banco Bradesco S.A. | | | | | | | | |
4.125%, 5-16-16(B) | | | 200 | | | | 205 | |
Banco Cruzeiro do Sul S.A. | | | | | | | | |
7.000%, 7-8-13(D) | | | 115 | | | | 17 | |
| | | | | | | | |
| | | | | | | 222 | |
| | | | | | | | |
| |
Industrials – 2.3% | |
Embraer Overseas Ltd. | | | | | | | | |
6.375%, 1-24-17 | | | 225 | | | | 242 | |
Odebrecht Drilling Norbe VII/IX Ltd. | | | | | | | | |
6.350%, 6-30-21(B) | | | 106 | | | | 99 | |
TAM Capital 2, Inc. | | | | | | | | |
9.500%, 1-29-20(B) | | | 100 | | | | 104 | |
| | | | | | | | |
| | | | | | | 445 | |
| | | | | | | | |
| |
Materials – 0.5% | |
Suzano Trading Ltd. | | | | | | | | |
5.875%, 1-23-21(B) | | | 100 | | | | 102 | |
| | | | | | | | |
| |
Total Brazil – 7.5% | | | $ | 1,443 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
British Virgin Islands | |
| |
Energy – 1.0% | |
QGOG Atlantic/Alaskan Rigs Ltd. | | | | | | | | |
5.250%,
7-30-18(B) | | $ | 212 | | | $ | 200 | |
| | | | | | | | |
| |
Total British Virgin
Islands – 1.0% | | | $ | 200 | |
Cayman Islands | |
| |
Industrials – 0.9% | |
Odebrecht Offshore Drilling Finance | | | | | | | | |
6.750%,
10-1-22(B) | | | 189 | | | | 173 | |
| | | | | | | | |
| |
Telecommunication Services – 1.0% | |
Hutchison Whampoa Ltd. | | | | | | | | |
1.625%,
10-31-17(B) | | | 200 | | | | 198 | |
| | | | | | | | |
| |
Total Cayman Islands – 1.9% | | | $ | 371 | |
Chile | |
| |
Industrials – 1.3% | |
Guanay Finance Ltd. | | | | | | | | |
6.000%,
12-15-20(B) | | | 250 | | | | 260 | |
| | | | | | | | |
| |
Materials – 1.2% | |
Inversiones CMPC S.A. (GTD by Empresas CMPC S.A.): | | | | | | | | |
4.750%,
1-19-18(B) | | | 25 | | | | 26 | |
4.375%,
5-15-23(B) | | | 200 | | | | 197 | |
| | | | | | | | |
| | | | | | | 223 | |
| | | | | | | | |
| |
Total Chile – 2.5% | | | $ | 483 | |
China | |
| |
Utilities – 0.5% | |
China Resources Power Holdings Co. Ltd. | | | | | | | | |
3.750%, 8-3-15 | | | 100 | | | | 101 | |
| | | | | | | | |
| |
Total China – 0.5% | | | $ | 101 | |
Columbia | |
| |
Energy – 1.5% | |
Empresas Publicas de Medellin E.S.P. | | | | | | | | |
8.375%,
2-1-21(A) | | | COP274,000 | | | | 121 | |
Pacific Rubiales Energy Corp.: | | | | | | | | |
5.375%,
1-26-19(B) | | $ | 100 | | | | 86 | |
7.250%,
12-12-21(B) | | | 100 | | | | 87 | |
| | | | | | | | |
| | | | | | | 294 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Global Bond (in thousands) DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Columbia (Continued) | |
| |
Utilities – 0.7% | |
Emgesa S.A. E.S.P.
8.750%,
1-25-21(A) | | | COP302,000 | | | $ | 137 | |
| | | | | | | | |
| |
Total Columbia – 2.2% | | | $ | 431 | |
France | |
| |
Consumer Discretionary – 1.0% | |
Numericable Group S.A. 6.000%,
5-15-22(B) | | $ | 200 | | | | 201 | |
| | | | | | | | |
| |
Financials – 1.6% | |
BNP Paribas S.A. 5.186%,
6-29-49(B) | | | 200 | | | | 200 | |
Societe Generale S.A.
5.922%,
4-29-49(B) | | | 100 | | | | 104 | |
| | | | | | | | |
| | | | | | | 304 | |
| | | | | | | | |
| |
Total France – 2.6% | | | $ | 505 | |
Germany | |
| |
Industrials – 0.5% | |
Rearden G Holdings EINS GmbH
7.875%,
3-30-20(B) | | | 100 | | | | 98 | |
| | | | | | | | |
| |
Total Germany – 0.5% | | | $ | 98 | |
India | |
| |
Utilities – 0.5% | |
Rural Electrification Corp. Ltd. | | | | | | | | |
4.250%,
1-25-16 | | | 100 | | | | 102 | |
| | | | | | | | |
| |
Total India – 0.5% | | | $ | 102 | |
Indonesia | |
| |
Telecommunication Services – 1.1% | |
Indosat Palapa Co. B.V.
7.375%,
7-29-20(B) | | | 200 | | | | 210 | |
| | | | | | | | |
| |
Utilities – 0.6% | |
Majapahit Holding B.V. | | | | | | | | |
7.750%,
10-17-16 | | | 100 | | | | 110 | |
| | | | | | | | |
| |
Total Indonesia – 1.7% | | | $ | 320 | |
Ireland | |
| |
Financials – 1.4% | |
MTS International Funding Ltd. | | | | | | | | |
5.000%,
5-30-23(B) | | | 350 | | | | 277 | |
| | | | | | | | |
| |
Total Ireland – 1.4% | | | $ | 277 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Luxembourg | |
| |
Energy – 0.9% | |
Offshore Drilling Holding S.A. | | | | | | | | |
8.375%, 9-20-20(B) | | $ | 200 | | | $ | 174 | |
| | | | | | | | |
| |
Financials – 0.9% | |
OJSC Russian Agricultural Bank | | | | | | | | |
5.100%, 7-25-18(B) | | | 200 | | | | 165 | |
| | | | | | | | |
| |
Information Technology – 1.0% | |
BC Luxco 1 S.A. | | | | | | | | |
7.375%, 1-29-20(B) | | | 200 | | | | 201 | |
| | | | | | | | |
| |
Materials – 1.4% | |
Evraz Group S.A. | | | | | | | | |
7.400%, 4-24-17 | | | 200 | | | | 172 | |
Steel Capital S.A. | | | | | | | | |
6.700%, 10-25-17 | | | 100 | | | | 92 | |
| | | | | | | | |
| | | | | | | 264 | |
| | | | | | | | |
| |
Total Luxembourg – 4.2% | | | $ | 804 | |
Mexico | |
| |
Consumer Discretionary – 0.4% | |
Controladora Mabe S.A. de C.V.: | | | | | | | | |
6.500%, 12-15-15(B) | | | 25 | | | | 26 | |
6.500%, 12-15-15 | | | 50 | | | | 52 | |
| | | | | | | | |
| | | | | | | 78 | |
| | | | | | | | |
| |
Materials – 3.6% | |
C5 Capital (SPV) Ltd. | | | | | | | | |
4.532%,
12-29-49(B)(C) | | | 150 | | | | 130 | |
CEMEX S.A.B. de C.V. | | | | | | | | |
6.500%, 12-10-19(B) | | | 550 | | | | 563 | |
| | | | | | | | |
| | | | | | | 693 | |
| | | | | | | | |
| |
Total Mexico – 4.0% | | | $ | 771 | |
Netherlands | |
| |
Consumer Discretionary – 1.1% | |
VTR Finance B.V. | | | | | | | | |
6.875%, 1-15-24(B) | | | 200 | | | | 204 | |
| | | | | | | | |
| |
Energy – 1.2% | |
Petrobras Global Finance (GTD by Petroleo Brasileiro S.A.) | | | | | | | | |
4.875%, 3-17-20 | | | 250 | | | | 234 | |
| | | | | | | | |
| |
Materials – 0.9% | |
Cimpor Financial Operations B.V. (GTD by InterCement Participacoes S.A. and InterCement Brasil S.A.) | | | | | | | | |
5.750%, 7-17-24(B) | | | 200 | | | | 175 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Netherlands (Continued) | |
| |
Telecommunication Services – 0.3% | |
VimpleCom Holdings B.V.
9.000%,
2-13-18(A)(B) | | | RUB5,000 | | | $ | 57 | |
| | | | | | | | |
Utilities – 1.1% | |
Listrindo Capital B.V. | | | | | | | | |
6.950%,
2-21-19(B) | | $ | 200 | | | | 211 | |
| | | | | | | | |
| |
Total Netherlands – 4.6% | | | $ | 881 | |
Norway | |
| |
Consumer Discretionary – 2.0% | |
World Wide Supply A.S. | | | | | | | | |
7.750%,
5-26-17(B) | | | 400 | | | | 372 | |
| | | | | | | | |
| |
Consumer Staples – 0.5% | |
Corporacion Pesquera
Inca S.A.C. | | | | | | | | |
9.000%, 2-10-17 | | | 100 | | | | 99 | |
| | | | | | | | |
| |
Total Norway – 2.5% | | | $ | 471 | |
Panama | |
| |
Financials – 1.6% | |
Banco Latinoamericano
de Comercio Exterior S.A. | | | | | | | | |
3.750%, 4-4-17(B) | | | 300 | | | | 309 | |
| | | | | | | | |
| |
Total Panama – 1.6% | | | $ | 309 | |
Peru | |
| |
Financials – 0.5% | |
InRetail Shopping Malls | | | | | | | | |
5.250%,
10-10-21(B) | | | 100 | | | | 101 | |
| | | | | | | | |
| |
Total Peru – 0.5% | | | $ | 101 | |
Russia | |
| |
Energy – 1.0% | |
Novatek Finance Ltd. | | | | | | | | |
5.326%, 2-3-16(B) | | | 200 | | | | 193 | |
| | | | | | | | |
| |
Industrials – 0.8% | |
SCF Capital Ltd. | | | | | | | | |
5.375%, 10-27-17 | | | 200 | | | | 164 | |
| | | | | | | | |
| |
Materials – 0.9% | |
Uralkali Finance Ltd. | | | | | | | | |
3.723%,
4-30-18(B) | | | 200 | | | | 164 | |
| | | | | | | | |
| |
Total Russia – 2.7% | | | $ | 521 | |
Singapore | |
| |
Consumer Staples – 1.1% | |
Olam International Ltd. | | | | | | | | |
7.500%, 8-12-20 | | | 100 | | | | 111 | |
Olam International Ltd.,
Convertible | | | | | | | | |
6.000%, 10-15-16 | | | 100 | | | | 105 | |
| | | | | | | | |
| | | | | | | 216 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Global Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Singapore (Continued) | |
| |
Energy – 1.8% | |
Noble Group Ltd. | | | | | | | | |
4.875%, 8-5-15 | | $ | 100 | | | $ | 101 | |
Oro Negro Drilling Pte. Ltd. | | | | | | | | |
7.500%, 1-24-19(B) | | | 275 | | | | 231 | |
| | | | | | | | |
| | | | | | | 332 | |
| | | | | | | | |
| |
Telecommunication Services – 1.0% | |
TBG Global Pte. Ltd. | | | | | | | | |
4.625%, 4-3-18(B) | | | 200 | | | | 197 | |
| | | | | | | | |
| |
Total Singapore – 3.9% | | | $ | 745 | |
United Arab Emirates | |
| |
Financials – 1.7% | |
ICICI Bank Ltd. | | | | | | | | |
3.500%, 3-18-20(B) | | | 325 | | | | 327 | |
| | | | | | | | |
| |
Total United Arab
Emirates – 1.7% | | | $ | 327 | |
United Kingdom | |
| |
Financials – 4.2% | |
Barclays plc
8.250%, 12-29-49 | | | 200 | | | | 205 | |
HSBC Holdings plc
5.625%, 12-29-49 | | | 200 | | | | 201 | |
State Bank of India:
3.250%, 4-18-18(B) | | | 200 | | | | 202 | |
3.622%, 4-17-19(B) | | | 200 | | | | 203 | |
| | | | | | | | |
| | | | | | | 811 | |
| | | | | | | | |
Materials – 1.0% | |
Vedanta Resources plc
6.000%, 1-31-19(B) | | | 200 | | | | 195 | |
| | | | | | | | |
| |
Total United Kingdom – 5.2% | | | $ | 1,006 | |
United States | |
| |
Consumer Discretionary – 0.2% | |
B-Corp Merger Sub, Inc.
8.250%, 6-1-19 | | | 50 | | | | 45 | |
| | | | | | | | |
| |
Energy – 0.4% | |
Brand Energy & Infrastructure Services
8.500%, 12-1-21(B) | | | 80 | | | | 72 | |
| | | | | | | | |
| |
Financials – 3.6% | |
Aircastle Ltd.
4.625%, 12-15-18 | | | 85 | | | | 85 | |
Citigroup, Inc.
8.400%, 4-29-49 | | | 75 | | | | 86 | |
Daimler Finance North America LLC
2.950%, 1-11-17(B) | | | 200 | | | | 206 | |
General Motors Financial Co., Inc.
3.000%, 9-25-17 | | | 100 | | | | 101 | |
UBS Preferred Funding Trust V
6.243%, 5-29-49 | | | 200 | | | | 207 | |
| | | | | | | | |
| | | | | | | 685 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
United States (Continued) | |
| |
Industrials – 0.8% | |
Dynacast International LLC and Dynacast Finance, Inc.
9.250%, 7-15-19 | | $ | 65 | | | $ | 70 | |
TransDigm, Inc.
6.000%, 7-15-22 | | | 82 | | | | 82 | |
| | | | | | | | |
| | | | | | | 152 | |
| | | | | | | | |
| |
Information Technology – 1.8% | |
Alliance Data Systems Corp. 5.250%,
12-1-17(B) | | | 50 | | | | 52 | |
iGATE Corp.
4.750%, 4-15-19 | | | 300 | | | | 300 | |
| | | | | | | | |
| | | | | | | 352 | |
| | | | | | | | |
| |
Materials – 0.1% | |
Hillman Group, Inc. (The)
6.375%,
7-15-22(B) | | | 25 | | | | 24 | |
| | | | | | | | |
| |
Telecommunication Services – 3.0% | |
American Tower Corp.
3.400%, 2-15-19 | | | 125 | | | | 127 | |
T-Mobile USA, Inc.
6.000%, 3-1-23 | | | 230 | | | | 231 | |
Verizon Communications, Inc.
2.625%,
2-21-20(B) | | | 214 | | | | 211 | |
| | | | | | | | |
| | | | | | | 569 | |
| | | | | | | | |
| |
Total United States – 9.9% | | | $ | 1,899 | |
| |
TOTAL CORPORATE DEBT SECURITIES – 66.2% | | | $ | 12,764 | |
(Cost: $13,584) | | | | | | | | |
| |
OTHER GOVERNMENT SECURITIES(E) | | | | | |
| |
Argentina – 0.8% | |
City of Buenos Aires 12.500%, 4-6-15 | | | 150 | | | | 152 | |
| | | | | | | | |
Luxembourg – 0.8% | |
BC Luxco 1 S.A. 7.375%, 1-29-20 | | | 150 | | | | 151 | |
| | | | | | | | |
| |
Russia – 0.9% | |
Russian Federation 3.500%, 1-16-19(B) | | | 200 | | | | 180 | |
| | | | | | | | |
| |
Venezuela – 2.1% | |
Corporacion Andina de Fomento: | | | | | | | | |
3.750%, 1-15-16 | | | 155 | | | | 159 | |
1.500%, 8-8-17 | | | 250 | | | | 249 | |
| | | | | | | | |
| | | | | | | 408 | |
| | | | | | | | |
| |
TOTAL OTHER GOVERNMENT SECURITIES – 4.6% | | | $ | 891 | |
(Cost: $912) | | | | | | | | |
| | | | | | | | |
| LOANS(C) | | Principal | | | Value | |
United States | |
| |
Industrials – 1.4% | |
TransDigm, Inc.
3.750%, 2-28-20 | | $ | 274 | | | $ | 268 | |
| | | | | | | | |
| |
Materials – 0.5% | |
BakerCorp International 4.250%, 2-7-20 | | | 75 | | | | 68 | |
EP Minerals LLC
5.500%, 7-24-20 | | | 29 | | | | 29 | |
| | | | | | | | |
| | | | | | | 97 | |
| | | | | | | | |
| |
Total United States – 1.9% | | | $ | 365 | |
| |
TOTAL LOANS – 1.9% | | | $ | 365 | |
(Cost: $373) | | | | | | | | |
| |
UNITED STATES GOVERNMENT OBLIGATIONS | | | | | |
United States – 16.2% | |
U.S. Treasury Notes:
0.875%, 2-28-17 | | | 250 | | | | 251 | |
0.625%, 8-31-17 | | | 1,500 | | | | 1,485 | |
0.750%, 12-31-17 | | | 1,250 | | | | 1,236 | |
1.750%, 5-15-22 | | | 145 | | | | 142 | |
| | | | | | | | |
| | | | | | | 3,114 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS –16.2% | | | $ | 3,114 | |
(Cost: $3,144) | | | | | | | | |
| |
SHORT-TERM SECURITIES | | | | | |
Master Note – 2.8% | |
Toyota Motor Credit Corp.
0.126%,
1-7-15(F) | | | 539 | | | | 539 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM SECURITIES – 2.8% | | | $ | 539 | |
(Cost: $539) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 98.7% | | | $ | 19,021 | |
(Cost: $19,829) | | | | | | | | |
| |
CASH AND OTHER
ASSETS, NET OF
LIABILITIES – 1.3% | | | | 258 | |
| |
NET ASSETS – 100.0% | | | $ | 19,279 | |
SCHEDULE OF INVESTMENTS
Global Bond (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| * | Not shown due to rounding. |
| (A) | Principal amounts are denominated in the indicated foreign currency, where applicable (BRL—Brazilian Real, COP—Columbian Peso and RUB—Russian Ruble). |
| (B) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $8,512 or 44.1% of net assets. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. |
| (D) | Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy. |
| (E) | Other Government Securities include emerging markets sovereign, quasi-sovereign, corporate and supranational agency and organization debt securities. |
| (F) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following forward foreign currency contracts were outstanding at December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Currency to be
Delivered | | | | Currency to be
Received | | | Settlement
Date | | | Counterparty | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
British Pound | | 271 | | U.S. Dollar | | | 425 | | | | 1-14-15 | | | | Barclays Capital, Inc. | | | $ | 3 | | | $ | — | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Energy | | $ | 62 | | | $ | 158 | | | $ | — | |
Financials | | | 268 | | | | — | | | | — | |
Health Care | | | 148 | | | | 253 | | | | — | |
Information Technology | | | 163 | | | | — | | | | — | |
Utilities | | | 296 | | | | — | | | | — | |
Total Common Stocks | | $ | 937 | | | $ | 411 | | | $ | — | |
Corporate Debt Securities | | | — | | | | 11,985 | | | | 779 | |
Other Government Securities | | | — | | | | 891 | | | | — | |
Loans | | | — | | | | 336 | | | | 29 | |
United States Government Obligations | | | — | | | | 3,114 | | | | — | |
Short-Term Securities | | | — | | | | 539 | | | | — | |
Total | | $ | 937 | | | $ | 17,276 | | | $ | 808 | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 3 | | | $ | — | |
During the period ended December 31, 2014, securities totaling $293 were transferred from Level 1 to Level 2. These transfers were the result of fair value procedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
| | | | | | | | |
| | | Corporate Debt
Securities | | | Loans | |
Beginning Balance 1-1-14 | | $ | 152 | | | $ | — | |
Net realized gain (loss) | | | — | | | | (— | *) |
Net change in unrealized appreciation (depreciation) | | | (31 | ) | | | (— | *) |
Purchases | | | 811 | | | | 29 | |
Sales | | | — | | | | (— | *) |
Amortization/Accretion of premium/discount | | | (1 | ) | | | — | * |
Transfers into Level 3 during the period | | | — | | | | — | |
Transfers out of Level 3 during the period | | | (152 | ) | | | — | |
Ending Balance 12-31-14 | | $ | 779 | | | $ | 29 | |
Net change in unrealized appreciation (depreciation) for all Level 3 investments still held as of 12-31-14 | | $ | (31 | ) | | $ | (— | *) |
SCHEDULE OF INVESTMENTS
Global Bond (in thousands) | DECEMBER 31, 2014 |
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information. As shown above, transfers in and out of Level 3 represent the values as of the beginning of the reporting period.
Information about Level 3 fair value measurements:
| | | | | | | | | | | | |
| | | Fair Value at 12-31-14 | | | Valuation
Technique(s) | | | Unobservable Input(s) | |
Assets | | | | | | | | | | | | |
Corporate Debt Securities | | $ | 779 | | | | Third-party valuation service | | | | Broker quotes | |
Loans | | | 29 | | | | Third-party valuation service | | | | Broker quotes | |
The following acronym is used throughout this schedule:
GTD = Guaranteed
Country Diversification
| | | | |
(as a % of net assets) | | | | |
United States | | | 30.3% | |
Brazil | | | 8.2% | |
United Kingdom | | | 7.7% | |
Luxembourg | | | 5.0% | |
Netherlands | | | 4.6% | |
Mexico | | | 4.0% | |
Singapore | | | 3.9% | |
Russia | | | 3.6% | |
Panama | | | 3.0% | |
France | | | 2.6% | |
Chile | | | 2.6% | |
Country Diversification (Continued)
| | | | |
Argentina | | | 2.5% | |
Norway | | | 2.5% | |
Columbia | | | 2.2% | |
Venezuela | | | 2.1% | |
Cayman Islands | | | 1.9% | |
United Arab Emirates | | | 1.7% | |
Indonesia | | | 1.7% | |
Ireland | | | 1.4% | |
Austria | | | 1.4% | |
British Virgin Islands | | | 1.0% | |
Other Countries | | | 2.0% | |
Other+ | | | 4.1% | |
+Includes cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Sarah C. Ross
Below, Sarah C. Ross, CFA, portfolio manager of Ivy Funds VIP International Growth, discusses positioning, performance and results for the fiscal year ended December 31, 2014. Effective August 4, 2014, Ms. Ross assumed portfolio management responsibilities for Ivy Funds VIP International Growth from Chace Brundige. Ms. Ross has 19 years of industry experience. In November of 2014, Ivy Funds VIP International Growth expanded its investment strategy to include stocks of U.S. companies. Effective January 1, 2015, the Portfolio changed its name to Ivy Funds VIP Global Growth to reflect its global focus.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Global Growth | | | 0.96% | |
Benchmark(s) and/or Lipper Category | | | | |
MSCI EAFE Growth Index | | | –4.43% | |
(generally reflects the performance of international growth stocks) | | | | |
MSCI World Index | | | 4.94% | |
(generally reflects the performance of securities markets around the world) | | | | |
Lipper Variable Annuity International Large-Cap Growth Funds Universe Average | | | –2.71% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Effective January 2015, the Portfolio’s benchmark changed from the MSCI EAFE Growth Index to the MSCI World Index, which is more reflective of the types of securities in which the Portfolio invests under its expanded investment strategy.
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Economic uncertainty dominates markets
Equity market volatility continued to increase throughout the year on continued uncertainty surrounding global growth rates. The U.S. dollar generally strengthened during the period, while the yen and euro weakened. Investors favored safety as the year progressed, resulting in U.S. Treasuries being the big asset class winner for 2014. U.S. stocks continued to lead most other major global equity markets, buoyed by solid consumer spending, an improving unemployment rate and relatively solid gross domestic product (GDP) growth. European equities performed poorly as many indicators of growth in Europe weakened, including inflation, employment, wages and yields. Japan underperformed the U.S. and outperformed Europe during the year but not without considerable volatility and pressure on the yen. While emerging markets had a solid start to the year, they generally ended in negative territory, adversely impacted by the significant decline in commodity prices during the fourth quarter. The macroeconomic environment was a significant driver of asset class performance during the year, as economies levered to consumption tended to outperform those levered to commodities.
Global economic growth continued to slow despite an ongoing policy of central bank easing. European growth remains weak despite multiple easing steps initiated during the past few months. We think emerging markets, which tend to have more exposure to commodity production, are generally facing weaker growth, currency declines and pressure on commodity prices.
During the year, healthcare was one of the strongest performing sectors, while energy stocks posted materially negative returns. Commodity prices in energy dropped significantly in the second half of the year, creating fear of energy production cuts and negative earnings revisions in the sector.
Outperformance for the year
The Portfolio outperformed the MSCI EAFE Growth Index, and underperformed the MSCI World Index (the new benchmark effective January 1, 2015) for the fiscal period ended December 31, 2014. Stock selection in healthcare and technology, accompanied by a relative overweight to those outperforming sectors, were the top contributors to performance for the period. Increased exposure to U.S. stocks, as well as currency hedging against the yen and euro via forward currency contracts, both contributed to positive performance, particularly in the second half of the year. Poor stock selection in financials and industrials, along with an overweight to energy stocks, contributed negatively to performance.
We are taking advantage of increased equity volatility by adding positions in strong structural growth companies throughout the world that have sustainable competitive advantages. Despite the recent relative outperformance of U.S. equities, we continue to see opportunities for increased U.S. exposure as valuations for some U.S. growth stocks are relatively more attractive than international competitors. We also see opportunities to add to positions in European and Japanese exporters with strong global brands that benefit from a weakening local market currency. We expect continued U.S. dollar strength and remain partially hedged against the euro and British pound.
Outlook
The Portfolio mandate was broadened from international to global, allowing for increased exposure to U.S. equities. We believe the increased focus on U.S. companies, in addition to international businesses, will allow us to select the strongest growth companies with the best opportunities for shareholder return regardless of where the business is based.
We expect continued global growth weakness. While we believe global policy will remain very accommodative, a number of challenges remain that are likely to cause intermittent equity market volatility. This includes political uncertainty in certain regions across the globe, such as in the Middle East, Ukraine and Russia; currency pressures in emerging markets; and, most notably, the impact of lower energy prices on global GDP rates. While we do not expect energy prices to remain at current levels indefinitely, the duration of weakness in commodity prices is uncertain and further pressure and timing of recovery is material to long-term global growth. Inflation across many markets is below target and we expect central bank policy to become easier rather than tighter, with additional easing from the European Central Bank and likely reluctance on the part of the U.S. Federal Reserve to raise rates too early.
We believe the likelihood of further price/earnings expansion is limited and expect market outperformers to be driven by earnings growth. Despite uncertainties in the market, we believe our portfolio of strong global growers with sustainable competitive advantages and unique products serving large end markets can continue to drive shareholder value over time.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
International investing involves additional risks including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Ivy Funds VIP Global Growth.
PORTFOLIO HIGHLIGHTS
Global Growth(a) | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 88.5% | |
Consumer Discretionary | | | 20.0% | |
Health Care | | | 18.7% | |
Information Technology | | | 16.9% | |
Industrials | | | 13.5% | |
Financials | | | 6.3% | |
Consumer Staples | | | 4.9% | |
Energy | | | 3.7% | |
Telecommunication Services | | | 3.5% | |
Materials | | | 1.0% | |
Cash and Cash Equivalents | | | 11.5% | |
Country Weightings
| | | | |
North America | | | 33.6% | |
United States | | | 31.7% | |
Other North America | | | 1.9% | |
Europe | | | 32.5% | |
France | | | 9.4% | |
United Kingdom | | | 8.5% | |
Germany | | | 6.2% | |
Netherlands | | | 3.8% | |
Other Europe | | | 4.6% | |
Pacific Basin | | | 19.7% | |
Japan | | | 9.4% | |
China | | | 4.4% | |
Other Pacific Basin | | | 5.9% | |
Other | | | 2.7% | |
Cash and Cash Equivalents | | | 11.5% | |
Top 10 Equity Holdings
| | | | | | |
| Company | | Country | | Sector | | Industry |
Fuji Heavy Industries Ltd. | | Japan | | Consumer Discretionary | | Automobile Manufacturers |
Visa, Inc., Class A | | United States | | Information Technology | | Data Processing & Outsourced Services |
Tokyo Electron Ltd. | | Japan | | Information Technology | | Semiconductor Equipment |
Teva Pharmaceutical Industries Ltd. ADR | | Israel | | Health Care | | Pharmaceuticals |
Limited Brands, Inc. | | United States | | Consumer Discretionary | | Apparel Retail |
J.B. Hunt Transport Services, Inc. | | United States | | Industrials | | Trucking |
Biogen Idec, Inc. | | United States | | Health Care | | Biotechnology |
Prudential plc | | United Kingdom | | Financials | | Life & Health Insurance |
Gilead Sciences, Inc. | | United States | | Health Care | | Biotechnology |
HCA Holdings, Inc. | | United States | | Health Care | | Health Care Facilities |
See your advisor for more information on the Portfolio’s most recent published Top 10 Equity Holdings.
| (a) | Effective January 1, 2015, the name of International Growth has changed to Global Growth. |
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Global Growth(a) | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 0.96% | |
5-year period ended 12-31-14 | | | 8.61% | |
10-year period ended 12-31-14 | | | 6.61% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
| (a) | In November of 2014, Ivy Funds VIP International Growth expanded its investment strategy to include stocks of U.S. companies. Effective January 1, 2015, the Portfolio changed its name to Ivy Funds VIP Global Growth to reflect its global focus and changed its benchmark to MSCI World Index. For comparison purposes, the prior benchmark MSCI EAFE Growth Index is included in this report. Performance prior to November 2014 reflects the Portfolio’s former international strategy and may have differed if the Portfolio’s current strategy that includes investing globally had been in place. |
SCHEDULE OF INVESTMENTS
Global Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Australia | |
Telecommunication Services – 1.8% | |
Telstra Corp. Ltd. | | | 1,625 | | | $ | 7,891 | |
| | | | | | | | |
| |
Total Australia – 1.8% | | | $ | 7,891 | |
Canada | |
Industrials – 1.9% | |
Canadian Pacific Railway Ltd. | | | 43 | | | | 8,237 | |
| | | | | | | | |
| |
Total Canada – 1.9% | | | $ | 8,237 | |
China | |
Consumer Discretionary – 2.3% | |
CAR, Inc. (A)(B) | | | 2,551 | | | | 3,305 | |
JD.com, Inc. ADR (A) | | | 278 | | | | 6,442 | |
| | | | | | | | |
| | | | | | | 9,747 | |
| | | | | | | | |
| |
Information Technology – 2.1% | |
Baidu.com, Inc. ADR (A) | | | 40 | | | | 9,228 | |
| | | | | | | | |
| |
Total China – 4.4% | | | $ | 18,975 | |
France | |
Consumer Discretionary – 2.4% | |
Compagnie Generale des Etablissements Michelin, Class B | | | 58 | | | | 5,204 | |
Hermes International | | | 1 | | | | 531 | |
LVMH Moet Hennessy – Louis Vuitton | | | 31 | | | | 4,841 | |
| | | | | | | | |
| | | | | | | 10,576 | |
| | | | | | | | |
| |
Industrials – 4.2% | |
European Aeronautic Defence and Space Co. | | | 130 | | | | 6,410 | |
Safran | | | 130 | | | | 8,001 | |
Vinci | | | 69 | | | | 3,741 | |
| | | | | | | | |
| | | | | | | 18,152 | |
| | | | | | | | |
| |
Information Technology – 1.8% | |
Cap Gemini S.A. | | | 109 | | | | 7,803 | |
| | | | | | | | |
| |
Materials – 1.0% | |
L Air Liquide S.A. | | | 34 | | | | 4,162 | |
| | | | | | | | |
| |
Total France – 9.4% | | | $ | 40,693 | |
Germany | |
Consumer Discretionary – 2.1% | |
Continental AG | | | 43 | | | | 9,055 | |
| | | | | | | | |
| |
Health Care – 4.1% | |
Bayer AG | | | 58 | | | | 7,896 | |
Fresenius SE & Co. KGaA | | | 187 | | | | 9,741 | |
| | | | | | | | |
| | | | | | | 17,637 | |
| | | | | | | | |
| |
Total Germany – 6.2% | | | $ | 26,692 | |
India | |
Consumer Staples – 1.4% | |
ITC Ltd. | | | 1,017 | | | | 5,924 | |
| | | | | | | | |
| |
Total India – 1.4% | | | $ | 5,924 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Israel | |
Health Care – 2.7% | |
Teva Pharmaceutical Industries Ltd. ADR | | | 202 | | | $ | 11,626 | |
| | | | | | | | |
| |
Total Israel – 2.7% | | | $ | 11,626 | |
Italy | |
Financials – 1.3% | |
Azimut Holding S.p.A. | | | 263 | | | | 5,713 | |
| | | | | | | | |
| |
Total Italy – 1.3% | | | $ | 5,713 | |
Japan | |
Consumer Discretionary – 4.1% | |
Fuji Heavy Industries Ltd. | | | 506 | | | | 17,888 | |
| | | | | | | | |
| |
Industrials – 2.6% | |
Komatsu Ltd. | | | 306 | | | | 6,774 | |
Mitsubishi Electric Corp. | | | 369 | | | | 4,383 | |
| | | | | | | | |
| | | | | | | 11,157 | |
| | | | | | | | |
| |
Information Technology – 2.7% | |
Tokyo Electron Ltd. | | | 154 | | | | 11,670 | |
| | | | | | | | |
| |
Total Japan – 9.4% | | | $ | 40,715 | |
Macau | |
Consumer Discretionary – 1.3% | |
Galaxy Entertainment Group | | | 984 | | | | 5,468 | |
| | | | | | | | |
| |
Total Macau – 1.3% | | | $ | 5,468 | |
Netherlands | |
Consumer Discretionary – 1.3% | |
Koninklijke Philips Electronics N.V., Ordinary Shares | | | 188 | | | | 5,447 | |
| | | | | | | | |
| |
Information Technology – 2.5% | |
ASML Holding N.V., NY Registry Shares | | | 49 | | | | 5,290 | |
NXP Semiconductors N.V. (A) | | | 74 | | | | 5,648 | |
| | | | | | | | |
| | | | | | | 10,938 | |
| | | | | | | | |
| |
Total Netherlands – 3.8% | | | $ | 16,385 | |
Spain | |
Financials – 1.6% | |
CaixaBank S.A. | | | 1,320 | | | | 6,916 | |
| | | | | | | | |
| |
Total Spain – 1.6% | | | $ | 6,916 | |
Switzerland | |
Health Care – 1.7% | |
Novartis AG, Registered Shares | | | 77 | | | | 7,138 | |
| | | | | | | | |
| |
Total Switzerland – 1.7% | | | $ | 7,138 | |
Taiwan | |
Information Technology – 1.4% | |
MediaTek, Inc. | | | 427 | | | | 6,207 | |
| | | | | | | | |
| |
Total Taiwan – 1.4% | | | $ | 6,207 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
United Kingdom | |
Consumer Staples – 1.5% | |
SABMiller plc | | | 123 | | | $ | 6,413 | |
| | | | | | | | |
| |
Energy – 1.3% | |
Royal Dutch Shell plc, Class A | | | 172 | | | | 5,737 | |
| | | | | | | | |
| |
Financials – 3.4% | |
Aviva plc | | | 593 | | | | 4,457 | |
Prudential plc | | | 441 | | | | 10,185 | |
| | | | | | | | |
| | | | | | | 14,642 | |
| | | | | | | | |
| |
Health Care – 1.6% | |
Shire plc | | | 99 | | | | 7,031 | |
| | | | | | | | |
| |
Industrials – 0.7% | |
Capita Group plc (The) | | | 163 | | | | 2,728 | |
| | | | | | | | |
| |
Total United Kingdom – 8.5% | | | $ | 36,551 | |
United States | |
Consumer Discretionary – 6.5% | |
Amazon.com, Inc. (A) | | | 30 | | | | 9,452 | |
Hilton Worldwide Holdings, Inc. (A) | | | 294 | | | | 7,658 | |
Limited Brands, Inc. | | | 125 | | | | 10,777 | |
| | | | | | | | |
| | | | | | | 27,887 | |
| | | | | | | | |
| |
Consumer Staples – 2.0% | |
InBev N.V. | | | 78 | | | | 8,727 | |
| | | | | | | | |
| |
Energy – 2.4% | |
Halliburton Co. | | | 139 | | | | 5,462 | |
Schlumberger Ltd. | | | 58 | | | | 4,966 | |
| | | | | | | | |
| | | | | | | 10,428 | |
| | | | | | | | |
| |
Health Care – 8.6% | |
Biogen Idec, Inc. (A) | | | 30 | | | | 10,316 | |
Gilead Sciences, Inc. (A) | | | 107 | | | | 10,128 | |
HCA Holdings, Inc. (A) | | | 134 | | | | 9,820 | |
Medtronic, Inc. | | | 95 | | | | 6,841 | |
| | | | | | | | |
| | | | | | | 37,105 | |
| | | | | | | | |
| |
Industrials – 4.1% | |
J.B. Hunt Transport Services, Inc. | | | 127 | | | | 10,716 | |
Kansas City Southern | | | 55 | | | | 6,725 | |
| | | | | | | | |
| | | | | | | 17,441 | |
| | | | | | | | |
| |
Information Technology – 6.4% | |
Cognizant Technology Solutions Corp., Class A (A) | | | 181 | | | | 9,528 | |
Micron Technology, Inc. (A) | | | 86 | | | | 3,025 | |
Veeco Instruments, Inc. (A) | | | 54 | | | | 1,896 | |
Visa, Inc., Class A | | | 50 | | | | 13,157 | |
| | | | | | | | |
| | | | | | | 27,606 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Global Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Telecommunication Services – 1.7% | |
SBA Communications Corp. (A) | | | 67 | | | $ | 7,450 | |
| | | | | | | | |
| |
Total United States – 31.7% | | | $ | 136,644 | |
| |
TOTAL COMMON
STOCKS – 88.5% | | | $ | 381,775 | |
(Cost: $335,527) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | Principal | | | | |
Commercial Paper (C) – 10.3% | |
Air Products and Chemicals, Inc.
0.160%, 1-21-15 | | $ | 4,800 | | | | 4,800 | |
CVS Caremark Corp.
0.450%, 1-13-15 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
SHORT-TERM
SECURITIES
(Continued) | | Principal | | | Value | |
Commercial Paper (C) (Continued) | |
Eli Lilly and Co.
0.180%, 3-25-15 | | $ | 5,000 | | | $ | 4,998 | |
Illinois Tool Works, Inc.
0.130%, 1-6-15 | | | 4,000 | | | | 4,000 | |
Kellogg Co.
0.390%, 1-13-15 | | | 4,206 | | | | 4,205 | |
NBCUniversal Enterprise, Inc.
0.340%, 1-13-15 | | | 6,000 | | | | 5,999 | |
Toronto-Dominion Holdings USA, Inc. (GTD by Toronto Dominion Bank)
0.120%, 1-13-15 | | | 10,500 | | | | 10,499 | |
Wal-Mart Stores, Inc.
0.090%, 1-13-15 | | | 8,000 | | | | 8,000 | |
| | | | | | | | |
| | | | | | | 44,501 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM
SECURITIES (Continued) | | Principal | | | Value | |
Master Note – 0.7% | |
Toyota Motor Credit Corp.
0.126%,
1-7-15 (D) | | $ | 3,005 | | | $ | 3,005 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 11.0% | | | $ | 47,506 | |
(Cost: $47,506) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.5% | | | $ | 429,281 | |
(Cost: $383,033) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.5% | | | | 2,182 | |
| |
NET ASSETS – 100.0% | | | $ | 431,463 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $3,305 or 0.8% of net assets. |
| (C) | Rate shown is the yield to maturity at December 31, 2014. |
| (D) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following forward foreign currency contracts were outstanding at December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Currency to be
Delivered | | | | | Currency to be
Received | | | Settlement
Date | | | Counterparty | | | Unrealized
Appreciation | | | Unrealized
Depreciation | | | |
British Pound | | 11,000 | | | U.S. Dollar | | | | 17,250 | | | | 1–14–15 | | | | Morgan Stanley International | | | $ | 107 | | | $ | — | | | |
Euro | | 41,945 | | | U.S. Dollar | | | | 52,127 | | | | 1–14–15 | | | | Morgan Stanley International | | | | 1,366 | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 1,473 | | | $ | — | | | |
| | | | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Consumer Discretionary | | $ | 34,329 | | | $ | 48,434 | | | $ | 3,305 | |
Consumer Staples | | | — | | | | 21,064 | | | | — | |
Energy | | | 10,428 | | | | 5,737 | | | | — | |
Financials | | | — | | | | 27,271 | | | | — | |
Health Care | | | 48,731 | | | | 31,806 | | | | — | |
Industrials | | | 25,678 | | | | 32,037 | | | | — | |
Information Technology | | | 47,772 | | | | 25,680 | | | | — | |
Materials | | | — | | | | 4,162 | | | | — | |
Telecommunication Services | | | 7,450 | | | | 7,891 | | | | — | |
Total Common Stocks | | $ | 174,388 | | | $ | 204,082 | | | $ | 3,305 | |
Short-Term Securities | | | — | | | | 47,506 | | | | — | |
Total | | $ | 174,388 | | | $ | 251,588 | | | $ | 3,305 | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 1,473 | | | $ | — | |
During the period ended December 31, 2014, securities totaling $200,720 were transferred from Level 1 to Level 2. These transfers were the result of fair value prodedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
SCHEDULE OF INVESTMENTS
Global Growth (in thousands) | DECEMBER 31, 2014 |
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
GTD = Guaranteed
Market Sector Diversification
| | | | |
(as a % of net assets) | |
Consumer Discretionary | | | 20.0% | |
Health Care | | | 18.7% | |
Information Technology | | | 16.9% | |
Industrials | | | 13.5% | |
Financials | | | 6.3% | |
Consumer Staples | | | 4.9% | |
Energy | | | 3.7% | |
Telecommunication Services | | | 3.5% | |
Materials | | | 1.0% | |
Other+ | | | 11.5% | |
+Includes cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Global Natural Resources | (UNAUDITED) |
David P. Ginther
Below, David P. Ginther, CPA, portfolio manager of Ivy Funds VIP Global Natural Resources, discusses positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Ginther has 19 years of industry experience and has managed the Portfolio since July 2, 2013.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Global Natural Resources | | | –13.04% | |
Benchmark(s)/Lipper Category | | | | |
Lipper Variable Annuity Natural Resources Funds Universe Average | | | –12.58% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
MSCI AC World IMI 55% Energy + 45% Materials Index | | | –11.32% | |
(generally reflects the performance of the energy and materials stocks in developed and emerging markets.) | | | | |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Oil price plunge adds pressure
U.S. equities closed the fiscal year with gains across the broad market indexes, again reaching record-high levels after a year that saw steady gains. Global equities in general also finished the year slightly higher.
Crude oil prices plunged worldwide late in the year, reaching levels not seen since 2009. The price fall was prompted by forecasts of reduced global demand and unwillingness by OPEC to cut production at its meeting in November to defend crude oil prices. The oil price decline pressured stocks and raised concerns that the price tumble, if sustained, could stall economic growth in some regions.
U.S. economic indicators continued to show steady growth during the year. The U.S. remained the leader in economic growth among developed countries. Growth forecasts for Europe were revised lower late in the year and the European Central Bank indicated its intent to provide economic stimulus, although it had not taken action by year end.
Commodities prices declined at an accelerating pace as the year came to a close, reflecting the low-growth, low-inflation environment around the world that had been in place all year. A stronger U.S. dollar against most world currencies also pressured commodities prices, which are priced in dollars on world markets.
Portfolio
The Portfolio finished another difficult year for natural resources with a negative return that was slightly greater than the negative return of its benchmark index and its peer group average. The result for the full year came despite the Portfolio’s positive performance during the first half of the year.
The underperformance relative to the benchmark index primarily was because of the allocation to the energy sector throughout the year compared to the benchmark’s holdings. For example, while the benchmark index holds 55% in the energy sector at any given time, the Portfolio closed the year with a 63.94% allocation to energy, based on equity assets. While this positioning benefitted the Portfolio through much of the year, the energy sector experienced broad declines during the closing months of 2014 on concerns about a global oversupply of oil stemming from weak global demand combined with growth in the global production of oil. Most of this production growth was from the U.S.
In addition, 45.5% of the total Portfolio was held in two particular industries, Oil & Gas Equipment and Services as well as Oil & Gas Exploration and Production. The five greatest contributors to the Portfolio’s performance were Canadian Pacific Railway; Energy Transfer Equity; PPG Industries; EOG Resources; and Shell Midstream Partners. The five greatest detractors were Freeport-McMoRan Copper & Gold; BHP Billiton; Halliburton; Noble Energy; and Continental Resources.
We typically hedge foreign currency exposure using forward foreign currency contracts. These derivatives positions were positive contributors to performance as the U.S. dollar strengthened.
The oil industry remains a major focus for the Portfolio, especially through companies involved in equipment & services, exploration & production and transportation industries. The increase in shale oil production from key basins in North America also remains an important focus for energy holdings.
Outlook
We think the U.S. will continue to have steady economic growth and low inflation in 2015 and expect it to lead the developed countries. We also believe economic growth will continue globally, although at a mild rate.
We think commodities remain in a low-demand environment because of this slow pace of the global economy. Commodities prices persisted at weaker levels during the year and we think that will continue until global economic growth gains momentum. We think major commodities companies will continue to focus on managing costs and capital expenditures as a result. The prospects for growth have improved in several emerging countries, but not to a level sufficient to greatly increase demand.
We think global energy demand will continue to grow, although at a slower pace than previously forecast. In our view, lower oil prices will prompt cuts in capital expenditures at energy companies, which we think in turn will reduce the growth rate of global production. We also think the plunge in crude oil prices is unlikely to be sustainable in the long term. We remain concerned about heightened geopolitical risks related to the Mideast and Russia, and believe these will continue to overhang markets and generate uncertainty.
We will continue to use our top-down, fundamental research process in seeking companies that may benefit from a stronger rebound in economic activity and the growth in demand that may result.
As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Commodity trading, including trading in precious metals, is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Global Natural Resources.
PORTFOLIO HIGHLIGHTS
Global Natural Resources | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 96.4% | |
Energy | | | 61.6% | |
Materials | | | 22.0% | |
Industrials | | | 11.1% | |
Financials | | | 1.7% | |
Utilities | | | 0.0% | |
Cash and Cash Equivalents | | | 3.6% | |
Country Weightings
| | | | |
North America | | | 84.7% | |
United States | | | 77.5% | |
Canada | | | 7.2% | |
Europe | | | 11.7% | |
United Kingdom | | | 8.2% | |
Other Europe | | | 3.5% | |
Pacific Basin | | | 0.0% | |
Cash and Cash Equivalents | | | 3.6% | |
Top 10 Equity Holdings
| | | | | | |
| Company | | Country | | Sector | | Industry |
Schlumberger Ltd. | | United States | | Energy | | Oil & Gas Equipment & Services |
Halliburton Co. | | United States | | Energy | | Oil & Gas Equipment & Services |
Dow Chemical Co. (The) | | United States | | Materials | | Diversified Chemicals |
Rio Tinto plc | | United Kingdom | | Materials | | Diversified Metals & Mining |
Baker Hughes, Inc. | | United States | | Energy | | Oil & Gas Equipment & Services |
Suncor Energy, Inc. | | Canada | | Energy | | Integrated Oil & Gas |
BHP Billiton plc | | United Kingdom | | Materials | | Diversified Metals & Mining |
EOG Resources, Inc. | | United States | | Energy | | Oil & Gas Exploration & Production |
Canadian Pacific Railway Ltd. | | Canada | | Industrials | | Railroads |
LyondellBasell Industries N.V., Class A | | United States | | Materials | | Specialty Chemicals |
See your advisor for more information on the Portfolio’s most recent published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Global Natural Resources | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| (2) | Blended index is represented by 55% of the MSCI AC World IMI Energy and 45% of the MSCI AC World IMI Materials Index. |
| | | | |
| Average Annual Total Return(3) | | | |
1-year period ended 12-31-14 | | | -13.04% | |
5-year period ended 12-31-14 | | | -2.56% | |
10-year period ended 12-31-14 | | | — | |
Since inception of Portfolio(4) through 12-31-14 | | | 3.03% | |
| (3) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (4) | 4-28-05 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Global Natural Resources (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Canada | |
Energy – 4.3% | |
Canadian Natural Resources Ltd. | | | 69 | | | $ | 2,118 | |
Suncor Energy, Inc. | | | 132 | | | | 4,199 | |
| | | | | | | | |
| | | | | | | 6,317 | |
| | | | | | | | |
| |
Industrials – 2.6% | |
Canadian Pacific Railway Ltd. | | | 20 | | | | 3,796 | |
| | | | | | | | |
| |
Materials – 0.3% | |
Yamana Gold, Inc. | | | 97 | | | | 391 | |
| | | | | | | | |
| |
Total Canada –7.2% | | | $ | 10,504 | |
China | |
Materials – 0.0% | |
China Metal Recycling (Holdings) Ltd. | | | 1,900 | | | | — | |
| | | | | | | | |
| |
Total China – 0.0% | | | $ | — | |
France | |
Materials – 0.6% | |
L Air Liquide S.A. | | | 7 | | | | 922 | |
| | | | | | | | |
| |
Total France – 0.6% | | | $ | 922 | |
Netherlands | |
Energy – 1.0% | |
Core Laboratories N.V. | | | 12 | | | | 1,456 | |
| | | | | | | | |
| |
Total Netherlands – 1.0% | | | $ | 1,456 | |
Switzerland | |
Energy – 1.9% | |
Weatherford International Ltd. (A) | | | 246 | | | | 2,822 | |
| | | | | | | | |
| |
Total Switzerland – 1.9% | | | $ | 2,822 | |
United Kingdom | |
Industrials – 1.0% | |
Pentair, Inc. | | | 22 | | | | 1,448 | |
| | | | | | | | |
| |
Materials – 7.2% | |
Anglo American plc | | | 33 | | | | 605 | |
BHP Billiton plc | | | 191 | | | | 4,101 | |
Randgold Resources Ltd. ADR | | | 13 | | | | 863 | |
Rio Tinto plc | | | 106 | | | | 4,891 | |
| | | | | | | | |
| | | | | | | 10,460 | |
| | | | | | | | |
| |
Total United Kingdom – 8.2% | | | $ | 11,908 | |
United States | |
Energy – 54.4% | |
Anadarko Petroleum Corp. | | | 36 | | | | 2,933 | |
Antero Resources Corp. (A) | | | 33 | | | | 1,343 | |
Baker Hughes, Inc. | | | 77 | | | | 4,329 | |
Cabot Oil & Gas Corp. | | | 54 | | | | 1,589 | |
Cameron International Corp. (A) | | | 42 | | | | 2,118 | |
Cimarex Energy Co. | | | 15 | | | | 1,627 | |
Concho Resources, Inc. (A) | | | 24 | | | | 2,404 | |
ConocoPhillips | | | 23 | | | | 1,599 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Energy (Continued) | |
Continental Resources, Inc. (A) | | | 65 | | | $ | 2,482 | |
Dril-Quip, Inc. (A) | | | 20 | | | | 1,531 | |
Energy Transfer Equity L.P. | | | 42 | | | | 2,401 | |
EOG Resources, Inc. | | | 43 | | | | 3,945 | |
Exxon Mobil Corp. | | | 8 | | | | 777 | |
FMC Technologies, Inc. (A) | | | 52 | | | | 2,417 | |
Forum Energy Technologies, Inc. (A) | | | 73 | | | | 1,516 | |
Gulfport Energy Corp. (A) | | | 19 | | | | 772 | |
Halliburton Co. | | | 155 | | | | 6,078 | |
Marathon Petroleum Corp. | | | 40 | | | | 3,619 | |
MarkWest Energy Partners L.P. | | | 25 | | | | 1,680 | |
National Oilwell Varco, Inc. | | | 23 | | | | 1,504 | |
Newfield Exploration Co. (A) | | | 25 | | | | 666 | |
Noble Energy, Inc. | | | 65 | | | | 3,059 | |
Occidental Petroleum Corp. | | | 18 | | | | 1,479 | |
Oceaneering International, Inc. | | | 13 | | | | 735 | |
Phillips 66 | | | 45 | | | | 3,216 | |
Pioneer Natural Resources Co. | | | 18 | | | | 2,635 | |
Plains GP Holdings L.P., Class A | | | 54 | | | | 1,398 | |
Rice Energy, Inc. (A) | | | 74 | | | | 1,555 | |
Rice Midstream Partners L.P. (A) | | | 51 | | | | 852 | |
Schlumberger Ltd. | | | 90 | | | | 7,674 | |
Shell Midstream Partners L.P. (A) | | | 22 | | | | 897 | |
Southwestern Energy Co. (A) | | | 42 | | | | 1,139 | |
Superior Energy Services, Inc. | | | 93 | | | | 1,869 | |
Tesoro Corp. | | | 14 | | | | 1,033 | |
Valero Energy Corp. | | | 35 | | | | 1,750 | |
Valero Energy Partners L.P. | | | 14 | | | | 605 | |
Williams Co., Inc. (The) | | | 44 | | | | 1,993 | |
| | | | | | | | |
| | | | | | | 79,219 | |
| | | | | | | | |
| |
Financials – 1.7% | |
CME Group, Inc. | | | 28 | | | | 2,509 | |
| | | | | | | | |
| |
Industrials – 7.5% | |
Caterpillar, Inc. | | | 34 | | | | 3,080 | |
Flowserve Corp. | | | 53 | | | | 3,147 | |
Fluor Corp. | | | 24 | | | | 1,467 | |
Joy Global, Inc. | | | 48 | | | | 2,242 | |
Kansas City Southern | | | 8 | | | | 1,001 | |
| | | | | | | | |
| | | | | | | 10,937 | |
| | | | | | | | |
| |
Materials – 13.9% | |
Airgas, Inc. | | | 9 | | | | 996 | |
Dow Chemical Co. (The) | | | 124 | | | | 5,663 | |
Eastman Chemical Co. | | | 22 | | | | 1,673 | |
Freeport-McMoRan Copper & Gold, Inc., Class B | | | 142 | | | | 3,314 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Materials (Continued) | |
LyondellBasell Industries N.V., Class A | | | 47 | | | $ | 3,712 | |
PPG Industries, Inc. | | | 9 | | | | 2,184 | |
Southern Copper Corp. | | | 61 | | | | 1,724 | |
Westlake Chemical Partners L.P. | | | 32 | | | | 933 | |
| | | | | | | | |
| | | | | | | 20,199 | |
| | | | | | | | |
| |
Total United States – 77.5% | | | $ | 112,864 | |
| |
TOTAL COMMON
STOCKS – 96.4% | | | $ | 140,476 | |
(Cost: $152,431) | | | | | | | | |
| |
PREFERRED STOCKS | | | | | |
United States | |
Utilities – 0.0% | |
Konarka Technologies, Inc., 8.000% Cumulative
(A)(B) | | | 68 | | | | — | |
| | | | | | | | |
| |
Total United States – 0.0% | | | $ | — | |
| |
TOTAL PREFERRED
STOCKS – 0.0% | | | $ | — | |
(Cost: $211) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | Principal | | | | |
Commercial Paper (C) – 6.0% | |
Exxon Mobil Corp.
0.010%, 1-2-15 | | $ | 2,810 | | | | 2,810 | |
Wal-Mart Stores, Inc.
0.090%,
1-13-15 | | | 4,000 | | | | 4,000 | |
Walt Disney Co. (The)
0.060%,
2-17-15 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| | | | | | | 8,810 | |
| | | | | | | | |
| |
Master Note – 1.3% | |
Toyota Motor Credit Corp.
0.126%,
1-7-15 (D) | | | 1,832 | | | | 1,832 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 7.3% | | | $ | 10,642 | |
(Cost: $10,642) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 103.7% | | | $ | 151,118 | |
(Cost: $163,284) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER
ASSETS –(3.7)% | | | | (5,436 | ) |
| |
NET
ASSETS – 100.0% | | | $ | 145,682 | |
SCHEDULE OF INVESTMENTS
Global Natural Resources (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Restricted security. At December 31, 2014, the Portfolio owned the following restricted security: |
| | | | | | | | | | | | | | | | | | |
| Security | | Acquisition
Date(s) | | | Shares | | | Cost | | | Market Value | | | |
Konarka Technologies, Inc., 8.000% Cumulative | | | 8–31–07 | | | | 68 | | | $ | 211 | | | $ | — | | | |
| | | | | | | | | | | |
| The | total value of this security represented 0.0% of net assets at December 31, 2014. |
| (C) | Rate shown is the yield to maturity at December 31, 2014. |
| (D) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
| The | following forward foreign currency contracts were outstanding at December 31, 2014: |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Currency to be
Delivered | | | | | Currency to be
Received | | | Settlement
Date | | | Counterparty | | Unrealized
Appreciation | | | Unrealized
Depreciation | | | |
British Pound | | | 1,440 | | | U.S. Dollar | | | 2,259 | | | | 1–14–15 | | | State Street Global Markets | | $ | 14 | | | $ | — | | | |
British Pound | | | 4,267 | | | U.S. Dollar | | | 6,693 | | | | 1–14–15 | | | UBS AG | | | 43 | | | | — | | | |
Canadian Dollar | | | 4,817 | | | U.S. Dollar | | | 4,217 | | | | 1–14–15 | | | UBS AG | | | 71 | | | | — | | | |
Euro | | | 727 | | | U.S. Dollar | | | 890 | | | | 1–14–15 | | | UBS AG | | | 10 | | | | — | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 138 | | | $ | — | | | |
| | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Energy | | $ | 89,814 | | | $ | — | | | $ | — | |
Financials | | | 2,509 | | | | — | | | | — | |
Industrials | | | 16,181 | | | | — | | | | — | |
Materials | | | 21,453 | | | | 10,519 | | | | — | |
Total Common Stocks | | $ | 129,957 | | | $ | 10,519 | | | $ | — | |
Short-Term Securities | | | — | | | | 10,642 | | | | — | |
Total | | $ | 129,957 | | | $ | 21,161 | | | $ | — | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 139 | | | $ | — | |
During the period ended December 31, 2014, securities totaling $11,691 were transferred from Level 1 to Level 2. These transfers were the result of fair value prodedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
Market Sector Diversification
| | | | |
(as a % of net assets) | |
Energy | | | 61.6% | |
Materials | | | 22.0% | |
Industrials | | | 11.1% | |
Financials | | | 1.7% | |
Utilities | | | 0.0% | |
Other+ | | | 3.6% | |
+Includes cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Daniel P. Decker
Philip J. Sanders
Below, Daniel P. Becker, CFA, and Philip J. Sanders, CFA, portfolio managers of Ivy Funds VIP Growth, discuss positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Becker has managed the Portfolio since 2006 and Mr. Sanders has managed the Portfolio since 1998. Both men have 26 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Growth | | | 11.81% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell 1000 Growth Index | | | 13.05% | |
(generally reflects the performance of securities that represent the large-cap growth market) | | | | |
Lipper Variable Annuity Large-Cap Growth Funds Universe Average | | | 10.04% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers
The U.S equity market posted another year of solid gains, despite ongoing macroeconomic and geopolitical concerns. In an uncertain world, the U.S. economy remains a relative standout on the global stage. While growth has been disappointing in Europe, Japan, China and most emerging markets, the U.S. economic expansion remains on solid footing — supported by steady improvement in the labor market, solid housing and auto sales, rising consumer confidence and record high levels of corporate profitability. Within the overall market, however, sector performance was quite diverse and large-cap stocks outperformed small caps by the widest margin since 1998.
Market conditions
The second half of 2014 introduced two complicating factors to an already complex investment environment – a rising U.S. dollar relative to most other currencies and the collapse in oil prices. We attribute recent dollar strength primarily to the decoupling of the U.S. and other international economies. While this could encourage capital flows to the U.S. and be supportive of our markets as a whole, it is also likely to be an earnings headwind for many multinational companies with extensive overseas operations.
With respect to lower energy prices, we believe this will ultimately prove to be a net benefit to U.S. economic growth as more than two-thirds of our country’s spending is consumer-based. However, the quickness of the price decline is already having a disruptive effect on several industries and regions of the U.S. that are tied to operating, supporting and building out our country’s energy infrastructure. We are also cognizant of the fact that a great deal of capital has flowed to the energy industry in recent years on the assumption that oil prices would remain relatively high. Consequently, we expect some loan defaults resulting in potential dislocations in the credit markets. In fact, we are already seeing a significant widening of credit spreads in the energy portion of the high yield market and a decline in credit availability to many energy-related companies.
Internationally speaking, the impact is likely to be a mixed bag. Key developed economies like Europe and Japan, along with China and India, should be beneficiaries of lower oil prices. However, a host of other major regions/countries such as the Middle East, Russia and Brazil are likely to be negatively impacted in a meaningful way from a prolonged downturn in energy prices. Even smaller countries could pose some risk to the global growth outlook to the extent their export-based economies are hurt by falling commodity prices and dollar-based loans have to be paid back with weaker currencies.
Contributors and detractors
For the year, the Portfolio modestly lagged the Russell 1000 Growth Index, but ranked favorably in its competitive universe in what proved to be a very challenging year for active managers.
There were no meaningful changes to the Portfolio’s investment approach over the past year. Our philosophy and investment process has remained steadfast and consistent over time — focusing on structurally advantaged companies that we believe can generate superior levels of profitability and growth over the long-term. One primary area of emphasis for the Portfolio over the past year was the health care sector, where an overweighting, combined with strong stock selection, was a key driver of performance. Notable standouts during the year included HCA Holdings, Inc., Gilead Sciences, Inc. and Celgene Corp. While the Portfolio’s underweighting in the weak performing energy sector also proved beneficial to performance, this was offset by some holdings in industrials that underperformed because a portion of their business is tied to this sector.
Performance was also held back by the Portfolio’s overweighting and unfavorable stock selection in the consumer discretionary sector. In particular, performance was hurt by our holdings in Las Vegas Sands, Inc. and Wynn Resorts, which were negatively impacted by a meaningful slowdown in the Macau gaming market; and by CBS Corp., which suffered from a weak advertising market. Performance was also hindered by a lack of meaningful exposure to the strong performing consumer staples sector. Portfolio repositioning during the year focused on reducing our energy, industrials and consumer discretionary holdings amid weakening end markets and unfavorable currency headwinds, with the bulk of the proceeds being reinvested in the health care and technology sectors.
Outlook
Looking forward, we continue to be mindful of the various global macroeconomic risks that currently exist. The recent turmoil in the energy markets, which is stoking global deflation fears, is just the latest in a litany of potential capital market problems. Add to this the ongoing concerns regarding the eventual normalization of Federal Reserve monetary policy, the faltering European recovery, slowing growth in emerging markets and the never-ending geopolitical risks, and there certainly exists the potential for some disturbing headlines. However, as we have indicated in the past, we will also remain focused on individual company fundamentals, where the news appears much more encouraging. Generally speaking, we believe most corporate balance sheets, cash flows and profitability levels remain in great shape.
Furthermore, we believe the current slow global growth environment, where true sustainable growth and prosperity is becoming more challenging, will continue to provide a favorable backdrop for the large-cap growth asset class. In our view, strong market leaders possessing defensible structural advantages, the main tenet of the Portfolio’s investment process, have never been better equipped to defend and strengthen their competitive positions.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Growth.
PORTFOLIO HIGHLIGHTS
Growth | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 96.7% | |
Information Technology | | | 28.1% | |
Consumer Discretionary | | | 25.0% | |
Health Care | | | 21.9% | |
Industrials | | | 12.6% | |
Consumer Staples | | | 3.1% | |
Telecommunication Services | | | 2.5% | |
Energy | | | 2.3% | |
Materials | | | 1.2% | |
Cash and Cash Equivalents | | | 3.3% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Apple, Inc. | | Information Technology | | Technology Hardware, Storage & Peripherals |
MasterCard, Inc., Class A | | Information Technology | | Data Processing & Outsourced Services |
Gilead Sciences, Inc. | | Health Care | | Biotechnology |
Biogen Idec, Inc. | | Health Care | | Biotechnology |
Home Depot, Inc. (The) | | Consumer Discretionary | | Home Improvement Retail |
Visa, Inc., Class A | | Information Technology | | Data Processing & Outsourced Services |
Canadian Pacific Railway Ltd. | | Industrials | | Railroads |
Union Pacific Corp. | | Industrials | | Railroads |
HCA Holdings, Inc. | | Health Care | | Health Care Facilities |
Celgene Corp. | | Health Care | | Biotechnology |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Growth | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 11.81% | |
5-year period ended 12-31-14 | | | 14.61% | |
10-year period ended 12-31-14 | | | 8.94% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
Apparel Retail – 1.2% | |
Limited Brands, Inc. | | | 116 | | | $ | 10,040 | |
| | | | | | | | |
| |
Apparel, Accessories & Luxury
Goods – 0.6% | |
Under Armour, Inc., Class A (A) | | | 79 | | | | 5,351 | |
| | | | | | | | |
| |
Automotive Retail – 2.5% | |
AutoZone, Inc. (A) | | | 16 | | | | 10,153 | |
O’Reilly Automotive, Inc. (A) | | | 58 | | | | 11,230 | |
| | | | | | | | |
| | | | | | | 21,383 | |
| | | | | | | | |
| |
Broadcasting – 1.0% | |
CBS Corp., Class B | | | 165 | | | | 9,142 | |
| | | | | | | | |
| |
Cable & Satellite – 2.0% | |
Comcast Corp., Class A | | | 296 | | | | 17,188 | |
| | | | | | | | |
| |
Casinos & Gaming – 1.3% | |
Las Vegas Sands, Inc. | | | 109 | | | | 6,339 | |
Wynn Resorts Ltd. | | | 32 | | | | 4,790 | |
| | | | | | | | |
| | | | | | | 11,129 | |
| | | | | | | | |
| |
Consumer Electronics – 2.1% | |
Harman International Industries, Inc. | | | 173 | | | | 18,407 | |
| | | | | | | | |
| |
Footwear – 1.7% | |
NIKE, Inc., Class B | | | 156 | | | | 14,990 | |
| | | | | | | | |
| |
Home Improvement Retail – 3.5% | |
Home Depot, Inc. (The) | | | 290 | | | | 30,431 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 2.5% | |
Hilton Worldwide Holdings, Inc. (A) | | | 610 | | | | 15,913 | |
Starwood Hotels & Resorts Worldwide, Inc. | | | 76 | | | | 6,125 | |
| | | | | | | | |
| | | | | | | 22,038 | |
| | | | | | | | |
| |
Internet Retail – 3.4% | |
Amazon.com, Inc. (A) | | | 45 | | | | 14,090 | |
Netflix, Inc. (A) | | | 11 | | | | 3,758 | |
priceline.com, Inc. (A) | | | 10 | | | | 11,744 | |
| | | | | | | | |
| | | | | | | 29,592 | |
| | | | | | | | |
| |
Motorcycle Manufacturers – 1.9% | |
Harley-Davidson, Inc. | | | 245 | | | | 16,115 | |
| | | | | | | | |
| |
Movies & Entertainment – 0.5% | |
Twenty-First Century Fox, Inc., Class A | | | 123 | | | | 4,724 | |
| | | | | | | | |
| |
Specialty Stores – 0.8% | |
Ulta Salon, Cosmetics & Fragrance, Inc. (A) | | | 58 | | | | 7,376 | |
| | | | | | | | |
| |
Total Consumer Discretionary – 25.0% | | | | 217,906 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Consumer Staples | |
Brewers – 2.2% | |
Anheuser-Busch InBev S.A. ADR | | | 169 | | | $ | 19,016 | |
| | | | | | | | |
| |
Tobacco – 0.9% | |
Philip Morris International, Inc. | | | 103 | | | | 8,422 | |
| | | | | | | | |
| |
Total Consumer Staples – 3.1% | | | | 27,438 | |
Energy | |
Oil & Gas Equipment &
Services – 1.5% | |
Schlumberger Ltd. | | | 156 | | | | 13,320 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 0.8% | |
EOG Resources, Inc. | | | 71 | | | | 6,500 | |
| | | | | | | | |
| |
Total Energy – 2.3% | | | | 19,820 | |
Health Care | |
Biotechnology – 12.9% | |
Alexion Pharmaceuticals, Inc. (A) | | | 20 | | | | 3,756 | |
Amgen, Inc. | | | 78 | | | | 12,393 | |
Biogen Idec, Inc. (A) | | | 105 | | | | 35,710 | |
Celgene Corp. (A) | | | 219 | | | | 24,464 | |
Gilead Sciences,
Inc. (A) | | | 381 | | | | 35,866 | |
| | | | | | | | |
| | | | | | | 112,189 | |
| | | | | | | | |
| |
Health Care Facilities – 3.0% | |
HCA Holdings, Inc. (A) | | | 355 | | | | 26,068 | |
| | | | | | | | |
| |
Pharmaceuticals – 6.0% | |
Actavis plc (A) | | | 34 | | | | 8,700 | |
Allergan, Inc. | | | 94 | | | | 19,983 | |
Bristol-Myers Squibb Co. | | | 202 | | | | 11,942 | |
Johnson & Johnson | | | 114 | | | | 11,890 | |
| | | | | | | | |
| | | | | | | 52,515 | |
| | | | | | | | |
| |
Total Health Care – 21.9% | | | | 190,772 | |
Industrials | |
Aerospace & Defense – 4.3% | |
Boeing Co. (The) | | | 154 | | | | 20,030 | |
Precision Castparts Corp. | | | 73 | | | | 17,536 | |
| | | | | | | | |
| | | | | | | 37,566 | |
| | | | | | | | |
| |
Industrial Conglomerates – 0.8% | |
Danaher Corp. | | | 82 | | | | 7,011 | |
| | | | | | | | |
| |
Railroads – 7.5% | |
Canadian Pacific Railway Ltd. | | | 142 | | | | 27,381 | |
Kansas City Southern | | | 97 | | | | 11,776 | |
Union Pacific Corp. | | | 221 | | | | 26,340 | |
| | | | | | | | |
| | | | | | | 65,497 | |
| | | | | | | | |
| |
Total Industrials – 12.6% | | | | 110,074 | |
Information Technology | |
Application Software – 1.5% | |
Adobe Systems, Inc. (A) | | | 183 | | | | 13,326 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Data Processing & Outsourced
Services – 8.2% | |
FleetCor Technologies, Inc. (A) | | | 32 | | | $ | 4,818 | |
MasterCard, Inc., Class A | | | 448 | | | | 38,600 | |
Visa, Inc., Class A | | | 107 | | | | 27,924 | |
| | | | | | | | |
| | | | | | | 71,342 | |
| | | | | | | | |
| |
Internet Software & Services – 7.4% | |
Facebook, Inc., Class A (A) | | | 267 | | | | 20,839 | |
Google, Inc., Class A (A) | | | 22 | | | | 11,918 | |
Google, Inc., Class C (A) | | | 32 | | | | 16,982 | |
LendingClub Corp. (A) | | | 58 | | | | 1,455 | |
LinkedIn Corp., Class A (A) | | | 37 | | | | 8,386 | |
Twitter, Inc. (A) | | | 140 | | | | 5,015 | |
| | | | | | | | |
| | | | | | | 64,595 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 1.4% | |
Cognizant Technology Solutions Corp., Class A (A) | | | 229 | | | | 12,059 | |
| | | | | | | | |
| |
Semiconductor Equipment – 2.7% | |
Applied Materials, Inc. | | | 777 | | | | 19,350 | |
Lam Research Corp. | | | 55 | | | | 4,340 | |
| | | | | | | | |
| | | | | | | 23,690 | |
| | | | | | | | |
| |
Semiconductors – 1.4% | |
NXP Semiconductors N.V. (A) | | | 159 | | | | 12,133 | |
| | | | | | | | |
| |
Technology Hardware, Storage & Peripherals – 5.5% | |
Apple, Inc. | | | 432 | | | | 47,672 | |
| | | | | | | | |
| |
Total Information Technology – 28.1% | | | | 244,817 | |
Materials | |
Diversified Chemicals – 1.2% | |
PPG Industries, Inc. | | | 45 | | | | 10,332 | |
| | | | | | | | |
| |
Total Materials – 1.2% | | | | 10,332 | |
Telecommunication Services | |
Wireless Telecommunication
Service – 2.5% | |
American Tower Corp., Class A | | | 130 | | | | 12,870 | |
SBA Communications Corp. (A) | | | 78 | | | | 8,673 | |
| | | | | | | | |
| | | | | | | 21,543 | |
| | | | | | | | |
| |
Total Telecommunication Services – 2.5% | | | | 21,543 | |
| |
TOTAL COMMON
STOCKS – 96.7% | | | $ | 842,702 | |
(Cost: $591,804) | | | | | | | | |
SCHEDULE OF INVESTMENTS
Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
SHORT-TERM
SECURITIES | | Principal | | | Value | |
Commercial Paper (B) – 3.2% | |
BMW U.S. Capital LLC (GTD by BMW AG),
0.100%, 1-12-15 | | $ | 5,000 | | | $ | 5,000 | |
CVS Caremark Corp.,
0.510%, 1-15-15 | | | 5,000 | | | | 4,999 | |
Federal Home Loan Bank,
0.020%, 1-26-15 | | | 1,000 | | | | 1,000 | |
Kellogg Co.,
0.390%, 1-13-15 | | | 4,081 | | | | 4,080 | |
Mondelez International, Inc.,
0.520%, 1-21-15 | | | 2,400 | | | | 2,399 | |
NBCUniversal Enterprise, Inc.,
0.340%, 1-13-15 | | | 8,000 | | | | 7,999 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| | | | | | | 27,477 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM
SECURITIES (Continued) | | Principal | | | Value | |
Master Note – 0.4% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (C) | | $ | 3,642 | | | $ | 3,642 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 3.6% | | | $ | 31,119 | |
(Cost: $31,120) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.3% | | | $ | 873,821 | |
(Cost: $622,924) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER
ASSETS – (0.3)% | | | | (2,466 | ) |
| |
NET ASSETS – 100.0% | | | $ | 871,355 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Rate shown is the yield to maturity at December 31, 2014. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 842,702 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 31,119 | | | | — | |
Total | | $ | 842,702 | | | $ | 31,119 | | | $ | — | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
GTD = Guaranteed
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Chad A. Gunther
Below, Chad Gunther, portfolio manager of Ivy Funds VIP High Income, discusses positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Gunther was appointed Portfolio Manager on July 9, 2014. He has 17 years of industry experience. The Portfolio was previously managed by William M. Nelson.
Fiscal Year Performance
| | | | |
For the 12 months ended December 31, 2014 | | | | |
Ivy Funds VIP High Income | | | 1.90% | |
Benchmark(s) and/or Lipper Category | | | | |
BofA Merrill Lynch US High Yield Index | | | 2.50% | |
(reflects the performance of securities generally representing the high yield sector of the bond market) | | | | |
Lipper Variable Annuity High Yield Funds Universe Average | | | 1.59% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
The Portfolio underperformed its benchmark, but outperformed its Lipper category average, for the fiscal year ending December 31, 2014.
Underperformance relative to the benchmark was partially attributable to the fees and expenses incurred by the Portfolio during the period. Credits in gaming, media and metals & mining helped contribute to performance while credits in energy and retail detracted from performance. The Portfolio was above its category average in bank loan holdings and lower-tier quality credits. During the fiscal year higher-quality credits outperformed lower-quality. However, the Fund benefited relative to its category average due to its individual credit selection.
Market volatility
As 2014 began the general expectation for the market was that interest rates were going to move higher, building on a trend that we saw in late 2013. However, that was not the case. Yields on the benchmark 10-year U.S. Treasury began the year at 3% before quickly moving lower and failing to touch the 3% level again. The 10-year yield ended the year 83 basis points under where it started at 2.17%.
The high-yield sector saw a couple periods of profound volatility during the year. The first round came over the summer after Federal Reserve (Fed) Chair Janet Yellen warned in July that high-yield valuations “appeared to be stretched.” The comment supported some already existing anxiety in the market and, as a result, high-yield bond funds ended up recording a total of $7.9 billion in outflows in July and another $5.2 billion in outflows during August, according to Morningstar data.
Later in the year, declining oil prices sparked a second round of volatility as some investors became concerned about potential defaults by high-yield issuers in the energy sector — an area that accounts for about 14% of the market, according to Barclays data. High yield mutual funds saw significant outflows throughout December including more than $3 billion in outflows during the week ending December 17, 2014. For the year, high-yield outflows topped an estimated $20 billion, more than twice the previous record of $8.8 billion in outflows in 2005, according to J.P. Morgan data.
Credit selection is key
We believe that the events of the past year illustrate the importance of good credit selection. The core tenet of our research process continues to be focusing on in-depth research of individual issuers with a goal of identifying favorable risk/reward opportunities. Macroeconomic factors are a secondary consideration in our investment process.
We believe that some of the selling we saw in 2014 has the potential to create favorable opportunities to put new money to work. It is our view that the negative market sentiment was overplayed by the market. Traditionally, gross domestic product (GDP) growth is viewed as a positive development for credit risk because a stronger economy potentially boosts borrower income.
Although some in the financial press are predicting a wave of potential defaults in the high-yield sector, we believe that market fundamentals do not support that view. We believe that if oil prices remain exceptionally low for a lengthy period, energy defaults may begin to increase in late 2016 or early 2017. However, we do not currently expect that to happen and may increase our underweight position in energy to take advantage of opportunities as they develop.
Overall, we do expect volatility to continue. Questions continue to surround the Fed’s interest rate policy and many market forecasters have begun to push back projections about when the Fed will begin to raise rates. It is our view that the Fed’s bias is for lower rates and that the central bank will move cautiously and deliberately with any rate hike. However, the markets are heavily reliant on economic data. It is our view that if the data signals a robust and strengthening economy, the markets will begin to raise rates before the Fed acts.
Within the high-yield sector, we believe that the technical factors that created some of the volatility we saw in 2014 — particularly geopolitical concerns — could continue to influence markets. With the current yield-to-worst on the high yield index at 7.12% and a spread of 568 basis points versus Treasuries, it is our view that the risk reward for investors is more balanced today than at any point since the summer of 2012.
As with any mutual Portfolio, the value of the Portfolio’s shares will change, and you could lose money on your investment. Fixed-income securities are subject to interest rate risk and, as such, the Portfolio’s net asset value may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP High Income.
PORTFOLIO HIGHLIGHTS
High Income | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 0.4% | |
Warrants | | | 0.0% | |
Bonds | | | 93.3% | |
Corporate Debt Securities | | | 72.2% | |
Loans | | | 21.1% | |
Cash and Cash Equivalents | | | 6.3% | |
Quality Weightings
| | | | |
Investment Grade | | | 0.0% | |
BBB | | | 0.0% | |
Non-Investment Grade | | | 93.3% | |
BB | | | 15.8% | |
B | | | 30.4% | |
CCC | | | 43.7% | |
Non-rated | | | 3.4% | |
Cash and Cash Equivalents and Equities | | | 6.7% | |
Our preference is to always use ratings obtained from Standard & Poor’s. For securities not rated by Standard & Poor’s, ratings are obtained from Moody’s. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
COMPARISON OF CHANGE IN VALUE IN $10,000 INVESTMENT
High Income | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 1.90% | |
5-year period ended 12-31-14 | | | 10.06% | |
10-year period ended 12-31-14 | | | 8.06% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Casinos & Gaming – 0.0% | |
New Cotai Participation Corp., Class B(A) | | | — | * | | $ | 56 | |
| | | | | | | | |
| |
Total Consumer Discretionary – 0.0% | | | | 56 | |
Energy | |
| |
Oil & Gas Storage &
Transportation – 0.1% | |
Crestwood Midstream Partners L.P. | | | 14 | | | | 216 | |
Inergy L.P. | | | 33 | | | | 266 | |
| | | | | | | | |
| | | | | | | 482 | |
| | | | | | | | |
| |
Total Energy – 0.1% | | | | 482 | |
Financials | |
| |
Consumer Finance – 0.1% | |
JG Wentworth Co. (A) | | | 82 | | | | 870 | |
| | | | | | | | |
| |
Total Financials – 0.1% | | | | 870 | |
Industrials | |
Railroads – 0.0% | |
Kansas City Southern | | | 3 | | | | 342 | |
| | | | | | | | |
| |
Total Industrials – 0.0% | | | | 342 | |
Utilities | |
Gas Utilities – 0.0% | |
Suburban Propane Partners L.P. | | | 4 | | | | 153 | |
| | | | | | | | |
| |
Total Utilities – 0.0% | | | | 153 | |
| |
TOTAL COMMON
STOCKS – 0.2% | | | $ | 1,903 | |
(Cost: $1,952) | | | | | | | | |
| | |
PREFERRED STOCKS | | | | | | | | |
Financials | |
| |
Consumer Finance – 0.1% | |
Ally Financial, Inc., 8.125% | | | 22 | | | | 581 | |
Ally Financial, Inc., 8.500% | | | 18 | | | | 474 | |
| | | | | | | | |
| | | | | | | 1,055 | |
| | | | | | | | |
| |
Total Financials – 0.1% | | | | 1,055 | |
Materials | |
| |
Steel – 0.1% | |
ArcelorMittal, 6.000%, Convertible | | | 23 | | | | 396 | |
| | | | | | | | |
| |
Total Materials – 0.1% | | | | 396 | |
| |
TOTAL PREFERRED
STOCKS – 0.2% | | | $ | 1,451 | |
(Cost: $1,525) | | | | | | | | |
| | | | | | | | |
| WARRANTS | | Shares | | | Value | |
Agricultural Products – 0.0% | |
ASG Consolidated LLC,
Expires 5-15-18 (B) | | | 1 | | | $ | 39 | |
| | | | | | | | |
| |
TOTAL WARRANTS – 0.0% | | | $ | 39 | |
(Cost: $72) | | | | | | | | |
| | |
CORPORATE DEBT
SECURITIES | | Principal | | | | |
Consumer Discretionary | |
Advertising – 0.8% | |
Acosta, Inc.,
7.750%,
10-1-22 (C) | | $ | 4,685 | | | | 4,744 | |
Lamar Media Corp., 5.375%, 1-15-24 | | | 1,376 | | | | 1,417 | |
| | | | | | | | |
| | | | | | | 6,161 | |
| | | | | | | | |
| |
Apparel Retail – 2.2% | |
Bon-Ton Stores, Inc. (The),
8.000%, 6-15-21 | | | 4,274 | | | | 3,569 | |
Chinos Intermediate Holdings A, Inc.,
7.750%,
5-1-19 (C)(D) | | | 4,241 | | | | 3,753 | |
Gymboree Corp. (The),
9.125%, 12-1-18 | | | 3,219 | | | | 1,239 | |
Hot Topic, Inc.,
9.250%,
6-15-21 (C) | | | 1,670 | | | | 1,787 | |
HT Intermediate Holdings Corp.,
12.000%,
5-15-19 (C)(D) | | | 391 | | | | 399 | |
Neiman Marcus Group Ltd., Inc.,
8.000%,
10-15-21 (C) | | | 3,152 | | | | 3,333 | |
Nine West Holdings, Inc.,
8.250%,
3-15-19 (C) | | | 4,381 | | | | 3,658 | |
| | | | | | | | |
| | | | | | | 17,738 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 1.3% | |
IDQ Acquisition Corp.,
14.000%,
10-1-17 (C)(D) | | | 2,110 | | | | 2,110 | |
IDQ Holdings, Inc.,
11.500%,
4-1-17 (C) | | | 4,021 | | | | 4,262 | |
Midas Intermediate HoldCo II LLC & Midas Intermediate Finance, Inc.,
7.875%,
10-1-22 (C) | | | 2,209 | | | | 2,143 | |
Schaeffler Finance B.V.: | | | | | | | | |
4.250%,
5-15-21 (C) | | | 1,553 | | | | 1,514 | |
6.750%,
11-15-22 (C)(D) | | | 510 | | | | 533 | |
| | | | | | | | |
| | | | | | | 10,562 | |
| | | | | | | | |
Automobile Manufacturers – 0.6% | |
Group 1 Automotive, Inc.,
5.000%, 6-1-22 (C) | | | 1,260 | | | | 1,232 | |
Jaguar Land Rover plc,
5.625%, 2-1-23 (C) | | | 1,458 | | | | 1,534 | |
Navistar International Corp.,
8.250%, 11-1-21 | | | 2,248 | | | | 2,217 | |
| | | | | | | | |
| | | | | | | 4,983 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Automotive Retail – 0.7% | |
Asbury Automotive Group, Inc.,
6.000%,
12-15-24 (C) | | $ | 1,645 | | | $ | 1,674 | |
Sonic Automotive, Inc.,
5.000%, 5-15-23 | | | 4,227 | | | | 4,100 | |
| | | | | | | | |
| | | | | | | 5,774 | |
| | | | | | | | |
| |
Broadcasting – 2.1% | |
CBS Outdoor Americas, Inc.: | | | | | | | | |
5.250%,
2-15-22 (C) | | | 743 | | | | 749 | |
5.625%,
2-15-24 (C) | | | 500 | | | | 502 | |
Clear Channel Outdoor Holdings, Inc.,
6.500%, 11-15-22 | | | 4,494 | | | | 4,613 | |
Clear Channel Worldwide Holdings, Inc., Series A,
7.625%, 3-15-20 | | | 221 | | | | 229 | |
Clear Channel Worldwide Holdings, Inc., Series B,
7.625%, 3-15-20 | | | 1,780 | | | | 1,873 | |
Cumulus Media, Inc.,
7.750%, 5-1-19 | | | 3,815 | | | | 3,853 | |
WideOpenWest Finance LLC and WideOpenWest Capital Corp.: | | | | | | | | |
10.250%,
7-15-19 | | | 4,208 | | | | 4,382 | |
13.375%,
10-15-19 | | | 1,248 | | | | 1,314 | |
| | | | | | | | |
| | | | | | | 17,515 | |
| | | | | | | | |
| |
Cable & Satellite – 5.0% | |
Altice S.A.: | | | | | | | | |
7.250%,
5-15-22 (C)(E) | | EUR | 256 | | | | 314 | |
7.750%,
5-15-22 (C) | | $ | 2,391 | | | | 2,396 | |
Cablevision Systems Corp.,
5.875%, 9-15-22 | | | 2,593 | | | | 2,625 | |
CCO Holdings LLC and CCO Holdings Capital Corp.: | | | | | | | | |
5.250%, 3-15-21 | | | 293 | | | | 295 | |
5.250%, 9-30-22 | | | 390 | | | | 389 | |
5.125%, 2-15-23 | | | 390 | | | | 381 | |
5.750%, 9-1-23 | | | 98 | | | | 99 | |
5.750%, 1-15-24 | | | 2,519 | | | | 2,544 | |
CCOH Safari LLC: | | | | | | | | |
5.500%, 12-1-22 | | | 1,939 | | | | 1,968 | |
5.750%, 12-1-24 | | | 2,910 | | | | 2,943 | |
DISH DBS Corp.: | | | | | | | | |
6.750%, 6-1-21 | | | 836 | | | | 899 | |
5.875%, 7-15-22 | | | 910 | | | | 933 | |
5.000%, 3-15-23 | | | 418 | | | | 404 | |
LYNX I Corp.,
5.375%,
4-15-21 (C) | | | 488 | | | | 504 | |
LYNX II Corp.,
6.375%,
4-15-23 (C) | | | 146 | | | | 153 | |
Numericable Group S.A.,
6.000%,
5-15-22 (C) | | | 1,134 | | | | 1,140 | |
Sirius XM Radio, Inc.: | | | | | | | | |
5.875%,
10-1-20 (C) | | | 1,645 | | | | 1,694 | |
4.625%,
5-15-23 (C) | | | 4,936 | | | | 4,615 | |
6.000%,
7-15-24 (C) | | | 8,000 | | | | 8,200 | |
VTR Finance B.V.,
6.875%,
1-15-24 (C) | | | 6,735 | | | | 6,870 | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Cable & Satellite (Continued) | |
Wave Holdco LLC and Wave Holdco Corp.,
8.250%,
7-15-19 (C)(D) | | $ | 553 | | | $ | 556 | |
WaveDivision Escrow LLC and WaveDivision Escrow Corp.,
8.125%, 9-1-20 (C) | | | 673 | | | | 717 | |
| | | | | | | | |
| | | | | | | 40,639 | |
| | | | | | | | |
| |
Casinos & Gaming – 1.0% | |
Gateway Casinos & Entertainment Ltd.,
8.500%,
11-26-20 (C)(E) | | CAD | 1,718 | | | | 1,455 | |
MCE Finance Ltd.,
5.000%,
2-15-21 (C) | | $ | 3,324 | | | | 3,108 | |
Wynn Macau Ltd.,
5.250%,
10-15-21 (C) | | | 3,529 | | | | 3,317 | |
| | | | | | | | |
| | | | | | | 7,880 | |
| | | | | | | | |
| |
Distributors – 1.1% | |
LKQ Corp.,
4.750%,
5-15-23 | | | 2,250 | | | | 2,160 | |
Pinnacle Operating Corp.,
9.000%,
11-15-20 (C) | | | 6,983 | | | | 7,192 | |
| | | | | | | | |
| | | | | | | 9,352 | |
| | | | | | | | |
| |
Education Services – 2.1% | |
Laureate Education, Inc.,
9.750%,
9-1-19 (C)(F) | | | 16,603 | | | | 17,101 | |
| | | | | | | | |
| |
Home Furnishings – 0.2% | |
Empire Today LLC and Empire Today Finance Corp.,
11.375%,
2-1-17 (C) | | | 2,371 | | | | 1,755 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 0.2% | |
Ryman Hospitality Properties, Inc., 5.000%, 4-15-21 | | | 1,898 | | | | 1,889 | |
| | | | | | | | |
| |
Leisure Facilities – 0.4% | |
Palace Entertainment Holdings LLC,
8.875%,
4-15-17 (C) | | | 1,742 | | | | 1,768 | |
Regal Entertainment Group,
5.750%, 2-1-25 | | | 1,805 | | | | 1,661 | |
| | | | | | | | |
| | | | | | | 3,429 | |
| | | | | | | | |
| |
Movies & Entertainment – 0.4% | |
AMC Entertainment, Inc.,
5.875%, 2-15-22 | | | 1,509 | | | | 1,532 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Movies & Entertainment (Continued) | |
WMG Acquisition Corp.: | | | | | | | | |
5.625%,
4-15-22 (C) | | $ | 251 | | | $ | 243 | |
6.750%,
4-15-22 (C) | | | 1,176 | | | | 1,070 | |
| | | | | | | | |
| | | | | | | 2,845 | |
| | | | | | | | |
| |
Specialized Consumer Services – 3.1% | |
AA Bond Co. Ltd., 9.500%,
7-31-19 (C)(E) | | GBP | 1,750 | | | | 2,999 | |
B-Corp Merger Sub, Inc.,
8.250%,
6-1-19 | | $ | 6,528 | | | | 5,908 | |
Carlson Travel Holdings,
7.500%,
8-15-19 (C)(D) | | | 1,390 | | | | 1,401 | |
Carlson Wagonlit B.V.: | | | | | | | | |
6.875%,
6-15-19 (C) | | | 2,674 | | | | 2,794 | |
7.500%,
6-15-19 (C)(E) | | EUR | 1,787 | | | | 2,298 | |
Emdeon, Inc.,
11.000%, 12-31-19 | | $ | 1,204 | | | | 1,309 | |
Lansing Trade Group,
9.250%,
2-15-19 (C) | | | 1,571 | | | | 1,469 | |
Nielsen Finance,
5.500%,
10-1-21 (C) | | | 2,871 | | | | 2,928 | |
Nielsen Finance LLC and Nielsen Finance Co.,
5.000%,
4-15-22 (C) | | | 4,385 | | | | 4,407 | |
| | | | | | | | |
| | | | | | | 25,513 | |
| | | | | | | | |
| |
Specialty Stores – 3.2% | |
Academy Ltd. and Academy Finance Corp.,
9.250%, 8-1-19 (C) | | | 671 | | | | 705 | |
Jo-Ann Stores Holdings, Inc.,
9.750%,
10-15-19 (C)(D) | | | 11,527 | | | | 9,798 | |
Jo-Ann Stores, Inc.,
8.125%,
3-15-19 (C) | | | 205 | | | | 191 | |
Michaels Stores, Inc.,
5.875%,
12-15-20 (C) | | | 442 | | | | 446 | |
New Academy Finance Co. LLC,
8.000%,
6-15-18 (C)(D) | | | 10,461 | | | | 10,356 | |
PC Nextco Holdings LLC and PC Nextco Finance, Inc.,
8.750%,
8-15-19 (D) | | | 1,683 | | | | 1,691 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Specialty Stores (Continued) | |
Spencer Spirit Holdings, Inc.,
9.000%,
5-1-18 (C)(D) | | $ | 3,284 | | | $ | 3,317 | |
| | | | | | | | |
| | | | | | | 26,504 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 24.4% | | | | 199,640 | |
Consumer Staples | |
| |
Agricultural Products – 0.5% | |
American Seafoods Group LLC,
10.750%,
5-15-16 (C) | | | 1,716 | | | | 1,536 | |
ASG Consolidated LLC,
15.000%,
5-15-17 (C)(D) | | | 3,834 | | | | 2,684 | |
| | | | | | | | |
| | | | | | | 4,220 | |
| | | | | | | | |
| |
Food Distributors – 3.2% | |
Diamond Foods, Inc.,
7.000%,
3-15-19 (C) | | | 1,169 | | | | 1,198 | |
Simmons Foods, Inc.,
7.875%,
10-1-21 (C) | | | 5,612 | | | | 5,514 | |
Sun Merger Sub, Inc.,
5.875%, 8-1-21 (C) | | | 864 | | | | 881 | |
U.S. Foodservice, Inc.,
8.500%,
6-30-19 | | | 17,304 | | | | 18,342 | |
| | | | | | | | |
| | | | | | | 25,935 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 0.9% | |
Bumble Bee Foods LLC,
9.625%,
3-15-18 (C)(D) | | | 2,175 | | | | 2,273 | |
JBS USA LLC and JBS USA Finance, Inc.,
5.875%,
7-15-24 (C) | | | 4,645 | | | | 4,564 | |
Post Holdings, Inc.,
7.375%,
2-15-22 | | | 977 | | | | 977 | |
| | | | | | | | |
| | | | | | | 7,814 | |
| | | | | | | | |
| |
Tobacco – 0.3% | |
Prestige Brands, Inc.,
5.375%,
12-15-21 (C) | | | 2,358 | | | | 2,317 | |
| | | | | | | | |
| |
Total Consumer Staples – 4.9% | | | | 40,286 | |
Energy | |
| |
Coal & Consumable Fuels – 0.5% | |
Foresight Energy LLC and Foresight Energy Finance Corp.,
7.875%,
8-15-21 (C) | | | 3,749 | | | | 3,702 | |
| | | | | | | | |
| |
Oil & Gas Drilling – 0.2% | |
KCA DEUTAG UK Finance plc,
7.250%,
5-15-21 (C) | | | 1,981 | | | | 1,401 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Oil & Gas Equipment & Services – 0.4% | |
Brand Energy & Infrastructure Services,
8.500%,
12-1-21 (C) | | $ | 3,538 | | | $ | 3,184 | |
Seventy Seven Energy, Inc.,
6.500%, 7-15-22 | | | 664 | | | | 389 | |
| | | | | | | | |
| | | | | | | 3,573 | |
| | | | | | | | |
| |
Oil & Gas Exploration & Production – 0.3% | |
Chesapeake Energy Corp.: | | | | | | | | |
3.481%,
4-15-19 (F) | | | 496 | | | | 486 | |
4.875%, 4-15-22 | | | 951 | | | | 925 | |
Rice Energy, Inc.,
6.250%,
5-1-22 (C) | | | 131 | | | | 122 | |
RSP Permian, Inc.,
6.625%,
10-1-22 (C) | | | 958 | | | | 891 | |
| | | | | | | | |
| | | | | | | 2,424 | |
| | | | | | | | |
| |
Oil & Gas Refining & Marketing – 1.4% | |
Offshore Drilling Holding S.A.,
8.375%,
9-20-20 (C) | | | 5,070 | | | | 4,411 | |
Offshore Group Investment Ltd.: | | | | | | | | |
7.500%, 11-1-19 | | | 3,850 | | | | 2,868 | |
7.125%, 4-1-23 | | | 1,858 | | | | 1,319 | |
Samson Investment Co.,
9.750%,
2-15-20 (F) | | | 1,964 | | | | 814 | |
Shelf Drilling Holdings Ltd.,
8.625%,
11-1-18 (C) | | | 2,827 | | | | 2,318 | |
| | | | | | | | |
| | | | | | | 11,730 | |
| | | | | | | | |
| |
Total Energy – 2.8% | | | | 22,830 | |
Financials | |
| |
Consumer Finance – 1.3% | |
Creditcorp,
12.000%,
7-15-18 (C) | | | 4,228 | | | | 4,101 | |
General Motors Financial Co., Inc.,
4.250%, 5-15-23 | | | 429 | | | | 438 | |
Speedy Cash Intermediate Holdings Corp.,
10.750%, 5-15-18 (C) | | | 5,582 | | | | 5,470 | |
Speedy Group Holdings Corp.,
12.000%,
11-15-17 (C) | | | 986 | | | | 971 | |
| | | | | | | | |
| | | | | | | 10,980 | |
| | | | | | | | |
| |
Diversified Capital Markets – 0.8% | |
JLL /Delta Dutch Newco B.V.,
7.500%,
2-1-22 (C) | | | 1,037 | | | | 1,053 | |
Patriot Merger Corp.,
9.000%,
7-15-21 (C) | | | 5,253 | | | | 5,502 | |
| | | | | | | | |
| | | | | | | 6,555 | |
| | | | | | | | |
Investment Banking & Brokerage – 0.3% | |
GFI Group, Inc.,
9.625%,
7-19-18 (F) | | | 1,735 | | | | 2,004 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Other Diversified Financial
Services – 3.9% | |
AAF Holdings LLC and AAF Finance Co.,
12.000%,
7-1-19 (C)(D) | | $ | 1,657 | | | $ | 1,607 | |
Abengoa Finance SAU,
7.750%,
2-1-20 (C) | | | 4,144 | | | | 3,657 | |
Balboa Merger Sub, Inc.,
11.375%,
12-1-21 (C) | | | 9,982 | | | | 9,658 | |
Greektown Holdings LLC and Greektown Mothership Corp.,
8.875%,
3-15-19 (C) | | | 3,033 | | | | 3,026 | |
New Cotai LLC and New Cotai Capital Corp.,
10.625%,
5-1-19 (C)(D) | | | 7,955 | | | | 8,273 | |
TransUnion LLC and TransUnion Financing Corp.,
9.625%,
6-15-18 (D) | | | 5,430 | | | | 5,554 | |
| | | | | | | | |
| | | | | | | 31,775 | |
| | | | | | | | |
Property & Casualty Insurance – 0.9% | |
Hockey Merger Sub 2 Inc.,
7.875%,
10-1-21 (C) | | | 2,663 | | | | 2,650 | |
Onex USI Acquisition Corp.,
7.750%,
1-15-21 (C) | | | 5,188 | | | | 5,058 | |
| | | | | | | | |
| | | | | | | 7,708 | |
| | | | | | | | |
Real Estate Development – 0.2% | |
Hub Holdings LLC and Hub Holdings Finance, Inc.,
8.125%,
7-15-19 (C)(D) | | | 1,990 | | | | 1,970 | |
| | | | | | | | |
| |
Real Estate Services – 0.5% | |
Stearns Holdings, Inc.,
9.375%,
8-15-20 (C) | | | 4,038 | | | | 4,038 | |
| | | | | | | | |
| |
Specialized Finance – 1.1% | |
Consolidated Communications Finance II Co.,
6.500%,
10-1-22 (C) | | | 1,505 | | | | 1,509 | |
Flexi-Van Leasing, Inc.,
7.875%,
8-15-18 (C) | | | 1,881 | | | | 1,862 | |
TMX Finance LLC and TitleMax Finance Corp.,
8.500%,
9-15-18 (C) | | | 6,903 | | | | 5,798 | |
| | | | | | | | |
| | | | | | | 9,169 | |
| | | | | | | | |
| |
Specialized REITs – 1.0% | |
Aircastle Ltd.,
5.125%,
3-15-21 | | | 2,728 | | | | 2,728 | |
CNL Lifestyles Properties, Inc.,
7.250%,
4-15-19 | | | 5,458 | | | | 5,581 | |
| | | | | | | | |
| | | | | | | 8,309 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Thrifts & Mortgage Finance – 0.6% | |
Provident Funding Associates L.P. and PFG Finance Corp.,
6.750%,
6-15-21 (C) | | $ | 4,573 | | | $ | 4,436 | |
| | | | | | | | |
| |
Total Financials – 10.6% | | | | 86,944 | |
Health Care | |
| |
Health Care Equipment – 0.2% | |
DJO Finance LLC and DJO Finance Corp.,
9.750%,
10-15-17 | | | 420 | | | | 420 | |
Mallinckrodt International Finance S.A. and Mallinckrodt CB LLC,
5.750%,
8-1-22 (C) | | | 1,278 | | | | 1,313 | |
| | | | | | | | |
| | | | | | | 1,733 | |
| | | | | | | | |
| |
Health Care Facilities – 3.2% | |
AmSurg Corp.,
5.625%,
11-30-20 | | | 897 | | | | 917 | |
AmSurg Escrow Corp.,
5.625%,
7-15-22 (C) | | | 1,384 | | | | 1,419 | |
Capsugel S.A.,
7.000%,
5-15-19 (C)(D) | | | 1,807 | | | | 1,825 | |
Catamaran Corp.,
4.750%, 3-15-21 | | | 1,016 | | | | 1,016 | |
ConvaTec Finance International S.A.,
8.250%,
1-15-19 (C)(D) | | | 2,570 | | | | 2,608 | |
FWCT-2 Escrow Corp.,
6.875%, 2-1-22 | | | 1,752 | | | | 1,856 | |
HCA, Inc. (GTD by HCA Holdings, Inc.),
5.000%, 3-15-24 | | | 1,305 | | | | 1,341 | |
MPH Acquisition Holdings LLC,
6.625%,
4-1-22 (C) | | | 2,870 | | | | 2,935 | |
Tenet Healthcare Corp.: | | | | | | | | |
6.750%, 2-1-20 | | | 1,408 | | | | 1,482 | |
6.000%, 10-1-20 | | | 1,928 | | | | 2,070 | |
8.125%, 4-1-22 | | | 6,621 | | | | 7,399 | |
6.875%,
11-15-31 | | | 1,624 | | | | 1,527 | |
| | | | | | | | |
| | | | | | | 26,395 | |
| | | | | | | | |
| |
Health Care Services – 1.4% | |
MedImpact Holdings, Inc.,
10.500%,
2-1-18 (C) | | | 6,790 | | | | 7,129 | |
Truven Health Analytics, Inc.: | | | | | | | | |
10.625%, 6-1-20 | | | 4,000 | | | | 3,900 | |
10.625%,
6-1-20 (C) | | | 538 | | | | 525 | |
| | | | | | | | |
| | | | | | | 11,554 | |
| | | | | | | | |
| |
Health Care Supplies – 0.5% | |
Ortho-Clinical Diagnostics,
6.625%,
5-15-22 (C) | | | 4,869 | | | | 4,376 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Pharmaceuticals – 0.2% | |
Salix Pharmaceuticals Ltd.,
6.000%,
1-15-21 (C) | | $ | 1,482 | | | $ | 1,511 | |
| | | | | | | | |
| |
Total Health Care – 5.5% | | | | 45,569 | |
Industrials | |
| |
Aerospace & Defense – 2.5% | |
Silver II Borrower SCA and Silver II U.S. Holdings,
7.750%,
12-15-20 (C) | | | 7,077 | | | | 6,688 | |
TransDigm Group, Inc.: | | | | | | | | |
5.500%,
10-15-20 | | | 550 | | | | 538 | |
7.500%, 7-15-21 | | | 4,206 | | | | 4,479 | |
TransDigm, Inc.: | | | | | | | | |
6.000%, 7-15-22 | | | 4,325 | | | | 4,314 | |
6.500%, 7-15-24 | | | 4,115 | | | | 4,136 | |
| | | | | | | | |
| | | | | | | 20,155 | |
| | | | | | | | |
| |
Air Freight & Logistics – 0.2% | |
TRAC Intermodal LLC and TRAC Intermodal Corp.,
11.000%,
8-15-19 | | | 1,865 | | | | 2,014 | |
| | | | | | | | |
| |
Building Products – 1.6% | |
CPG Merger Sub LLC,
8.000%,
10-1-21 (C) | | | 2,577 | | | | 2,635 | |
Headwaters, Inc.,
7.250%, 1-15-19 | | | 621 | | | | 646 | |
Ply Gem Industries, Inc.: | | | | | | | | |
6.500%, 2-1-22 | | | 3,723 | | | | 3,499 | |
6.500%,
2-1-22 (C) | | | 1,331 | | | | 1,238 | |
Roofing Supply Group LLC and Roofing Supply Finance, Inc.,
10.000%,
6-1-20 (C) | | | 2,618 | | | | 2,597 | |
USG Corp.,
5.875%,
11-1-21 (C) | | | 2,582 | | | | 2,608 | |
| | | | | | | | |
| | | | | | | 13,223 | |
| | | | | | | | |
Diversified Support Services – 0.6% | |
Algeco Scotsman Global Finance plc: | | | | | | | | |
8.500%,
10-15-18 (C) | | | 1,500 | | | | 1,448 | |
10.750%,
10-15-19 (C) | | | 1,513 | | | | 1,301 | |
Nexeo Solutions LLC,
8.375%, 3-1-18 | | | 1,927 | | | | 1,869 | |
| | | | | | | | |
| | | | | | | 4,618 | |
| | | | | | | | |
| |
Industrial Machinery – 0.1% | |
Dynacast International LLC and Dynacast Finance, Inc.,
9.250%, 7-15-19 | | | 941 | | | | 1,009 | |
| | | | | | | | |
| |
Railroads – 0.4% | |
Florida East Coast Holdings Corp. and Florida East Coast Industries LLC: | | | | | | | | |
6.750%,
5-1-19 (C) | | | 2,449 | | | | 2,424 | |
9.750%,
5-1-20 (C) | | | 1,017 | | | | 1,012 | |
| | | | | | | | |
| | | | | | | 3,436 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Trading Companies & Distributors – 0.6% | |
HD Supply, Inc.,
11.500%, 7-15-20 | | $ | 4,116 | | | $ | 4,713 | |
| | | | | | | | |
| |
Total Industrials – 6.0% | | | | 49,168 | |
Information Technology | |
| |
Application Software – 1.4% | |
ACI Worldwide, Inc.,
6.375%,
8-15-20 (C) | | | 1,758 | | | | 1,837 | |
Epicor Software Corp.,
8.625%, 5-1-19 | | | 6,845 | | | | 7,187 | |
Infor Software Parent LLC and Infor Software Parent, Inc.,
7.125%,
5-1-21 (C)(D) | | | 2,461 | | | | 2,412 | |
| | | | | | | | |
| | | | | | | 11,436 | |
| | | | | | | | |
| |
Communications Equipment – 0.9% | |
Eagle Midco, Inc.,
9.000%,
6-15-18 (C)(D) | | | 7,432 | | | | 7,599 | |
| | | | | | | | |
| |
Data Processing & Outsourced
Services – 1.5% | |
Alliance Data Systems Corp.: | | | | | | | | |
5.250%,
12-1-17 (C) | | | 2,400 | | | | 2,472 | |
6.375%,
4-1-20 (C) | | | 5,733 | | | | 5,862 | |
5.375%,
8-1-22 (C) | | | 3,474 | | | | 3,430 | |
| | | | | | | | |
| | | | | | | 11,764 | |
| | | | | | | | |
| |
Electronic Manufacturing
Services – 0.3% | |
KEMET Corp.,
10.500%, 5-1-18 | | | 2,639 | | | | 2,712 | |
| | | | | | | | |
| |
Internet Software & Services – 0.3% | |
IAC/InterActiveCorp.,
4.750%, 12-15-22 | | | 743 | | | | 723 | |
J2 Global, Inc.,
8.000%, 8-1-20 | | | 1,502 | | | | 1,616 | |
| | | | | | | | |
| | | | | | | 2,339 | |
| | | | | | | | |
It Consulting & Other Services – 0.4% | |
iGATE Corp.,
4.750%, 4-15-19 | | | 3,045 | | | | 3,045 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 0.4% | |
NCR Escrow Corp.: | | | | | | | | |
5.875%, 12-15-21 | | | 1,759 | | | | 1,808 | |
6.375%, 12-15-23 | | | 1,656 | | | | 1,722 | |
| | | | | | | | |
| | | | | | | 3,530 | |
| | | | | | | | |
| |
Semiconductor Equipment – 0.0% | |
Photronics, Inc., Convertible,
3.250%, 4-1-16 | | | 170 | | | | 176 | |
| | | | | | | | |
Semiconductors – 0.8% | |
Micron Technology, Inc.: | | | | | | | | |
5.875%,
2-15-22 (C) | | | 2,517 | | | | 2,643 | |
5.500%,
2-1-25 (C) | | | 3,474 | | | | 3,509 | |
| | | | | | | | |
| | | | | | | 6,152 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Technology Distributors – 0.8% | |
Sophia L.P. and Sophia Finance, Inc.: | | | | | | | | |
9.625%,
12-1-18 (C)(D) | | $ | 3,218 | | | $ | 3,234 | |
9.750%,
1-15-19 (C) | | | 3,206 | | | | 3,422 | |
| | | | | | | | |
| | | | | | | 6,656 | |
| | | | | | | | |
| |
Total Information
Technology – 6.8% | | | | 55,409 | |
Materials | |
| |
Aluminum – 1.1% | |
Constellium N.V.: | | | | | | | | |
8.000%,
1-15-23 (C) | | | 3,124 | | | | 3,108 | |
5.750%,
5-15-24 (C) | | | 1,101 | | | | 958 | |
Wise Metals Group LLC,
8.750%,
12-15-18 (C) | | | 1,712 | | | | 1,798 | |
Wise Metals Intermediate Holdings,
9.750%,
6-15-19 (C)(D) | | | 2,999 | | | | 3,186 | |
| | | | | | | | |
| | | | | | | 9,050 | |
| | | | | | | | |
| |
Construction Materials – 0.5% | |
Hillman Group, Inc. (The),
6.375%,
7-15-22 (C) | | | 3,987 | | | | 3,828 | |
| | | | | | | | |
Diversified Metals & Mining – 2.8% | |
American Gilsonite Holding Co.,
11.500%,
9-1-17 (C) | | | 1,905 | | | | 1,876 | |
Artsonig Pty Ltd.,
11.500%,
4-1-19 (C)(D) | | | 3,382 | | | | 2,976 | |
Compass Minerals International, Inc.,
4.875%,
7-15-24 (C) | | | 2,566 | | | | 2,489 | |
Crystal Merger Sub, Inc.,
7.625%,
10-15-21 (C) | | | 489 | | | | 510 | |
FMG Resources Pty Ltd.: | | | | | | | | |
8.250%,
11-1-19 (C) | | | 6,618 | | | | 6,022 | |
6.875%, 4-1-22 (C) | | | 7,402 | | | | 6,162 | |
Lundin Mining Corp.: | | | | | | | | |
7.500%,
11-1-20 (C) | | | 1,326 | | | | 1,313 | |
7.875%,
11-1-22 (C) | | | 1,263 | | | | 1,263 | |
| | | | | | | | |
| | | | | | | 22,611 | |
| | | | | | | | |
Metal & Glass Containers – 1.7% | |
Ardagh Finance Holdings,
8.625%,
6-15-19 (C)(D) | | | 3,993 | | | | 3,933 | |
Ardagh Packaging Finance plc and Ardagh Holdings USA, Inc.,
6.000%,
6-30-21 (C) | | | 981 | | | | 937 | |
BlueScope Steel (Finance) Ltd. and BlueScope Steel Finance (USA) LLC,
7.125%, 5-1-18 (C) | | | 2,746 | | | | 2,842 | |
Consolidated Container Co. LLC and Consolidated Container Capital, Inc.,
10.125%,
7-15-20 (C) | | | 3,561 | | | | 3,312 | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Metal & Glass Containers (Continued) | |
Signode Industrial Group,
6.375%,
5-1-22 (C) | | $ | 3,371 | | | $ | 3,286 | |
| | | | | | | | |
| | | | | | | 14,310 | |
| | | | | | | | |
| |
Paper Packaging – 0.8% | |
Beverage Packaging Holdings II Issuer, Inc. and Beverage Packaging Holdings (Luxembourg) II S.A.,
6.000%,
6-15-17 (C) | | | 790 | | | | 770 | |
Exopack Holdings S.A.,
7.875%,
11-1-19 (C) | | | 610 | | | | 628 | |
Reynolds Group Holdings Ltd.: | | | | | | | | |
9.000%, 4-15-19 | | | 1,953 | | | | 2,022 | |
9.875%, 8-15-19 | | | 2,500 | | | | 2,650 | |
8.250%,
2-15-21 (F) | | | 280 | | | | 287 | |
| | | | | | | | |
| | | | | | | 6,357 | |
| | | | | | | | |
| |
Precious Metals & Minerals – 0.2% | |
Prince Mineral Holding Corp.,
11.500%,
12-15-19 (C)(F) | | | 1,792 | | | | 1,828 | |
| | | | | | | | |
| |
Total Materials – 7.1% | | | | 57,984 | |
Telecommunication Services | |
| |
Alternative Carriers – 0.2% | |
Level 3 Communications, Inc., 5.750%, 12-1-22 (C) | | | 1,916 | | | | 1,928 | |
| | | | | | | | |
| |
Integrated Telecommunication
Services – 1.7% | |
BCP (Singapore) VI Cayman Financing Co. Ltd., 8.000%, 4-15-21 (C) | | | 629 | | | | 631 | |
Frontier Communications Corp.: | | | | | | | | |
6.250%, 9-15-21 | | | 1,501 | | | | 1,508 | |
7.125%, 1-15-23 | | | 1,285 | | | | 1,307 | |
6.875%, 1-15-25 | | | 1,201 | | | | 1,201 | |
Level 3 Escrow II, Inc.,
5.375%,
8-15-22 (C) | | | 3,628 | | | | 3,646 | |
Sprint Corp.: | | | | | | | | |
7.250%, 9-15-21 | | | 1,007 | | | | 998 | |
7.875%, 9-15-23 | | | 2,515 | | | | 2,483 | |
7.125%, 6-15-24 | | | 2,049 | | | | 1,906 | |
| | | | | | | | |
| | | | | | | 13,680 | |
| | | | | | | | |
| |
Wireless Telecommunication
Service – 1.7% | |
Digicel Group Ltd.,
8.250%,
9-30-20 (C) | | | 2,313 | | | | 2,244 | |
DigitalGlobe, Inc.,
5.250%, 2-1-21 (C) | | | 2,117 | | | | 2,011 | |
Telecom Italia S.p.A.,
5.303%,
5-30-24 (C) | | | 1,374 | | | | 1,391 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Wireless Telecommunication Service (Continued) | |
T-Mobile USA, Inc.: | | | | | | | | |
6.464%, 4-28-19 | | $ | 1,350 | | | $ | 1,404 | |
6.542%, 4-28-20 | | | 980 | | | | 1,012 | |
6.633%, 4-28-21 | | | 1,861 | | | | 1,910 | |
6.125%,
1-15-22 | | | 791 | | | | 803 | |
6.731%,
4-28-22 | | | 196 | | | | 202 | |
6.000%,
3-1-23 | | | 1,104 | | | | 1,107 | |
6.500%,
1-15-24 | | | 634 | | | | 650 | |
6.375%,
3-1-25 | | | 900 | | | | 914 | |
| | | | | | | | |
| | | | | | | 13,648 | |
| | | | | | | | |
| |
Total Telecommunication
Services – 3.6% | | | | 29,256 | |
Utilities | |
| |
Electric Utilities – 0.3% | |
Alliant Holdings,
7.875%,
12-15-20 (C) | | | 2,202 | | | | 2,246 | |
| | | | | | | | |
| |
Renewable Electricity – 0.2% | |
Abengoa Yield plc,
7.000%,
11-15-19 (C) | | | 2,086 | | | | 2,055 | |
| | | | | | | | |
| |
Total Utilities – 0.5% | | | | 4,301 | |
| |
TOTAL CORPORATE DEBT SECURITIES – 72.2% | | | $ | 591,387 | |
(Cost: $612,814) | | | | | | | | |
| | |
| LOANS(F) | | | | | | |
Consumer Discretionary | |
| |
Advertising – 0.2% | |
Advantage Sales & Marketing, Inc.,
7.500%,
7-25-22 | | | 1,393 | | | | 1,375 | |
| | | | | | | | |
| |
Apparel Retail – 1.4% | |
Gymboree Corp. (The),
5.000%,
2-23-18 | | | 509 | | | | 330 | |
Hoffmaster Group, Inc.,
10.000%,
5-6-21 | | | 2,188 | | | | 2,144 | |
Nine West Holdings, Inc.,
6.250%,
1-8-20 | | | 3,065 | | | | 2,733 | |
Talbots, Inc. (The): | | | | | | | | |
4.750%,
3-17-20 | | | 875 | | | | 845 | |
8.250%,
3-17-21 | | | 1,561 | | | | 1,499 | |
True Religion Apparel, Inc.: | | | | | | | | |
5.875%,
7-29-19 | | | 2,051 | | | | 1,872 | |
5.875%,
7-30-19 | | | 2,194 | | | | 2,002 | |
| | | | | | | | |
| | | | | | | 11,425 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 0.4% | |
Direct ChassisLink, Inc.,
8.250%,
11-7-19 | | | 3,621 | | | | 3,435 | |
| | | | | | | | |
| | | | | | | | |
| LOANS(F) (Continued) | | Principal | | | Value | |
Casinos & Gaming – 0.2% | |
Centaur Acquisition LLC,
8.750%,
2-20-20 | | $ | 675 | | | $ | 669 | |
Gateway Casinos & Entertainment Ltd.: | | | | | | | | |
6.250%,
11-4-19 (E) | | CAD | 2 | | | | 2 | |
5.650%,
11-26-19 (E) | | | 963 | | | | 820 | |
| | | | | | | | |
| | | | | | | 1,491 | |
| | | | | | | | |
| |
General Merchandise Stores – 1.1% | |
BJ’s Wholesale Club, Inc.,
8.500%,
3-31-20 | | $ | 4,277 | | | | 4,194 | |
Orchard Acquisition Co. LLC,
7.000%,
2-8-19 | | | 4,770 | | | | 4,704 | |
| | | | | | | | |
| | | | | | | 8,898 | |
| | | | | | | | |
| |
Housewares & Specialties – 0.5% | |
KIK Custom Products, Inc.: | | | | | | | | |
5.500%,
5-17-19 | | | 2,430 | | | | 2,374 | |
9.500%,
11-17-19 | | | 2,105 | | | | 2,091 | |
| | | | | | | | |
| | | | | | | 4,465 | |
| | | | | | | | |
| |
Movies & Entertainment – 1.0% | |
Formula One Holdings Ltd. and Delta Two S.a.r.l.: | | | | | | | | |
4.750%,
7-15-21 | | | 1,466 | | | | 1,428 | |
7.750%,
7-29-22 | | | 5,686 | | | | 5,516 | |
Yonkers Racing Corp.,
8.750%,
8-20-20 | | | 1,324 | | | | 910 | |
| | | | | | | | |
| | | | | | | 7,854 | |
| | | | | | | | |
| |
Restaurants – 0.2% | |
TGI Friday’s, Inc.: | | | | | | | | |
5.250%,
6-20-20 | | | 50 | | | | 50 | |
5.250%,
6-20-20 | | | 5 | | | | 5 | |
6.590%,
6-20-20 | | | 130 | | | | 129 | |
9.250%,
6-20-21 | | | 1,971 | | | | 1,932 | |
| | | | | | | | |
| | | | | | | 2,116 | |
| | | | | | | | |
Specialized Consumer Services – 0.2% | |
Wand Intermediate I L.P.: | | | | | | | | |
4.750%,
9-2-21 | | | 908 | | | | 898 | |
8.250%,
9-2-22 | | | 908 | | | | 905 | |
| | | | | | | | |
| | | | | | | 1,803 | |
| | | | | | | | |
| |
Total Consumer Discretionary – 5.2% | | | | 42,862 | |
Consumer Staples | |
| |
Food Distributors – 0.2% | |
Performance Food Group, Inc.: | | | | | | | | |
6.250%,
11-14-19 | | | 1,117 | | | | 1,094 | |
6.250%, 11-17-19 | | | 571 | | | | 559 | |
| | | | | | | | |
| | | | | | | 1,653 | |
| | | | | | | | |
Food Retail – 0.3% | |
Focus Brands, Inc.,
10.250%,
8-21-18 | | | 2,837 | | | | 2,837 | |
| | | | | | | | |
Hypermarkets & Super Centers – 0.2% | |
GOBP Holdings, Inc.,
9.250%,
10-15-22 | | | 1,807 | | | | 1,784 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| LOANS(F) (Continued) | | Principal | | | Value | |
Packaged Foods & Meats – 0.2% | |
Shearer’s Foods LLC,
7.750%, 6-19-22 | | $ | 1,386 | | | $ | 1,353 | |
| | | | | | | | |
| |
Total Consumer
Staples – 0.9% | | | | 7,627 | |
Energy | |
| |
Coal & Consumable Fuels – 0.2% | |
Westmoreland Coal Co.,
7.500%,
12-16-20 | | | 1,877 | | | | 1,839 | |
| | | | | | | | |
| |
Oil & Gas Drilling – 0.2% | |
KCA Deutag Alpha Ltd.,
6.250%, 5-13-20 | | | 2,454 | | | | 1,715 | |
| | | | | | | | |
| |
Oil & Gas Equipment & Services – 0.2% | |
Regent Purchaser Investment, Inc.,
6.000%, 7-22-21 | | | 2,061 | | | | 1,625 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 0.1% | |
Sabine Oil & Gas LLC,
8.750%,
12-31-18 | | | 843 | | | | 641 | |
| | | | | | | | |
| |
Oil & Gas Refining & Marketing – 1.1% | |
Fieldwood Energy LLC,
8.375%, 9-30-20 | | | 5,704 | | | | 4,142 | |
Samson Investment Co.,
5.000%, 9-25-18 | | | 1,116 | | | | 876 | |
Shelf Drilling Midco Ltd.,
10.000%,
10-8-18(D) | | | 4,713 | | | | 3,511 | |
| | | | | | | | |
| | | | | | | 8,529 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 0.2% | |
Bowie Resources Holdings LLC: | | | | | | | | |
6.750%, 8-12-20 | | | 1,023 | | | | 1,008 | |
11.750%,
2-16-21 | | | 857 | | | | 840 | |
| | | | | | | | |
| | | | | | | 1,848 | |
| | | | | | | | |
| |
Total Energy – 2.0% | | | | 16,197 | |
Financials | |
| |
Consumer Finance – 0.2% | |
TransFirst, Inc.: | | | | | | | | |
5.500%,
10-16-21 | | | 489 | | | | 485 | |
9.000%,
10-16-22 | | | 1,315 | | | | 1,296 | |
| | | | | | | | |
| | | | | | | 1,781 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 0.5% | |
WP Mustang Holdings LLC: | | | | | | | | |
5.500%, 5-29-21 | | | 1,704 | | | | 1,682 | |
8.500%, 5-29-22 | | | 2,813 | | | | 2,701 | |
| | | | | | | | |
| | | | | | | 4,383 | |
| | | | | | | | |
| |
Total Financials – 0.7% | | | | 6,164 | |
Health Care | |
| |
Health Care Facilities – 0.7% | |
Surgery Center Holdings, Inc.: | | | | | | | | |
5.250%, 7-24-20 | | | 2,912 | | | | 2,832 | |
| | | | | | | | |
| LOANS(F) (Continued) | | Principal | | | Value | |
Health Care Facilities (Continued) | |
8.500%, 7-24-21 | | $ | 2,912 | | | $ | 2,803 | |
| | | | | | | | |
| | | | | | | 5,635 | |
| | | | | | | | |
| |
Health Care Services – 0.3% | |
Accellent, Inc.,
7.500%, 2-21-22 | | | 1,414 | | | | 1,326 | |
Ikaria, Inc.,
8.750%, 2-4-22 | | | 1,525 | | | | 1,498 | |
| | | | | | | | |
| | | | | | | 2,824 | |
| | | | | | | | |
| |
Health Care Supplies – 0.5% | |
Sage Products Holdings III LLC,
9.250%, 6-13-20 | | | 3,952 | | | | 3,913 | |
| | | | | | | | |
| |
Health Care Technology – 0.7% | |
Carestream Health, Inc.,
9.500%, 12-7-19 | | | 3,447 | | | | 3,417 | |
Vitera Healthcare Solutions LLC: | | | | | | | | |
6.000%, 11-4-20 | | | 1,262 | | | | 1,250 | |
9.250%, 11-4-21 | | | 765 | | | | 738 | |
| | | | | | | | |
| | | | | | | 5,405 | |
| | | | | | | | |
| |
Life Sciences Tools & Services – 0.3% | |
Atrium Innovations, Inc.,
7.750%, 7-29-21 | | | 2,893 | | | | 2,697 | |
| | | | | | | | |
| |
Total Health Care – 2.5% | | | | 20,474 | |
Industrials | |
| |
Air Freight & Logistics – 0.2% | |
DAE Aviation Holdings, Inc.,
7.750%, 7-29-19 | | | 1,437 | | | | 1,394 | |
| | | | | | | | |
| |
Building Products – 0.7% | |
GYP Holdings III Corp.: | | | | | | | | |
4.750%, 3-27-21 | | | 467 | | | | 452 | |
7.750%, 3-27-22 | | | 3,358 | | | | 3,325 | |
Hampton Rubber Co. & SEI Holding Corp.,
9.000%, 3-24-22 | | | 2,678 | | | | 2,410 | |
| | | | | | | | |
| | | | | | | 6,187 | |
| | | | | | | | |
| |
Construction & Engineering – 0.2% | |
Tensar International Corp.: | | | | | | | | |
5.750%, 7-9-21 | | | 825 | | | | 738 | |
9.500%, 7-9-22 | | | 1,122 | | | | 887 | |
| | | | | | | | |
| | | | | | | 1,625 | |
| | | | | | | | |
| |
Diversified Support Services – 0.4% | |
Omnitracs, Inc.,
8.750%, 4-29-21 | | | 470 | | | | 453 | |
Sprint Industrial Holdings LLC: | | | | | | | | |
7.000%, 5-14-19 | | | 1,910 | | | | 1,805 | |
11.250%,
5-14-19 | | | 1,222 | | | | 1,185 | |
| | | | | | | | |
| | | | | | | 3,443 | |
| | | | | | | | |
Environmental & Facilities
Services – 0.1% | |
Brickman Group Ltd. (The),
7.500%,
12-11-21 | | | 513 | | | | 502 | |
| | | | | | | | |
| | | | | | | | |
| LOANS(F) (Continued) | | Principal | | | Value | |
Industrial Conglomerates – 0.3% | |
Crosby Worldwide Ltd.,
7.000%,
11-22-21 | | $ | 2,438 | | | $ | 2,292 | |
| | | | | | | | |
| |
Industrial Machinery – 0.4% | |
Capital Safety North America Holdings, Inc.,
6.500%,
3-26-22 | | | 2,758 | | | | 2,606 | |
NN, Inc.,
6.000%,
7-18-21 | | | 729 | | | | 726 | |
| | | | | | | | |
| | | | | | | 3,332 | |
| | | | | | | | |
| |
Research & Consulting Services – 0.4% | |
Larchmont Resources LLC,
8.250%, 8-7-19 | | | 3,170 | | | | 3,051 | |
| | | | | | | | |
| |
Total Industrials – 2.7% | | | | 21,826 | |
Information Technology | |
| |
Application Software – 2.8% | |
Applied Systems, Inc.,
7.500%,
1-15-22 | | | 2,311 | | | | 2,249 | |
Aptean Holdings, Inc.: | | | | | | | | |
5.250%, 2-6-20 | | | 1,522 | | | | 1,472 | |
8.500%,
2-21-21 | | | 1,022 | | | | 971 | |
Misys plc and Magic Newco LLC,
12.000%,
6-12-19 | | | 13,954 | | | | 15,079 | |
TIBCO Software, Inc.,
6.500%,
11-25-20 | | | 3,320 | | | | 3,209 | |
| | | | | | | | |
| | | | | | | 22,980 | |
| | | | | | | | |
Data Processing & Outsourced
Services – 0.4% | |
Sedgwick Claims Management Services, Inc.,
6.750%,
1-27-22 | | | 3,395 | | | | 3,183 | |
| | | | | | | | |
| |
Internet Software & Services – 0.7% | |
TravelCLICK, Inc. & TCH-2 Holdings LLC: | | | | | | | | |
5.500%, 5-8-21 | | | 2,818 | | | | 2,776 | |
8.750%,
11-8-21 | | | 2,827 | | | | 2,686 | |
W3 Co.,
9.250%, 9-1-20 | | | 714 | | | | 685 | |
| | | | | | | | |
| | | | | | | 6,147 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 1.1% | |
Active Network, Inc. (The): | | | | | | | | |
5.500%,
11-15-20 | | | 2,028 | | | | 1,981 | |
9.500%,
11-15-21 | | | 2,881 | | | | 2,758 | |
Triple Point Group Holdings, Inc.: | | | | | | | | |
5.250%,
7-13-20 | | | 2,880 | | | | 2,614 | |
9.250%,
7-13-21 | | | 1,587 | | | | 1,357 | |
| | | | | | | | |
| | | | | | | 8,710 | |
| | | | | | | | |
| |
Total Information
Technology – 5.0% | | | | 41,020 | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| LOANS(F) (Continued) | | Principal | | | Value | |
Materials | |
| |
Construction Materials – 0.6% | |
U.S. LBM Holdings LLC: | | | | | | | | |
8.000%, 4-25-20 | | $ | 3,010 | | | $ | 2,942 | |
8.000%, 4-25-20 | | | 2,273 | | | | 2,222 | |
| | | | | | | | |
| | | | | | | 5,164 | |
| | | | | | | | |
| |
Diversified Metals & Mining – 0.2% | |
EP Minerals LLC: | | | | | | | | |
5.500%, 7-24-20 | | | 1,014 | | | | 1,004 | |
8.500%, 7-24-21 | | | 996 | | | | 991 | |
| | | | | | | | |
| | | | | | | 1,995 | |
| | | | | | | | |
| |
Metal & Glass Containers – 0.1% | |
Consolidated Container Co. LLC,
7.750%, 1-3-20 | | | 830 | | | | 791 | |
| | | | | | | | |
| |
Paper Packaging – 0.5% | |
FPC Holdings, Inc.,
9.250%, 5-27-20 | | | 1,740 | | | | 1,670 | |
Ranpak (Rack Merger),
8.250%, 9-22-22 | | | 1,982 | | | | 1,971 | |
| | | | | | | | |
| | | | | | | 3,641 | |
| | | | | | | | |
| |
Specialty Chemicals – 0.2% | |
Chromaflo Technologies Corp.,
8.250%, 6-2-20 | | | 1,394 | | | | 1,366 | |
| | | | | | | | |
| |
Total Materials – 1.6% | | | | 12,957 | |
| | | | | | | | |
| LOANS(F) (Continued) | | Principal | | | Value | |
Telecommunication Services | |
| |
Alternative Carriers – 0.2% | |
Cable & Wireless Communications,
0.000%,
11-6-16 (G) | | $ | 1,330 | | | $ | 1,323 | |
| | | | | | | | |
| |
Total Telecommunication
Services – 0.2% | | | | 1,323 | |
Utilities | |
Independent Power Producers & Energy Traders – 0.3% | |
Alinta Energy Finance PTY Ltd.: | | | | | | | | |
0.000%,
8-13-19 (G) | | | 100 | | | | 100 | |
6.375%,
8-13-19 | | | 2,072 | | | | 2,056 | |
| | | | | | | | |
| | | | | | | 2,156 | |
| | | | | | | | |
| |
Total Utilities – 0.3% | | | | 2,156 | |
| |
TOTAL LOANS – 21.1% | | | $ | 172,606 | |
(Cost: $180,970) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | | | | | |
Commercial Paper (H) – 4.0% | |
Bemis Co., Inc.: | | | | | | | | |
0.410%,
1-12-15 | | | 5,000 | | | | 4,999 | |
0.520%,
1-16-15 | | | 5,000 | | | | 4,999 | |
CVS Caremark Corp.,
0.450%,
1-13-15 | | | 3,000 | | | | 3,000 | |
| | | | | | | | |
SHORT-TERM
SECURITIES (Continued) | | Principal | | | Value | |
Commercial Paper (H) (Continued) | |
Federal Home Loan Bank,
0.020%,
1-26-15 | | $ | 1,000 | | | $ | 1,000 | |
General Mills, Inc.,
0.350%,
1-27-15 | | | 4,000 | | | | 3,999 | |
Kellogg Co.,
0.390%,
1-13-15 | | | 5,130 | | | | 5,129 | |
St. Jude Medical, Inc.,
0.220%,
1-2-15 | | | 2,030 | | | | 2,030 | |
Virginia Electric and Power Co.,
0.330%,
1-26-15 | | | 5,000 | | | | 4,999 | |
Wal-Mart Stores, Inc.,
0.090%,
1-13-15 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| | | | | | | 32,155 | |
| | | | | | | | |
Master Note – 0.3% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (I) | | | 2,816 | | | | 2,816 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 4.3% | | | $ | 34,971 | |
(Cost: $34,971) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 98.0% | | | $ | 802,357 | |
(Cost: $832,304) | | | | | | | | |
| |
CASH AND OTHER ASSETS,
NET OF
LIABILITIES – 2.0% | | | | 16,088 | |
| |
NET ASSETS – 100.0% | | | $ | 818,445 | |
Notes to Schedule of Investments
| * | Not shown due to rounding. |
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Warrants entitle the Portfolio to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any. |
| (C) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $400,028 or 48.9% of net assets. |
| (D) | Payment-in-kind bonds. |
| (E) | Principal amounts are denominated in the indicated foreign currency, where applicable (CAD – Canadian Dollar, EUR – Euro and GBP – British Pound). |
| (F) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. |
| (G) | All or a portion of this position has not settled. Full contract rates do not take effect until settlement date. |
| (H) | Rate shown is the yield to maturity at December 31, 2014. |
| (I) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following forward foreign currency contracts were outstanding at December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Currency to be
Delivered | | | | | Currency to be
Received | | | Settlement Date | | | Counterparty | | | Unrealized
Appreciation | | | Unrealized
Depreciation | | | |
British Pound | | | 1,923 | | | U.S. Dollar | | | 3,015 | | | | 1-14-15 | | | | Morgan Stanley International | | | $ | 19 | | | $ | — | | | |
Euro | | | 2,164 | | | U.S. Dollar | | | 2,688 | | | | 1-14-15 | | | | Morgan Stanley International | | | | 69 | | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 88 | | | $ | — | | | |
| | | | | | | | | | | | | | | | | | | | | |
SCHEDULE OF INVESTMENTS
High Income (in thousands) | DECEMBER 31, 2014 |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Consumer Discretionary | | $ | — | | | $ | — | | | $ | 56 | |
Energy | | | 482 | | | | — | | | | — | |
Financials | | | 870 | | | | — | | | | — | |
Industrials | | | 342 | | | | — | | | | — | |
Utilities | | | 153 | | | | — | | | | — | |
Total Common Stocks | | $ | 1,847 | | | $ | — | | | $ | 56 | |
Preferred Stocks | | | 1,055 | | | | 396 | | | | — | |
Warrants | | | — | | | | — | | | | 39 | |
Corporate Debt Securities | | | — | | | | 578,474 | | | | 12,913 | |
Loans | | | — | | | | 119,516 | | | | 53,090 | |
Short-Term Securities | | | — | | | | 34,971 | | | | — | |
Total | | $ | 2,902 | | | $ | 733,357 | | | $ | 66,098 | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 88 | | | $ | — | |
During the period ended December 31, 2014, securities totaling $583 were transferred from Level 1 to Level 2. These transfers were the result of fair value procedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:
| | | | | | | | | | | | | | | | |
| | | Common
Stocks | | | Warrants | | | Corporate
Debt
Securities | | | Loans | |
Beginning Balance 1-1-14 | | $ | 49 | | | $ | 150 | | | $ | 15,286 | | | $ | 40,917 | |
Net realized gain (loss) | | | — | | | | — | | | | (— | *) | | | (283 | ) |
Net change in unrealized appreciation (depreciation) | | | 7 | | | | (111 | ) | | | (948 | ) | | | (2,561 | ) |
Purchases | | | — | | | | — | | | | 6,279 | | | | 38,785 | |
Sales | | | — | | | | — | | | | (360 | ) | | | (15,853 | ) |
Amortization/Accretion of premium/discount | | | — | | | | — | | | | (11 | ) | | | 29 | |
Transfers into Level 3 during the period | | | — | | | | — | | | | 7,954 | | | | 11,977 | |
Transfers out of Level 3 during the period | | | — | | | | — | | | | (15,287 | ) | | | (19,921 | ) |
Ending Balance 12-31-14 | | $ | 56 | | | $ | 39 | | | $ | 12,913 | | | $ | 53,090 | |
Net change in unrealized appreciation (depreciation) for all Level 3 investments still held as of 12-31-14 | | $ | 7 | | | $ | (111 | ) | | $ | (948 | ) | | $ | (2,271 | ) |
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information. As shown above, transfers in and out of Level 3 represent the values as of the beginning of the reporting period.
Information about Level 3 fair value measurements:
| | | | | | | | | | |
| | | Fair Value at 12-31-14 | | | Valuation Technique(s) | | Unobservable
Input(s) | |
Assets | | | | | | | | | | |
Common Stocks | | $ | 56 | | | Broker | | | Broker quotes | |
Warrants | | | 39 | | | Third-party valuation service | | | Broker quotes | |
Corporate Debt Securities | | | 12,913 | | | Third-party valuation service | | | Broker quotes | |
Loans | | | 53,090 | | | Third-party valuation service | | | Broker quotes | |
The following acronyms are used throughout this schedule:
GTD = Guaranteed
REIT = Real Estate Investment Trusts
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
International Core Equity | (UNAUDITED) |
John C. Maxwell
Below, John C. Maxwell, CFA, portfolio manager of Ivy Funds VIP International Core Equity, discusses positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Maxwell has managed the Portfolio since May 2009 and has 22 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP International Core Equity | | | 1.44% | |
Benchmark(s) and/or Lipper Category | | | | |
MSCI EAFE Index | | | –4.90% | |
(generally reflects the performance of securities in Europe, Australasia and the Far East) | | | | |
Lipper Variable Annuity International Large-Cap Core Funds Universe Average | | | –6.56% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
International markets posted negative gains
This was a challenging year for international markets. While the Portfolio posted a positive return, the benchmark was down almost 5%. The bulk of the Portfolio’s outperformance was driven by strong stock selection, but currency effects and sector allocation also aided performance. As we said last year, we continued to be less reactive to gyrations in economic data and focused our stock selection on what we considered well-positioned, undervalued or reasonably priced companies with solid growth opportunities.
From a geographic standpoint, country allocations benefitted performance, though Japan was a negative outlier. Our emerging-market allocation, which represented about 12% of the portfolio and neared our internal allocation constraint of 15%, benefitted performance after three years of detraction. While we slightly reduced our emerging-markets weighting in the second half of the year, we still think emerging-market equities represents one of the few undervalued asset classes in the world. Our allocation to Europe, which represents approximately two-thirds of the benchmark, posted strong gains driven by favorable stock selection. U.K.-based Shire plc was the top contributor to performance for the year and received a takeover bid. (The Portfolio no longer holds Shire plc but does hold Shire Pharmaceuticals Group plc ADR).
From a sector standpoint, our overweight in health care and information technology, coupled with strong stock selection in those sectors, were the largest contributors to overall performance. Strong stock selection in financials was next in driving overall Portfolio performance. On the other hand, poor stock selection in consumer discretionary and telecommunications were the top detractors to performance.
More conflict, continued easy money, the strong U.S. dollar and weak commodities
The rise of ISIS in and around Syria and Russia’s annexation of Crimea damaged the geopolitical backdrop over the course of the year. The ongoing conflict with Russia damaged European confidence — particularly in Germany. If the trend continues, equity markets could suffer.
On the central banking front, easy money continues with record low rates in virtually the entire developed world. The U.S. tapered the quantitative easing (QE3) program throughout the year and ended the aggressive policy in the fall. Japan, Europe and China employed easier monetary policies. The U.K., once thought to raise rates by year-end 2014, seems on hold until inflation rises. Expectations are that the U.S. will raise rates sometime in the middle of 2015.
The U.S. economy performed well in 2014. This, coupled with the end of QE3, led to strong appreciation of the U.S. dollar. U.S. dollar strength and weaker growth in China led a drastic decline in commodity prices. For example, Brent Crude Oil spent the first half of the year trading at more than $100/barrel, yet closed the year in the $50s — an amazing drop. So far, we perceive the huge and rapid decline in the oil price as a benefit to consumers globally rather than an asset bubble that has broken — leading to global contagion. We believe this situation is worth monitoring.
Multiple elections over the course of the year directly affected the markets. U.S. midterms, as well as the Abe snap election in Japan, were generally viewed as supportive. In Brazil, the populist incumbent won, hurting that equity market. The year ended with Greece unable to form a government, with a fringe anti-European party in the lead. With fringe parties continuing to gain power in Europe, it is a timely reminder that European unity is something to watch in the coming years.
Actions in the portfolio during the year
We spent the first half of the year managing the Portfolio in a manner consistent with 2013. We implemented an approximate 5% overweight position to defensive sectors at the expense of cyclicals. In addition, we maintained our investment approach of not reacting to swings in economic data – generally with the mindset of slow global growth a best-case scenario in the current market environment.
In the third quarter, we shifted the allocation to an approximate equal weighting between defensive and cyclical sectors. This move was not due to a change in our global economic view, but rather the result of perceived compelling relative valuations. Through the year, our industrials and materials allocation increased at the expense of telecommunications and energy.
From a geographic standpoint, we made a number of moves starting in the third quarter. First, we cut our weighting in Brazil after a strong run on optimism regarding its fall election. Second, we significantly increased our weighting to European multinationals. They underperformed their U.S. counterparts despite a greater than 10% fall in the European currency. In addition to reducing our emerging-markets weighting, we sold shares in Japan, which at year-end, stands as a significant underweight relative to the benchmark.
As we exit the year, the strong U.S. dollar accompanied by a collapse in oil prices have important implications. On one hand, this scenario could mean that the attempt to drive inflation has failed and oil/commodities are the first reflated assets to collapse. We are not positioned for this as we think the collapse in commodities will lower costs and free up money to drive economic growth. We believe the dislocation is likely to deliver some very interesting investment opportunities.
Additionally, with weakening currencies around the world, we have hedged the Chinese yuan, which is pegged to the U.S. dollar. Due to this relationship, we feel China’s trade competitors are attractively positioned due to their currency devaluation relative to the U.S. dollar. If the scenario unfolds where the Chinese yuan is unpegged to the U.S. dollar or the currency spread widens, the results would adversely affect exporters outside of China. In an effort to protect ourselves from this scenario, we have implemented an approximate 10% hedge to the Chinese yuan — in essence, this hedge acts as an insurance policy against unforeseen actions.
It seems the Portfolio’s growth orientation peaked around mid-year and we are moving the Portfolio slightly in the direction of value. We expect to keep the portfolio balanced between defensive and growth sectors relative to the benchmark. We will continue to look for good companies whose prospects we believe are underappreciated. Through the past fiscal year, our key themes did not change. We continue to seek exposure to:
| • | | Disproportionate growth of emerging-market consumers, particularly in the Asia-Pacific region |
| • | | Strong growth in infrastructure |
| • | | Strong and believable dividend yields |
| • | | Stocks that we think will benefit from increased mergers and acquisition activity. |
Outlook
We believe global economic growth is fragile but improved in the fourth quarter. Global monetary policy remains extremely easy. We think improvement in economic growth, should it occur, will eventually lead to tighter monetary policy, and to a lesser extent, fiscal policy in advanced economies. In our opinion, the slower economic growth experienced since 2008 is likely as good as we can expect today, with greater downside than upside risks.
We think relative valuation remains supportive for international equities — particularly with the contraction in bond yields that took place over the year. That said, absolute valuations are not as attractive as relative valuations. Equities are trading at valuation levels above their historic averages (over the last 25 years), while bonds are trading at unprecedented long-term premiums.
Long term, we believe emerging-market countries will try to improve their populations’ standard of living. To accomplish this feat, the countries will require strong, real economic growth, which currently is not being achieved. There are increasing signs of stress in these developing countries, though their growth remains substantially ahead of their developed market counterparts. In the end, we believe maintaining our exposure to developing markets makes sense.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. Investments in countries with emerging economies or securities markets may carry greater risk than investments in more developed countries. Political and economic structures in many such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristics of more developed countries. Investments in securities issued in these countries may be more volatile and less liquid than securities issued in more developed countries. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Ivy Funds VIP International Core Equity.
PORTFOLIO HIGHLIGHTS
International Core Equity | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 98.0% | |
Financials | | | 19.0% | |
Consumer Discretionary | | | 15.0% | |
Industrials | | | 13.3% | |
Health Care | | | 12.1% | |
Information Technology | | | 10.4% | |
Materials | | | 10.0% | |
Consumer Staples | | | 8.5% | |
Energy | | | 4.7% | |
Telecommunication Services | | | 3.8% | |
Utilities | | | 1.2% | |
Cash and Cash Equivalents | | | 2.0% | |
Country Weightings
| | | | |
Europe | | | 61.2% | |
United Kingdom | | | 21.6% | |
France | | | 11.0% | |
Germany | | | 9.1% | |
Spain | | | 5.2% | |
Sweden | | | 4.0% | |
Switzerland | | | 3.5% | |
Other Europe | | | 6.8% | |
Pacific Basin | | | 26.8% | |
Japan | | | 13.8% | |
China | | | 5.7% | |
Australia | | | 3.7% | |
Other Pacific Basin | | | 3.6% | |
North America | | | 4.6% | |
Other | | | 3.1% | |
South America | | | 2.3% | |
Cash and Cash Equivalents | | | 2.0% | |
Top 10 Equity Holdings
| | | | | | |
| Company | | Country | | Sector | | Industry |
Teva Pharmaceutical Industries Ltd. ADR | | Israel | | Health Care | | Pharmaceuticals |
Fresenius SE & Co. KGaA | | Germany | | Health Care | | Health Care Services |
Volkswagen AG, 2.260% | | Germany | | Consumer Discretionary | | Automobile Manufacturers |
WPP Group plc | | United Kingdom | | Consumer Discretionary | | Advertising |
Bouygues S.A. | | France | | Industrials | | Construction & Engineering |
Svenska Cellulosa Aktiebolaget SCA (publ), Class B | | Sweden | | Materials | | Paper Products |
Sumitomo Mitsui Trust Holdings, Inc. | | Japan | | Financials | | Diversified Banks |
Millea Holdings, Inc. | | Japan | | Financials | | Property & Casualty Insurance |
Yahoo!, Inc. | | United States | | Information Technology | | Internet Software & Services |
China Construction Bank Corp. | | China | | Financials | | Diversified Banks |
See your advisor for more information on the Portfolio’s most recent published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
International Core Equity | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 1.44% | |
5-year period ended 12-31-14 | | | 7.13% | |
10-year period ended 12-31-14 | | | 5.86% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
International Core Equity (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Australia | |
| |
Consumer Staples – 1.1% | |
Coca-Cola Amatil Ltd. | | | 959 | | | $ | 7,241 | |
| | | | | | | | |
| |
Financials – 1.1% | |
Macquarie Group Ltd. | | | 152 | | | | 7,173 | |
| | | | | | | | |
| |
Materials – 1.5% | |
Amcor Ltd. | | | 906 | | | | 9,968 | |
| | | | | | | | |
| |
Total Australia – 3.7% | | | $ | 24,382 | |
Brazil | |
| |
Consumer Staples – 1.1% | |
Hypermarcas
S.A. (A) | | | 1,209 | | | | 7,574 | |
| | | | | | | | |
| |
Telecommunication Services – 1.2% | |
TIM Participacoes S.A. | | | 1,652 | | | | 7,321 | |
TIM Participacoes S.A. ADR | | | 14 | | | | 319 | |
| | | | | | | | |
| | | | | | | 7,640 | |
| | | | | | | | |
| |
Total Brazil – 2.3% | | | $ | 15,214 | |
China | |
| |
Consumer Discretionary – 1.0% | |
JD.com, Inc.
ADR (A) | | | 277 | | | | 6,419 | |
| | | | | | | | |
| |
Consumer Staples – 1.6% | |
Kweichow Moutai Co. Ltd., Class A | | | 342 | | | | 10,445 | |
| | | | | | | | |
| |
Financials – 1.7% | |
China Construction Bank Corp. | | | 13,800 | | | | 11,272 | |
| | | | | | | | |
| |
Information Technology – 1.4% | |
Baidu.com, Inc. ADR (A) | | | 41 | | | | 9,344 | |
| | | | | | | | |
| |
Total China – 5.7% | | | $ | 37,480 | |
Denmark | |
| |
Telecommunication Services – 1.3% | |
TDC A/S | | | 1,139 | | | | 8,688 | |
| | | | | | | | |
| |
Total Denmark – 1.3% | | | $ | 8,688 | |
France | |
| |
Energy – 1.0% | |
Total S.A. | | | 125 | | | | 6,427 | |
| | | | | | | | |
| |
Financials – 1.1% | |
BNP Paribas S.A. | | | 121 | | | | 7,114 | |
| | | | | | | | |
| |
Industrials – 5.1% | |
Bouygues S.A. | | | 411 | | | | 14,854 | |
European Aeronautic Defence and Space Co. | | | 149 | | | | 7,381 | |
Vinci | | | 204 | | | | 11,111 | |
| | | | | | | | |
| | | | | | | 33,346 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Information Technology – 1.3% | |
Cap Gemini S.A. | | | 123 | | | $ | 8,762 | |
| | | | | | | | |
| |
Materials – 1.3% | |
Lafarge | | | 129 | | | | 9,021 | |
| | | | | | | | |
| |
Utilities – 1.2% | |
Gaz de France | | | 336 | | | | 7,828 | |
| | | | | | | | |
| |
Total France – 11.0% | | | $ | 72,498 | |
Germany | |
| |
Health Care – 4.5% | |
Bayer AG | | | 80 | | | | 10,924 | |
Fresenius SE & Co. KGaA | | | 361 | | | | 18,747 | |
| | | | | | | | |
| | | | | | | 29,671 | |
| | | | | | | | |
| |
Industrials – 1.2% | |
Siemens AG | | | 70 | | | | 7,798 | |
| | | | | | | | |
| |
Total Germany – 5.7% | | | $ | 37,469 | |
Hong Kong | |
| |
Financials – 1.5% | |
Cheung Kong (Holdings) Ltd. | | | 589 | | | | 9,864 | |
| | | | | | | | |
| |
Total Hong Kong – 1.5% | | | $ | 9,864 | |
Ireland | |
| |
Health Care – 1.2% | |
Shire Pharmaceuticals Group plc ADR | | | 35 | | | | 7,460 | |
| | | | | | | | |
| |
Materials – 1.3% | |
James Hardie Industries plc, Class C | | | 813 | | | | 8,679 | |
| | | | | | | | |
| |
Total Ireland – 2.5% | | | $ | 16,139 | |
Israel | |
| |
Health Care – 3.1% | |
Teva Pharmaceutical Industries Ltd. ADR | | | 349 | | | | 20,050 | |
| | | | | | | | |
| |
Total Israel – 3.1% | | | $ | 20,050 | |
Japan | |
| |
Consumer Discretionary – 3.1% | |
Bridgestone Corp. | | | 202 | | | | 6,992 | |
Mitsubishi Motors Corp. | | | 796 | | | | 7,272 | |
Nissin Kogyo Co. Ltd. | | | 413 | | | | 5,730 | |
| | | | | | | | |
| | | | | | | 19,994 | |
| | | | | | | | |
| |
Energy – 1.0% | |
Inpex Corp. | | | 589 | | | | 6,557 | |
| | | | | | | | |
| |
Financials – 3.8% | |
Millea Holdings, Inc. | | | 378 | | | | 12,286 | |
Sumitomo Mitsui Trust Holdings, Inc. | | | 3,296 | | | | 12,625 | |
| | | | | | | | |
| | | | | | | 24,911 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Industrials – 2.7% | |
Dakin Industries Ltd. | | | 112 | | | $ | 7,150 | |
Mitsubishi Heavy Industries Ltd. | | | 1,866 | | | | 10,298 | |
| | | | | | | | |
| | | | | | | 17,448 | |
| | | | | | | | |
| |
Information Technology – 1.9% | |
Tokyo Electron Ltd. | | | 118 | | | | 8,910 | |
Yahoo Japan Corp. | | | 1,073 | | | | 3,846 | |
| | | | | | | | |
| | | | | | | 12,756 | |
| | | | | | | | |
| |
Telecommunication Services – 1.3% | |
Softbank Corp. | | | 144 | | | | 8,565 | |
| | | | | | | | |
| |
Total Japan – 13.8% | | | $ | 90,231 | |
Luxembourg | |
| |
Energy – 0.8% | |
Acergy S.A. | | | 513 | | | | 5,247 | |
| | | | | | | | |
| |
Total Luxembourg – 0.8% | | | $ | 5,247 | |
Mexico | |
| |
Financials – 1.4% | |
Grupo Financiero Banorte S.A.B. de C.V. | | | 1,678 | | | | 9,234 | |
| | | | | | | | |
| |
Total Mexico – 1.4% | | | $ | 9,234 | |
Netherlands | |
| |
Financials – 1.2% | |
ING Groep N.V., Certicaaten Van Aandelen (A) | | | 596 | | | | 7,700 | |
| | | | | | | | |
| |
Materials – 1.0% | |
Royal DSM Heerlen | | | 111 | | | | 6,789 | |
| | | | | | | | |
| |
Total Netherlands – 2.2% | | | $ | 14,489 | |
South Korea | |
| |
Consumer Discretionary – 1.1% | |
Hyundai Mobis (A) | | | 33 | | | | 7,093 | |
| | | | | | | | |
| |
Information Technology – 1.0% | |
Samsung Electronics Co. Ltd. | | | 6 | | | | 6,937 | |
| | | | | | | | |
| |
Total South Korea – 2.1% | | | $ | 14,030 | |
Spain | |
| |
Consumer Discretionary – 1.1% | |
Gestevision Telecinco S.A. | | | 591 | | | | 7,425 | |
| | | | | | | | |
| |
Financials – 1.4% | |
CaixaBank S.A. | | | 1,684 | | | | 8,826 | |
| | | | | | | | |
Health Care – 1.1% | |
Grifols S.A. | | | 183 | | | | 7,304 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
International Core Equity (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Information Technology – 1.6% | |
Amadeus IT Holding S.A. | | | 268 | | | $ | 10,686 | |
| | | | | | | | |
| |
Total Spain – 5.2% | | | $ | 34,241 | |
Sweden | |
| |
Financials – 1.8% | |
Investment AB Kinnevik (publ), Class B | | | 94 | | | | 3,051 | |
Investor AB, B Shares | | | 240 | | | | 8,720 | |
| | | | | | | | |
| | | | | | | 11,771 | |
| | | | | | | | |
| |
Materials – 2.2% | |
Svenska Cellulosa Aktiebolaget SCA (publ), Class B | | | 667 | | | | 14,375 | |
| | | | | | | | |
| |
Total Sweden – 4.0% | | | $ | 26,146 | |
Switzerland | |
| |
Consumer Discretionary – 0.6% | |
Compagnie Financiere Richemont S.A. | | | 44 | | | | 3,866 | |
| | | | | | | | |
| |
Industrials – 1.7% | |
Adecco S.A. | | | 163 | | | | 11,237 | |
| | | | | | | | |
| |
Materials – 1.2% | |
Syngenta AG | | | 24 | | | | 7,559 | |
| | | | | | | | |
| |
Total Switzerland – 3.5% | | | $ | 22,662 | |
United Kingdom | |
| |
Consumer Discretionary – 5.5% | |
Burberry Group plc | | | 399 | | | | 10,111 | |
Marks and Spencer Group plc | | | 1,227 | | | | 9,082 | |
WPP Group plc | | | 812 | | | | 16,879 | |
| | | | | | | | |
| | | | | | | 36,072 | |
| | | | | | | | |
| |
Consumer Staples – 3.9% | |
Reckitt Benckiser Group plc | | | 96 | | | | 7,813 | |
SABMiller plc | | | 186 | | | | 9,714 | |
Unilever plc | | | 203 | | | | 8,229 | |
| | | | | | | | |
| | | | | | | 25,756 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Energy – 1.9% | |
BP plc | | | 1,005 | | | $ | 6,379 | |
Royal Dutch Shell plc, Class A | | | 188 | | | | 6,266 | |
| | | | | | | | |
| | | | | | | 12,645 | |
| | | | | | | | |
| |
Financials – 4.0% | |
Aviva plc | | | 946 | | | | 7,110 | |
Legal & General Group plc | | | 2,882 | | | | 11,129 | |
Prudential plc | | | 354 | | | | 8,178 | |
| | | | | | | | |
| | | | | | | 26,417 | |
| | | | | | | | |
| |
Health Care – 2.2% | |
GlaxoSmithKline plc | | | 514 | | | | 11,027 | |
GlaxoSmithKline plc ADR | | | 70 | | | | 2,988 | |
| | | | | | | | |
| | | | | | | 14,015 | |
| | | | | | | | |
| |
Industrials – 2.6% | |
BAE Systems plc | | | 1,127 | | | | 8,243 | |
Rolls-Royce Group plc | | | 636 | | | | 8,549 | |
| | | | | | | | |
| | | | | | | 16,792 | |
| | | | | | | | |
| |
Materials – 1.5% | |
Antofagasta plc | | | 862 | | | | 10,044 | |
| | | | | | | | |
| |
Total United Kingdom – 21.6% | | | $ | 141,741 | |
United States | |
| |
Information Technology – 3.2% | |
Cognizant Technology Solutions Corp., Class A(A) | | | 180 | | | | 9,485 | |
Yahoo!, Inc.(A) | | | 232 | | | | 11,722 | |
| | | | | | | | |
| | | | | | | 21,207 | |
| | | | | | | | |
| |
Total United States – 3.2% | | | $ | 21,207 | |
| |
TOTAL COMMON STOCKS – 94.6% | | | $ | 621,012 | |
(Cost: $613,020) | | | | | | | | |
| | | | | | | | |
| PREFERRED STOCKS | | Shares | | | Value | |
Germany | |
| |
Consumer Discretionary – 2.6% | |
Volkswagen AG, 2.260% | | | 78 | | | $ | 17,307 | |
| | | | | | | | |
| |
Consumer Staples – 0.8% | |
Henkel AG & Co. KGaA | | | 49 | | | | 5,246 | |
| | | | | | | | |
| |
Total Germany – 3.4% | | | $ | 22,553 | |
| |
TOTAL PREFERRED
STOCKS – 3.4% | | | $ | 22,553 | |
(Cost: $23,407) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | Principal | | | | |
Commercial Paper(B) – 1.7% | |
Illinois Tool Works, Inc. 0.130%, 1-23-15 | | $ | 5,000 | | | | 5,000 | |
St. Jude Medical, Inc. 0.220%, 1-2-15 | | | 6,025 | | | | 6,025 | |
| | | | | | | | |
| | | | | | | 11,025 | |
| | | | | | | | |
| |
Master Note – 0.3% | |
Toyota Motor Credit Corp.
0.126%, 1-7-15 (C) | | | 1,972 | | | | 1,972 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM SECURITIES – 2.0% | | | $ | 12,997 | |
(Cost: $12,996) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 100.0% | | | $ | 656,562 | |
(Cost: $649,423) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER ASSETS – 0.0% | | | | (189 | ) |
| |
NET ASSETS – 100.0% | | | $ | 656,373 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Rate shown is the yield to maturity at December 31, 2014. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
SCHEDULE OF INVESTMENTS
International Core Equity (in thousands) | DECEMBER 31, 2014 |
The following forward foreign currency contracts were outstanding at December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Currency
to be
Delivered | | | | Currency
to be
Received | | | Settlement
Date | | | Counterparty | | | Unrealized
Appreciation | | | Unrealized
Depreciation | |
Brazilian Real | | 59,928 | | U.S. Dollar | | | 22,170 | | | | 1-20-15 | | | | Deutsche Bank AG | | | $ | — | | | $ | 281 | |
Chinese Yuan Renminbi | | 417,085 | | U.S. Dollar | | | 66,754 | | | | 3-12-15 | | | | Deutsche Bank AG | | | | 86 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 86 | | | $ | 281 | |
| | | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Consumer Discretionary | | $ | 6,419 | | | $ | 74,450 | | | $ | — | |
Consumer Staples | | | 7,574 | | | | 43,442 | | | | — | |
Energy | | | — | | | | 30,876 | | | | — | |
Financials | | | 9,234 | | | | 115,048 | | | | — | |
Health Care | | | 30,498 | | | | 48,002 | | | | — | |
Industrials | | | — | | | | 86,621 | | | | — | |
Information Technology | | | 30,551 | | | | 39,141 | | | | — | |
Materials | | | — | | | | 66,435 | | | | — | |
Telecommunication Services | | | 7,640 | | | | 17,253 | | | | — | |
Utilities | | | — | | | | 7,828 | | | | — | |
Total Common Stocks | | $ | 91,916 | | | $ | 529,096 | | | $ | — | |
Preferred Stocks | | | — | | | | 22,553 | | | | — | |
Short-Term Securities | | | — | | | | 12,997 | | | | — | |
Total | | $ | 91,916 | | | $ | 564,646 | | | $ | — | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 86 | | | $ | — | |
Liabilities | | | | | | | | | | | | |
Forward Foreign Currency Contracts | | $ | — | | | $ | 281 | | | $ | — | |
During the period ended December 31, 2014, securities totaling $320,662 were transferred from Level 1 to Level 2. These transfers were the result of fair value procedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
Market Sector Diversification
| | | | |
(as a % of net assets) | |
Financials | | | 19.0% | |
Consumer Discretionary | | | 15.0% | |
Industrials | | | 13.3% | |
Health Care | | | 12.1% | |
Information Technology | | | 10.4% | |
Materials | | | 10.0% | |
Consumer Staples | | | 8.5% | |
Energy | | | 4.7% | |
Telecommunication Services | | | 3.8% | |
Utilities | | | 1.2% | |
Other+ | | | 2.0% | |
+ Includes cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Limited-Term Bond | (UNAUDITED) |
Mark Otterstrom
Susan Regan
Below, Mark J. Otterstrom, CFA, and Susan K. Regan, portfolio managers of Ivy Funds VIP Limited-Term Bond, discuss positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Otterstrom has managed the Portfolio since its inception in 2010 and has 28 years of industry experience. Ms. Regan was named portfolio manager in August 2014 and has 27 years industry experience.
Fiscal Year Performance
| | | | |
For the 12 months ended December 31, 2014 | | | | |
Ivy Funds VIP Limited-Term Bond | | | 0.97% | |
Benchmark(s) and/or Lipper Category | | | | |
Barclays 1-5 Year U.S. Government/Credit Index | | | 1.42% | |
(generally reflects the performance of securities representing the bond market) | | | | |
Lipper Variable Annuity Short-Intermediate Investment Grade Debt Funds Universe Average | | | 1.28% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that the Portfolio returns include applicable investment fees and expenses, whereas the index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Interest rates and the economy
Our biggest challenge in 2014 was positioning the Portfolio to take advantage of major market moves. Given the strength of the U.S. economy in the fourth quarter of 2013 and the Federal Reserve’s (Fed’s) stated intention to begin removing a major source of excess liquidity in the market (known as QE3), we put the Portfolio in a very defensive position. By the Fund’s nature, it is a shorter duration Fund designed for the preservation of capital.
We had anticipated rates to continue to grind higher in 2014. We underappreciated the economic weakness during the first quarter of 2014 and the severity of the geopolitical risks that were arising worldwide. While the U.S. economy rebounded sharply in the second half of 2014, the flight-to-quality trade into the longer dated U.S. Treasury bonds dominated the bond market. Our defensive positions in the Portfolio and our short duration relative to our benchmark led to the Portfolio underperforming both its benchmark and Lipper peer group during this major market move.
The International Monetary Fund has significantly lowered its global growth projections for 2015. The expected better economic growth in the U.S., while still rather anemic, is one of the few bright spots in their forecasts. This led to a flattening of the U.S. Treasury yield curve over the last months of the year. In the fourth quarter of 2014 we began to shift to a barbell structure in the Portfolio to take advantage of this yield curve flattening.
Global weakness has led to an increased flight-to-quality trade and helped lower the yields on the long end of the U.S. Treasury curve. The strength in our domestic economy and improvement in our job market has led the Fed to contemplate raising U.S. short-term interest rates in 2015. While the 10-year Treasury rallied over 80 basis points for fiscal year 2014, the yield on the two-year Treasury sold off nearly 30 basis points. The five-year Treasury remained relatively flat over the same time period. We think the dynamics leading to this flatter yield curve will be with us well into next year.
The Fed officially ended QE3 in December. The focus now is on the timing of the first fed funds rate increase next year. The current expectation is for a 25 basis point rate increase in June or July of 2015. However, this date is very data dependent. Given the strong revision to third quarter gross domestic product (GDP) growth and what looks like a fairly strong fourth quarter, the June start date for Fed tightening seems to be firmly in place. If U.S. economic growth in early 2015 is brought down by the extreme weakness in Europe and the emerging markets, then the lift off date for Fed tightening could be delayed.
The dramatic collapse in the price of oil has had both negative and positive effects to U.S. economic growth. States whose economies are dependent on oil exploration and production could easily fall into a recession in 2015. States who are net consumers of oil have already begun to see a very positive effect of lower oil prices. The cost of gasoline has declined to half of where it was a year ago. This has the very real effect of increasing the buying power of U.S. consumers. We believe that consumer spending, excluding gasoline, should continue to be robust going into 2015.
Even as the Fed begins to raise the fed funds rate, we believe the strong flight-to-quality trade should continue to keep Treasury yields at the long end relatively low. We have been overweight corporates over the last few years and plan to continue this overweight position as we move into 2015. With economic conditions improving in the U.S., we should see relatively stable corporate bond spreads on investment-grade bonds. The new normal appears to be significantly less net new issuance of mortgage-backed securities. As a result, mortgage spreads continue to be tight. Our mortgage holdings are structured to experience less extension risk during periods of rising interest rates.
During the fourth quarter we saw another dramatic rally at the long end of the Treasury bond market. Continued weakness in Europe, and a dramatic sell-off in emerging market bonds, led to a strong flight-to-quality trade into the Treasury market. As we move forward in a very unpredictable market the elevated level of volatility seen over the last few years could easily persist. With the short end of the yield curve anchored by the low fed funds rate, we expect to see continued volatility in the middle and longer end of the curve. Even slight changes in the U.S. economic outlook can have significant short-term effects on longer duration securities.
While the Fed still appears to be willing to keep rates low for a long time, they have indicated a growing desire to begin to normalize monetary policy. They have indicated the risk of higher inflation is less of a concern than the threat of renewed economic weakness. The Portfolio’s duration is currently neutral its benchmark duration and we expect to maintain this position going into 2015. We anticipate continued demand for spread product within the high-grade bond market. We are willing to take additional credit risk when we believe we are being compensated to do so.
Past performance is no guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. These and other risks are more fully described in the Portfolio’s prospectus.
Certain U.S. government securities in which the Portfolio may invest, such as Treasury securities and securities issued by the Government National Mortgage Association (Ginnie Mae), are backed by the full faith and credit of the U.S. government. However, other U.S. government securities in which the Portfolio may invest, such as securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks (FHLB) are not backed by the full faith and credit of the U.S. government, are not insured or guaranteed by the U.S. government and, instead, may be supported only by the right of the issuer to borrow from the U.S. Treasury or by the credit of the issuer.
Fixed income securities are subject to interest rate risk and, as such, the net asset value of the Portfolio may fall as interest rates rise. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Limited Term Bond.
PORTFOLIO HIGHLIGHTS
Limited-Term Bond | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Bonds | | | 93.8% | |
Corporate Debt Securities | | | 78.4% | |
United States Government and Government Agency Obligations | | | 15.4% | |
Cash and Cash Equivalents | | | 6.2% | |
Quality Weightings
| | | | |
Investment Grade | | | 91.3% | |
AA | | | 24.2% | |
A | | | 30.4% | |
BBB | | | 36.7% | |
Non-Investment Grade | | | 2.5% | |
BB | | | 0.5% | |
B | | | 0.7% | |
Non-rated | | | 1.3% | |
Cash and Cash Equivalents | | | 6.2% | |
Our preference is to always use ratings obtained from Standard & Poor’s. For securities not rated by Standard & Poor’s, ratings are obtained from Moody’s. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Limited-Term Bond | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 0.97% | |
5-year period ended 12-31-14 | | | — | |
10-year period ended 12-31-14 | | | — | |
Since inception of Portfolio(3) through 12-31-14 | | | 1.39% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (3) | 8-23-10 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Limited-Term Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES | | Principal | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 0.5% | |
Limited Brands, Inc.,
8.500%, 6-15-19 | | $ | 2,000 | | | $ | 2,370 | |
| | | | | | | | |
| |
Apparel, Accessories & Luxury
Goods – 0.9% | |
LVMH Moet Hennessy – Louis Vuitton,
1.625%,
6-29-17 (A) | | | 4,000 | | | | 4,003 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 0.5% | |
BorgWarner Automotive, Inc.,
8.000%, 10-1-19 | | | 2,000 | | | | 2,428 | |
| | | | | | | | |
| |
Automobile Manufacturers – 2.5% | |
General Motors Co.:
3.500%, 10-2-18 | | | 2,296 | | | | 2,342 | |
4.875%, 10-2-23 | | | 3,500 | | | | 3,745 | |
Toyota Motor Credit Corp.:
2.000%, 9-15-16 | | | 1,750 | | | | 1,782 | |
2.000%, 10-24-18 | | | 4,000 | | | | 4,039 | |
| | | | | | | | |
| | | | | | | 11,908 | |
| | | | | | | | |
| |
Automotive Retail – 0.7% | |
AutoZone, Inc.,
1.300%, 1-13-17 | | | 3,500 | | | | 3,487 | |
| | | | | | | | |
| |
Broadcasting – 0.9% | |
CBS Corp.,
7.625%, 1-15-16 | | | 1,000 | | | | 1,068 | |
CBS Corp. (GTD by CBS Operations, Inc.),
2.300%, 8-15-19 | | | 3,345 | | | | 3,305 | |
| | | | | | | | |
| | | | | | | 4,373 | |
| | | | | | | | |
| |
Cable & Satellite – 2.4% | |
DIRECTV Holdings LLC and DIRECTV Financing Co., Inc.:
| | | | | | | | |
5.875%, 10-1-19 | | | 2,592 | | | | 2,965 | |
3.950%, 1-15-25 | | | 1,245 | | | | 1,255 | |
Lender Processing Services, Inc. and Black Knight Lending Solutions, Inc., 5.750%, 4-15-23 | | | 1,654 | | | | 1,737 | |
TCI Communications, Inc.,
8.750%, 8-1-15 | | | 1,415 | | | | 1,480 | |
Time Warner Co., Inc. (GTD by Time Warner, Inc.),
7.250%,
10-15-17 | | | 3,337 | | | | 3,824 | |
| | | | | | | | |
| | | | | | | 11,261 | |
| | | | | | | | |
| |
Department Stores – 0.2% | |
Macy’s Retail Holdings, Inc.,
7.450%, 7-15-17 | | | 1,000 | | | | 1,137 | |
| | | | | | | | |
| |
Education Services – 0.6% | |
Cornell University,
5.450%, 2-1-19 | | | 2,500 | | | | 2,838 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
General Merchandise Stores – 0.9% | |
Dollar General Corp.,
4.125%, 7-15-17 | | $ | 4,000 | | | $ | 4,126 | |
| | | | | | | | |
| |
Home Improvement Retail – 0.4% | |
Lowe’s Co., Inc.,
2.125%, 4-15-16 | | | 2,000 | | | | 2,033 | |
| | | | | | | | |
| |
Internet Retail – 0.8% | |
Amazon.com, Inc.,
3.800%, 12-5-24 | | | 3,520 | | | | 3,606 | |
| | | | | | | | |
| |
Leisure Products – 0.2% | |
Mattel, Inc.,
2.500%, 11-1-16 | | | 1,000 | | | | 1,021 | |
| | | | | | | | |
Total Consumer
Discretionary – 11.5% | | | | 54,591 | |
Consumer Staples | |
| |
Brewers – 1.9% | |
Anheuser-Busch InBev Worldwide, Inc. (GTD by AB INBEV/BBR/COB),
7.750%, 1-15-19 | | | 1,176 | | | | 1,424 | |
Heineken N.V.,
1.400%,
10-1-17 (A) | | | 2,000 | | | | 1,989 | |
International CCE, Inc.,
2.125%, 9-15-15 | | | 1,075 | | | | 1,086 | |
SABMiller Holdings, Inc., 1.850%,
1-15-15 (A) | | | 500 | | | | 500 | |
SABMiller plc,
6.500%, 7-15-18 (A) | | | 3,500 | | | | 3,996 | |
| | | | | | | | |
| | | | | | | 8,995 | |
| | | | | | | | |
| |
Distillers & Vintners – 1.5% | |
Beam, Inc.,
1.875%, 5-15-17 | | | 3,672 | | | | 3,687 | |
Diageo Capital plc,
5.750%,
10-23-17 | | | 3,000 | | | | 3,341 | |
| | | | | | | | |
| | | | | | | 7,028 | |
| | | | | | | | |
| |
Food Distributors – 1.9% | |
Bestfoods,
7.000%,
10-15-17 | | | 2,500 | | | | 2,851 | |
ConAgra Foods, Inc.: | | | | | | | | |
1.300%, 1-25-16 | | | 1,000 | | | | 1,000 | |
5.819%, 6-15-17 | | | 1,000 | | | | 1,095 | |
7.000%, 4-15-19 | | | 1,000 | | | | 1,165 | |
Wm. Wrigley Jr. Co.: | | | | | | | | |
2.000%, 10-20-17 (A) | | | 1,000 | | | | 1,007 | |
2.400%, 10-21-18 (A) | | | 2,000 | | | | 2,014 | |
| | | | | | | | |
| | | | | | | 9,132 | |
| | | | | | | | |
| |
Food Retail – 0.6% | |
Kroger Co. (The),
6.800%,
12-15-18 | | | 2,245 | | | | 2,618 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 0.4% | |
Tyson Foods, Inc. (GTD by Tyson Fresh Meats, Inc.),
2.650%, 8-15-19 | | | 2,000 | | | | 2,018 | |
| | | | | | | | |
| |
Total Consumer
Staples – 6.3% | | | | 29,791 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Energy | |
| |
Integrated Oil & Gas – 2.4% | |
Petro-Canada,
6.050%, 5-15-18 | | $ | 1,130 | | | $ | 1,271 | |
Phillips Petroleum Co.,
6.650%, 7-15-18 | | | 3,000 | | | | 3,464 | |
Shell International Finance B.V.,
4.300%, 9-22-19 | | | 2,625 | | | | 2,881 | |
Statoil ASA (GTD by Statoil Petroleum AS),
1.950%, 11-8-18 | | | 1,500 | | | | 1,500 | |
Suncor Energy, Inc.,
6.100%, 6-1-18 | | | 2,000 | | | | 2,243 | |
| | | | | | | | |
| | | | | | | 11,359 | |
| | | | | | | | |
| |
Oil & Gas Equipment &
Services – 1.3% | |
Enterprise Products Operating LLC (GTD by Enterprise Products Partners L.P.),
6.500%, 1-31-19 | | | 3,000 | | | | 3,439 | |
Schlumberger Investment S.A. (GTD by Schlumberger Ltd.),
1.950%,
9-14-16 (A) | | | 1,000 | | | | 1,018 | |
Schlumberger Norge A.S., 1.250%,
8-1-17 (A) | | | 1,500 | | | | 1,496 | |
| | | | | | | | |
| | | | | | | 5,953 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 3.9% | |
BP Capital Markets plc (GTD by BP plc),
2.241%, 9-26-18 | | | 3,000 | | | | 3,009 | |
ConocoPhillips Co. (GTD by ConocoPhillips),
3.350%,
11-15-24 | | | 3,750 | | | | 3,789 | |
EQT Corp.,
8.125%, 6-1-19 | | | 3,900 | | | | 4,702 | |
Marathon Oil Corp.,
0.900%, 11-1-15 | | | 2,000 | | | | 1,994 | |
Plains Exploration & Production Co.: | | | | | | | | |
6.125%, 6-15-19 | | | 1,240 | | | | 1,342 | |
6.875%, 2-15-23 | | | 3,427 | | | | 3,813 | |
| | | | | | | | |
| | | | | | | 18,649 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 2.3% | |
Copano Energy LLC and Copano Energy Finance Corp.,
7.125%, 4-1-21 | | | 995 | | | | 1,080 | |
DCP Midstream Operating L.P. (GTD by DCP Midstream Partners L.P.), 3.250%, 10-1-15 | | | 1,500 | | | | 1,522 | |
El Paso Corp.,
7.000%, 6-15-17 | | | 4,700 | | | | 5,182 | |
Kinder Morgan Energy Partners L.P.,
5.950%, 2-15-18 | | | 3,000 | | | | 3,312 | |
| | | | | | | | |
| | | | | | | 11,096 | |
| | | | | | | | |
| |
Total Energy – 9.9% | | | | 47,057 | |
SCHEDULE OF INVESTMENTS
Limited-Term Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Financials | |
| |
Asset Management & Custody
Banks – 0.8% | |
Ares Capital Corp.,
3.875%, 1-15-20 | | $ | 3,820 | | | $ | 3,809 | |
| | | | | | | | |
| |
Consumer Finance – 6.8% | |
American Express Co.,
7.000%,
3-19-18 | | | 3,000 | | | | 3,471 | |
American Express Credit Corp.,
1.300%, 7-29-16 | | | 1,500 | | | | 1,507 | |
American Honda Finance Corp.:
7.625%,
10-1-18 (A) | | | 1,000 | | | | 1,197 | |
2.125%,
10-10-18 | | | 3,000 | | | | 3,018 | |
Capital One Bank USA N.A.,
2.150%,
11-21-18 | | | 2,000 | | | | 1,990 | |
Capital One Financial Corp.,
6.750%,
9-15-17 | | | 1,000 | | | | 1,128 | |
Capital One N.A.,
2.400%, 9-5-19 | | | 1,000 | | | | 995 | |
Caterpillar Financial Services Corp.,
1.000%,
11-25-16 | | | 3,000 | | | | 3,003 | |
Discover Financial Services, 3.950%, 11-6-24 | | | 4,200 | | | | 4,222 | |
Ford Motor Credit Co. LLC: 1.500%, 1-17-17 | | | 1,000 | | | | 995 | |
5.000%, 5-15-18 | | | 3,626 | | | | 3,940 | |
General Motors Financial Co., Inc. (GTD by AmeriCredit Financial Services, Inc.),
3.500%, 7-10-19 | | | 1,300 | | | | 1,327 | |
Hyundai Capital America: 1.875%,
8-9-16 (A) | | | 1,000 | | | | 1,007 | |
2.875%,
8-9-18 (A) | | | 1,000 | | | | 1,020 | |
Western Union Co. (The),
5.930%, 10-1-16 | | | 3,000 | | | | 3,222 | |
| | | | | | | | |
| | | | | | | 32,042 | |
| | | | | | | | |
| |
Diversified Banks – 5.1% | |
Bank of America Corp.:
5.650%, 5-1-18 | | | 1,000 | | | | 1,111 | |
2.600%, 1-15-19 | | | 2,000 | | | | 2,015 | |
Bank of New York Mellon Corp. (The),
2.300%, 9-11-19 | | | 3,550 | | | | 3,567 | |
Bank of Nova Scotia (The): 2.050%,
10-30-18 | | | 2,500 | | | | 2,503 | |
2.050%, 6-5-19 | | | 2,500 | | | | 2,491 | |
Bear Stearns Co., Inc. (The),
6.400%, 10-2-17 | | | 2,000 | | | | 2,240 | |
Commonwealth Bank of Australia:
1.950%, 3-16-15 | | | 1,000 | | | | 1,003 | |
2.250%, 3-13-19 | | | 2,500 | | | | 2,512 | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Diversified Banks (Continued) | |
HSBC Bank plc,
3.100%,
5-24-16 (A) | | $ | 1,000 | | | $ | 1,033 | |
U.S. Bancorp,
2.200%,
11-15-16 | | | 1,000 | | | | 1,021 | |
Wachovia Corp.,
5.750%, 2-1-18 | | | 1,500 | | | | 1,680 | |
Wells Fargo & Co.:
2.150%, 1-15-19 | | | 2,000 | | | | 2,005 | |
2.125%, 4-22-19 | | | 1,000 | | | | 1,000 | |
| | | | | | | | |
| | | | | | | 24,181 | |
| | | | | | | | |
| |
Investment Banking &
Brokerage – 1.4% | |
Goldman Sachs Group, Inc. (The),
3.700%, 8-1-15 | | | 1,000 | | | | 1,016 | |
Morgan Stanley:
6.000%, 4-28-15 | | | 2,000 | | | | 2,033 | |
5.625%, 9-23-19 | | | 3,000 | | | | 3,386 | |
| | | | | | | | |
| | | | | | | 6,435 | |
| | | | | | | | |
| |
Life & Health Insurance – 2.8% | |
Aflac, Inc.:
8.500%, 5-15-19 | | | 2,917 | | | | 3,645 | |
3.625%,
11-15-24 | | | 3,250 | | | | 3,314 | |
MetLife, Inc.:
5.000%, 6-15-15 | | | 1,553 | | | | 1,583 | |
6.817%, 8-15-18 | | | 3,058 | | | | 3,558 | |
Prudential Financial, Inc., 4.750%, 9-17-15 | | | 1,000 | | | | 1,026 | |
| | | | | | | | |
| | | | | | | 13,126 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 3.3% | |
Citigroup, Inc.,
2.550%, 4-8-19 | | | 3,000 | | | | 3,020 | |
Daimler Finance North America LLC,
1.300%,
7-31-15 (A) | | | 1,760 | | | | 1,767 | |
Fidelity National Financial, Inc.,
6.600%, 5-15-17 | | | 1,000 | | | | 1,100 | |
John Deere Capital Corp.,
1.200%,
10-10-17 | | | 1,000 | | | | 994 | |
JPMorgan Chase & Co.,
6.000%, 1-15-18 | | | 3,316 | | | | 3,710 | |
Moody’s Corp.,
2.750%, 7-15-19 | | | 1,050 | | | | 1,059 | |
TIAA Asset Management Finance Co. LLC,
2.950%,
11-1-19 (A) | | | 4,000 | | | | 4,008 | |
| | | | | | | | |
| | | | | | | 15,658 | |
| | | | | | | | |
| |
Property & Casualty Insurance – 0.8% | |
Berkshire Hathaway, Inc., 2.100%, 8-14-19 | | | 4,000 | | | | 4,025 | |
| | | | | | | | |
| |
Regional Banks – 0.8% | |
PNC Bank N.A.,
1.300%, 10-3-16 | | | 2,000 | | | | 2,011 | |
PNC Funding Corp. (GTD by PNC Financial Services Group, Inc.),
6.700%, 6-10-19 | | | 1,447 | | | | 1,713 | |
| | | | | | | | |
| | | | | | | 3,724 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Specialized REITs – 0.0% | |
Crown Castle International Corp.,
5.250%,
1-15-23 | | $ | 200 | | | $ | 204 | |
| | | | | | | | |
| |
Total Financials – 21.8% | | | | 103,204 | |
Health Care | |
| |
Biotechnology – 0.0% | |
Amgen, Inc.,
6.150%,
6-1-18 | | | 102 | | | | 116 | |
| | | | | | | | |
| |
Health Care Equipment – 1.6% | |
Medtronic, Inc.,
3.500%,
3-15-25 (A) | | | 4,295 | | | | 4,394 | |
Stryker Corp.:
2.000%,
9-30-16 | | | 1,772 | | | | 1,801 | |
4.375%,
1-15-20 | | | 1,400 | | | | 1,497 | |
| | | | | | | | |
| | | | | | | 7,692 | |
| | | | | | | | |
| |
Health Care Services – 1.7% | |
Medco Health Solutions, Inc.,
7.125%,
3-15-18 | | | 3,100 | | | | 3,579 | |
Quest Diagnostics, Inc.:
3.200%,
4-1-16 | | | 1,000 | | | | 1,025 | |
6.400%,
7-1-17 | | | 3,000 | | | | 3,340 | |
| | | | | | | | |
| | | | | | | 7,944 | |
| | | | | | | | |
| |
Health Care Supplies – 1.9% | |
Cardinal Health, Inc.,
3.500%,
11-15-24 | | | 3,775 | | | | 3,764 | |
Catholic Health Initiatives, 2.600%,
8-1-18 | | | 3,000 | | | | 3,039 | |
DENTSPLY International, Inc.,
2.750%,
8-15-16 | | | 1,000 | | | | 1,022 | |
Express Scripts, Inc.,
7.250%,
6-15-19 | | | 1,000 | | | | 1,201 | |
| | | | | | | | |
| | | | | | | 9,026 | |
| | | | | | | | |
| |
Pharmaceuticals – 2.7% | |
AbbVie, Inc.,
1.200%,
11-6-15 | | | 1,500 | | | | 1,504 | |
Merck Sharp & Dohme Corp.,
5.000%,
6-30-19 | | | 3,000 | | | | 3,387 | |
Mylan, Inc.,
7.875%,
7-15-20 (A) | | | 4,500 | | | | 4,793 | |
Roche Holdings, Inc.,
6.000%,
3-1-19 (A) | | | 2,612 | | | | 3,017 | |
| | | | | | | | |
| | | | | | | 12,701 | |
| | | | | | | | |
| |
Total Health Care – 7.9% | | | | 37,479 | |
SCHEDULE OF INVESTMENTS
Limited-Term Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Industrials | |
| |
Air Freight & Logistics – 0.6% | |
FedEx Corp.,
8.000%,
1-15-19 | | $ | 2,252 | | | $ | 2,742 | |
| | | | | | | | |
| |
Airlines – 0.5% | |
Southwest Airlines Co.,
5.125%,
3-1-17 | | | 2,263 | | | | 2,424 | |
| | | | | | | | |
Construction Machinery & Heavy Trucks – 1.0% | |
Joy Global, Inc.,
6.000%,
11-15-16 | | | 4,500 | | | | 4,862 | |
| | | | | | | | |
| |
Environmental & Facilities
Services – 1.9% | |
Republic Services, Inc.,
3.800%, 5-15-18 | | | 4,000 | | | | 4,232 | |
Waste Management, Inc.,
6.100%, 3-15-18 | | | 1,000 | | | | 1,132 | |
Waste Management, Inc. (GTD by Waste Management Holdings, Inc.),
7.375%, 3-11-19 | | | 3,128 | | | | 3,780 | |
| | | | | | | | |
| | | | | | | 9,144 | |
| | | | | | | | |
| |
Industrial Conglomerates – 1.7% | |
Danaher Corp.,
5.400%, 3-1-19 | | | 3,750 | | | | 4,227 | |
General Electric Capital Corp.,
5.625%, 5-1-18 | | | 3,500 | | | | 3,938 | |
| | | | | | | | |
| | | | | | | 8,165 | |
| | | | | | | | |
| |
Railroads – 1.7% | |
Burlington Northern Santa Fe Corp.,
5.750%, 3-15-18 | | | 4,500 | | | | 5,044 | |
Union Pacific Corp.,
2.250%, 2-15-19 | | | 3,000 | | | | 3,038 | |
| | | | | | | | |
| | | | | | | 8,082 | |
| | | | | | | | |
| |
Trading Companies &
Distributors – 0.7% | |
HD Supply, Inc.,
5.250%,
12-15-21 (A) | | | 3,054 | | | | 3,107 | |
| | | | | | | | |
| |
Trucking – 1.3% | |
Penske Truck Leasing Co. L.P.,
2.500%,
3-15-16 (A) | | | 4,000 | | | | 4,056 | |
Ryder System, Inc.,
2.450%,
11-15-18 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| | | | | | | 6,056 | |
| | | | | | | | |
Total Industrials – 9.4% | | | | 44,582 | |
Information Technology | |
| |
Data Processing & Outsourced Services – 1.3% | |
Alliance Data Systems Corp.: | | | | | | | | |
5.250%,
12-1-17 (A) | | | 3,000 | | | | 3,090 | |
6.375%,
4-1-20 (A) | | | 1,000 | | | | 1,023 | |
5.375%,
8-1-22 (A) | | | 1,924 | | | | 1,900 | |
| | | | | | | | |
| | | | | | | 6,013 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Electronic Manufacturing Services – 0.2% | |
Jabil Circuit, Inc.,
7.750%,
7-15-16 | | $ | 1,000 | | | $ | 1,071 | |
| | | | | | | | |
| |
Internet Software & Services – 0.6% | |
Alibaba Group Holdings Ltd.,
3.600%,
11-28-24 (A) | | | 3,110 | | | | 3,085 | |
| | | | | | | | |
Semiconductors – 0.2% | |
Broadcom Corp.,
2.700%,
11-1-18 | | | 1,000 | | | | 1,024 | |
| | | | | | | | |
| |
Systems Software – 0.9% | |
CA, Inc.,
5.375%,
12-1-19 | | | 3,645 | | | | 4,034 | |
| | | | | | | | |
Total Information
Technology – 3.2% | | | | 15,227 | |
Materials | |
| |
Diversified Chemicals – 1.1% | |
Dow Chemical Co. (The): | | | | | | | | |
8.550%,
5-15-19 | | | 3,160 | | | | 3,928 | |
4.250%,
11-15-20 | | | 1,168 | | | | 1,249 | |
| | | | | | | | |
| | | | | | | 5,177 | |
| | | | | | | | |
| |
Diversified Metals & Mining – 0.3% | |
Rio Tinto Finance (USA) Ltd.,
2.250%,
9-20-16 | | | 1,500 | | | | 1,528 | |
| | | | | | | | |
| |
Fertilizers & Agricultural
Chemicals – 0.9% | |
Potash Corp. of Saskatchewan, Inc.,
6.500%,
5-15-19 | | | 3,570 | | | | 4,167 | |
| | | | | | | | |
| |
Forest Products – 0.2% | |
Georgia-Pacific LLC,
5.400%,
11-1-20 (A) | | | 1,000 | | | | 1,125 | |
| | | | | | | | |
| |
Metal & Glass Containers – 0.2% | |
FBG Finance Ltd.,
7.875%,
6-1-16 (A) | | | 1,000 | | | | 1,093 | |
| | | | | | | | |
| |
Specialty Chemicals – 1.2% | |
Methanex Corp.,
3.250%,
12-15-19 | | | 5,500 | | | | 5,454 | |
| | | | | | | | |
Total Materials – 3.9% | | | | 18,544 | |
Telecommunication Services | |
| |
Integrated Telecommunication Services – 0.8% | |
CC Holdings GS V LLC,
2.381%,
12-15-17 | | | 1,000 | | | | 1,009 | |
Verizon Communications, Inc.,
6.350%, 4-1-19 | | | 2,455 | | | | 2,845 | |
| | | | | | | | |
| | | | | | | 3,854 | |
| | | | | | | | |
| | | | | | | | |
CORPORATE DEBT
SECURITIES (Continued) | | Principal | | | Value | |
Wireless Telecommunication
Service – 0.9% | |
America Movil S.A.B. de C.V.,
5.000%,
3-30-20 | | $ | 729 | | | $ | 804 | |
American Tower Corp.: | | | | | | | | |
7.000%,
10-15-17 | | | 2,000 | | | | 2,258 | |
5.900%,
11-1-21 | | | 1,000 | | | | 1,126 | |
| | | | | | | | |
| | | | | | | 4,188 | |
| | | | | | | | |
Total Telecommunication
Services – 1.7% | | | | 8,042 | |
Utilities | |
| |
Electric Utilities – 2.1% | |
Kansas City Power & Light Co.,
7.150%,
4-1-19 | | | 3,590 | | | | 4,301 | |
PacifiCorp,
5.500%,
1-15-19 | | | 2,100 | | | | 2,373 | |
Southern Co. (The),
2.150%,
9-1-19 | | | 3,175 | | | | 3,154 | |
| | | | | | | | |
| | | | | | | 9,828 | |
| | | | | | | | |
| |
Multi-Utilities – 0.7% | |
Dominion Resources, Inc.,
6.400%,
6-15-18 | | | 3,000 | | | | 3,425 | |
| | | | | | | | |
Total Utilities – 2.8% | | | | 13,253 | |
| |
TOTAL CORPORATE DEBT SECURITIES – 78.4% | | | $ | 371,770 | |
(Cost: $370,309) | | | | | | | | |
| | |
UNITED STATES
GOVERNMENT AGENCY
OBLIGATIONS | | | | | | |
Agency Obligations – 2.2% | |
Federal National Mortgage Association: | | | | | | | | |
2.000%,
12-30-15 | | | 1,000 | | | | 1,017 | |
5.450%,
10-18-21 | | | 4,640 | | | | 5,003 | |
Ukraine Government AID Bond,
1.844%,
5-16-19 | | | 4,500 | | | | 4,530 | |
| | | | | | | | |
| | | | | | | 10,550 | |
| | | | | | | | |
| |
Mortgage-Backed Obligations – 12.2% | |
Federal Home Loan Mortgage Corp. Agency REMIC/CMO: | | | | | | | | |
4.000%,
6-15-26 | | | 4,567 | | | | 4,899 | |
2.500%,
12-15-41 | | | 2,054 | | | | 2,061 | |
Federal Home Loan Mortgage Corp. Fixed Rate Pass-Through Certificates: | | | | | | | | |
3.000%,
8-1-28 | | | 4,589 | | | | 4,757 | |
3.000%,
9-1-28 | | | 4,468 | | | | 4,643 | |
3.500%,
10-1-28 | | | 4,999 | | | | 5,275 | |
SCHEDULE OF INVESTMENTS
Limited-Term Bond (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
UNITED STATES
GOVERNMENT AGENCY
OBLIGATIONS
(Continued) | | Principal | | | Value | |
Federal National Mortgage Association Agency REMIC/CMO: | | | | | | | | |
3.000%,
2-25-25 | | $ | 2,716 | | | $ | 2,823 | |
2.000%,
4-25-39 | | | 1,638 | | | | 1,612 | |
4.000%,
5-25-39 | | | 1,520 | | | | 1,579 | |
3.000%,
11-25-39 | | | 361 | | | | 367 | |
Federal National Mortgage Association Fixed Rate Pass-Through Certificates: | | | | | | | | |
4.580%, 6-1-19 | | | 3,674 | | | | 4,049 | |
3.680%, 2-1-21 | | | 1,630 | | | | 1,698 | |
4.380%, 6-1-21 | | | 1,860 | | | | 2,076 | |
5.500%,
10-1-21 | | | 1,091 | | | | 1,193 | |
5.500%,
11-1-22 | | | 399 | | | | 437 | |
3.000%, 7-1-28 | | | 4,436 | | | | 4,611 | |
3.000%, 9-1-28 | | | 2,382 | | | | 2,470 | |
4.000%, 12-1-31 | | | 3,784 | | | | 4,079 | |
4.000%, 10-1-43 | | | 5,039 | | | | 5,403 | |
Government National Mortgage Association Agency REMIC/CMO: | | | | | | | | |
2.500%, 9-20-40 | | | 1,910 | | | | 1,936 | |
2.000%, 3-16-42 | | | 2,017 | | | | 1,970 | |
| | | | | | | | |
| | | | | | | 57,938 | |
| | | | | | | | |
| | | | | | | | |
UNITED STATES
GOVERNMENT
OBLIGATIONS
(Continued) | | Principal | | | Value | |
| |
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS – 14.4% | | | $ | 68,488 | |
(Cost: $68,074) | | | | | | | | |
| |
UNITED STATES GOVERNMENT OBLIGATIONS | | | | | |
Treasury Obligations – 1.0% | |
U.S. Treasury Notes,
0.750%,
10-31-17 | | $ | 5,000 | | | | 4,958 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS – 1.0% | | | $ | 4,958 | |
(Cost: $5,006) | | | | | | | | |
| |
SHORT-TERM SECURITIES | | | | | |
Commercial Paper (B) – 4.6% | |
BorgWarner, Inc.,
0.350%,
1-16-15 | | | 5,000 | | | | 4,999 | |
Illinois Tool Works, Inc.,
0.100%,
1-7-15 | | | 6,023 | | | | 6,023 | |
| | | | | | | | |
SHORT-TERM
SECURITIES
(Continued) | | Principal | | | Value | |
Commercial Paper (B) (Continued) | |
Kellogg Co.,
0.290%,
1-12-15 | | $ | 7,000 | | | $ | 6,999 | |
Wal-Mart Stores, Inc.,
0.090%,
1-13-15 | | | 4,000 | | | | 4,000 | |
| | | | | | | | |
| | | | | | | 22,021 | |
| | | | | | | | |
Master Note – 0.7% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (C) | | | 3,157 | | | | 3,157 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 5.3% | | | $ | 25,178 | |
(Cost: $25,179) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 99.1% | | | $ | 470,394 | |
(Cost: $468,568) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.9% | | | | 4,043 | |
| |
NET ASSETS – 100.0% | | | $ | 474,437 | |
Notes to Schedule of Investments
| (A) | Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2014 the total value of these securities amounted to $56,738 or 12.0% of net assets. |
| (B) | Rate shown is the yield to maturity at December 31, 2014. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Corporate Debt Securities | | $ | — | | | $ | 370,033 | | | $ | 1,737 | |
United States Government Agency Obligations | | | — | | | | 68,488 | | | | — | |
United States Government Obligations | | | — | | | | 4,958 | | | | — | |
Short-Term Securities | | | — | | | | 25,178 | | | | — | |
| | | | |
Total | | $ | — | | | $ | 468,657 | | | $ | 1,737 | |
| | | | |
During the period ended December 31, 2014, there were no transfers between any levels.
The following acronyms are used throughout this schedule:
AID = Agency International Development
CMO = Collateralized Mortgage Obligation
GTD = Guaranteed
REITS = Real Estate Investment Trusts
REMIC = Real Estate Mortgage Investment Conduit
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Micro Cap Growth | (UNAUDITED) |
Paul J. Ariano
Paul K. LeCoq
Luke Jacobson
Alexis C. Waadt
Ivy Funds VIP Micro Cap Growth is subadvised by Wall Street Associates (WSA). The WSA Investment Team is primarily responsible for the day-to-day management of the Portfolio. The WSA Investment Team consists of Paul J. Ariano, CFA, Paul K. LeCoq, Luke A. Jacobson, CFA, and Alexis C. Waadt. They each have co-managed the Portfolio since its inception in January 2005, except Mr. Jacobson who became a co-manager in January 2012 and Ms. Waadt who became a co-manager in January 2013.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Micro Cap Growth | | | –1.74% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell 2000 Growth Index | | | 5.60% | |
(generally reflects the performance of smaller company stocks) | | | | |
Russell Microcap Growth Index | | | 4.30% | |
(generally reflects the performance of stocks in the smallest category of publicly traded companies) | | | | |
Lipper Variable Annuity Small-Cap Growth Funds Universe Average | | | 3.41% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Multiple indexes are shown because the Portfolio’s management team expects to typically invest in companies within a wider range of market capitalization.
Key drivers
Equity markets proved to be volatile in 2014 amid concerns about quantitative easing tapering, subpar global economic growth, geopolitical instability and plummeting oil prices. Nevertheless, U.S. stocks produced solid gains in 2014, led by the larger capitalization, slower growth issues. Smaller-cap issues experienced quite a bumpy ride during the year, especially from the end of February through mid-May, as investors violently rotated away from stocks that were small in size as well as those with high growth characteristics. Technology and health care (biotech) issues were hit particularly hard during this period, although the groups rallied back from correction territory later in the period. Small-cap stocks rallied into the end of 2014 on improving economic news, however it was not enough to catch up to the double-digit returns posted by their large-cap counterparts.
Performance for U.S. equities was linear in 2014. Large caps produced the greatest returns while micro caps struggled to get into positive territory. Within the benchmark Russell 2000 Growth Index, stocks with a float-adjusted market cap of re than $1 billion gained 6.7% while those under $250 million in capitalization fell 8.5% for the year. High-growth stocks with earning per share less than 20% were essentially flat on the year while slow-growth stocks with earnings per share greater than 10% gained. The Portfolio’s strategy is to invest in stocks with float-adjusted market cap of less than $1 billion.
Contributors and detractors
The Portfolio underperformed both the Russell 2000 Growth Index and the Russell Microcap Growth Index for the 12-month period ended December 31, 2014.
Energy stocks were the worst performing group for the year, declining amid falling commodity prices. The Portfolio had a market-weight position to the sector and limited exposure to oil-related groups; however, the entire sector sold off dramatically in tandem with oil prices. Consumer discretionary stocks produced lackluster results, as did industrials, particularly those peripherally related to energy companies. Technology companies were a drag on Portfolio relative performance for the year as micro-cap technology companies significantly lagged the larger issues within the benchmarks. Health care stocks shook off the sell-off in first and second quarters and became the best performing sector in 2014, led by biotech and pharmaceutical companies. The Portfolio benefitted from an over-weighted position in both groups.
The Portfolio is currently overweight the health care sector, including pharmaceuticals, biotechnology and medical instruments. The Portfolio has a market weighting in the technology sector (underweight semiconductors and overweight software) as well as the consumer discretionary sector. Going forward, we expect the consumer group will benefit from low oil/gas prices and easy comparisons versus results from the winter of 2014; however, we are being quite selective in the group and are avoiding the traditional mall-based retailers. The Portfolio has a market weight to the energy sector, although investments are geared more toward solar and energy technologies versus oil-related companies. The Portfolio is underweight the materials and financials sectors.
In summary, 2014 was a tough environment for micro-cap stocks. The driving force behind the Portfolio’s performance was caused by the size and high-growth characteristics of the portfolio, which were definitely not favored during the year.
Outlook
America’s economy is faring well compared with the rest of the world, and there appears to be no recession in sight. Labor costs have become more competitive, unemployment rates are trending down, energy costs have declined and cyclical areas of the economy have picked up. Consumer confidence, corporate profits, housing activity, auto sales and bank loan activity have all improved. Corporate balance sheets appear strong and the biggest U.S. banks have raised capital. Although the Federal Reserve is in the process of shifting its monetary policy stance, it remains committed to making broader financial conditions accommodative and supportive of economic growth.
The building blocks for strong and sustained U.S. economic growth are in place — slack labor, available capital and revolutionary technologies – so we believe the economy is on its way toward a self-sustained recovery. Many headwinds still persist (fragile investor confidence, subpar global economic growth, global instability, China/Europe economic slowdowns, et al.) and so this continues to be a challenging investment climate where stock selection and active risk management are extremely important.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment
Investing in micro-cap stocks may carry more risk than investing in stocks of larger, more established companies. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Micro Cap Growth.
PORTFOLIO HIGHLIGHTS
Micro Cap Growth | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 97.8% | |
Health Care | | | 32.2% | |
Information Technology | | | 18.4% | |
Consumer Discretionary | | | 17.2% | |
Industrials | | | 13.7% | |
Financials | | | 5.8% | |
Consumer Staples | | | 5.1% | |
Energy | | | 2.8% | |
Telecommunication Services | | | 2.6% | |
Cash and Cash Equivalents | | | 2.2% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Auspex Pharmaceuticals, Inc. | | Health Care | | Biotechnology |
Callidus Software, Inc. | | Information Technology | | Application Software |
Rentrak Corp. | | Consumer Discretionary | | Movies & Entertainment |
Quidel Corp. | | Health Care | | Health Care Supplies |
Enanta Pharmaceuticals, Inc. | | Health Care | | Biotechnology |
Aerie Pharmaceuticals, Inc. | | Health Care | | Pharmaceuticals |
TubeMogul, Inc. | | Information Technology | | Systems Software |
ARC Document Solutions, Inc. | | Industrials | | Office Services & Supplies |
Repligen Corp. | | Health Care | | Biotechnology |
Build-A-Bear Workshop, Inc. | | Consumer Discretionary | | Specialty Stores |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Micro Cap Growth | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | -1.74% | |
5-year period ended 12-31-14 | | | 17.75% | |
10-year period ended 12-31-14 | | | 9.16% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Micro Cap Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 0.8% | |
Christopher & Banks Corp. (A) | | | 95 | | | $ | 544 | |
| | | | | | | | |
| |
Apparel, Accessories & Luxury
Goods – 1.0% | |
Movado Group, Inc. | | | 26 | | | | 735 | |
| | | | | | | | |
| |
Broadcasting – 0.7% | |
Entravision Communications Corp. | | | 77 | | | | 500 | |
| | | | | | | | |
| |
Education Services – 1.3% | |
2U, Inc. (A) | | | 47 | | | | 920 | |
| | | | | | | | |
| |
Homebuilding – 0.8% | |
M/I Homes, Inc. (A) | | | 24 | | | | 553 | |
| | | | | | | | |
| |
Homefurnishing Retail – 0.9% | |
Kirkland’s, Inc. (A) | | | 29 | | | | 683 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 0.6% | |
Morgans Hotel Group Co. (A) | | | 52 | | | | 406 | |
| | | | | | | | |
| |
Leisure Products – 3.3% | |
Arctic Cat, Inc. | | | 20 | | | | 692 | |
Malibu Boats, Inc.,
Class A (A) | | | 35 | | | | 674 | |
Nautilus Group, Inc. (The) (A) | | | 68 | | | | 1,028 | |
| | | | | | | | |
| | | | | | | 2,394 | |
| | | | | | | | |
| |
Movies & Entertainment – 2.2% | |
Rentrak Corp. (A) | | | 21 | | | | 1,544 | |
| | | | | | | | |
| |
Restaurants – 4.2% | |
Dave & Buster’s Entertainment, Inc. (A) | | | 12 | | | | 322 | |
Del Frisco’s Restaurant Group, Inc. (A) | | | 38 | | | | 905 | |
Habit Restaurants, Inc. (The)
Class A (A) | | | 12 | | | | 401 | |
Red Robin Gourmet Burgers, Inc. (A) | | | 10 | | | | 739 | |
Zoe’s Kitchen, Inc. (A) | | | 23 | | | | 676 | |
| | | | | | | | |
| | | | | | | 3,043 | |
| | | | | | | | |
| |
Specialty Stores – 1.4% | |
Build-A-Bear Workshop, Inc. (A) | | | 52 | | | | 1,037 | |
| | | | | | | | |
| |
Total Consumer
Discretionary –17.2% | | | | 12,359 | |
Consumer Staples | |
| |
Food Distributors – 0.7% | |
Chefs’ Warehouse Holdings LLC (The) (A) | | | 22 | | | | 500 | |
| | | | | | | | |
| |
Food Retail – 1.4% | |
Natural Grocers by Vitamin Cottage, Inc. (A) | | | 36 | | | | 1,000 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Packaged Foods & Meats – 0.9% | |
Inventure Foods, Inc. (A) | | | 47 | | | $ | 604 | |
| | | | | | | | |
| |
Personal Products – 2.1% | |
IGI Laboratories, Inc. (A) | | | 71 | | | | 622 | |
Inter Parfums, Inc. | | | 33 | | | | 909 | |
| | | | | | | | |
| | | | | | | 1,531 | |
| | | | | | | | |
| |
Total Consumer
Staples – 5.1% | | | | 3,635 | |
Energy | |
| |
Oil & Gas Drilling – 0.4% | |
Pioneer Drilling Co. (A) | | | 55 | | | | 304 | |
| | | | | | | | |
| |
Oil & Gas Equipment &
Services – 2.1% | |
Basic Energy Services, Inc. (A) | | | 31 | | | | 219 | |
RigNet, Inc. (A) | | | 18 | | | | 742 | |
Willbros Group, Inc. (A) | | | 86 | | | | 540 | |
| | | | | | | | |
| | | | | | | 1,501 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 0.3% | |
Triangle Petroleum Corp. (A) | | | 43 | | | | 207 | |
| | | | | | | | |
| |
Total Energy – 2.8% | | | | 2,012 | |
Financials | |
| |
Asset Management & Custody
Banks – 1.7% | |
Actua Corp. (A) | | | 36 | | | | 665 | |
Hannon Armstrong Sustainable Infrastructure Capital, Inc. | | | 40 | | | | 575 | |
| | | | | | | | |
| | | | | | | 1,240 | |
| | | | | | | | |
| |
Diversified Banks – 1.3% | |
Square 1 Financial, Inc.,
Class A (A) | | | 38 | | | | 936 | |
| | | | | | | | |
| |
Investment Banking &
Brokerage – 0.6% | |
Marcus & Millichap, Inc. (A) | | | 14 | | | | 452 | |
| | | | | | | | |
| |
Office REITs – 0.6% | |
City Office REIT, Inc. | | | 34 | | | | 435 | |
| | | | | | | | |
| |
Specialized REITs – 1.1% | |
Ashford Hospitality Prime, Inc. | | | 43 | | | | 740 | |
| | | | | | | | |
| |
Thrifts & Mortgage Finance – 0.5% | |
PennyMac Financial Services, Inc., Class A (A) | | | 19 | | | | 320 | |
| | | | | | | | |
| |
Total Financials – 5.8% | | | | 4,123 | |
Health Care | |
| |
Biotechnology – 13.5% | |
Acceleron Pharma, Inc. (A) | | | 14 | | | | 561 | |
Ardelyx, Inc. (A) | | | 34 | | | | 637 | |
Argos Therapeutics, Inc. (A) | | | 42 | | | | 420 | |
Auspex Pharmaceuticals, Inc. (A) | | | 36 | | | | 1,900 | |
Cara Therapeutics, Inc. (A) | | | 51 | | | | 507 | |
Concert Pharmaceuticals, Inc. (A) | | | 51 | | | | 677 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Biotechnology (Continued) | |
Enanta Pharmaceuticals, Inc. (A) | | | 28 | | | $ | 1,414 | |
NewLink Genetics Corp. (A) | | | 22 | | | | 878 | |
Repligen Corp. (A) | | | 58 | | | | 1,148 | |
Retrophin, Inc. (A) | | | 7 | | | | 89 | |
Synergy Pharmaceuticals, Inc. (A) | | | 77 | | | | 235 | |
Vanda Pharmaceuticals, Inc. (A) | | | 55 | | | | 783 | |
Verastem, Inc. (A) | | | 51 | | | | 469 | |
| | | | | | | | |
| | | | | | | 9,718 | |
| | | | | | | | |
| |
Health Care Equipment – 4.5% | |
Cardiovascular Systems, Inc. (A) | | | 29 | | | | 863 | |
K2M Group Holdings, Inc. (A) | | | 34 | | | | 699 | |
Oxford Immunotec Global plc (A) | | | 39 | | | | 533 | |
Rockwell Medical, Inc. (A) | | | 53 | | | | 545 | |
Sunshine Heart, Inc. (A) | | | 59 | | | | 252 | |
Veracyte, Inc. (A) | | | 32 | | | | 308 | |
| | | | | | | | |
| | | | | | | 3,200 | |
| | | | | | | | |
| |
Health Care Facilities – 1.9% | |
AAC Holdings, Inc. (A) | | | 18 | | | | 563 | |
Surgical Care Affiliates, Inc. (A) | | | 25 | | | | 824 | |
| | | | | | | | |
| | | | | | | 1,387 | |
| | | | | | | | |
| |
Health Care Services – 1.6% | |
Adeptus Health, Inc.,
Class A (A) | | | 22 | | | | 823 | |
Cross Country Healthcare, Inc. (A) | | | 24 | | | | 303 | |
| | | | | | | | |
| | | | | | | 1,126 | |
| | | | | | | | |
| |
Health Care Supplies – 2.3% | |
Quidel Corp. (A) | | | 50 | | | | 1,440 | |
TearLab Corp. (A) | | | 76 | | | | 200 | |
| | | | | | | | |
| | | | | | | 1,640 | |
| | | | | | | | |
| |
Health Care Technology – 2.0% | |
HealthStream, Inc. (A) | | | 25 | | | | 740 | |
Imprivata, Inc. (A) | | | 55 | | | | 714 | |
| | | | | | | | |
| | | | | | | 1,454 | |
| | | | | | | | |
| |
Pharmaceuticals – 6.4% | |
Aerie Pharmaceuticals, Inc. (A) | | | 46 | | | | 1,346 | |
Intersect ENT, Inc. (A) | | | 35 | | | | 645 | |
Intra-Cellular Therapies, Inc. (A) | | | 31 | | | | 551 | |
Pernix Therapeutics Holdings, Inc. (A) | | | 107 | | | | 1,002 | |
ZS Pharma, Inc. (A) | | | 25 | | | | 1,027 | |
| | | | | | | | |
| | | | | | | 4,571 | |
| | | | | | | | |
| |
Total Health Care – 32.2% | | | | 23,096 | |
Industrials | |
| |
Building Products – 2.5% | |
Builders FirstSource, Inc. (A) | | | 117 | | | | 805 | |
NCI Building Systems, Inc. (A) | | | 51 | | | | 946 | |
| | | | | | | | |
| | | | | | | 1,751 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Micro Cap Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
| |
Construction & Engineering – 1.0% | |
Orion Marine Group, Inc. (A) | | | 64 | | | $ | 702 | |
| | | | | | | | |
| |
Construction Machinery & Heavy
Trucks – 1.0% | |
Wabash National Corp. (A) | | | 60 | | | | 742 | |
| | | | | | | | |
| |
Electrical Components &
Equipment – 2.4% | |
Enphase Energy, Inc. (A) | | | 46 | | | | 659 | |
LSI Industries, Inc. | | | 32 | | | | 216 | |
Orion Energy Systems, Inc. (A) | | | 85 | | | | 465 | |
TCP International Holdings Ltd. (A) | | | 55 | | | | 336 | |
| | | | | | | | |
| | | | | | | 1,676 | |
| | | | | | | | |
| |
Industrial Machinery – 0.9% | |
Neff Corp., Class A (A) | | | 60 | | | | 671 | |
| | | | | | | | |
| |
Marine – 0.2% | |
Baltic Trading Ltd. | | | 52 | | | | 130 | |
| | | | | | | | |
| |
Office Services & Supplies – 2.7% | |
ARC Document Solutions, Inc. (A) | | | 114 | | | | 1,165 | |
CyrusOne, Inc. | | | 29 | | | | 785 | |
| | | | | | | | |
| | | | | | | 1,950 | |
| | | | | | | | |
| |
Trucking – 3.0% | |
Celadon Group, Inc. | | | 13 | | | | 293 | |
Covenant Transportation Group, Inc., Class A (A) | | | 29 | | | | 786 | |
Marten Transport Ltd. | | | 28 | | | | 602 | |
Roadrunner Transportation Systems, Inc. (A) | | | 21 | | | | 481 | |
| | | | | | | | |
| | | | | | | 2,162 | |
| | | | | | | | |
| |
Total Industrials – 13.7% | | | | 9,784 | |
Information Technology | |
| |
Application Software – 3.3% | |
Callidus Software, Inc. (A) | | | 103 | | | | 1,679 | |
Materialise N.V. ADR (A) | | | 33 | | | | 314 | |
Yodlee, Inc. (A) | | | 28 | | | | 340 | |
| | | | | | | | |
| | | | | | | 2,333 | |
| | | | | | | | |
| |
Communications Equipment – 1.6% | |
Ruckus Wireless, Inc. (A) | | | 51 | | | | 613 | |
ShoreTel, Inc. (A) | | | 73 | | | | 534 | |
| | | | | | | | |
| | | | | | | 1,147 | |
| | | | | | | | |
| |
Electronic Equipment &
Instruments – 0.7% | |
CUI Global, Inc. (A) | | | 69 | | | | 516 | |
| | | | | | | | |
| |
Home Entertainment Software – 0.3% | |
Glu Mobile, Inc. (A) | | | 54 | | | | 210 | |
| | | | | | | | |
| |
Internet Software & Services – 4.9% | |
Amber Road, Inc. (A) | | | 64 | | | | 655 | |
Boingo Wireless, Inc. (A) | | | 52 | | | | 395 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Internet Software & Services (Continued) | |
Borderfree, Inc. (A) | | | 28 | | | $ | 252 | |
ChannelAdvisor Corp. (A) | | | 19 | | | | 399 | |
Q2 Holdings, Inc. (A) | | | 26 | | | | 492 | |
SPS Commerce,
Inc. (A) | | | 16 | | | | 878 | |
Tech Target, Inc. (A) | | | 40 | | | | 458 | |
| | | | | | | | |
| | | | | | | 3,529 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 1.1% | |
Virtusa Corp. (A) | | | 19 | | | | 804 | |
| | | | | | | | |
| |
Semiconductor Equipment – 1.3% | |
Nanometrics, Inc. (A) | | | 26 | | | | 431 | |
Ultra Clean Holdings, Inc. (A) | | | 55 | | | | 514 | |
| | | | | | | | |
| | | | | | | 945 | |
| | | | | | | | |
| |
Semiconductors – 0.7% | |
Exar Corp. (A) | | | 52 | | | | 533 | |
| | | | | | | | |
| |
Systems Software – 3.8% | |
Barracuda Networks, Inc. (A) | | | 10 | | | | 344 | |
Mavenir Systems,
Inc. (A) | | | 41 | | | | 559 | |
TubeMogul, Inc. (A) | | | 55 | | | | 1,236 | |
Varonis Systems,
Inc. (A) | | | 17 | | | | 571 | |
| | | | | | | | |
| | | | | | | 2,710 | |
| | | | | | | | |
| |
Technology Hardware, Storage &
Peripherals – 0.7% | |
Datalink Corp. (A) | | | 38 | | | | 491 | |
| | | | | | | | |
| |
Total Information
Technology – 18.4% | | | | 13,218 | |
Telecommunication Services | |
| |
Alternative Carriers – 0.8% | |
inContact, Inc. (A) | | | 66 | | | | 584 | |
| | | | | | | | |
| |
Integrated Telecommunication
Services – 1.0% | |
Global Telecom & Technology, Inc. (A) | | | 56 | | | | 737 | |
| | | | | | | | |
| |
Wireless Telecommunication
Service – 0.8% | |
RingCentral, Inc., Class A (A) | | | 36 | | | | 531 | |
| | | | | | | | |
| |
Total Telecommunication
Services – 2.6% | | | | 1,852 | |
| |
TOTAL COMMON
STOCKS – 97.8% | | | $ | 70,079 | |
(Cost: $55,769) | | | | | | | | |
| | | | | | | | |
SHORT-TERM
SECURITIES | | Principal | | | Value | |
Master Note – 2.3% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (B) | | $ | 1,658 | | | $ | 1,658 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 2.3% | | | $ | 1,658 | |
(Cost: $1,658) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.1% | | | $ | 71,737 | |
(Cost: $57,427) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND
OTHER ASSETS – (0.1)% | | | | (81 | ) |
| |
NET ASSETS – 100.0% | | | $ | 71,656 | |
SCHEDULE OF INVESTMENTS
Micro Cap Growth (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 70,079 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 1,658 | | | | — | |
| | | | |
Total | | $ | 70,079 | | | $ | 1,658 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Mid Cap Growth | (UNAUDITED) |
Kimberly A. Scott
Below, Kimberly A. Scott, CFA, portfolio manager of Ivy Funds VIP Mid Cap Growth, discusses positioning, performance and results for the fiscal year ended December 31, 2014. She has managed the Portfolio since its inception in 2005 and has 27 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Mid Cap Growth | | | 7.87% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell Mid-Cap Growth Index | | | 11.90% | |
(generally reflects the performance of securities that represent the mid-cap sector of the stock market) | | | | |
Lipper Variable Annuity Mid-Cap Growth Funds Universe Average | | | 6.81% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers
We fought a few key battles in 2014, the biggest and most impactful being the current risk-on environment that favored lower-quality business models, balance sheets and strong differentiated growth, either real or perceived. Non-earners, low return-on-equity and high debt-to-total capitalization companies soared in value relative to the rest of the market for much of the year. We are encouraged, however, that the market environment is transitioning to one of more sound thinking about creditworthiness and stability, and sustainability of earnings.
Contributors and detractors
The Portfolio underperformed the index for the period ended December 31, 2014. The primary factors for the underperformance were stock selection issues, primarily in the industrials sector, and secondarily in the energy sector. Both of these groups delivered negative returns in 2014.
We had many weak names in industrials, but the weakest, and most negatively impactful, were those that were associated with customers in the energy and other commodities industries. Flowserve and Joy Global all struggled because of concerns about their business with customers in the energy industry. Joy Global’s issues extend to broad weakness in the mining sector, globally. The weakness in these industrial names, and a number of others in the group, both defensive and cyclical, overwhelmed the successes the Portfolio had in two names in the group, Polypore International and Stericycle. Polypore makes separation media for lead acid and lithium ion batteries for automobiles, and is beginning to recover from several years of poorly absorbed investment spending. Stericycle, which collects and processes medical waste, is a perennially strong performer because of the consistent and growing demand for its services. Fortune Brands Home and Security is a name that has performed very well for us in recent years, but underperformed the index in the past 12 months, as the stock took a breather, coming in basically flat on the year. Our outlook on Fortune Brands Home and Security is still very favorable, as we expect it to continue to benefit from the slower than expected, yet ongoing improvement in the housing market, and specifically in the repair and remodeling business where their cabinets and Moen faucets are sold.
The Portfolio’s energy names were weak across the board, as the swift decline in the price of oil since June, but most notably within the fourth quarter, became a critical turning point for the group generally, and our names, specifically. Our largest negative contribution for the year came from the names we own with exposure to domestic shale oil drilling in the Bakken region, and also our natural gas exposure names. Continental Resources, Oasis Petroleum and Southwestern Energy all delivered performances that felt like our own Exxon Valdez ran aground in the portfolio. Our only positive performer was Patterson UTI Energy, an oilfield services and equipment company, which we sold at a gain earlier in the year before the downtrend in oil. We understand the severe reaction by investors to the rapid changes in the economics of oil and gas related companies, but we are of the opinion that the problem has been overly discounted, as the dynamics of shale oil drilling may be such that the oversupply problem is solved with greater expediency than we’ve seen historically. We retain our energy positions in the portfolio, and look to add exposure as stock price opportunities and industry fundamentals present themselves.
The Portfolio’s financials, materials, utilities and telecommunications services exposures all made modest negative contributions to overall performance for the year. We were slightly underweight the outperforming financials sector, and a few of our names turned in weak performances, including UMB Financial, Oaktree Capital Group and First Republic Bank. Banks in particular, are struggling with expense growth associated with dealing with the many new banking regulations. However, Signature Bank of New York, a long-term holding and strong performer, and Northern Trust are two banks that delivered nice returns within the sector in 2014.
The Portfolio was underweight the outperforming materials sector, which accounted for the majority of our underperformance in that group. A lack of exposure to the utilities and telecommunications sectors, both of which strongly outperformed the benchmark in 2014, was a light negative to performance.
Strong stock selection in information technology, consumer discretionary and consumer staples provided positive performance during the period. A healthy overweight position in the health care group also compensated for some stock picking issues among our names. We had many very strong performers in information technology sector this year, which were significant enough to overcome some of the weak returns within the group and deliver overall sector and index-beating results for the year. These names included: Electronic Arts, which we added to the portfolio early 2014, F5 Networks, which performed well after a couple of years of soft performance, Service Now, CoStar Group, Sabre Corporation and Open Table, the online restaurant reservation service that was acquired by Priceline mid-year. One of our biggest disappointments was Pandora, the internet radio service company. The stock struggled under the weight of concern about a 2015 Copyright Royalty Board rate decision. We continue to believe that Pandora is the premier asset in the internet radio space with a strong and growing commercial opportunity, and we expect the rate decision to be neutral, at worst, to Pandora’s business model. We retain the name and will be interested in building a larger position as the outlook for the company clears.
Adding consumer discretionary exposure to the Portfolio early in the year proved to be positive for performance. The negative impact of a difficult 2013 holiday season and pressure on demand in the spring selling season related to the severe winter weather across much of the U.S. gave way to the consumer benefits of stronger employment growth and the rapid decline of oil prices. Most of our specialty retail and apparel names performed strongly during the year, particularly in the fourth quarter when it became clear that the 2014 holiday season would be much stronger than 2013. Limited Brands, Ross Stores, Nordstrom, Tiffany and Carter’s all benefited from an improving consumer environment and stronger holiday selling season. Under Armour performed well last year, although we no longer own it, as did Norwegian Cruise Line, which has been growing nicely and will see the benefit of lower fuel costs in the near future.
A few weak names in our consumer discretionary exposure included Mattel, which was a significant disappointment in a time when consumer discretionary spending is on the upswing. The company is facing the loss of some important product licenses and is working to make product innovation more effective for the firm. Homeaway, the online vacation rental business, was another disappointment, largely as a result of investment spending by the company that we believe will make it difficult for them to be sufficiently profitable in the near future. We no longer own Homeaway.
The Portfolio’s consumer staples exposure was positive for performance, as all of our holdings in that group outperformed both the index and posted a strong showing relative to the consumer staples group within the index.
The Portfolio’s cash holdings and equity options were the final significant detractor from performance. Equity options, used primarily for hedging purposes, or building or exiting positions, was 65 basis points to the negative for our relative performance.
From a positive perspective, strong stock selection in the financials, as noted earlier, consumer staples and energy made significant contributions to performance, as many of our names in these groups posted strong returns.
Outlook
We see the market as being in transition from a period of free-wheeling, risk-on investing supported by very cheap money to one of greater consideration for stable/sustainable growth and business models. The preference for balance sheet risk over financial prudence we’ve witnessed and been a victim of for over the past several years should give way to greater respect for companies that have the wherewithal to withstand an increase in interest rates associated with a stronger U.S. economic environment.
While we do believe the economic environment is supportive for revenue and earnings growth across many companies in our mid-cap growth universe, there are general trends and market conditions that give us pause at this stage of the market cycle – trends and conditions that we think could lead to periods of difficult performance for the equity market over the next 6-12 months.
Our key concern centers on corporate profitability as increased investment in labor, in terms of both rising units and rising compensation rates, can exert downward pressure on margins. The economy clearly needs to grow fast enough to allow companies to absorb these rising labor costs. We think there is a risk that the economy will continue to grow, creating a need for more labor investment, but potentially not grow fast enough to offset incremental costs. This scenario could unfold at the same time that the more general benefits of corporate restructurings post the 2008-2009 economic crisis continue to wane, the benefits of debt restructuring and interest savings are diminished, and, in fact, could move against corporations should rates rise. Share buybacks could also have a reduced roll in earnings growth under changing profitability and credit conditions. This could present the irony of a more supportive gross domestic product environment for top-line growth at many companies, while profits struggle to move forward for all of these reasons – a situation which would be much the opposite of what we have witnessed for the last five years. We think this could be a valuation depressant on the market as investors struggle with a changing profitability profile. The recent swift decline in the price of oil is somewhat of an offset to these concerns, as it sets up a more positive cost scenario for many companies, while also being a demand stimulant. This factor could soften the impact of a less stimulative credit environment in the near term.
On balance, we think that the prospect of higher interest rates, a stronger dollar and weak European and Asian economic growth are all challenges to relatively sound U.S. economic fundamentals. This calls for a slightly more defensive tilt in the Portfolio, overlaid on a focus on clearly differentiated long runway growth opportunities that can overcome the credit and cost pressures we see ahead. We continue to like both information technology and industrials for their exposure to constructive economic conditions and they are both areas that are taking advantage of innovation opportunities. We have to be more selective in industrials as many companies are susceptible to weakness related to the troubled oil and gas exploration and production environment.
We continue to like consumer discretionary as a beneficiary of job growth and a strengthening consumer balance sheet given more constructive energy costs, consumer credit and wage growth. We are generally comfortable with our financials exposure, but see adding to the exposure should rates begin to move higher to the benefit of spread lenders. We are cautiously patient with our energy exposure, leaning toward adding to holdings as the price of oil levels and companies begin to pull back on their exploration and production budgets, which will ultimately support the price of the commodity.
We are slightly underweight consumer staples, which is often the case, as we tend to find more growth opportunities elsewhere. We are, however, considering more exposure to this sector, as companies therein are likely to benefit from the positive impact of lower energy prices on consumer spending. We continue to consider additional opportunities in materials, where we are underweight, but struggle to find companies with sufficient growth and moderate cyclicality. We are likely to remain unexposed to telecommunications services and utilities. We are managing the Portfolio’s cash exposure at a low level, currently, and using equity options in a small way to add or reduce exposure to individual positions.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in mid-cap stocks may carry more risk than investing in stocks of larger, more-established companies. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. The use of derivatives presents several risks, including the risk that these instruments may change in value in a manner that adversely affects the Portfolio’s value and the risk that fluctuations in the value of the derivatives may not correlate with securities markets or the underlying asset upon which the derivative’s value is based. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Mid Cap Growth.
PORTFOLIO HIGHLIGHTS
Mid Cap Growth | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 96.8% | |
Consumer Discretionary | | | 22.7% | |
Health Care | | | 19.4% | |
Information Technology | | | 16.9% | |
Industrials | | | 14.7% | |
Financials | | | 9.0% | |
Consumer Staples | | | 6.2% | |
Energy | | | 6.0% | |
Materials | | | 1.9% | |
Cash and Cash Equivalents | | | 3.2% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Electronic Arts, Inc. | | Information Technology | | Home Entertainment Software |
Intuitive Surgical, Inc. | | Health Care | | Health Care Equipment |
Northern Trust Corp. | | Financials | | Asset Management & Custody Banks |
Fastenal Co. | | Industrials | | Trading Companies & Distributors |
Expeditors International of Washington, Inc. | | Industrials | | Air Freight & Logistics |
Mead Johnson Nutrition Co. | | Consumer Staples | | Packaged Foods & Meats |
Microchip Technology, Inc. | | Information Technology | | Semiconductors |
Signature Bank | | Financials | | Regional Banks |
Hain Celestial Group, Inc. (The) | | Consumer Staples | | Packaged Foods & Meats |
Ross Stores, Inc. | | Consumer Discretionary | | Apparel Retail |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Mid Cap Growth | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 7.87% | |
5-year period ended 12-31-14 | | | 15.80% | |
10-year period ended 12-31-14 | | | — | |
Since inception of Portfolio(3) through 12-31-14 | | | 11.58% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
| (3) | 4-28-05 (the date on which shares were first acquired by shareholders). |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Mid Cap Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 6.4% | |
DSW, Inc., Class A | | | 176 | | | $ | 6,548 | |
Limited Brands, Inc. | | | 111 | | | | 9,573 | |
Ross Stores, Inc. | | | 115 | | | | 10,884 | |
Urban Outfitters, Inc. (A) | | | 244 | | | | 8,580 | |
| | | | | | | | |
| | | | | | | 35,585 | |
| | | | | | | | |
| |
Apparel, Accessories & Luxury
Goods – 3.2% | |
Burberry Group
plc (B) | | | 253 | | | | 6,428 | |
Carter’s, Inc. | | | 96 | | | | 8,356 | |
Polo Ralph Lauren Corp. | | | 16 | | | | 2,942 | |
| | | | | | | | |
| | | | | | | 17,726 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 1.2% | |
Gentex Corp. | | | 190 | | | | 6,855 | |
| | | | | | | | |
| |
Department Stores – 1.6% | |
Nordstrom, Inc. | | | 112 | | | | 8,889 | |
| | | | | | | | |
| |
Distributors – 1.9% | |
LKQ Corp. (A) | | | 385 | | | | 10,812 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 1.0% | |
Norwegian Cruise Line Holdings Ltd. (A) | | | 116 | | | | 5,427 | |
| | | | | | | | |
| |
Leisure Products – 1.5% | |
Mattel, Inc. | | | 277 | | | | 8,578 | |
| | | | | | | | |
| |
Restaurants – 2.8% | |
Dunkin’ Brands Group, Inc. | | | 209 | | | | 8,916 | |
Panera Bread Co., Class A (A) | | | 38 | | | | 6,556 | |
| | | | | | | | |
| | | | | | | 15,472 | |
| | | | | | | | |
| |
Specialty Stores – 3.1% | |
Tiffany & Co. | | | 60 | | | | 6,368 | |
Ulta Salon, Cosmetics & Fragrance,
Inc. (A) | | | 84 | | | | 10,675 | |
| | | | | | | | |
| | | | | | | 17,043 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 22.7% | | | | 126,387 | |
Consumer Staples | |
| |
Distillers & Vintners – 0.9% | |
Brown-Forman Corp., Class B | | | 60 | | | | 5,248 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 4.2% | |
Hain Celestial Group, Inc.
(The) (A) | | | 192 | | | | 11,203 | |
Mead Johnson Nutrition Co. | | | 122 | | | | 12,290 | |
| | | | | | | | |
| | | | | | | 23,493 | |
| | | | | | | | |
| |
Personal Products – 1.1% | |
Coty, Inc., Class A | | | 286 | | | | 5,904 | |
| | | | | | | | |
| |
Total Consumer
Staples – 6.2% | | | | 34,645 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Energy | |
| |
Oil & Gas Equipment &
Services – 0.9% | |
Dril-Quip, Inc. (A) | | | 60 | | | $ | 4,641 | |
| | | | | | | | |
| |
Oil & Gas Exploration &
Production – 5.1% | |
Cabot Oil & Gas Corp. | | | 268 | | | | 7,946 | |
Cimarex Energy Co. | | | 16 | | | | 1,748 | |
Continental Resources, Inc. (A) | | | 170 | | | | 6,510 | |
Noble Energy, Inc. | | | 64 | | | | 3,032 | |
Oasis Petroleum LLC (A) | | | 173 | | | | 2,861 | |
Southwestern Energy Co. (A) | | | 238 | | | | 6,489 | |
| | | | | | | | |
| | | | | | | 28,586 | |
| | | | | | | | |
| |
Total Energy – 6.0% | | | | 33,227 | |
Financials | |
| |
Asset Management & Custody
Banks – 3.4% | |
Northern Trust Corp. | | | 224 | | | | 15,080 | |
Oaktree Capital Group LLC | | | 72 | | | | 3,743 | |
| | | | | | | | |
| | | | | | | 18,823 | |
| | | | | | | | |
| |
Regional Banks – 4.5% | |
First Republic Bank | | | 201 | | | | 10,453 | |
Signature Bank (A) | | | 90 | | | | 11,397 | |
UMB Financial Corp. | | | 58 | | | | 3,319 | |
| | | | | | | | |
| | | | | | | 25,169 | |
| | | | | | | | |
| |
Specialized Finance – 1.1% | |
CME Group, Inc. | | | 69 | | | | 6,121 | |
| | | | | | | | |
| |
Total Financials – 9.0% | | | | 50,113 | |
Health Care | |
| |
Biotechnology – 5.5% | |
ACADIA Pharmaceuticals, Inc. (A) | | | 124 | | | | 3,933 | |
Alkermes plc (A) | | | 127 | | | | 7,456 | |
BioMarin Pharmaceutical, Inc. (A) | | | 90 | | | | 8,138 | |
Incyte Corp. (A) | | | 59 | | | | 4,338 | |
Medivation, Inc. (A) | | | 69 | | | | 6,872 | |
| | | | | | | | |
| | | | | | | 30,737 | |
| | | | | | | | |
| |
Health Care Distributors – 1.5% | |
Henry Schein,
Inc. (A) | | | 63 | | | | 8,550 | |
| | | | | | | | |
| |
Health Care Equipment – 4.6% | |
Intuitive Surgical, Inc. (A) | | | 31 | | | | 16,332 | |
Varian Medical Systems, Inc. (A) | | | 105 | | | | 9,057 | |
| | | | | | | | |
| | | | | | | 25,389 | |
| | | | | | | | |
| |
Health Care Facilities – 1.0% | |
Acadia Healthcare
Co., Inc. (A) | | | 90 | | | | 5,515 | |
| | | | | | | | |
| |
Health Care Supplies – 3.0% | |
Align Technology, Inc. (A) | | | 154 | | | | 8,610 | |
DENTSPLY International, Inc. | | | 146 | | | | 7,792 | |
| | | | | | | | |
| | | | | | | 16,402 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Health Care Technology – 0.9% | |
Cerner Corp. (A) | | | 81 | | | $ | 5,237 | |
| | | | | | | | |
| |
Managed Health Care – 1.1% | |
Humana, Inc. | | | 44 | | | | 6,332 | |
| | | | | | | | |
| |
Pharmaceuticals – 1.8% | |
Zoetis, Inc. | | | 229 | | | | 9,872 | |
| | | | | | | | |
| |
Total Health Care – 19.4% | | | | 108,034 | |
Industrials | |
| |
Air Freight & Logistics – 2.3% | |
Expeditors International of Washington, Inc. | | | 282 | | | | 12,575 | |
| | | | | | | | |
| |
Building Products – 1.8% | |
Fortune Brands Home & Security, Inc. | | | 220 | | | | 9,969 | |
| | | | | | | | |
| |
Construction Machinery &
Heavy Trucks – 1.0% | |
Joy Global, Inc. | | | 124 | | | | 5,750 | |
| | | | | | | | |
| |
Electrical Components &
Equipment – 1.4% | |
Polypore International, Inc. (A) | | | 168 | | | | 7,904 | |
| | | | | | | | |
| |
Environmental & Facilities
Services – 1.5% | |
Stericycle, Inc. (A) | | | 63 | | | | 8,208 | |
| | | | | | | | |
| |
Industrial Machinery – 1.6% | |
Flowserve Corp. | | | 153 | | | | 9,163 | |
| | | | | | | | |
| |
Research & Consulting
Services – 2.8% | |
CoStar Group,
Inc. (A) | | | 38 | | | | 7,013 | |
Verisk Analytics, Inc., Class A (A) | | | 136 | | | | 8,708 | |
| | | | | | | | |
| | | | | | | 15,721 | |
| | | | | | | | |
| |
Trading Companies &
Distributors – 2.3% | |
Fastenal Co. | | | 268 | | | | 12,752 | |
| | | | | | | | |
| |
Total Industrials – 14.7% | | | | 82,042 | |
Information Technology | |
| |
Application Software – 1.2% | |
ANSYS, Inc. (A) | | | 84 | | | | 6,902 | |
| | | | | | | | |
| |
Communications Equipment – 1.5% | |
F5 Networks,
Inc. (A) | | | 62 | | | | 8,055 | |
| | | | | | | | |
| |
Data Processing & Outsourced
Services – 1.5% | |
Alliance Data Systems Corp. (A) | | | 30 | | | | 8,453 | |
| | | | | | | | |
| |
Home Entertainment Software – 2.9% | |
Electronic Arts,
Inc.(A) | | | 348 | | | | 16,339 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Mid Cap Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Internet Software & Services – 3.8% | |
GrubHub, Inc. (A) | | | 158 | | | $ | 5,721 | |
Pandora Media,
Inc. (A) | | | 578 | | | | 10,298 | |
WebMD Health Corp.,
Class A (A) | | | 127 | | | | 5,020 | |
| | | | | | | | |
| | | | | | | 21,039 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 1.6% | |
Teradata Corp. (A) | | | 199 | | | | 8,702 | |
| | | | | | | | |
| |
Semiconductors – 2.1% | |
Microchip Technology, Inc. | | | 255 | | | | 11,487 | |
| | | | | | | | |
| |
Systems Software – 1.2% | |
ServiceNow, Inc. (A) | | | 101 | | | | 6,829 | |
| | | | | | | | |
| |
Technology Hardware, Storage & Peripherals – 1.1% | |
SanDisk Corp. | | | 62 | | | | 6,079 | |
| | | | | | | | |
| |
Total Information
Technology – 16.9% | | | | 93,885 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Materials | |
| |
Fertilizers & Agricultural
Chemicals – 1.0% | |
Scotts Miracle-Gro Co. (The) | | | 88 | | | $ | 5,508 | |
| | | | | | | | |
| |
Specialty Chemicals – 0.9% | |
Valspar Corp. (The) | | | 58 | | | | 5,003 | |
| | | | | | | | |
| |
Total Materials – 1.9% | | | | 10,511 | |
| |
TOTAL COMMON
STOCKS – 96.8% | �� | | $ | 538,844 | |
(Cost: $453,116) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | Principal | | | | |
Commercial Paper (C) – 3.0% | |
BorgWarner, Inc.,
0.350%, 1-16-15 | | $ | 5,000 | | | | 4,999 | |
Illinois Tool Works, Inc.,
0.100%, 1-7-15 | | | 4,009 | | | | 4,009 | |
L Oreal USA, Inc.,
0.110%, 1-12-15 | | | 4,000 | | | | 4,000 | |
| | | | | | | | |
SHORT-TERM
SECURITIES
(Continued) | | Principal | | | Value | |
Commercial Paper (C) (Continued) | |
Toronto-Dominion Holdings USA, Inc. (GTD by Toronto Dominion Bank),
0.120%, 1-9-15 | | $ | 4,000 | | | $ | 4,000 | |
| | | | | | | | |
| | | | | | | 17,008 | |
| | | | | | | | |
| |
Master Note – 0.7% | |
Toyota Motor
Credit Corp., 0.126%,
1-7-15 (D) | | | 3,817 | | | | 3,817 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM SECURITIES – 3.7% | | | $ | 20,825 | |
(Cost: $20,825) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.5% | | | $ | 559,669 | |
(Cost: $473,941) | | | | | | | | |
| |
LIABILITIES, NET
OF CASH AND
OTHER ASSETS – (0.5)% | | | | (2,688 | ) |
| |
NET ASSETS – 100.0% | | | $ | 556,981 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Listed on an exchange outside the United States. |
| (C) | Rate shown is the yield to maturity at December 31, 2014. |
| (D) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following written options were outstanding at December 31, 2014 (contracts and exercise prices unrounded):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Security | | Counterparty, if OTC | | Type | | | Number of
Contracts | | | Expiration Month | | | Exercise Price | | | Premium
Received | | | Value | |
ACADIA Pharmaceuticals, Inc. | | Morgan Stanley & Co., Inc. | | | Put | | | | 611 | | | | February 2015 | | | $ | 28.00 | | | $ | 91 | | | $ | (58 | ) |
Alkermes plc | | Barclays Bank plc | | | Put | | | | 227 | | | | February 2015 | | | | 50.00 | | | | 28 | | | | (32 | ) |
Incyte Corp. | | Morgan Stanley & Co., Inc. | | | Put | | | | 196 | | | | February 2015 | | | | 65.00 | | | | 57 | | | | (27 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 176 | | | $ | (117 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Consumer Discretionary | | $ | 119,959 | | | $ | 6,428 | | | $ | — | |
Consumer Staples | | | 34,645 | | | | — | | | | — | |
Energy | | | 33,227 | | | | — | | | | — | |
Financials | | | 50,113 | | | | — | | | | — | |
Health Care | | | 108,034 | | | | — | | | | — | |
Industrials | | | 82,042 | | | | — | | | | — | |
Information Technology | | | 93,885 | | | | — | | | | — | |
Materials | | | 10,511 | | | | — | | | | — | |
| | | | | | | | |
Total Common Stocks | | $ | 532,416 | | | $ | 6,428 | | | $ | — | |
Short-Term Securities | | | — | | | | 20,825 | | | | — | |
| | | | |
Total | | $ | 532,416 | | | $ | 27,253 | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Written Options | | $ | — | | | $ | 117 | | | $ | — | |
| | | | |
SCHEDULE OF INVESTMENTS
Mid Cap Growth (in thousands) | DECEMBER 31, 2014 |
During the period ended December 31, 2014, securities totaling $4,982 were transferred from Level 1 to Level 2. These transfers were the result of fair value prodedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
The following acronyms are used throughout this schedule:
GTD = Guaranteed
OTC = Over the Counter
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Mira Stevovich
Below, Mira Stevovich, CFA, portfolio manager of Ivy Funds VIP Money Market, discusses positioning, performance and results for the fiscal year ended December 31, 2014. She has managed the Portfolio for 16 years and has 28 years of industry experience.
The Portfolio’s fiscal year ended on December 31, 2014 with short term rates at the same low levels as at the beginning of the year. The Federal Reserve (Fed) continued to maintain a policy that provided liquidity to the economy. During the fiscal year, the money markets continued to be affected by low rates, as well as regulatory changes in the banking sector. The economy showed signs of improvement, but a low rate of inflation allowed for the continuation of an ultra-low federal funds target rate.
Lower rates, higher-quality bias
The fiscal year started with the federal funds rate at between 0 and 0.25%, where it remains to date. During the Portfolio’s fiscal year, the Fed gradually reduced the amount of U.S. Treasuries it was purchasing under its quantitative easing (QE3)
program. QE3 purchases concluded in October. Although the end of the program has removed a source of additional liquidity to the economy, it has not been followed by an increase in short-term interest rates. The Fed has been testing Reverse Repo Programs that will be integral to managing the federal funds rate once the Fed begins increasing short-term rates. These programs have helped the short-term market manage liquidity, and provided the Fed with useful data. It may be mid 2015 before any change would impact money market rates. As a result, we will continue to manage the Portfolio in a similar fashion based on the continued low interest rate environment, closely monitoring any potential rate changes, and adjusting investments accordingly.
The drastically low rates of interest during the fiscal year restrained the performance of the Portfolio and rates on money market investments, in general. The Securities and Exchange Commission (SEC) regulation requiring that at least 30% of the Portfolio’s holdings mature in five business days or less also affected the Portfolio return because very short maturities tend to carry the lowest interest rates.
Also acting to depress rates on the shortest maturities are new banking regulations which make short-term borrowing by banks less attractive. This has reduced the supply of securities in the short maturity range, adding downward pressure on rates. Within the confines of the Portfolio’s liquidity and maturity requirements, we sought to maintain yield by purchasing longer-dated securities when credit spreads were wide. We also invested in floating rate notes based on the three-month London Interbank Offered Rate (LIBOR). These notes carry an attractive rate of investment, while allowing us to maintain a modest “weighted average maturity” (WAM) of the Portfolio. The LIBOR rate began the fiscal year at 0.24285% and gradually decreased during the year, but increased in December to end the fiscal year higher at 0.25560%.
Credit quality remained an important factor in the management and performance of the Portfolio. We are cautious in our review of the companies and securities in which we invest. We select investments that we believe to be of the highest credit quality, based on our credit risk constraints, although this higher-quality bias can hold down yield.
Staying the course
This past year, we have emphasized investments of the highest credit quality from many industries and sectors, and we intend to continue to do so going forward. We remain very selective of our investments. Corporate debt was used as an alternative investment when possible. We anticipate that we will continue to use floating-rate securities in the coming fiscal year, pending future developments in the money markets. We intend to include U.S. Treasury and government agency securities, as necessary.
We are managing the Portfolio to comply with SEC regulations of money market funds, which were introduced in 2010. The SEC added these regulations in an effort to provide money market investors with greater protection and more timely information about the fund in which they invest. To this end, we are maintaining daily and weekly liquidity levels according to the regulations, to provide for the liquidity needs of our shareholders and investing for diversification. We will continue to manage the Portfolio in a prudent manner and in accordance with SEC regulations.
Please remember that an investment in the Portfolio is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
PORTFOLIO HIGHLIGHTS
Money Market | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Corporate Obligations | | | 66.0% | |
Notes | | | 35.6% | |
Commercial Paper | | | 20.6% | |
Certificate Of Deposit | | | 9.4% | |
Master Note | | | 0.4% | |
Municipal Obligations | | | 27.9% | |
United States Government and Government Agency Obligations | | | 5.7% | |
Cash and Other Assets, Net of Liabilities | | | 0.4% | |
SCHEDULE OF INVESTMENTS
Money Market (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
CORPORATE
OBLIGATIONS | | Principal | | | Value | |
Certificate Of Deposit | |
Banco del Estado de Chile: | | | | | |
0.200%, 1-6-15 | | $ | 3,200 | | | $ | 3,200 | |
0.200%, 1-28-15 | | | 2,750 | | | | 2,750 | |
0.200%, 3-19-15 | | | 500 | | | | 500 | |
Bank of America N.A.: | |
0.200%, 1-22-15 | | | 1,300 | | | | 1,300 | |
0.200%, 3-12-15 | | | 7,000 | | | | 7,000 | |
0.210%, 4-15-15 | | | 12,250 | | | | 12,250 | |
Citibank N.A.: | | | | | |
0.170%, 1-6-15 | | | 8,700 | | | | 8,700 | |
0.230%, 2-6-15 | | | 4,650 | | | | 4,650 | |
0.180%, 3-9-15 | | | 4,000 | | | | 4,000 | |
JPMorgan Chase Bank N.A., | | | | | |
0.350%, 2-3-15 | | | 4,000 | | | | 4,000 | |
| | | | | | | | |
| |
Total Certificate Of
Deposit– 9.4% | | | | 48,350 | |
Commercial Paper (A) | |
Air Products and Chemicals, Inc.: | | | | | |
0.130%, 1-20-15 | | | 1,500 | | | | 1,500 | |
0.160%, 1-26-15 | | | 3,000 | | | | 2,999 | |
Anheuser-Busch InBev Worldwide, Inc. (GTD by AB INBEV/BBR/COB), | | | | | |
4.125%, 1-15-15 | | | 3,200 | | | | 3,205 | |
Coca-Cola Co. (The), | | | | | |
0.210%, 5-27-15 | | | 2,800 | | | | 2,797 | |
Corporacion Andina de Fomento, | | | | | |
0.150%, 2-9-15 | | | 3,000 | | | | 2,999 | |
Danaher Corp., | | | | | | | | |
0.120%, 1-12-15 | | | 3,000 | | | | 3,000 | |
Eli Lilly and Co., | | | | | | | | |
0.180%, 3-25-15 | | | 1,500 | | | | 1,499 | |
Freddie Mac Discount Notes, | | | | | | | | |
0.100%, 5-7-15 | | | 3,000 | | | | 2,999 | |
Honeywell International, Inc., | | | | | | | | |
0.230%, 6-19-15 | | | 2,000 | | | | 1,998 | |
John Deere Canada ULC (GTD by Deere & Co.), | | | | | | | | |
0.120%, 1-14-15 | | | 750 | | | | 750 | |
John Deere Capital Corp., | | | | | | | | |
0.140%, 2-9-15 | | | 1,500 | | | | 1,500 | |
John Deere Financial, Inc. (GTD by John Deere Capital Corp.), | | | | | | | | |
0.140%, 1-15-15 | | | 2,000 | | | | 2,000 | |
Kimberly-Clark Corp., | | | | | | | | |
0.080%, 1-29-15 | | | 5,050 | | | | 5,050 | |
Prudential Funding LLC (GTD by Prudential Financial, Inc.), | | | | | | | | |
0.100%, 1-2-15 | | | 3,252 | | | | 3,252 | |
River Fuel Trust #1 (GTD by Bank of Nova Scotia): | | | | | | | | |
0.190%, 1-15-15 | | | 1,000 | | | | 1,000 | |
0.220%, 1-30-15 | | | 8,000 | | | | 7,998 | |
St. Jude Medical, Inc.: | | | | | | | | |
0.200%, 1-5-15 | | | 3,500 | | | | 3,500 | |
0.220%, 1-6-15 | | | 9,500 | | | | 9,500 | |
0.220%, 1-13-15 | | | 2,500 | | | | 2,500 | |
0.220%, 1-15-15 | | | 7,000 | | | | 6,999 | |
0.220%, 1-20-15 | | | 2,600 | | | | 2,600 | |
| | | | | | | | |
CORPORATE
OBLIGATIONS
(Continued) | | Principal | | | Value | |
Commercial Paper (A) (Continued) | |
Toronto-Dominion Holdings USA, Inc. (GTD by Toronto Dominion Bank): | | | | | | | | |
0.110%, 1-8-15 | | $ | 1,000 | | | $ | 1,000 | |
0.120%, 1-9-15 | | | 1,000 | | | | 1,000 | |
Toyota Motor Credit Corp., | | | | | | | | |
0.220%, 5-20-15 (B) | | | 9,000 | | | | 9,000 | |
Wisconsin Electric Power Co.: | | | | | | | | |
0.330%, 1-6-15 | | | 9,200 | | | | 9,200 | |
0.330%, 1-7-15 | | | 7,500 | | | | 7,500 | |
0.200%, 1-8-15 | | | 5,500 | | | | 5,500 | |
Wisconsin Gas LLC, | | | | | | | | |
0.170%, 1-8-15 | | | 2,500 | | | | 2,500 | |
| | | | | | | | |
| |
Total Commercial
Paper – 20.6% | | | | 105,345 | |
Master Note | |
Toyota Motor Credit Corp., | | | | | | | | |
0.126%, 1-7-15 (B) | | | 1,864 | | | | 1,864 | |
| | | | | | | | |
| |
Total Master Note – 0.4% | | | | 1,864 | |
Notes | |
American Honda Finance Corp.: | | | | | | | | |
0.230%, 1-10-15 (B) | | | 15,500 | | | | 15,500 | |
1.450%, 2-27-15 | | | 640 | | | | 641 | |
0.230%, 3-10-15 (B) | | | 1,300 | | | | 1,300 | |
3.500%, 3-16-15 | | | 1,738 | | | | 1,750 | |
Banco del Estado de Chile: | | | | | | | | |
0.370%, 1-1-15 (B) | | | 4,500 | | | | 4,500 | |
0.370%, 1-22-15 (B) | | | 10,200 | | | | 10,200 | |
0.390%, 3-21-15 (B) | | | 4,000 | | | | 4,000 | |
Bank of Nova Scotia (The): | | | | | | | | |
0.280%, 1-1-15 (B) | | | 5,550 | | | | 5,550 | |
0.240%, 1-5-15 (B) | | | 8,000 | | | | 8,000 | |
0.240%, 1-22-15 (B) | | | 4,400 | | | | 4,400 | |
3.400%, 1-22-15 | | | 5,000 | | | | 5,009 | |
0.240%, 1-23-15 (B) | | | 10,000 | | | | 10,000 | |
BHP Billiton Finance (USA) Ltd., | | | | | | | | |
1.000%, 2-24-15 | | | 10,519 | | | | 10,530 | |
Caterpillar Financial Services Corp., | | | | | | | | |
1.050%, 3-26-15 | | | 250 | | | | 250 | |
Caterpillar Financial Services Corp. (GTD by Caterpillar, Inc.), | | | | | | | | |
2.750%, 6-24-15 | | | 500 | | | | 506 | |
Caterpillar, Inc., | | | | | | | | |
0.950%, 6-26-15 | | | 2,400 | | | | 2,407 | |
Coca-Cola Co. (The), | | | | | | | | |
0.750%, 3-13-15 | | | 2,610 | | | | 2,613 | |
General Electric Capital Corp.: | | | | | | | | |
0.650%, 1-1-15 (B) | | | 1,400 | | | | 1,401 | |
0.420%, 1-6-15 (B) | | | 4,200 | | | | 4,206 | |
| | | | | | | | |
CORPORATE
OBLIGATIONS
(Continued) | | Principal | | | Value | |
Notes (Continued) | |
0.430%, 1-9-15 (B) | | $ | 2,478 | | | $ | 2,482 | |
0.610%, 1-9-15 (B) | | | 500 | | | | 500 | |
0.981%, 1-9-15 (B) | | | 1,200 | | | | 1,205 | |
2.150%, 1-9-15 | | | 2,000 | | | | 2,001 | |
1.000%, 1-30-15 (B) | | | 3,050 | | | | 3,052 | |
1.000%, 3-23-15 (B) | | | 7,000 | | | | 7,037 | |
IBM Credit Corp., | | | | | | | | |
0.210%, 2-4-15 (B) | | | 500 | | | | 500 | |
JPMorgan Chase & Co.: | | | | | | | | |
0.350%, 1-22-15 (B) | | | 1,650 | | | | 1,650 | |
0.360%, 3-9-15 (B) | �� | | 4,750 | | | | 4,750 | |
JPMorgan Chase Bank N.A., | | | | | | | | |
0.300%, 1-23-15 (B) | | | 6,400 | | | | 6,400 | |
PepsiCo, Inc., | | | | | | | | |
0.430%, 1-30-15 (B) | | | 1,900 | | | | 1,902 | |
Rabobank Nederland: | | | | | | | | |
0.260%, 1-13-15 (B) | | | 7,300 | | | | 7,300 | |
0.280%, 2-12-15 (B) | | | 5,000 | | | | 5,000 | |
Toyota Motor Credit Corp.: | | | | | | | | |
0.380%, 1-12-15 (B) | | | 2,000 | | | | 2,001 | |
0.400%, 1-23-15 (B) | | | 2,500 | | | | 2,500 | |
0.390%, 3-20-15 (B) | | | 825 | | | | 826 | |
U.S. Bank National Association, | | | | | | | | |
0.290%, 2-28-15 (B) | | | 7,700 | | | | 7,703 | |
United Technologies Corp., | | | | | | | | |
0.730%, 3-1-15 (B) | | | 9,900 | | | | 9,921 | |
Wells Fargo & Co., | | | | | | | | |
1.250%, 2-13-15 | | | 4,000 | | | | 4,004 | |
Wells Fargo Bank N.A.: | | | | | | | | |
0.280%, 1-20-15 (B) | | | 7,500 | | | | 7,500 | |
0.340%, 1-20-15 (B) | | | 3,000 | | | | 3,000 | |
0.330%, 3-10-15 (B) | | | 3,500 | | | | 3,500 | |
0.330%, 3-16-15 (B) | | | 4,500 | | | | 4,500 | |
| | | | | | | | |
| | |
Total Notes – 35.6% | | | | | | | 181,997 | |
| |
TOTAL CORPORATE OBLIGATIONS – 66.0% | | | $ | 337,556 | |
(Cost: $337,556) | | | | | | | | |
| | |
MUNICIPAL OBLIGATIONS | | | | | | | | |
| |
California – 5.9% | |
CA GO Notes, Ser B-6 (Taxable), (GTD by Bank of America N.A.),
0.130%, 1-12-15 | | | 1,000 | | | | 1,000 | |
CA Hlth Fac Fin Auth, Var Rate Hosp Rev Bonds (Adventist Hlth Sys/West), Ser 1998B (GTD by Bank of America N.A.),
0.010%, 1-1-15 (B) | | | 800 | | | | 800 | |
SCHEDULE OF INVESTMENTS
Money Market (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
MUNICIPAL
OBLIGATIONS (Continued) | | Principal | | | Value | |
California (Continued) | |
CA Infra and Econ Dev Bank, Var Rate Dnd Rfdg Rev Bds (LA Cnty Mus of Nat Hist Fndtn), Ser 2008A (GTD by Wells Fargo Bank N.A.),
0.010%,
1-1-15 (B) | | $ | 1,900 | | | $ | 1,900 | |
CA Muni Fin Auth, Recovery Zone Fac Bonds (Chevron USA, Inc. Proj), Ser 2010C (GTD by Chevron Corp.),
0.010%,
1-1-15 (B) | | | 4,314 | | | | 4,314 | |
CA Pollutn Ctl Fin Auth, Pollutn Ctl Rfdg Rev Bonds (Pacific Gas and Elec Co.), Ser C (GTD by JPMorgan Chase Bank N.A.),
0.010%,
1-1-15 (B) | | | 2,979 | | | | 2,979 | |
CA Statewide Cmnty Dev Auth, Multifam Hsng Rev Bonds (Wyndover Apts), Ser 2004 LL (GTD by U.S. Government),
0.060%,
1-7-15 (B) | | | 2,232 | | | | 2,232 | |
CA Statewide Cmnty Dev Auth, Multifam Hsng Rev Bonds (The Crossings Sr Apts/Phase I), Ser 2005 I (GTD by U.S. Government),
0.060%,
1-7-15 (B) | | | 8,700 | | | | 8,700 | |
San Francisco, CA, Pub Util Comsn Water Rev Notes, Ser A1T (Taxable), (GTD by Royal Bank of Canada),
0.140%, 1-14-15 | | | 8,300 | | | | 8,300 | |
| | | | | | | | |
| | | | | | | 30,225 | |
| | | | | | | | |
| |
Colorado – 2.1% | |
Castle Rock, CO, Cert of Part, Ser 2008 (GTD by Wells Fargo Bank N.A.),
0.050%,
1-7-15 (B) | | | 5,350 | | | | 5,350 | |
CO Hsng and Fin Auth, Multifam Hsng Rev Bonds (Greentree Vlg Apts Proj), Ser 2007 (GTD by U.S. Bank N.A.),
0.070%,
1-7-15 (B) | | | 3,100 | | | | 3,100 | |
Exempla Gen Impvt Dist of Lafayette, CO, Spl Impvt Dist No. 02-01, Spl Assmt Rev Rfdg and Impvt Bonds, Ser 2002 (GTD by Wells Fargo Bank N.A.),
0.040%,
1-7-15 (B) | | | 250 | | | | 250 | |
| | | | | | | | |
MUNICIPAL
OBLIGATIONS (Continued) | | Principal | | | Value | |
Colorado (Continued) | |
Sheridan Redev Agy CO Tax, Var Rfdg S Santa Fe Dr Corridor Redev PJ, Ser A-1 (GTD by JPMorgan Chase & Co.):
0.070%,
1-7-15 (B) | | $ | 1,500 | | | $ | 1,500 | |
0.200%,
1-7-15 (B) | | | 550 | | | | 550 | |
| | | | | | | | |
| | | | | | | 10,750 | |
| | | | | | | | |
| |
Florida – 0.6% | |
FL Muni Power Agy, All-Requirements Power Supply Proj Var Rate Demand Rfdg Rev Bonds, Ser 2008C (GTD by Bank of America N.A.),
0.030%,
1-1-15 (B) | | | 3,060 | | | | 3,060 | |
| | | | | | | | |
| |
Georgia – 2.0% | |
Dev Auth of Monroe Cty, Pollutn Ctl Rev Bonds (GA Power Co. Plant Scherer Proj), First Ser 2008 (GTD by Georgia Power Co.),
0.030%,
1-1-15 (B) | | | 2,275 | | | | 2,275 | |
Muni Elec Auth GA, Gen Resolution Proj Bond Anticipation Notes, Ser B (Taxable), (GTD by TD Bank),
0.140%, 1-14-15 | | | 4,000 | | | | 4,000 | |
Muni Elec Auth GA, Gen Resolution Proj Bond Anticipation Notes, Ser A (Taxable), (GTD by Wells Fargo Bank N.A.),
0.180%, 1-22-15 | | | 4,000 | | | | 4,000 | |
| | | | | | | | |
| | | | | | | 10,275 | |
| | | | | | | | |
| |
Illinois – 0.3% | |
Elmhurst, IL, Adj Demand Rev Bonds, Joint Comsn on Accred of Hlthcare Org (GTD by JPMorgan Chase Bank N.A.),
0.040%,
1-7-15 (B) | | | 545 | | | | 545 | |
IL Fin Auth, Var Rate Demand Rev Bonds (The Univ of Chicago Med Ctr), Ser D (GTD by JPMorgan Chase & Co.),
0.020%,
1-1-15 (B) | | | 1,000 | | | | 1,000 | |
| | | | | | | | |
| | | | | | | 1,545 | |
| | | | | | | | |
| |
Iowa – 0.2% | |
IA Fin Auth, Var Rate Demand Hlth Fac Rev Bonds (Great River Med Ctr Proj), Ser 2008 (GTD by Great River Medical Center),
0.030%,
1-1-15 (B) | | | 1,165 | | | | 1,165 | |
| | | | | | | | |
| | | | | | | | |
MUNICIPAL
OBLIGATIONS (Continued) | | Principal | | | Value | |
Louisiana – 1.5% | |
LA Pub Fac Auth, Rev Bonds (Air Products and Chemicals Proj), Ser 2009A (GTD by Air Products and Chemicals, Inc.),
0.030%, 1-7-15 (B) | | $ | 2,350 | | | $ | 2,350 | |
LA Pub Fac Auth, Rev Bonds (Air Products and Chemicals Proj), Ser 2008A (GTD by Air Products and Chemicals, Inc.),
0.020%, 1-1-15 (B) | | | 3,941 | | | | 3,941 | |
Parish of St. Bernard, LA, Exempt Fac Rev Bonds (Mobil Oil Corp. Proj), Ser 1996 (GTD by Exxon Mobil Corp.),
0.030%, 1-1-15 (B) | | | 1,600 | | | | 1,600 | |
| | | | | | | | |
| | | | | | | 7,891 | |
| | | | | | | | |
| |
Maryland – 0.1% | |
MD Hlth and Higher Edu Fac Auth Rev Bonds, Anne Arundel Hlth Sys Issue, Ser 2009A (GTD by Toronto Dominion Bank),
0.120%, 1-7-15 (B) | | | 515 | | | | 515 | |
| | | | | | | | |
| |
Michigan – 0.4% | |
MI Strategic Fund, Var Rate Demand Ltd. Oblig Rev Bonds (Air Products and Chemicals, Inc. Proj), Ser 2007 (GTD by Bank of New York (The)),
0.020%, 1-1-15 (B) | | | 1,900 | | | | 1,900 | |
| | | | | | | | |
| |
Minnesota – 0.4% | |
MN Office of Higher Edu, Adj Rate Supplemental Student Loan Prog Rev Bonds, Ser 2008B (Tax-Exempt),
0.050%, 1-7-15 (B) | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| |
Mississippi – 3.5% | |
MS Business Fin Corp., Gulf Opp Zone Indl Dev Rev Bonds (Chevron USA, Inc. Proj), Ser 2007B (GTD by Chevron Corp.),
0.010%, 1-1-15 (B) | | | 7,237 | | | | 7,237 | |
MS Business Fin Corp., Gulf Opp Zone Indl Dev Rev Bonds (Chevron USA, Inc. Proj), Ser 2007D (GTD by Chevron Corp.),
0.010%, 1-1-15 (B) | | | 4,820 | | | | 4,820 | |
SCHEDULE OF INVESTMENTS
Money Market (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
MUNICIPAL
OBLIGATIONS (Continued) | | Principal | | | Value | |
Mississippi (Continued) | |
MS Business Fin Corp., Gulf Opp Zone Indl Dev Rev Bonds (Chevron USA, Inc. Proj), Ser 2010J (GTD by Chevron Corp.),
0.010%,
1-1-15 (B) | | $ | 4,332 | | | $ | 4,332 | |
MS Business Fin Corp., Gulf Opp Zone Indl Dev Var Rev Bonds (Chevron USA, Inc. Proj), Ser 2007D (GTD by Chevron Corp.),
0.010%,
1-1-15 (B) | | | 1,300 | | | | 1,300 | |
| | | | | | | | |
| | | | | | | 17,689 | |
| | | | | | | | |
| |
Missouri – 0.3% | |
Kansas City, MO, Var Rate Demand Taxable Spl Oblig Rfdg Bonds (President Hotel Redev Proj), Ser 2009B (GTD by JPMorgan Chase & Co.),
0.110%,
1-7-15 (B) | | | 1,340 | | | | 1,340 | |
| | | | | | | | |
| |
New Jersey – 0.8% | |
NJ Hlth Care Fac Fin Auth, Rev Bonds, AHS Hosp Corp. Issue, Ser 2008C (GTD by JPMorgan Chase & Co.),
0.030%,
1-7-15 (B) | | | 3,200 | | | | 3,200 | |
Trap Rock Industries, Inc., Var Demand Bonds, Ser 2005 (GTD by Wachovia Bank N.A.),
0.160%,
1-7-15 (B) | | | 822 | | | | 822 | |
| | | | | | | | |
| | | | | | | 4,022 | |
| | | | | | | | |
| |
New York – 3.4% | |
NY Hsng Fin Agy, Clinton Park Phase II Hsng Rev Bonds, Ser 2011 A-1 (GTD by Wells Fargo Bank N.A.),
0.030%, 1-7-15 (B) | | | 2,000 | | | | 2,000 | |
NY Hsng Fin Agy, Related West 30th Street Hsng Rev Bonds, Ser 2012 A-1 (GTD by Wells Fargo Bank N.A.),
0.030%,
1-7-15 (B) | | | 1,800 | | | | 1,800 | |
NY Hsng Fin Agy, Related-Caroline Apt Hsng Rev Bonds, Ser 2008A (GTD by Federal Home Loan Mortgage Corp.),
0.050%,
1-7-15 (B) | | | 900 | | | | 900 | |
NY State Hsng Fin Agy, Maestro West Chelsea Hsng Rev Bonds, Ser 2014A,
0.030%,
1-7-15 (B) | | | 2,250 | | | | 2,250 | |
| | | | | | | | |
MUNICIPAL
OBLIGATIONS (Continued) | | Principal | | | Value | |
New York (Continued) | |
NY State Hsng Fin Agy, Riverside Ctr 2 Hsng Rev Bonds, Ser 2013A-2 (GTD by Bank of America N.A.),
0.030%,
1-7-15 (B) | | $ | 5,000 | | | $ | 5,000 | |
NYC GO Bonds, Fiscal 2006 Ser E (GTD by Bank of America N.A.), 0.040%,
1-7-15 (B) | | | 2,600 | | | | 2,600 | |
NYC Hsng Dev Corp., Multi-Fam Mtg Rev Bonds (Target V Apt), Ser 2006A (GTD by Citibank N.A.),
0.050%,
1-7-15 (B) | | | 3,000 | | | | 3,000 | |
| | | | | | | | |
| | | | | | | 17,550 | |
| | | | | | | | |
| |
Ohio – 0.4% | |
Columbus Rgnl Arpt Auth, Cap Funding Rev Bonds (OASBO Expanded Asset Pooled Fin Prog), Sr Ser 2006,
0.040%,
1-7-15 (B) | | | 1,900 | | | | 1,900 | |
| | | | | | | | |
| |
Oregon – 0.1% | |
Hosp Fac Auth of Clackamas Cnty, OR, Rev Bonds (Legacy Hlth Sys), Ser 2008B (GTD by U.S. Bank N.A.),
0.030%,
1-7-15 (B) | | | 700 | | | | 700 | |
| | | | | | | | |
| |
South Dakota – 0.9% | |
SD Hlth and Edu Fac Auth, Var Rate Demand Rev Bonds (Sioux Vly Hosp and Hlth Sys), Ser 2001C (GTD by U.S. Bank N.A.),
0.040%,
1-7-15 (B) | | | 4,585 | | | | 4,585 | |
| | | | | | | | |
| |
Tennessee – 1.1% | |
Johnson City, TN Hlth and Edu Fac, Hosp Rev Bonds (Mountain States Hlth Alliance), Ser 2013A (GTD by U.S. Bank N.A.),
0.030%,
1-7-15 (B) | | | 5,500 | | | | 5,500 | |
| | | | | | | | |
Texas – 2.5% | |
Harris Cnty Hosp Dist, Sr Lien Rfdg Rev Bonds, Ser 2010 (GTD by JPMorgan Chase & Co.),
0.040%,
1-7-15 (B) | | | 1,600 | | | | 1,600 | |
Port Arthur Nav Dist Indl Dev Corp., Exempt Fac Var Rate Rev Bonds (Air Prdts Proj), Ser 2006 (GTD by Air Products and Chemicals, Inc.),
0.020%,
1-1-15 (B) | | | 9,220 | | | | 9,220 | |
| | | | | | | | |
MUNICIPAL
OBLIGATIONS (Continued) | | Principal | | | Value | |
Texas (Continued) | |
Port Arthur Nav Dist Indl Dev Corp., Exempt Fac Var Rate Rev Bonds (Air Prdts Proj), Ser 2005 (GTD by Air Products and Chemicals, Inc.),
0.020%, 1-1-15 (B) | | $ | 2,250 | | | $ | 2,250 | |
| | | | | | | | |
| | | | | | | 13,070 | |
| | | | | | | | |
| |
Wisconsin – 0.9% | |
WI Hlth and Edu Fac Auth, Var Rate Demand Rev Bonds (Wausau Hosp, Inc.), Ser 1998B (GTD by JPMorgan Chase Bank N.A.),
0.030%, 1-7-15 (B) | | | 4,600 | | | | 4,600 | |
| | | | | | | | |
| |
Wyoming – 0.5% | |
Uinta Cnty, WY, Pollutn Ctl Rfdg Rev Bonds (Chevron USA, Inc. Proj), Ser 1992 (GTD by Chevron Corp.),
0.010%, 1-1-15 (B) | | | 2,381 | | | | 2,381 | |
| | | | | | | | |
| |
TOTAL MUNICIPAL OBLIGATIONS – 27.9% | | | $ | 142,663 | |
(Cost: $142,663) | | | | | | | | |
| | |
UNITED STATES GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS | | | | | | | | |
United States Government Agency
Obligations – 5.7% | |
Overseas Private Investment Corp. (GTD by U.S. Government): | | | | | | | | |
0.110%, 1-7-15 (B) | | | 26,160 | | | | 26,160 | |
0.110%, 1-29-15 (B) | | | 3,000 | | | | 3,000 | |
Totem Ocean Trailer Express, Inc. (GTD by U.S. Government),
0.490%, 1-15-15 (B) | | | 225 | | | | 225 | |
| | | | | | | | |
| | | | | | | 29,385 | |
| | | | | | | | |
| |
TOTAL UNITED STATES GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS – 5.7% | | | $ | 29,385 | |
(Cost: $29,385) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 99.6% | | | $ | 509,604 | |
(Cost: $509,604) | | | | | | | | |
| |
CASH AND OTHER ASSETS,
NET OF
LIABILITIES – 0.4% | | | | 1,920 | |
| |
NET ASSETS – 100.0% | | | $ | 511,524 | |
SCHEDULE OF INVESTMENTS
Money Market (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| (A) | Rate shown is the yield to maturity at December 31, 2014. |
| (B) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Corporate Obligations | | $ | — | | | $ | 337,556 | | | $ | — | |
Municipal Obligations | | | — | | | | 142,663 | | | | — | |
United States Government and Government Agency Obligations | | | — | | | | 29,385 | | | | — | |
| | | | |
Total | | $ | — | | | $ | 509,604 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronym is used throughout this schedule:
GTD = Guaranteed
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Real Estate Securities | (UNAUDITED) |
Matthew K. Richmond
Lowell R. Bolken
Ivy Funds VIP Real Estate Securities is subadvised by Advantus Capital Management, Inc. Below, Matthew K. Richmond and Lowell R. Bolken, portfolio managers of Ivy Funds VIP Real Estate Securities, discuss positioning, performance and results for the fiscal year ended December 31, 2014. Mr. Richmond was named a portfolio manager on January 2, 2014, replacing Mr. Joseph R. Betlej, CFA, who had managed the Portfolio since its inception in 2004. Mr. Richmond has 20 years of industry experience. Mr. Bolken has managed the Portfolio since 2005 and has 25 years of industry experience.
Fiscal year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Real Estate Securities | | | 30.17% | |
Benchmark(s) and/or Lipper Category | | | | |
Wilshire Real Estate Securities Index | | | 31.79% | |
(generally reflects the performance of securities representing the commercial real estate market) | | | | |
Lipper Variable Annuity Real Estate Funds Universe Average | | | 29.17% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Trio of factors provide support
A trio of key factors — improving U.S. economic growth, strengthening labor markets and low interest rates — created a supportive scenario for commercial real estate during the fiscal year. Rapidly improving consumer sentiment as the year progressed added another positive element to the mix.
Overall, the commercial real estate market was quite healthy as the year closed, with occupancies and rental rates across all major property types showing continued improvement. There was limited new construction activity taking place, setting the table for a potentially longer-than-average fundamental recovery.
The sector also was buoyed by strong capital flows from foreign institutional investors looking for relatively “safe haven” investments in a stable and growing economy.
A year of positive returns
The Portfolio had a large positive return for the year, slightly trailing its benchmark index but ahead of its peer group average. Real estate stocks overall delivered strong positive performance in the year. The Portfolio experienced a manager change as the year began and during the early weeks of January underperformed the index while portfolio holdings were reconstituted. Following this period, the Portfolio outperformed its index during the remainder of the year. Favorable stock selection within owners of regional malls, offices and apartments contributed significantly to relative performance. A decision to underweight owners of healthcare facilities, whose stock prices were dramatically influenced by falling interest rates, and data centers, whose stock prices rebounded from dismal performance in 2013, were the primary detractors from relative performance.
The Portfolio was positioned to potentially benefit from an environment characterized by accelerating growth in gross domestic product and employment, stable to modestly rising interest rates and healthy overall U.S. capital markets. With the exception of rising interest rates, all of these conditions were realized during the year and Portfolio holdings benefitted. The Portfolio focused the majority of its holdings in mid- and large-capitalization companies with a bias toward major urban, coastal and sunbelt markets.
A common theme among individual holdings within the Portfolio were companies we believe own well-located, high-quality properties; feature stable balance sheets; are exhibiting improving property fundamentals; and have above-average cash-flow growth prospects. From a property-type perspective, the Portfolio held specific concentrations in owners of Class A regional malls, neighborhood and community shopping centers, urban-centric office buildings, apartments, and self-storage facilities.
Outlook for 2015
We see many of the same themes that impacted 2014 carrying into 2015 and we think they again will provide support for real estate stocks. The trajectory of economic growth appears to have accelerated late in the year, with employment, capital spending and manufacturing activity all remaining solid. We also believe the recent plunge in gasoline prices is positive for U.S. consumer confidence and spending.
In the near-term, we think it is likely that neither economic growth nor inflation will be strong enough to trigger a spike in long-term interest rates. This is particularly the case given technical pressures placed on U.S. Treasury rates by foreign investors seeking an attractive yield relative to those available in many parts of the globe. The resulting macro environment has fueled a steady improvement in commercial real estate conditions. We believe this environment of moderate economic growth, coupled with generally benign interest rates, provides a favorable backdrop for commercial real estate.
We continue to see investors seeking yield find favor with commercial real estate assets in the private market place, with several recent large transactions suggesting that certain public real estate investment trusts (REITs) are trading below the Private Market Value of their assets. This notion was reinforced late in the year by one of the world’s largest investors announcing the sale of its warehouse portfolio to a private buyer, rather than execute an initial public offering (IPO) – choosing to instead take a higher price offered in the private market. We think this theme is likely to be magnified through public-to-private buyout activity, as well as public-to-public mergers throughout 2015.
We believe steady employment growth will support further space demand — and likely rental rate escalations – across the commercial property sector. Most notably, we think companies who own shorter lease duration assets such as hotels, apartments, industrial, and self-storage facilities will be able to more quickly reset rental rates to current market levels than owners of other property types. We also believe that an improving labor market will provide support for consumer spending patterns and result in higher occupancies at community shopping centers. Overall we believe cash flow growth will be 8-10% in 2015, spurring another year of above-average dividend increases from REITs.
A reduction in the U.S. Federal Reserve’s accommodative monetary policy may cause short-term volatility in REIT pricing as investors gauge a policy change’s impact on real estate capitalization rates. Should interest rates rise sharply and exert an upward bias on real estate capitalization rates, we think REIT share prices would likely come under pressure. We believe most companies in this sector, however, will deliver solid cash flow growth through occupancy and rental rate increases. Higher cash flows then may help offset value declines caused by rising capitalization rates.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment. Investment risks associated with real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. Real estate securities are subject to interest-rate risk and, as such, the Portfolio’s net asset value may fall as interest rates rise. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Real Estate Securities.
PORTFOLIO HIGHLIGHTS
Real Estate Securities | ALL DATA IS AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 99.5% | |
Financials | | | 97.8% | |
Consumer Discretionary | | | 1.7% | |
Cash and Cash Equivalents | | | 0.5% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Simon Property Group, Inc. | | Financials | | Retail REITs |
Boston Properties, Inc. | | Financials | | Office REITs |
AvalonBay Communities, Inc. | | Financials | | Residential REITs |
Equity Residential | | Financials | | Residential REITs |
Vornado Realty Trust | | Financials | | Diversified REITs |
Public Storage, Inc. | | Financials | | Specialized REITs |
Ventas, Inc. | | Financials | | Specialized REITs |
Essex Property Trust, Inc. | | Financials | | Residential REITs |
Health Care, Inc. | | Financials | | Health Care REITs |
General Growth Properties, Inc. | | Financials | | Retail REITs |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Real Estate Securities | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 30.17% | |
5-year period ended 12-31-14 | | | 15.90% | |
10-year period ended 12-31-14 | | | 7.18% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Real Estate Securities (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Hotels, Resorts & Cruise Lines – 1.7% | |
Hilton Worldwide Holdings, Inc. (A) | | | 15 | | | $ | 391 | |
Hyatt Hotels Corp., Class A (A) | | | 9 | | | | 524 | |
| | | | | | | | |
| | | | | | | 915 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 1.7% | | | | 915 | |
Financials | |
| |
Diversified REITs – 5.6% | |
Cousins Properties, Inc. | | | 48 | | | | 547 | |
Vornado Realty Trust | | | 20 | | | | 2,365 | |
| | | | | | | | |
| | | | | | | 2,912 | |
| | | | | | | | |
| |
Health Care REITs – 4.8% | |
HCP, Inc. | | | 13 | | | | 569 | |
Health Care, Inc. | | | 23 | | | | 1,718 | |
Healthcare Trust of America, Inc., Class A | | | 9 | | | | 237 | |
| | | | | | | | |
| | | | | | | 2,524 | |
| | | | | | | | |
| |
Industrial REITs – 5.0% | |
DCT Industrial Trust, Inc. | | | 15 | | | | 550 | |
EastGroup Properties, Inc. | | | 7 | | | | 438 | |
ProLogis | | | 38 | | | | 1,645 | |
| | | | | | | | |
| | | | | | | 2,633 | |
| | | | | | | | |
| |
Office REITs – 16.5% | |
Alexandria Real Estate Equities, Inc. | | | 17 | | | | 1,500 | |
BioMed Realty Trust, Inc. | | | 21 | | | | 461 | |
Boston Properties, Inc. | | | 21 | | | | 2,702 | |
Duke Realty Corp. | | | 67 | | | | 1,343 | |
Kilroy Realty Corp. | | | 7 | | | | 477 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Office REITs (Continued) | |
Paramount Group, Inc. (A) | | | 15 | | | $ | 271 | |
Parkway Properties, Inc. | | | 19 | | | | 340 | |
SL Green Realty Corp. | | | 13 | | | | 1,512 | |
| | | | | | | | |
| | | | | | | 8,606 | |
| | | | | | | | |
| |
Residential REITs – 19.2% | |
American Campus Communities, Inc. | | | 16 | | | | 645 | |
AvalonBay Communities, Inc. | | | 15 | | | | 2,435 | |
Camden Property Trust | | | 18 | | | | 1,300 | |
Equity Residential | | | 33 | | | | 2,399 | |
Essex Property Trust, Inc. | | | 9 | | | | 1,953 | |
Mid-America Apartment Communities, Inc. | | | 2 | | | | 180 | |
UDR, Inc. | | | 36 | | | | 1,106 | |
| | | | | | | | |
| | | | | | | 10,018 | |
| | | | | | | | |
| |
Retail REITs – 26.2% | |
Acadia Realty Trust | | | 23 | | | | 743 | |
DDR Corp. | | | 60 | | | | 1,098 | |
Federal Realty Investment Trust | | | 9 | | | | 1,148 | |
General Growth Properties, Inc. | | | 60 | | | | 1,682 | |
Kimco Realty Corp. | | | 39 | | | | 971 | |
Kite Realty Group Trust | | | 41 | | | | 1,168 | |
Macerich Co. (The) | | | 13 | | | | 1,109 | |
Regency Centers Corp. | | | 12 | | | | 759 | |
Simon Property Group, Inc. | | | 28 | | | | 5,015 | |
| | | | | | | | |
| | | | | | | 13,693 | |
| | | | | | | | |
| |
Specialized REITs – 20.5% | |
CubeSmart | | | 19 | | | | 428 | |
Extra Space Storage, Inc. | | | 22 | | | | 1,261 | |
Host Hotels & Resorts, Inc. | | | 54 | | | | 1,274 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Specialized REITs (Continued) | |
LaSalle Hotel Properties | | | 22 | | | $ | 894 | |
Pebblebrook Hotel Trust | | | 23 | | | | 1,050 | |
Public Storage, Inc. | | | 11 | | | | 2,033 | |
RLJ Lodging Trust | | | 32 | | | | 1,060 | |
Strategic Hotels & Resorts, Inc. (A) | | | 56 | | | | 740 | |
Ventas, Inc. | | | 28 | | | | 1,982 | |
| | | | | | | | |
| | | | | | | 10,722 | |
| | | | | | | | |
| |
Total Financials – 97.8% | | | | 51,108 | |
| |
TOTAL COMMON
STOCKS – 99.5% | | | $ | 52,023 | |
(Cost: $43,676) | | | | | | | | |
| | |
SHORT-TERM SECURITIES | | | Principal | | | | | |
Master Note – 0.5% | |
Toyota Motor Credit Corp.,
0.126%, 1-7-15 (B) | | $ | 244 | | | | 244 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 0.5% | | | $ | 244 | |
(Cost: $244) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.0% | | | $ | 52,267 | |
(Cost: $43,920) | | | | | | | | |
| |
CASH AND OTHER ASSETS, NET OF LIABILITIES – 0.0% | | | | 13 | |
| |
NET ASSETS – 100.0% | | | $ | 52,280 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 52,023 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 244 | | | | — | |
| | | | |
Total | | $ | 52,023 | | | $ | 244 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronym is used throughout this schedule:
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Science and Technology | (UNAUDITED) |
Zachary H. Shafran
Below, Zachary H. Shafran, portfolio manager of Ivy Funds VIP Science and Technology, discusses positioning, performance and results for the fiscal year ended December 31, 2014. He has managed the Portfolio since March 2001 and has 26 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Science and Technology | | | 2.91% | |
Benchmark(s) and/or Lipper Category | | | | |
S&P North American Technology Sector Index | | | 15.28% | |
(generally reflects the performance of U.S. science and technology stocks) | | | | |
Lipper Variable Annuity Science and Technology Funds Universe Average | | | 12.22% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Uncertainty continues with slow-to-moderate global growth
Equity and fixed-income markets were volatile in the fiscal year ended December 31, 2014. After a slower-than-expected start to the year — often blamed on poor winter weather — the U.S. economy rebounded in the second quarter. The U.S. continued to demonstrate stable growth, albeit at low levels, through year-end. The U.S. Federal Reserve (Fed) exited quantitative easing and looks to be raising rates by next summer. On the international front, economic growth has slowed despite a continued policy of central bank easing.
The decline in energy prices that started mid-year gathered steam as robust North American production, in addition to the recovery of oil supplies in OPEC nations (Libya and Iraq), has overwhelmed tepid global demand for the commodity. The continued downgrading of demand growth through the year, along with OPEC’s unwillingness to support price levels by curtailing output, led to the rapid decline in price levels.
On the year, information technology stocks performed well, with the Portfolio’s benchmark index advancing just over 15%. Key contributors included technology hardware storage and peripherals, office electronics, and semiconductors. We believe strong balance sheet strength (large cash balances and relatively low debt levels), increases in dividend payments and strong management were key in providing stability and growth to the sector. On the health care front, political discussions and rising costs pose as a headwind for some companies in the health care sector. While challenges remain, we believe there are many investment opportunities in those companies that are able to provide innovative solutions or services to the end user.
A volatile year
The Portfolio posted modest absolute gains, and underperformed its benchmark and its peer-group average during the period. Poor stock selection in information technology was the main detractor to relative performance, though sector allocation also contributed to the relative decline. In terms of specific holdings, a position in Cree Inc. was the greatest detractor to performance for the year, followed by holding Acxiom Corp. Continuing the trend through most of 2014, larger legacy technology companies performed well over the course of the year and were a detriment to relative performance as those types of companies are typically not held by the Portfolio.
On the positive side, the Portfolio’s “applied science and technology” investment approach benefitted performance. The Portfolio’s allocation to health care, a sector not included in the benchmark, was a top contributor to performance, and we believe this is one of the sectors with the greatest opportunity for innovation and growth going forward. As such, we expect to maintain the Portfolio’s approximate 15% to 20% exposure to the sector going forward. For example, biotech holding Isis Pharmaceuticals was a top contributor to performance. The stock has been in the Portfolio since 2008, yet we think the prospects for the company continue to be bright. The company maintains a broad pipeline of drugs to treat a wide variety of diseases, and in our view, the company’s patents provide strong and extensive protection for its innovative drugs and technology. When a company is able to create novel, new therapies with significant positive outcomes, we believe people will pay for them.
Additionally, health care holding Vertex Pharmaceuticals enjoyed substantial stock appreciation emanating from positive results from a late-stage cystic fibrosis treatment shown to significantly improve patient lung function and, as a result, was a top contributor to Portfolio performance for the period.
Semiconductor holding Micron Technology, Inc., the Portfolio’s largest holding, was the greatest contributor to performance for the year, and is another example of our longer-term investment philosophy for the Portfolio. The company designs and builds advanced memory and semiconductor technologies. We think Micron Technology is an example of one of several of the Portfolio’s long-term investments that began to pay off during the year — the stock was up more than 60% for 2014.
Consumer discretionary holding Harman International Industries, a company that primarily designs, develops, manufactures and markets audio products, lighting solutions and electronic systems, as well as digitally integrated audio and infotainment systems for the automotive industry worldwide, also performed well and was a top contributor. We like the long-term positioning of the firm and believe the company’s innovative product line, accompanied with strong sales relationships in the auto industry, will serve the company well.
Portfolio positioning
While we recognize the challenges of the world economic backdrop, we are excited about the innovation and growth that is taking place within certain companies. We believe many of the stocks in the information technology space remain relatively inexpensive and are well-positioned going forward. As confidence is restored, we believe there should be an increase in capital expenditure in various markets around the world as companies become more comfortable with the high cost transitions related to changes in internal infrastructure. The Portfolio had about 70% of its equity exposure in the information technology sector as of December 31, 2014.
Our exposure to health care names over the year remained relatively stable, and as of the fiscal year-end, about 17% of the Portfolio’s equity holdings were in the health care sector. We believe managed care companies will benefit from the implementation of government initiatives. Also, in developing markets, as the standard of living increases, we believe the demand for quality health care increases as well. In our view, medical technology, biotechnology, medical records and pharmaceuticals are among the greatest innovators and early adopters of new science and technology, so we are paying particularly close attention to companies in those areas as well. We also are looking more closely at names that may benefit from a low interest rate environment.
The “applied science and technology” holdings span several industries and sectors and make up the remainder of the Portfolio’s equity composition, totaling approximately 13%. The Portfolio’s cash position as of December 31, 2014, was about 3%. Our current cash allocation is slightly below the Portfolio’s average allocation. We almost always have some cash on hand in an effort to take advantage of opportunities that may present themselves or to use as a defensive measure to protect the Portfolio in adverse market conditions.
Seeking opportunities as global growth resumes
We believe global economic growth is fragile and is being buoyed by extremely aggressive global monetary policy. From a central bank standpoint, Japan, Europe, Switzerland and China set a very dovish tone during the latter half of 2014. For example, Japan, which began the fourth quarter of 2014 with the most aggressive quantitative easing, increased its commitment to buy assets by 60%. It seems that only the U.S. Federal Reserve is moving in a direction of tighter policy. All in all, we think eventual improvement in economic growth will lead to tighter monetary and, to a lesser extent, fiscal policy across the globe. Despite fiscal concerns and other geopolitical risks, we are generally positive about the path of economic growth for the upcoming fiscal year. In mixed economic environments, we believe there are many potential investment opportunities – especially in scarce resources, data, mobility and health care — around the world. As we look at the securities of such companies, we are attracted by what we believe are good growth prospects and sound capital structures. We believe there will be a modest improvement in capital spending trends, and we are looking for an increase in mergers-and-acquisition activity as well. As always, we will carefully monitor the macroeconomic environment, but our focus remains primarily on security-specific fundamental research. Going forward, we believe this attention to bottom-up research, coupled with the innovation and transformation under way across the globe, will continue to provide investment opportunities.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index (indexes) noted are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Ivy Funds VIP Science and Technology.
PORTFOLIO HIGHLIGHTS
Science and Technology | ALL DATA AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 97.0% | |
Information Technology | | | 67.9% | |
Health Care | | | 16.3% | |
Industrials | | | 6.5% | |
Consumer Discretionary | | | 3.4% | |
Telecommunication Services | | | 1.1% | |
Financials | | | 0.9% | |
Materials | | | 0.5% | |
Utilities | | | 0.4% | |
Warrants | | | 0.1% | |
Purchased Options | | | 0.0% | |
Cash and Cash Equivalents | | | 2.9% | |
Country Weightings
| | | | |
North America | | | 77.6% | |
United States | | | 77.6% | |
Europe | | | 8.8% | |
Pacific Basin | | | 5.4% | |
Bahamas/Caribbean | | | 2.7% | |
Other | | | 2.6% | |
Cash and Cash Equivalents and Options | | | 2.9% | |
Top 10 Equity Holdings
| | | | | | |
| Company | | Country | | Sector | | Industry |
Micron Technology, Inc. | | United States | | Information Technology | | Semiconductors |
Alliance Data Systems Corp. | | United States | | Information Technology | | Data Processing & Outsourced Services |
Vertex Pharmaceuticals, Inc. | | United States | | Health Care | | Biotechnology |
Aspen Technology, Inc. | | United States | | Information Technology | | Application Software |
Euronet Worldwide, Inc. | | United States | | Information Technology | | Data Processing & Outsourced Services |
Isis Pharmaceuticals, Inc. | | United States | | Health Care | | Biotechnology |
iGATE Corp. | | United States | | Information Technology | | IT Consulting & Other Services |
ACI Worldwide, Inc. | | United States | | Information Technology | | Application Software |
Pentair, Inc. | | United Kingdom | | Industrials | | Industrial Machinery |
Cerner Corp. | | United States | | Health Care | | Health Care Technology |
See your advisor for more information on the Portfolio’s most recent published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Science and Technology | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 2.91% | |
5-year period ended 12-31-14 | | | 16.93% | |
10-year period ended 12-31-14 | | | 12.58% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Science and Technology (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Consumer Electronics – 3.4% | |
Garmin Ltd. | | | 149 | | | $ | 7,882 | |
Harman International Industries, Inc. | | | 111 | | | | 11,877 | |
| | | | | | | | |
| | | | | | | 19,759 | |
| | | | | | | | |
Total Consumer
Discretionary – 3.4% | | | | 19,759 | |
Financials | |
| |
Office REITs – 0.9% | |
QTS Realty Trust, Inc., Class A | | | 163 | | | | 5,526 | |
| | | | | | | | |
Total Financials – 0.9% | | | | 5,526 | |
Health Care | |
| |
Biotechnology – 8.2% | |
Evogene Ltd. (A) | | | 175 | | | | 1,616 | |
FibroGen, Inc. (A) | | | 55 | | | | 1,506 | |
Isis Pharmaceuticals, Inc. (A) | | | 311 | | | | 19,201 | |
Vertex Pharmaceuticals, Inc. (A) | | | 216 | | | | 25,709 | |
| | | | | | | | |
| | | | | | | 48,032 | |
| | | | | | | | |
| |
Health Care Equipment – 0.5% | |
Cardiovascular Systems, Inc. (A) | | | 92 | | | | 2,758 | |
| | | | | | | | |
| |
Health Care Facilities – 1.8% | |
Tenet Healthcare Corp. (A) | | | 214 | | | | 10,844 | |
| | | | | | | | |
| |
Health Care Technology – 2.6% | |
Cerner Corp. (A) | | | 232 | | | | 14,975 | |
| | | | | | | | |
| |
Life Sciences Tools & Services – 0.9% | |
PRA Health Sciences, Inc. (A) | | | 228 | | | | 5,525 | |
| | | | | | | | |
| |
Pharmaceuticals – 2.3% | |
Teva Pharmaceutical Industries Ltd. ADR | | | 233 | | | | 13,411 | |
| | | | | | | | |
Total Health Care – 16.3% | | | | 95,545 | |
Industrials | |
| |
Building Products – 0.7% | |
Advanced Drainage Systems, Inc. | | | 172 | | | | 3,946 | |
| | | | | | | | |
| |
Construction & Engineering – 1.3% | |
Abengoa S.A., Class B (B) | | | 1,361 | | | | 2,991 | |
Abengoa S.A., Class B ADR | | | 432 | | | | 4,693 | |
| | | | | | | | |
| | | | | | | 7,684 | |
| | | | | | | | |
| |
Electrical Components &
Equipment – 0.5% | |
SolarCity Corp. (A) | | | 63 | | | | 3,343 | |
| | | | | | | | |
| |
Industrial Conglomerates – 1.4% | |
Toshiba Corp. (B) | | | 1,934 | | | | 8,156 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Industrial Machinery – 2.6% | |
Pentair, Inc. | | | 227 | | | $ | 15,097 | |
| | | | | | | | |
Total Industrials – 6.5% | | | | | | | 38,226 | |
Information Technology | |
| |
Application Software – 9.0% | |
ACI Worldwide, Inc. (A) | | | 809 | | | | 16,313 | |
Aspen Technology, Inc. (A) | | | 672 | | | | 23,516 | |
Globant S.A. (A) | | | 74 | | | | 1,156 | |
Qlik Technologies, Inc. (A) | | | 231 | | | | 7,145 | |
Silver Spring Networks, Inc. (A) | | | 552 | | | | 4,656 | |
| | | | | | | | |
| | | | | | | 52,786 | |
| | | | | | | | |
| |
Communications Equipment – 0.8% | |
Ruckus Wireless, Inc. (A) | | | 398 | | | | 4,785 | |
| | | | | | | | |
| |
Data Processing & Outsourced
Services – 12.6% | |
Alliance Data Systems
Corp. (A) | | | 105 | | | | 30,150 | |
Euronet Worldwide, Inc. (A) | | | 389 | | | | 21,362 | |
EVERTEC, Inc. | | | 241 | | | | 5,335 | |
QIWI plc ADR | | | 223 | | | | 4,494 | |
WNS (Holdings) Ltd. ADR (A) | | | 598 | | | | 12,363 | |
| | | | | | | | |
| | | | | | | 73,704 | |
| | | | | | | | |
| |
Electronic Components – 1.1% | |
Universal Display Corp. (A) | | | 230 | | | | 6,369 | |
| | | | | | | | |
| |
Electronic Equipment &
Instruments – 1.0% | |
FLIR Systems, Inc. | | | 175 | | | | 5,667 | |
| | | | | | | | |
| |
Internet Software & Services – 7.7% | |
21Vianet Group, Inc. ADR (A) | | | 176 | | | | 2,717 | |
Alibaba Group Holding Ltd. ADR (A) | | | 70 | | | | 7,307 | |
Facebook, Inc., Class A (A) | | | 167 | | | | 13,045 | |
Google, Inc., Class A (A) | | | 15 | | | | 7,960 | |
Google, Inc., Class C (A) | | | 15 | | | | 7,896 | |
Twitter, Inc. (A) | | | 178 | | | | 6,381 | |
| | | | | | | | |
| | | | | | | 45,306 | |
| | | | | | | | |
| |
IT Consulting & Other Services – 6.5% | |
Acxiom Corp. (A) | | | 654 | | | | 13,263 | |
EPAM Systems, Inc. (A) | | | 134 | | | | 6,379 | |
iGATE Corp. (A) | | | 459 | | | | 18,113 | |
| | | | | | | | |
| | | | | | | 37,755 | |
| | | | | | | | |
| |
Semiconductor Equipment – 1.1% | |
Nanometrics, Inc. (A) | | | 154 | | | | 2,589 | |
Photronics, Inc. (A) | | | 473 | | | | 3,928 | |
| | | | | | | | |
| | | | | | | 6,517 | |
| | | | | | | | |
Semiconductors – 23.2% | |
Broadcom Corp., Class A | | | 76 | | | | 3,310 | |
Cree, Inc. (A) | | | 300 | | | | 9,666 | |
| | | | | | | | |
COMMON STOCKS (Continued) | | Shares | | | Value | |
Semiconductors (Continued) | |
Cypress Semiconductor Corp. | | | 669 | | | $ | 9,553 | |
Dialog Semiconductor plc (A)(B) | | | 269 | | | | 9,396 | |
Intel Corp. | | | 172 | | | | 6,224 | |
Marvell Technology Group Ltd. | | | 506 | | | | 7,334 | |
Micron Technology, Inc. (A) | | | 1,395 | | | | 48,832 | |
Microsemi Corp. (A) | | | 411 | | | | 11,650 | |
NXP Semiconductors N.V. (A) | | | 195 | | | | 14,883 | |
Rambus, Inc. (A) | | | 667 | | | | 7,392 | |
Semtech Corp. (A) | | | 276 | | | | 7,601 | |
| | | | | | | | |
| | | | | | | 135,841 | |
| | | | | | | | |
| |
Systems Software – 2.3% | |
Microsoft Corp. | | | 293 | | | | 13,628 | |
| | | | | | | | |
| |
Technology Hardware, Storage &
Peripherals – 2.6% | |
Apple, Inc. | | | 79 | | | | 8,698 | |
SanDisk Corp. | | | 68 | | | | 6,663 | |
| | | | | | | | |
| | | | | | | 15,361 | |
| | | | | | | | |
Total Information Technology – 67.9% | | | | | | | 397,719 | |
Materials | |
| |
Commodity Chemicals – 0.3% | |
BioAmber, Inc. (A) | | | 252 | | | | 2,112 | |
| | | | | | | | |
| |
Fertilizers & Agricultural
Chemicals – 0.2% | |
Marrone Bio Innovations, Inc. (A) | | | 280 | | | | 1,009 | |
| | | | | | | | |
Total Materials – 0.5% | | | | | | | 3,121 | |
Telecommunication Services | |
| |
Alternative Carriers – 0.6% | |
Zayo Group Holdings, Inc. (A) | | | 117 | | | | 3,577 | |
| | | | | | | | |
| |
Integrated Telecommunication
Services – 0.5% | |
China Unicom Ltd. (B) | | | 884 | | | | 1,185 | |
Windstream Corp. | | | 216 | | | | 1,777 | |
| | | | | | | | |
| | | | | | | 2,962 | |
| | | | | | | | |
Total Telecommunication
Services – 1.1% | | | | 6,539 | |
Utilities | |
| |
Renewable Electricity – 0.4% | |
Abengoa Yield plc | | | 78 | | | | 2,131 | |
| | | | | | | | |
| | |
Total Utilities – 0.4% | | | | | | | 2,131 | |
| |
TOTAL COMMON
STOCKS – 97.0% | | | $ | 568,566 | |
(Cost: $365,892) | | | | | | | | |
SCHEDULE OF INVESTMENTS
Science and Technology (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| WARRANTS | | Shares | | | Value | |
Commodity Chemicals – 0.1% | |
BioAmber, Inc. (C) | | | 201 | | | $ | 318 | |
| | | | | | | | |
| |
TOTAL WARRANTS – 0.1% | | | $ | 318 | |
(Cost: $24) | | | | | | | | |
| | |
PURCHASED OPTIONS | | Number of Contracts (Unrounded) | | | | |
Intel Corp., | | | | | | | | |
Call $39.00, Expires
3-20-15, OTC (Ctrpty: Credit Suisse (USA), Inc.) | | | 5,021 | | | | 274 | |
| | | | | | | | |
| |
TOTAL PURCHASED
OPTIONS – 0.0% | | | $ | 274 | |
(Cost: $602) | | | | | | | | |
| | | | | | | | |
| SHORT-TERM SECURITIES | | Principal | | | Value | |
Commercial Paper (D) – 2.4% | |
Federal Home Loan Bank,
0.020%, 1-26-15 | | $ | 1,000 | | | $ | 1,000 | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | | 1,509 | | | | 1,509 | |
St. Jude Medical, Inc.,
0.220%, 1-15-15 | | | 5,000 | | | | 4,999 | |
Toronto-Dominion Holdings USA, Inc. (GTD by Toronto Dominion Bank),
0.120%, 1-13-15 | | | 5,000 | | | | 5,000 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 2,000 | | | | 2,000 | |
| | | | | | | | |
| | | | | | | 14,508 | |
| | | | | | | | |
| | | | | | | | |
SHORT-TERM SECURITIES (Continued) | | Principal | | | Value | |
Master Note – 0.6% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (E) | | $ | 3,235 | | | $ | 3,235 | |
| |
TOTAL SHORT-TERM SECURITIES – 3.0% | | | $ | 17,743 | |
(Cost: $17,743) | | | | | | | | |
| |
TOTAL INVESTMENT SECURITIES – 100.1% | | | $ | 586,901 | |
(Cost: $384,261) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER
ASSETS – (0.1)% | | | | (872 | ) |
| |
NET ASSETS – 100.0% | | | $ | 586,029 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Listed on an exchange outside the United States. |
| (C) | Warrants entitle the Portfolio to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any. |
| (D) | Rate shown is the yield to maturity at December 31, 2014. |
| (E) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following written options were outstanding at December 31, 2014 (contracts and exercise prices unrounded):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Security | | Counterparty, if OTC | | Type | | | Number of
Contracts | | | Expiration Month | | | Exercise Price | | | Premium
Received | | | Value | |
Intel Corp. | | Credit Suisse (USA), Inc. | | | Put | | | | 5,021 | | | | March 2015 | | | $ | 33.00 | | | $ | 246 | | | $ | (299 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | | | | | | | | | | | |
Consumer Discretionary | | $ | 19,759 | | | $ | — | | | $ | — | |
Financials | | | 5,526 | | | | — | | | | — | |
Health Care | | | 95,545 | | | | — | | | | — | |
Industrials | | | 27,079 | | | | 11,147 | | | | — | |
Information Technology | | | 388,323 | | | | 9,396 | | | | — | |
Materials | | | 3,121 | | | | — | | | | — | |
Telecommunication Services | | | 5,354 | | | | 1,185 | | | | — | |
Utilities | | | 2,131 | | | | — | | | | — | |
| | | | |
Total Common Stocks | | $ | 546,838 | | | $ | 21,728 | | | $ | — | |
Warrants | | | 318 | | | | — | | | | — | |
Purchased Options | | | — | | | | 274 | | | | — | |
Short-Term Securities | | | — | | | | 17,743 | | | | — | |
| | | | |
Total | | $ | 547,156 | | | $ | 39,745 | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Written Options | | $ | — | | | $ | 299 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, securities totaling $6,326 were transferred from Level 1 to Level 2. These transfers were the result of fair value prodedures applied to international securities due to significant market movement of the S&P 500 on December 31, 2014.
SCHEDULE OF INVESTMENTS
Science and Technology (in thousands) | DECEMBER 31, 2014 |
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
GTD = Guaranteed
REIT= Real Estate Investment Trust
Country Diversification
| | | | |
(as a % of net assets) | | | | |
United States | | | 77.6% | |
Bermuda | | | 2.7% | |
United Kingdom | | | 2.6% | |
Israel | | | 2.6% | |
Netherlands | | | 2.5% | |
India | | | 2.1% | |
China | | | 1.9% | |
Germany | | | 1.6% | |
Japan | | | 1.4% | |
Spain | | | 1.3% | |
Other Countries | | | 0.8% | |
Other+ | | | 2.9% | |
+Includes options, cash and cash equivalents and other assets and liabilities
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Small Cap Growth | (UNAUDITED) |
Kenneth G. McQuade
Below, Kenneth G. McQuade, portfolio manager of Ivy Funds VIP Small Cap Growth, discusses positioning, performance and results for the fiscal year ended December 31, 2014. He has managed the Portfolio since 2006 and has 19 years of investment experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Small Cap Growth | | | 1.59% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell 2000 Growth Index | | | 5.60% | |
(generally reflects the performance of small-company growth stocks) | | | | |
Lipper Variable Annuity Small-Cap Growth Funds Universe Average | | | 3.41% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers, contributors and detractors
Markets continued their upward trajectory in 2014 on the back of an improving domestic economy. This included the Russell 2000 Growth benchmark, which marked its third consecutive positive year with a 5.6% annual return and fifth up year out of the past six. U.S. gross domestic product rose from negative growth to start the year to its best readings in over a decade by year-end. Job markets tightened, wage gains picked up and inflation remained low, which sparked a significant improvement in consumer spending and borrowing by year-end. Stocks faltered periodically each quarter of 2014 based mostly on geopolitical events and the pace of global economic recovery but, each time, recovered soon after.
2014 was rare for small caps where performance was positive yet there was a massive underperformance for small versus large caps. The last occurrence of this phenomenon was 1998. Typically, if the market is positive, the riskier and higher growth assets of small caps would outperform. Following the strong small cap returns since 2008, including the small cap surge in 2013, valuations stand at the upper boundaries of their historical averages relative to themselves and large caps, thereby pressuring performance.
Growth metrics were very inconsistent throughout 2014 as the higher-priced momentum growth stocks struggled relatively in both the second and fourth quarters due first to concerns of stagnant economic improvement and later due to a more abundant supply of growth stocks from the improving economy. Extremely low interest rates, wide open credit markets and low inflation from low energy costs allowed the growth outlook of more companies to be positive, which decreased the scarcity value of the highest growth stocks. Therefore, investors felt they did not have to pay up for the growth prospects of high-valuation stocks. The high-growth, secular growth stocks, with typically higher valuations, underperformed lower-quality, cyclical growth stocks that have more initial leverage to an improving economy. Within the index, non-earnings stories and the lowest valuations and growth outperformed. Higher return on equity, growth and valuation stories underperformed the year.
The Portfolio produced a positive absolute annual return for the 2014 fiscal year but lagged the benchmark and its peers for the 12-month period primarily due to its overweight in higher-growth securities.
As a function of strategy for long-term performance, the Portfolio focuses on secular growth stories that have stronger growth, cleaner balance sheets and greater profitability which typically carry higher valuations. Higher growth names, including those within the Portfolio, relatively underperformed thus contributing to the Portfolio’s underperformance. The biotechnology sector was the clear outperforming sector for the period. Due to the increased risk of the typically unprofitable biotech company with little or no history of product sales, the Portfolio chooses to usually underweight the segment. This underweight of the biotech sector was a significant detriment to performance in the year.
The Portfolio was overweight consumer discretionary although it had less exposure to retail stores, which made for its strongest relative sector performance. Energy was clearly the worst performing sector given lower oil prices. The Portfolio outperformed the segment to produce a positive contribution.
Regarding sectors, defense was the best offense as consumer staples and health care produced the strongest annual returns. Health care sector performance was driven by biotechnology and pharmaceuticals. Approximately 46% of the benchmark’s annual return is attributed to the performance of the Biotechnology sector. The Portfolio is generally underweight the biotechnology group given its non-earnings and volatile growth profile, which caused an underperformance relative to the sector. Consumer discretionary underperformed for the 12-month period given the slower uptick in discretionary spending, especially in lower income populations.
Outlook
Looking forward, the U.S. economy is improving at a rate meaningful enough that it potentially does not need much hand holding to survive. The economy continues on its trajectory of low but sustainable growth, which has historically been positive for the market and we believe there is more economic upside in the U.S. than most anywhere in the world so owning the beneficiaries of a stronger domestic economy and consumer is a key focus of the Portfolio.
In addition, fixed-income assets, savings accounts and cash on hand, which has the potential to be reversed into equities investment, still pose a tremendous tailwind if the rotation would continue. The fiscal drag of increased tax burdens and required local austerity on top of the recent change in the balance of political power in Washington remain significant risks to endure but all seem to be less onerous looking forward.
The private sector companies have vastly cleaned up their balance sheets through the prior deleveraging cycle and appear able to function without the public sector’s crutch. Geopolitical risks are abundant but, so far, most events remain isolated issues. We feel the biggest risk post multiple positive quarters and sizeable annual returns is that stock prices have obviously outpaced economic and earnings growth making valuations less attractive. Periods of catch-up may be required although sustained valuation reversals are more often event driven rather than coincidental realizations that stocks are too pricey.
Even though we currently see a clearer future than we had in the past five years with regard to negative events, we expect more periods of valuation sensitivity to occur, making the market potentially more volatile in the near term. In addition, the breadth of benefits of a better employment environment with little inflation and open credit markets have continued to currently reward the cyclical growth company relative to secular growth. Although the Portfolio remains disciplined to holding more consistent secular growth in companies that we feel could be ultimate winners in their respective market segments, valuation sensitivity and a focus toward cyclical benefactors will occur. However, the Portfolio remains quite focused on companies with stronger growth potential, cleaner balance sheets and greater profitability that can reinvest in their own businesses and most benefit from improved corporate and consumer spending. Currently, growth segments, such as technology, industrials and consumer discretionary are the Portfolio’s focused overweight sector positions.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in small-cap stocks may carry more risk than investing in stocks of larger, more well-established companies. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged, includes reinvested dividends and does not include fees. One cannot invest directly in an index, nor is an index representative of the Ivy Funds VIP Small Cap Growth performance.
PORTFOLIO HIGHLIGHTS
Small Cap Growth | ALL DATA AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 95.6% | |
Information Technology | | | 24.1% | |
Health Care | | | 23.5% | |
Consumer Discretionary | | | 22.3% | |
Industrials | | | 15.6% | |
Financials | | | 6.2% | |
Energy | | | 3.9% | |
Cash and Cash Equivalents | | | 4.4% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Huntington Ingalls Industries, Inc. | | Industrials | | Aerospace & Defense |
Portfolio Recovery Associates, Inc. | | Financials | | Consumer Finance |
ExamWorks Group, Inc. | | Health Care | | Health Care Services |
Skechers USA, Inc. | | Consumer Discretionary | | Footwear |
Tyler Technologies, Inc. | | Information Technology | | Application Software |
IPG Photonics Corp. | | Information Technology | | Electronic Manufacturing Services |
Spectranetics Corp. (The) | | Health Care | | Health Care Supplies |
Akorn, Inc. | | Health Care | | Pharmaceuticals |
Apogee Enterprises, Inc. | | Industrials | | Building Products |
Vail Resorts, Inc. | | Consumer Discretionary | | Leisure Facilities |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Small Cap Growth | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 1.59% | |
5-year period ended 12-31-14 | | | 12.02% | |
10-year period ended 12-31-14 | | | 6.89% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Small Cap Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary
Apparel Retail – 1.4% | |
Zumiez, Inc. (A) | | | 149 | | | $ | 5,773 | |
| | | | | | | | |
| |
Auto Parts & Equipment – 2.4% | |
Amerigon, Inc. (A) | | | 155 | | | | 5,693 | |
Motorcar Parts of America, Inc. (A) | | | 150 | | | | 4,648 | |
| | | | | | | | |
| | | | | | | 10,341 | |
| | | | | | | | |
| |
Automotive Retail – 3.1% | |
Lithia Motors, Inc. | | | 114 | | | | 9,880 | |
TravelCenters of America LLC (A) | | | 262 | | | | 3,310 | |
| | | | | | | | |
| | | | | | | 13,190 | |
| | | | | | | | |
| |
Broadcasting – 0.4% | |
Entravision Communications Corp. | | | 288 | | | | 1,864 | |
| | | | | | | | |
| |
Consumer Electronics – 2.3% | |
Harman International Industries, Inc. | | | 90 | | | | 9,579 | |
| | | | | | | | |
| |
Footwear – 2.8% | |
Skechers USA, Inc. (A) | | | 218 | | | | 12,049 | |
| | | | | | | | |
| |
Homebuilding – 0.3% | |
LGI Homes, Inc. (A) | | | 86 | | | | 1,288 | |
| | | | | | | | |
| |
Internet Retail – 1.1% | |
NutriSystem, Inc. | | | 230 | | | | 4,500 | |
| | | | | | | | |
| |
Leisure Facilities – 2.6% | |
Vail Resorts, Inc. | | | 122 | | | | 11,118 | |
| | | | | | | | |
| |
Restaurants – 3.4% | |
Habit Restaurants, Inc. (The) Class A (A) | | | 95 | | | | 3,060 | |
Krispy Kreme Doughnuts,
Inc. (A) | | | 344 | | | | 6,795 | |
Zoe’s Kitchen,
Inc. (A) | | | 157 | | | | 4,700 | |
| | | | | | | | |
| | | | | | | 14,555 | |
| | | | | | | | |
| |
Specialized Consumer Services – 2.5% | |
LifeLock, Inc. (A) | | | 578 | | | | 10,694 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 22.3% | | | | 94,951 | |
Energy | |
| |
Oil & Gas Equipment &
Services – 1.5% | |
Helix Energy Solutions Group, Inc. (A) | | | 306 | | | | 6,633 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 2.4% | |
Targa Resources Corp. | | | 95 | | | | 10,079 | |
| | | | | | | | |
| |
Total Energy – 3.9% | | | | 16,712 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
| Financials | |
Consumer Finance – 3.4% | |
Portfolio Recovery Associates, Inc. (A) | | | 251 | | | $ | 14,564 | |
| | | | | | | | |
| |
Investment Banking &
Brokerage – 1.0% | |
Moelis & Co., Class A | | | 126 | | | | 4,391 | |
| | | | | | | | |
| |
Regional Banks – 1.8% | |
Texas Capital Bancshares, Inc. (A) | | | 136 | | | | 7,397 | |
| | | | | | | | |
| | |
Total
Financials – 6.2% | | | | | | | 26,352 | |
Health Care | |
| |
Biotechnology – 2.0% | |
Insys Therapeutics, Inc. (A) | | | 127 | | | | 5,337 | |
KYTHERA Biopharmaceuticals, Inc. (A) | | | 90 | | | | 3,126 | |
| | | | | | | | |
| | | | | | | 8,463 | |
| | | | | | | | |
| |
Health Care Equipment – 4.1% | |
AtriCure, Inc. (A) | | | 170 | | | | 3,387 | |
Cyberonics, Inc. (A) | | | 95 | | | | 5,308 | |
DexCom, Inc. (A) | | | 160 | | | | 8,805 | |
| | | | | | | | |
| | | | | | | 17,500 | |
| | | | | | | | |
| |
Health Care Facilities – 3.2% | |
Acadia Healthcare Co., Inc. (A) | | | 137 | | | | 8,378 | |
Surgical Care Affiliates, Inc. (A) | | | 157 | | | | 5,278 | |
| | | | | | | | |
| | | | | | | 13,656 | |
| | | | | | | | |
| |
Health Care Services – 3.0% | |
ExamWorks Group, Inc. (A) | | | 306 | | | | 12,719 | |
| | | | | | | | |
| |
Health Care Supplies – 6.4% | |
Align Technology, Inc. (A) | | | 120 | | | | 6,731 | |
LDR Holding Corp. (A) | | | 126 | | | | 4,124 | |
Spectranetics Corp. (The) (A) | | | 338 | | | | 11,679 | |
Vascular Solutions, Inc. (A) | | | 169 | | | | 4,602 | |
| | | | | | | | |
| | | | | | | 27,136 | |
| | | | | | | | |
| |
Pharmaceuticals – 4.8% | |
Akorn, Inc. (A) | | | 316 | | | | 11,424 | |
Revance Therapeutics, Inc. (A) | | | 119 | | | | 2,017 | |
ZS Pharma, Inc. (A) | | | 166 | | | | 6,883 | |
| | | | | | | | |
| | | | | | | 20,324 | |
| | | | | | | | |
| |
Total Health Care – 23.5% | | | | 99,798 | |
Industrials | |
| |
Aerospace & Defense – 3.5% | |
Huntington Ingalls Industries, Inc. | | | 133 | | | | 14,997 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Building Products – 2.6% | |
Apogee Enterprises, Inc. | | | 265 | | | $ | 11,239 | |
| | | | | | | | |
| |
Diversified Support Services – 1.3% | |
UniFirst Corp. (A) | | | 46 | | | | 5,526 | |
| | | | | | | | |
| |
Electrical Components &
Equipment – 1.3% | |
Acuity Brands, Inc. | | | 38 | | | | 5,317 | |
| | | | | | | | |
| |
Human Resource & Employment
Services – 2.2% | |
WageWorks, Inc. (A) | | | 145 | | | | 9,370 | |
| | | | | | | | |
| |
Industrial Machinery – 1.3% | |
Barnes Group, Inc. | | | 150 | | | | 5,564 | |
| | | | | | | | |
| |
Trading Companies &
Distributors – 1.4% | |
Rush Enterprises, Inc. (A) | | | 179 | | | | 5,745 | |
| | | | | | | | |
| |
Trucking – 2.0% | |
Saia, Inc. (A) | | | 78 | | | | 4,292 | |
Swift Transportation Co. (A) | | | 149 | | | | 4,259 | |
| | | | | | | | |
| | | | | | | 8,551 | |
| | | | | | | | |
| |
Total
Industrials – 15.6% | | | | 66,309 | |
Information Technology | |
| |
Application Software – 6.6% | |
Synchronoss Technologies, Inc. (A) | | | 206 | | | | 8,618 | |
Tyler Technologies, Inc. (A) | | | 108 | | | | 11,847 | |
Ultimate Software Group, Inc. (The) (A) | | | 51 | | | | 7,430 | |
| | | | | | | | |
| | | | | | | 27,895 | |
| | | | | | | | |
| |
Communications Equipment – 4.2% | |
Applied Optoelectronics,
Inc. (A) | | | 213 | | | | 2,389 | |
Aruba Networks, Inc. (A) | | | 276 | | | | 5,025 | |
Ruckus Wireless, Inc. (A) | | | 460 | | | | 5,529 | |
ShoreTel, Inc. (A) | | | 696 | | | | 5,113 | |
| | | | | | | | |
| | | | | | | 18,056 | |
| | | | | | | | |
| |
Electronic Components – 0.5% | |
Universal Display Corp. (A) | | | 69 | | | | 1,926 | |
| | | | | | | | |
| |
Electronic Manufacturing
Services – 5.1% | |
IPG Photonics
Corp. (A) | | | 156 | | | | 11,707 | |
Methode Electronics, Inc. | | | 269 | | | | 9,837 | |
| | | | | | | | |
| | | | | | | 21,544 | |
| | | | | | | | |
| |
Internet Software & Services – 3.3% | |
Demandware, Inc. (A) | | | 135 | | | | 7,756 | |
Textura Corp. (A) | | | 224 | | | | 6,382 | |
| | | | | | | | |
| | | | | | | 14,138 | |
| | | | | | | | |
SCHEDULE OF INVESTMENTS
Small Cap Growth (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Semiconductors – 3.4% | |
Integrated Device Technology, Inc. (A) | | | 487 | | | $ | 9,545 | |
Silicon Motion Technology Corp. ADR | | | 216 | | | | 5,099 | |
| | | | | | | | |
| | | | | | | 14,644 | |
| | | | | | | | |
| |
Systems Software – 1.0% | |
Barracuda Networks,
Inc. (A) | | | 123 | | | | 4,390 | |
| | | | | | | | |
Total Information
Technology – 24.1% | | | | 102,593 | |
| |
TOTAL COMMON
STOCKS – 95.6% | | | $ | 406,715 | |
(Cost: $327,687) | | | | | | | | |
| | | | | | | | |
SHORT-TERM
SECURITIES | | Principal | | | Value | |
Commercial Paper (B) – 3.4% | |
CVS Caremark Corp.,
0.450%, 1-13-15 | | $ | 2,000 | | | $ | 1,999 | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | | 2,499 | | | | 2,499 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 5,000 | | | | 5,000 | |
Wisconsin Electric Power Co.,
0.200%, 1-9-15 | | | 5,000 | | | | 5,000 | |
| | | | | | | | |
| | | | | | | 14,498 | |
| | | | | | | | |
Master Note – 1.0% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (C) | | | 4,448 | | | | 4,448 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 4.4% | | | $ | 18,946 | |
(Cost: $18,946) | | | | | | | | |
| | | | | | |
| | | | |
Value | |
| |
TOTAL INVESTMENT SECURITIES – 100.0% | | $ | 425,661 | |
(Cost: $346,633) | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER
ASSETS – 0.0% | | | (96 | ) |
| |
NET ASSETS – 100.0% | | $ | 425,565 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Rate shown is the yield to maturity at December 31, 2014. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 406,715 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 18,946 | | | | — | |
| | | | |
Total | | $ | 406,715 | | | $ | 18,946 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronym is used throughout this schedule:
ADR = American Depositary Receipts
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Small Cap Value | (UNAUDITED) |
Kenneth G. Gau
Kenneth G. Gau, who has 20 years of industry experience, became portfolio manager of Ivy Funds VIP Small Cap Value in August 2014. The Portfolio was managed by Christopher J. Parker, CFA from September 2011 to July 2014. Below, Mr. Gau discusses positioning, performance and results for the fiscal year ended December 31, 2014.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Small Cap Value | | | 7.05% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell 2000 Value Index | | | 4.27% | |
(generally reflects the performance of small-company value style stocks) | | | | |
Lipper Variable Annuity Small-Cap Value Funds Universe Average | | | 4.25% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers, contributors and detractors
After seeing a terrific return in equities in 2013, 2014 was clearly more muted, but still solidly positive across the board. The Russell 2000 Value Index was up 4.27% for the year. On a relative basis, the Portfolio outperformed its benchmark and peers for the period.
Two of the biggest defining events on equity markets in 2014 were the counter consensus moves in interest rates and oil prices.
Many strategists believed heading into 2014 that interest rates were about to positively inflect, which did not prove to be true, as rates drifted lower and caused a number of sectors/industries to perform much differently than expected. For example, utilities was the best performing sector in the Russell 2000 Value Index in 2014, which was far from consensus and consequently proved to be a drag on performance for many as the average portfolio manager was underweight this sector. Aside from utilities, the majority of portfolio managers also faced a headwind by being underweight Real Estate Investment Trusts (REITs), which also massively outperformed during 2014.
In terms of the energy sector, it also provided some surprises as it experienced a violent reversal in performance in the middle of the year tied to the collapse of crude oil prices ($110 to low $50s a barrel at the end of 2014), which caught many investors off guard. After having been the leadership group for the first six months of 2014, energy became the worst performing sector by a far greater magnitude in the second half of the year. As to the explanation for the dramatic reversal, there were several clear catalysts, excess supply (which was aided by excess liquidity from central banks), diminishing demand (aside from several pockets of growth like the U.S., global growth generally decelerated), and OPEC action (Saudi Arabia decided it was time to pierce the price bubble by refusing to cut supply), but as far as the timing and magnitude, there still remain numerous debates on the topic.
In relation to these two surprises, we also fell victim as we were sizably underweight Utilities and REITs, which provided just over a 225 basis point drag on performance, and suffered some headwind by being overweight energy, but were able to overcome this through strong relative stock selection in the energy group. Collectively, these two headwinds did detract from our overall performance for the year, but fortunately our stock selection for most of the portfolio overcompensated for our sector/industry allocation.
Exiting 2014, the Portfolio’s sector/industry allocations are trending more neutral than they were over the course of the year. For example, we have lessened the Portfolio’s substantial underweight in financials and overweight positions in industrials and energy. The reason for this is our belief that the current environment we are in appears to have greater uncertainty and is more prone to volatility. Rather than making multiple bigger calls on sector/industry allocations, we are placing a greater dependency on stock selection within the sectors/industries at least until there is greater clarity in the backdrop. We will still be overweight or underweight sectors/industries, but it seems prudent to narrow the magnitude at this time. Over the past few months of the year we moved to this more neutral stance and it has served us well to date. If we hadn’t made this move, the Portfolio’s performance would have suffered a greater headwind from the sector/industry allocations decisions we made earlier in 2014.
Outlook
After a strong finish in 2014 we still believe that the bull market run that began in March 2009 remains in a sustained uptrend as we are just starting to more clearly see the fruits of an economic recovery, and historically the third year of a presidential cycle has provided nice returns. What we believe could be different in 2015 is a much higher level of volatility as investors and the Federal Reserve grapple with the prospect of an impending rise in interest rates against a complicated backdrop caused by a stronger dollar, diverging global monetary policies, and increased geo-political risks. With volatility comes opportunity for those who are opportunistic and disciplined. We will continue to work diligently and believe that 2015 could be another prosperous year.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Investing in small-cap stocks may carry more risk than investing in stocks of larger, more established companies. Value stocks are stocks of companies that may have experienced adverse business or industry developments; or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Portfolio’s manager, undervalued. The value of a security believed by the Portfolio’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Small Cap Value.
PORTFOLIO HIGHLIGHTS
Small Cap Value | ALL DATA AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 98.3% | |
Financials | | | 34.3% | |
Consumer Discretionary | | | 17.0% | |
Industrials | | | 14.6% | |
Materials | | | 9.1% | |
Consumer Staples | | | 6.3% | |
Health Care | | | 5.0% | |
Information Technology | | | 4.5% | |
Energy | | | 4.4% | |
Utilities | | | 3.1% | |
Cash and Cash Equivalents | | | 1.7% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Smart Balance, Inc. | | Consumer Staples | | Packaged Foods & Meats |
Scotts Miracle-Gro Co. (The) | | Materials | | Fertilizers & Agricultural Chemicals |
Portfolio Recovery Associates, Inc. | | Financials | | Consumer Finance |
Krispy Kreme Doughnuts, Inc. | | Consumer Discretionary | | Restaurants |
Matson, Inc. | | Industrials | | Marine |
Manitowoc Co., Inc. (The) | | Industrials | | Construction Machinery & Heavy Trucks |
Western Alliance Bancorporation | | Financials | | Regional Banks |
Carmike Cinemas, Inc. | | Consumer Discretionary | | Movies & Entertainment |
Saia, Inc. | | Industrials | | Trucking |
First Horizon National Corp. | | Financials | | Regional Banks |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
Small Cap Value | (UNAUDITED) |
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 7.05% | |
5-year period ended 12-31-14 | | | 13.33% | |
10-year period ended 12-31-14 | | | 7.60% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Small Cap Value (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel Retail – 1.5% | |
Lands’ End, Inc. (A) | | | 99 | | | $ | 5,353 | |
| | | | | | | | |
| |
Automotive Retail – 0.3% | |
Monro Muffler Brake, Inc. | | | 19 | | | | 1,118 | |
| | | | | | | | |
| |
Catalog Retail – 1.4% | |
HSN, Inc. | | | 63 | | | | 4,773 | |
| | | | | | | | |
| |
Computer & Electronics Retail – 1.2% | |
Rent-A-Center, Inc. | | | 117 | | | | 4,246 | |
| | | | | | | | |
| |
Internet Retail – 2.8% | |
FTD Co., Inc. (A) | | | 114 | | | | 3,985 | |
NutriSystem, Inc. | | | 306 | | | | 5,990 | |
| | | | | | | | |
| | | | | | | 9,975 | |
| | | | | | | | |
| |
Movies & Entertainment – 3.6% | |
Carmike Cinemas, Inc. (A) | | | 333 | | | | 8,748 | |
Cinemark Holdings, Inc. | | | 113 | | | | 4,024 | |
| | | | | | | | |
| | | | | | | 12,772 | |
| | | | | | | | |
| |
Restaurants – 6.2% | |
Cracker Barrel Old Country Store, Inc. | | | 39 | | | | 5,475 | |
Krispy Kreme Doughnuts, Inc. (A) | | | 652 | | | | 12,863 | |
Texas Roadhouse, Inc., Class A | | | 110 | | | | 3,724 | |
| | | | | | | | |
| | | | | | | 22,062 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 17.0% | | | | 60,299 | |
Consumer Staples | |
| |
Food Distributors – 1.2% | |
United Natural Foods, Inc. (A) | | | 56 | | | | 4,292 | |
| | | | | | | | |
| |
Food Retail – 0.9% | |
Casey’s General Stores, Inc. | | | 35 | | | | 3,182 | |
| | | | | | | | |
| |
Packaged Foods & Meats – 4.2% | |
Smart Balance, Inc. (A) | | | 1,330 | | | | 14,708 | |
| | | | | | | | |
| |
Total Consumer
Staples – 6.3% | | | | 22,182 | |
Energy | |
| |
Oil & Gas Equipment & Services – 1.5% | |
Helix Energy Solutions Group, Inc. (A) | | | 111 | | | | 2,404 | |
Superior Energy Services, Inc. | | | 144 | | | | 2,910 | |
| | | | | | | | |
| | | | | | | 5,314 | |
| | | | | | | | |
| |
Oil & Gas Refining & Marketing – 1.1% | |
Western Refining, Inc. | | | 106 | | | | 4,001 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 1.8% | |
Atlas Pipeline Partners L.P. | | | 164 | | | | 4,462 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Oil & Gas Storage & Transportation (Continued) | |
Sunoco, Inc. | | | 37 | | | $ | 1,817 | |
| | | | | | | | |
| | | | | | | 6,279 | |
| | | | | | | | |
| |
Total Energy – 4.4% | | | | 15,594 | |
Financials | |
Consumer Finance – 4.3% | |
JG Wentworth Co. (A) | | | 139 | | | | 1,484 | |
Portfolio Recovery Associates, Inc. (A) | | | 240 | | | | 13,874 | |
| | | | | | | | |
| | | | | | | 15,358 | |
| | | | | | | | |
| |
Investment Banking &
Brokerage – 1.4% | |
Greenhill & Co., Inc. | | | 115 | | | | 5,031 | |
| | | | | | | | |
| |
Life & Health Insurance – 2.8% | |
American Equity Investment Life Holding Co. | | | 196 | | | | 5,733 | |
Fidelity & Guaranty Life | | | 165 | | | | 4,016 | |
| | | | | | | | |
| | | | | | | 9,749 | |
| | | | | | | | |
| |
Office REITs – 3.7% | |
Corporate Office Properties Trust | | | 200 | | | | 5,674 | |
Highwoods Properties, Inc. | | | 60 | | | | 2,635 | |
Lexington Corp. Properties Trust | | | 339 | | | | 3,719 | |
Parkway Properties, Inc. | | | 66 | | | | 1,212 | |
| | | | | | | | |
| | | | | | | 13,240 | |
| | | | | | | | |
| |
Property & Casualty Insurance – 1.7% | |
Argo Group International Holdings Ltd. | | | 106 | | | | 5,898 | |
| | | | | | | | |
| |
Real Estate Operating
Companies – 1.6% | |
Forest City Enterprises, Inc., Class A (A) | | | 261 | | | | 5,568 | |
| | | | | | | | |
| |
Regional Banks – 11.1% | |
City National Corp. | | | 68 | | | | 5,487 | |
First Horizon National Corp. | | | 604 | | | | 8,196 | |
PrivateBancorp, Inc. | | | 79 | | | | 2,629 | |
SVB Financial Group (A) | | | 15 | | | | 1,764 | |
Synovus Financial Corp. | | | 217 | | | | 5,883 | |
Webster Financial Corp. | | | 183 | | | | 5,950 | |
Western Alliance Bancorporation (A) | | | 330 | | | | 9,160 | |
| | | | | | | | |
| | | | | | | 39,069 | |
| | | | | | | | |
| |
Reinsurance – 2.8% | |
Endurance Specialty Holdings Ltd. | | | 87 | | | | 5,194 | |
Reinsurance Group of America, Inc. | | | 54 | | | | 4,732 | |
| | | | | | | | |
| | | | | | | 9,926 | |
| | | | | | | | |
| |
Retail REITs – 1.9% | |
Kite Realty Group Trust | | | 239 | | | | 6,860 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Specialized REITs – 2.3% | |
LaSalle Hotel Properties | | | 71 | | | $ | 2,853 | |
Strategic Hotels & Resorts,
Inc. (A) | | | 407 | | | | 5,379 | |
| | | | | | | | |
| | | | | | | 8,232 | |
| | | | | | | | |
| |
Total Financials – 33.6% | | | | 118,931 | |
Health Care | |
| |
Health Care Facilities – 5.0% | |
Community Health Systems, Inc. (A) | | | 125 | | | | 6,729 | |
HealthSouth Corp. | | | 149 | | | | 5,715 | |
LifePoint Hospitals, Inc. (A) | | | 72 | | | | 5,156 | |
| | | | | | | | |
| | | | | | | 17,600 | |
| | | | | | | | |
| |
Total Health Care – 5.0% | | | | 17,600 | |
Industrials | |
| |
Building Products – 2.2% | |
Continental Building Products, Inc. (A) | | | 198 | | | | 3,518 | |
NCI Building Systems, Inc. (A) | | | 237 | | | | 4,395 | |
| | | | | | | | |
| | | | | | | 7,913 | |
| | | | | | | | |
| |
Construction Machinery & Heavy Trucks – 2.7% | |
Manitowoc Co., Inc. (The) (A) | | | 435 | | | | 9,612 | |
| | | | | | | | |
| |
Diversified Support Services – 0.9% | |
UniFirst Corp. (A) | | | 26 | | | | 3,206 | |
| | | | | | | | |
| |
Marine – 3.2% | |
Matson, Inc. | | | 326 | | | | 11,268 | |
| | | | | | | | |
| |
Trading Companies &
Distributors – 1.7% | |
Watsco, Inc. | | | 54 | | | | 5,825 | |
| | | | | | | | |
| |
Trucking – 3.9% | |
Marten Transport Ltd. | | | 249 | | | | 5,435 | |
Saia, Inc. (A) | | | 153 | | | | 8,473 | |
| | | | | | | | |
| | | | | | | 13,908 | |
| | | | | | | | |
| |
Total Industrials – 14.6% | | | | 51,732 | |
Information Technology | |
| |
Semiconductor Equipment – 1.9% | |
Teradyne, Inc. | | | 342 | | | | 6,772 | |
| | | | | | | | |
| |
Semiconductors – 1.8% | |
Spansion, Inc. (A) | | | 185 | | | | 6,317 | |
| | | | | | | | |
| |
Technology Distributors – 0.8% | |
Insight Enterprises, Inc. (A) | | | 108 | | | | 2,799 | |
| | | | | | | | |
Total Information
Technology – 4.5% | | | | 15,888 | |
SCHEDULE OF INVESTMENTS
Small Cap Value (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Materials | |
| |
Fertilizers & Agricultural
Chemicals – 3.9% | |
Scotts Miracle-Gro Co. (The) | | | 223 | | | $ | 13,915 | |
| | | | | | | | |
| |
Forest Products – 1.4% | |
Boise Cascade Co.(A) | | | 136 | | | | 5,049 | |
| | | | | | | | |
| |
Specialty Chemicals – 2.7% | |
Cytec Industries, Inc. | | | 97 | | | | 4,460 | |
Kraton Performance Polymers, Inc.(A) | | | 250 | | | | 5,195 | |
| | | | | | | | |
| | | | | | | 9,655 | |
| | | | | | | | |
| |
Steel – 1.1% | |
SunCoke Energy Partners L.P. | | | 135 | | | | 3,667 | |
| | | | | | | | |
| |
Total Materials – 9.1% | | | | 32,286 | |
Utilities | |
| |
Electric Utilities – 1.8% | |
Great Plains Energy, Inc. | | | 129 | | | | 3,665 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Electric Utilities (Continued) | |
Portland General Electric Co. | | | 70 | | | $ | 2,648 | |
| | | | | | | | |
| | | | | | | 6,313 | |
| | | | | | | | |
| |
Gas Utilities – 1.3% | |
Southwest Gas Corp. | | | 74 | | | | 4,569 | |
| | | | | | | | |
| |
Total Utilities – 3.1% | | | | 10,882 | |
| |
TOTAL COMMON
STOCKS – 97.6% | | | $ | 345,394 | |
(Cost: $296,749) | | | | | | | | |
| |
INVESTMENT FUNDS | | | | | |
Asset Management & Custody
Banks – 0.7% | |
THL Credit, Inc. | | | 197 | | | | 2,312 | |
| | | | | | | | |
| |
TOTAL INVESTMENT
FUNDS – 0.7% | | | $ | 2,312 | |
(Cost: $2,579) | | | | | | | | |
| | | | | | | | |
SHORT-TERM
SECURITIES | | Principal | | | Value | |
Commercial Paper(B) – 3.3% | |
Federal Home Loan Bank, | | | | | |
0.055%, 1-9-15 | | $ | 1,494 | | | $ | 1,494 | |
Virginia Electric and Power Co., | | | | | |
0.340%, 1-22-15 | | | 10,000 | | | | 9,998 | |
| | | | | | | | |
| | | | | | | 11,492 | |
| | | | | | | | |
Master Note – 0.1% | |
Toyota Motor Credit Corp., | | | | | |
0.126%, 1-7-15 (C) | | | 448 | | | | 448 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 3.4% | | | $ | 11,940 | |
(Cost: $11,940) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 101.7% | | | $ | 359,646 | |
(Cost: $311,268) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND OTHER
ASSETS – (1.7)% | | | | (5,908 | ) |
| |
NET ASSETS – 100.0% | | | $ | 353,738 | |
Notes to Schedule of Investments
| (A) | No dividends were paid during the preceding 12 months. |
| (B) | Rate shown is the yield to maturity at December 31, 2014. |
| (C) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 345,394 | | | $ | — | | | $ | — | |
Investment Funds | | | 2,312 | | | | — | | | | — | |
Short-Term Securities | | | — | | | | 11,940 | | | | — | |
| | | | |
Total | | $ | 347,706 | | | $ | 11,940 | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronym is used throughout this schedule:
REIT = Real Estate Investment Trust
See Accompanying Notes to Financial Statements.
MANAGEMENT DISCUSSION
Matthew T. Norris
Below, Matthew T. Norris, CFA, portfolio manager of Ivy Funds VIP Value, discusses positioning, performance and results for the fiscal year ended December 31, 2014. He has managed the Portfolio since 2003 and has 23 years of industry experience.
Fiscal Year Performance
| | | | |
For the 12 Months Ended December 31, 2014 | | | | |
Ivy Funds VIP Value | | | 10.94% | |
Benchmark(s) and/or Lipper Category | | | | |
Russell 1000 Value Index | | | 13.45% | |
(generally reflects the performance of large-company value style stocks) | | | | |
Lipper Variable Annuity Large-Cap Value Funds Universe Average | | | 10.79% | |
(generally reflects the performance of the universe of funds with similar investment objectives) | | | | |
Please note that Portfolio returns include applicable fees and expenses while index returns do not include any such fees. Also, the Portfolio’s performance data does not take into account any product expenses or charges associated with owning a variable life or annuity policy, which is invested in Ivy Funds Variable Insurance Portfolios.
Key drivers
In the fourth quarter of 2014 U.S. equity markets rose nicely although underlying performance was highly varied. The worries that drove the market in October were quickly reversed and forgotten, as it fell sharply for the first two weeks of that month before rallying to new highs. Many concerns seem to be much of the same, including: European economic and debt risk, Chinese economic risk, foreign currency concerns and extremely low interest rates. While U.S. economic growth is not particularly strong, it has not weakened and it seems unlikely to do so at this time. After Thanksgiving, the market received a new wildcard as OPEC chose not to cut oil production, sending the price of oil and related fossil fuels into a tailspin. The stronger market did mask significant underlying volatility. In a continuing trend, stocks that paid high dividends were also winners, as investors were willing to pay more for the certainty of a cash return.
Contributors and detractors
Individual stock selection was below expectations for the period and the Portfolio underperformed its benchmark for the 12-month period ended Dec. 31, 2014.
All of the underperformance occurred in the fourth quarter of 2014 as oil fell, bringing down a number of the Portfolio’s holdings with it. Direct energy names such as the major oil companies (Occidental Petroleum, Phillips 66 and Marathon Refining) and pipeline exposures fell, but underperformance was also exacerbated by related stocks such as the chemical companies (Dow Chemical and Lyondell). The damage was severe, with the energy sector trailing the index by more than 20%.
We continue to focus on investing by researching one company at a time and finding names that we believe are trading substantially below our estimate of their true values. This approach will not change due to short-term market events. One example is Western Digital Corporation, which was added to the Portfolio in 2013 and continues to be a top holding this year. Western Digital makes hard disk drives for information storage. This market has consolidated into two large players, which has allowed Western Digital to hold pricing at better levels than in the past. In addition, the increased expense to build new production facilities has been cost prohibitive for many competitors. The business was correctly viewed as a commodity cyclical for many years, but the changes in the industry structure have resulted in a better business for all. As a result, the valuation assigned to Western Digital has been slowly increased.
We continue to pursue a strategy of buying inexpensive stocks and diversifying picks among economic sectors to help reduce long-term volatility. The focus is on high free-cash-flow yielding non-financial companies and low price-to-book ratios for financial companies. Currently we have found more ideas in the consumer discretionary and technology sectors. Utilities and industrials are sectors where the Portfolio is under represented at the present time due to a lack of quality ideas. Investments in these areas can and do shift when opportunity presents itself. While energy stocks were poor performers in 2014, we believe there will be a value opportunity somewhere in the future for the Portfolio. Low oil prices lead to increased consumption, and decreasing production. This will cure the oil oversupply and prices should rise again.
Outlook
2015 could hold a few surprises. The Federal Reserve (Fed) has ceased on most of the stimulus measures that it implemented during the recession. It seems likely that the Fed will now actively remove stimulus by raising short-term interest rates. Inflation has not been a concern, and the drop in oil prices should insure that inflation does not accelerate in the near term. We will have to see if the economy is strong enough to grow on its own in the face of higher interest rates. We believe recent stronger data on jobs and credit growth are encouraging signs.
While the economic forces listed above are clearly important factors, our first approach is from the company level. We seek to find quality, growing companies whose stocks are trading notably below what we consider fair value.
Past performance is not a guarantee of future results. As with any mutual fund, the value of the Portfolio’s shares will change, and you could lose money on your investment.
Value stocks are stocks of companies that may have experienced adverse business or industry developments; or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Portfolio’s manager, undervalued. The value of a security believed by the Portfolio’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. These and other risks are more fully described in the Portfolio’s prospectus.
The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.
The index noted is unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of Ivy Funds VIP Value.
PORTFOLIO HIGHLIGHTS
Value | ALL DATA AS OF DECEMBER 31, 2014 (UNAUDITED) |
Asset Allocation
| | | | |
Stocks | | | 92.3% | |
Financials | | | 26.0% | |
Consumer Discretionary | | | 14.8% | |
Information Technology | | | 13.7% | |
Health Care | | | 13.1% | |
Energy | | | 13.0% | |
Consumer Staples | | | 9.2% | |
Materials | | | 2.4% | |
Utilities | | | 0.1% | |
Cash and Cash Equivalents | | | 7.7% | |
Top 10 Equity Holdings
| | | | |
| Company | | Sector | | Industry |
Western Digital Corp. | | Information Technology | | Technology Hardware, Storage & Peripherals |
American International Group, Inc. | | Financials | | Multi-Line Insurance |
Citigroup, Inc. | | Financials | | Other Diversified Financial Services |
SanDisk Corp. | | Information Technology | | Technology Hardware, Storage & Peripherals |
Capital One Financial Corp. | | Financials | | Consumer Finance |
Teva Pharmaceutical Industries Ltd. ADR | | Health Care | | Pharmaceuticals |
Time Warner Cable, Inc. | | Consumer Discretionary | | Cable & Satellite |
JPMorgan Chase & Co. | | Financials | | Other Diversified Financial Services |
Philip Morris International, Inc. | | Consumer Staples | | Tobacco |
MetLife, Inc. | | Financials | | Life & Health Insurance |
See your advisor for more information on the Portfolio’s most recently published Top 10 Equity Holdings.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
| (1) | The value of the investment in the Portfolio is impacted by the ongoing expenses of the Portfolio and assumes reinvestment of dividends and distributions. |
| | | | |
| Average Annual Total Return(2) | | | |
1-year period ended 12-31-14 | | | 10.94% | |
5-year period ended 12-31-14 | | | 14.45% | |
10-year period ended 12-31-14 | | | 7.43% | |
| (2) | Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Please call 1.888.WADDELL for the Portfolio’s most recent month-end performance. Performance data quoted does not reflect any expenses or charges associated with owning a variable life insurance policy or variable annuity contract that invests in the Portfolio’s shares. When such charges are deducted, actual investment performance in a variable policy or contract will be lower. |
Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or on the redemption of Portfolio shares. Performance results may include the effect of expense reduction arrangements for some or all of the periods shown. If those arrangements had not been in place, the performance results for those periods would have been lower.
SCHEDULE OF INVESTMENTS
Value (in thousands) | DECEMBER 31, 2014 |
| | | | | | | | |
| COMMON STOCKS | | Shares | | | Value | |
Consumer Discretionary | |
| |
Apparel, Accessories & Luxury
Goods – 0.2% | |
Coach, Inc. | | | 27 | | | $ | 995 | |
| | | | | | | | |
| |
Cable & Satellite – 5.1% | |
Comcast Corp., Class A | | | 72 | | | | 4,200 | |
Time Warner Cable, Inc. (A) | | | 111 | | | | 16,863 | |
| | | | | | | | |
| | | | | | | 21,063 | |
| | | | | | | | |
| |
Casinos & Gaming – 1.0% | |
Las Vegas Sands, Inc. | | | 61 | | | | 3,571 | |
Melco PBL Entertainment (Macau) Ltd. ADR | | | 17 | | | | 429 | |
| | | | | | | | |
| | | | | | | 4,000 | |
| | | | | | | | |
| |
Department Stores – 2.0% | |
Macy’s, Inc. | | | 125 | | | | 8,239 | |
| | | | | | | | |
| |
General Merchandise Stores – 1.8% | |
Target Corp. (A) | | | 102 | | | | 7,728 | |
| | | | | | | | |
| |
Homebuilding – 2.1% | |
Pulte Homes, Inc. | | | 408 | | | | 8,760 | |
| | | | | | | | |
| |
Hotels, Resorts & Cruise Lines – 2.6% | |
Wyndham Worldwide Corp. | | | 125 | | | | 10,720 | |
| | | | | | | | |
| |
Total Consumer
Discretionary – 14.8% | | | | 61,505 | |
Consumer Staples | |
| |
Brewers – 0.8% | |
Molson Coors Brewing Co., Class B | | | 47 | | | | 3,517 | |
| | | | | | | | |
| |
Drug Retail – 3.0% | |
CVS Caremark Corp. | | | 130 | | | | 12,511 | |
| | | | | | | | |
| |
Soft Drinks – 2.0% | |
Coca-Cola Enterprises, Inc. | | | 186 | | | | 8,216 | |
| | | | | | | | |
| |
Tobacco – 3.4% | |
Philip Morris International, Inc. | | | 174 | | | | 14,156 | |
| | | | | | | | |
| |
Total Consumer
Staples – 9.2% | | | | 38,400 | |
Energy | |
| |
Integrated Oil & Gas – 1.0% | |
Occidental Petroleum Corp. | | | 53 | | | | 4,232 | |
| | | | | | | | |
| |
Oil & Gas Refining & Marketing – 2.6% | |
Marathon Petroleum Corp. (A) | | | 122 | | | | 11,021 | |
| | | | | | | | |
| |
Oil & Gas Storage &
Transportation – 9.4% | |
Atlas Energy L.P. | | | 267 | | | | 8,314 | |
Atlas Pipeline Partners L.P. | | | 352 | | | | 9,607 | |
MarkWest Energy Partners L.P. | | | 81 | | | | 5,469 | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Oil & Gas Storage & Transportation (Continued) | |
Regency Energy Partners L.P. | | | 410 | | | $ | 9,830 | |
Targa Resources Corp. | | | 11 | | | | 1,198 | |
VTTI Energy Partners L.P. | | | 185 | | | | 4,574 | |
| | | | | | | | |
| | | | | | | 38,992 | |
| | | | | | | | |
| |
Total Energy – 13.0% | | | | 54,245 | |
Financials | |
| |
Asset Management & Custody
Banks – 1.7% | |
State Street Corp. | | | 89 | | | | 6,955 | |
| | | | | | | | |
| |
Consumer Finance – 4.4% | |
Capital One Financial Corp. | | | 223 | | | | 18,384 | |
| | | | | | | | |
| |
Life & Health Insurance – 3.4% | |
MetLife, Inc. | | | 260 | | | | 14,042 | |
| | | | | | | | |
| |
Multi-Line Insurance – 4.8% | |
American International Group, Inc. | | | 356 | | | | 19,962 | |
| | | | | | | | |
| |
Other Diversified Financial
Services – 8.6% | |
Citigroup, Inc. (A) | | | 356 | | | | 19,274 | |
JPMorgan Chase & Co. | | | 266 | | | | 16,659 | |
| | | | | | | | |
| | | | | | | 35,933 | |
| | | | | | | | |
| |
Reinsurance – 3.1% | |
Reinsurance Group of America, Inc. | | | 148 | | | | 12,985 | |
| | | | | | | | |
| |
Total Financials – 26.0% | | | | 108,261 | |
Health Care | |
| |
Biotechnology – 2.5% | |
Amgen, Inc. (A) | | | 65 | | | | 10,274 | |
| | | | | | | | |
| |
Health Care Facilities – 2.4% | |
HCA Holdings, Inc. (B) | | | 133 | | | | 9,790 | |
| | | | | | | | |
| |
Managed Health Care – 3.8% | |
Aetna, Inc. | | | 24 | | | | 2,167 | |
Humana, Inc. | | | 69 | | | | 9,939 | |
WellPoint, Inc. | | | 31 | | | | 3,846 | |
| | | | | | | | |
| | | | | | | 15,952 | |
| | | | | | | | |
| |
Pharmaceuticals – 4.4% | |
Sanofi ADR | | | 25 | | | | 1,136 | |
Teva Pharmaceutical Industries Ltd. ADR | | | 300 | | | | 17,241 | |
| | | | | | | | |
| | | | | | | 18,377 | |
| | | | | | | | |
| |
Total Health Care – 13.1% | | | | 54,393 | |
Information Technology | |
| |
Electronic Equipment &
Instruments – 3.1% | |
Xerox Corp. | | | 929 | | | | 12,875 | |
| | | | | | | | |
| | | | | | | | |
COMMON STOCKS
(Continued) | | Shares | | | Value | |
Semiconductors – 1.0% | |
Micron Technology, Inc. (B) | | | 120 | | | $ | 4,201 | |
| | | | | | | | |
| |
Technology Hardware, Storage &
Peripherals – 9.6% | |
SanDisk Corp. | | | 193 | | | | 18,930 | |
Western Digital Corp. (A) | | | 190 | | | | 21,077 | |
| | | | | | | | |
| | | | | | | 40,007 | |
| | | | | | | | |
| |
Total Information
Technology – 13.7% | | | | 57,083 | |
Materials | |
| |
Diversified Chemicals – 2.4% | |
Dow Chemical Co. (The) | | | 218 | | | | 9,952 | |
| | | | | | | | |
| |
Total Materials – 2.4% | | | | 9,952 | |
Utilities | |
| |
Electric Utilities – 0.1% | |
Exelon Corp. | | | 12 | | | | 460 | |
| | | | | | | | |
| |
Total Utilities – 0.1% | | | | 460 | |
| |
TOTAL COMMON
STOCKS – 92.3% | | | $ | 384,299 | |
(Cost: $326,073) | | | | | | | | |
| | |
SHORT-TERM
SECURITIES | | Principal | | | | |
Commercial Paper (C) – 6.9% | |
Federal Home Loan Bank: | | | | | | | | |
0.055%, 1-9-15 | | $ | 5,000 | | | | 5,000 | |
0.020%, 1-26-15 | | | 1,000 | | | | 1,000 | |
L Oreal USA, Inc.,
0.100%, 1-26-15 | | | 2,000 | | | | 2,000 | |
McCormick & Co., Inc.,
0.160%, 1-2-15 | | | 3,457 | | | | 3,457 | |
NBCUniversal Enterprise, Inc.,
0.320%, 1-6-15 | | | 12,000 | | | | 11,999 | |
Wal-Mart Stores, Inc.,
0.090%, 1-13-15 | | | 5,000 | | | | 5,000 | |
| | | | | | | | |
| | | | | | | 28,456 | |
| | | | | | | | |
| |
Master Note – 0.8% | |
Toyota Motor Credit Corp.,
0.126%,
1-7-15 (D) | | | 3,455 | | | | 3,455 | |
| | | | | | | | |
| |
TOTAL SHORT-TERM
SECURITIES – 7.7% | | | $ | 31,911 | |
(Cost: $31,911) | | | | | | | | |
| |
TOTAL INVESTMENT
SECURITIES – 100.0% | | | $ | 416,210 | |
(Cost: $357,984) | | | | | | | | |
| |
LIABILITIES, NET OF CASH AND
OTHER ASSETS – 0.0% | | | | (17 | ) |
| |
NET ASSETS – 100.0% | | | $ | 416,193 | |
SCHEDULE OF INVESTMENTS
Value (in thousands) | DECEMBER 31, 2014 |
Notes to Schedule of Investments
| (A) | All or a portion of securities with an aggregate value of $17,705 are held in collateralized accounts to cover potential obligations with respect to outstanding written options. |
| (B) | No dividends were paid during the preceding 12 months. |
| (C) | Rate shown is the yield to maturity at December 31, 2014. |
| (D) | Variable rate security. Interest rate disclosed is that which is in effect at December 31, 2014. Date shown represents the date that the variable rate resets. |
The following written options were outstanding at December 31, 2014 (contracts and exercise prices unrounded):
| | | | | | | | | | | | | | | | | | | | | | | | |
| Underlying Security | | Counterparty, if OTC | | Type | | Number of
Contracts | | | Expiration Month | | | Exercise Price | | | Premium
Received | | | Value | |
Amgen, Inc. | | N/A | | Call | | | 80 | | | | January 2015 | | | $ | 160.00 | | | $ | 57 | | | $ | (42 | ) |
Las Vegas Sands, Inc. | | N/A | | Put | | | 204 | | | | January 2015 | | | | 50.00 | | | | 8 | | | | (3 | ) |
| | N/A | | Put | | | 204 | | | | January 2015 | | | | 52.25 | | | | 12 | | | | (4 | ) |
Marathon Petroleum Corp. | | N/A | | Call | | | 446 | | | | January 2015 | | | | 100.00 | | | | 80 | | | | (7 | ) |
Time Warner Cable, Inc. | | N/A | | Call | | | 251 | | | | January 2015 | | | | 170.00 | | | | 29 | | | | (1 | ) |
Western Digital Corp. | | N/A | | Call | | | 127 | | | | January 2015 | | | | 105.00 | | | | 16 | | | | (81 | ) |
| | N/A | | Call | | | 110 | | | | February 2015 | | | | 115.00 | | | | 40 | | | | (32 | ) |
| | N/A | | Call | | | 110 | | | | February 2015 | | | | 120.00 | | | | 22 | | | | (16 | ) |
| | N/A | | Call | | | 110 | | | | February 2015 | | | | 130.00 | | | | 5 | | | | (4 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 269 | | | $ | (190 | ) |
| | | | | | | | | | | | | | | | | | | | |
The following table is a summary of the valuation of the Portfolio’s investments by the fair value hierarchy levels as of December 31, 2014. See Note 3 to the Financial Statements for further information regarding fair value measurement.
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
Assets | | | | | | | | | | | | |
Investments in Securities | | | | | | | | | | | | |
Common Stocks | | $ | 384,299 | | | $ | — | | | $ | — | |
Short-Term Securities | | | — | | | | 31,911 | | | | — | |
| | | | |
Total | | $ | 384,299 | | | $ | 31,911 | | | $ | — | |
| | | | |
Liabilities | | | | | | | | | | | | |
Written Options | | $ | 190 | | | $ | — | | | $ | — | |
| | | | |
During the period ended December 31, 2014, there were no transfers between Level 1 and 2.
The following acronyms are used throughout this schedule:
ADR = American Depositary Receipts
OTC = Over the Counter
See Accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Ivy Funds VIP | AS OF DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | | Pathfinder
Aggressive | | | Pathfinder
Conservative | | | Pathfinder
Moderate | | | Pathfinder
Moderately
Aggressive | | | Pathfinder
Moderately
Conservative | | | Pathfinder
Moderate - Managed
Volatility | | | Pathfinder Moderately Aggressive - Managed
Volatility | |
ASSETS | | | | | |
Investments in affiliated securities at market value+ | | $ | 84,124 | | | $ | 121,831 | | | $ | 926,188 | | | $ | 1,097,195 | | | $ | 290,666 | | | $ | 196,703 | | | $ | 41,534 | |
Investments in unaffiliated securities at value+ | | | 610 | | | | 575 | | | | 831 | | | | — | | | | 562 | | | | 6,492 | | | | 1,381 | |
Investments at Market Value | | | 84,734 | | | | 122,406 | | | | 927,019 | | | | 1,097,195 | | | | 291,228 | | | | 203,195 | | | | 42,915 | |
Cash | | | 1 | | | | — | * | | | 1 | | | | — | | | | — | * | | | 1 | | | | — | * |
Restricted cash | | | — | | | | — | | | | — | | | | — | | | | — | | | | 152 | | | | 51 | |
Investment securities sold receivable | | | — | | | | 25 | | | | — | | | | 653 | | | | 38 | | | | — | | | | — | |
Dividends and interest receivable | | | — | * | | | 1 | | | | 3 | | | | 2 | | | | 1 | | | | 1 | | | | — | * |
Capital shares sold receivable | | | 120 | | | | — | * | | | 1,766 | | | | 205 | | | | 103 | | | | 186 | | | | 25 | |
Variation margin receivable | | | — | | | | — | | | | — | | | | — | | | | — | | | | 40 | | | | 13 | |
Prepaid and other assets | | | — | * | | | 1 | | | | 7 | | | | 9 | | | | 2 | | | | — | * | | | — | * |
Total Assets | | | 84,855 | | | | 122,433 | | | | 928,796 | | | | 1,098,064 | | | | 291,372 | | | | 203,575 | | | | 43,004 | |
| | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities purchased payable | | | 10 | | | | 1 | | | | 234 | | | | 2 | | | | 1 | | | | 446 | | | | 109 | |
Capital shares redeemed payable | | | 1 | | | | 145 | | | | 12 | | | | 15 | | | | 4 | | | | 10 | | | | 2 | |
Independent Trustees and Chief Compliance Officer fees payable | | | 5 | | | | 5 | | | | 36 | | | | 41 | | | | 12 | | | | 1 | | | | — | * |
Overdraft due to custodian | | | — | | | | — | | | | — | | | | 53 | | | | — | | | | — | | | | — | |
Shareholder servicing payable | | | — | * | | | — | * | | | 3 | | | | 4 | | | | 1 | | | | — | * | | | — | * |
Investment management fee payable | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | — | * |
Accounting services fee payable | | | 2 | | | | 3 | | | | 13 | | | | 14 | | | | 5 | | | | 4 | | | | 1 | |
Other liabilities | | | 1 | | | | 1 | | | | 3 | | | | 3 | | | | 1 | | | | 1 | | | | 1 | |
Total Liabilities | | | 19 | | | | 155 | | | | 301 | | | | 132 | | | | 24 | | | | 463 | | | | 113 | |
Total Net Assets | | $ | 84,836 | | | $ | 122,278 | | | $ | 928,495 | | | $ | 1,097,932 | | | $ | 291,348 | | | $ | 203,112 | | | $ | 42,891 | |
| | | | | | | |
NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital paid in (shares authorized – unlimited) | | $ | 69,659 | | | $ | 108,056 | | | $ | 771,620 | | | $ | 887,946 | | | $ | 248,627 | | | $ | 203,584 | | | $ | 43,481 | |
Undistributed (distributions in excess of) net investment income | | | 2,343 | | | | 1,378 | | | | 15,521 | | | | 25,158 | | | | 4,222 | | | | (26 | ) | | | (25 | ) |
Accumulated net realized gain (loss) | | | 8,638 | | | | 7,707 | | | | 74,008 | | | | 92,889 | | | | 22,160 | | | | (54 | ) | | | (19 | ) |
Net unrealized appreciation (depreciation) | | | 4,196 | | | | 5,137 | | | | 67,346 | | | | 91,939 | | | | 16,339 | | | | (392 | ) | | | (546 | ) |
Total Net Assets | | $ | 84,836 | | | $ | 122,278 | | | $ | 928,495 | | | $ | 1,097,932 | | | $ | 291,348 | | | $ | 203,112 | | | $ | 42,891 | |
| | | | | | | |
CAPITAL SHARES OUTSTANDING | | | 14,807 | | | | 22,073 | | | | 158,154 | | | | 178,938 | | | | 50,194 | | | | 37,658 | | | | 8,106 | |
| | | | | | | |
NET ASSET VALUE PER SHARE | | | $5.73 | | | | $5.54 | | | | $5.87 | | | | $6.14 | | | | $5.80 | | | | $5.39 | | | | $5.29 | |
| |
+COST | | | | | |
Investments in affiliated securities at cost | | $ | 79,928 | | | $ | 116,694 | | | $ | 858,842 | | | $ | 1,005,256 | | | $ | 274,327 | | | $ | 197,082 | | | $ | 42,074 | |
Investments in unaffiliated securities at cost | | | 610 | | | | 575 | | | | 831 | | | | — | | | | 562 | | | | 6,492 | | | | 1,381 | |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Ivy Funds VIP | AS OF DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | | Pathfinder
Moderately
Conservative - Managed
Volatility | | | Asset
Strategy(1) | | | Balanced | | | Bond | | | Core
Equity | | | Dividend
Opportunities | | | Energy | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in affiliated securities at market value+ | | $ | 30,117 | | | $ | 36,276 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Investments in unaffiliated securities at value+ | | | 935 | | | | 1,437,334 | | | | 413,824 | | | | 307,363 | | | | 500,495 | | | | 510,575 | | | | 117,739 | |
Bullion at value+ | | | — | | | | 120,386 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Investments at Market Value | | | 31,052 | | | | 1,593,996 | | | | 413,824 | | | | 307,363 | | | | 500,495 | | | | 510,575 | | | | 117,739 | |
Cash | | | — | * | | | 562 | | | | — | * | | | 1 | | | | 1 | | | | — | * | | | — | * |
Cash denominated in foreign currencies at value+ | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Restricted cash | | | 60 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Investment securities sold receivable | | | — | | | | 1,981 | | | | — | | | | — | | | | 5,153 | | | | — | | | | — | |
Dividends and interest receivable | | | — | * | | | 6,636 | | | | 1,140 | | | | 2,459 | | | | 560 | | | | 937 | | | | 114 | |
Capital shares sold receivable | | | — | | | | 459 | | | | 96 | | | | — | * | | | 31 | | | | 134 | | | | 166 | |
Unrealized appreciation on forward foreign currency contracts | | | — | | | | 105 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Variation margin receivable | | | 16 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Prepaid and other assets | | | — | * | | | 13 | | | | 3 | | | | 3 | | | | 4 | | | | 1 | | | | 1 | |
Total Assets | | | 31,128 | | | | 1,603,753 | | | | 415,063 | | | | 309,826 | | | | 506,244 | | | | 511,647 | | | | 118,020 | |
| |
LIABILITIES | | | | | |
Investment securities purchased payable | | | 18 | | | | 2,000 | | | | — | | | | — | | | | 357 | | | | — | | | | — | |
Capital shares redeemed payable | | | 4 | | | | 1,432 | | | | 249 | | | | 176 | | | | 354 | | | | 366 | | | | 37 | |
Independent Trustees and Chief Compliance Officer fees payable | | | — | * | | | 139 | | | | 84 | | | | 80 | | | | 162 | | | | 26 | | | | 4 | |
Distribution and service fees payable | | | — | | | | 11 | | | | 3 | | | | 2 | | | | 3 | | | | 3 | | | | 1 | |
Shareholder servicing payable | | | — | * | | | 6 | | | | 2 | | | | 1 | | | | 2 | | | | 2 | | | | 1 | |
Investment management fee payable | | | — | * | | | 29 | | | | 8 | | | | 4 | | | | 9 | | | | 10 | | | | 3 | |
Accounting services fee payable | | | 1 | | | | 21 | | | | 10 | | | | 8 | | | | 11 | | | | 11 | | | | 5 | |
Written options at value+ | | | — | | | | 482 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Other liabilities | | | 1 | | | | 30 | | | | 19 | | | | 3 | | | | 5 | | | | 5 | | | | 2 | |
Total Liabilities | | | 24 | | | | 4,150 | | | | 375 | | | | 274 | | | | 903 | | | | 423 | | | | 53 | |
Total Net Assets | | $ | 31,104 | | | $ | 1,599,603 | | | $ | 414,688 | | | $ | 309,552 | | | $ | 505,341 | | | $ | 511,224 | | | $ | 117,967 | |
| |
NET ASSETS | | | | | |
Capital paid in (shares authorized – unlimited) | | $ | 31,083 | | | $ | 1,279,104 | | | $ | 272,940 | | | $ | 296,912 | | | $ | 331,250 | | | $ | 350,681 | | | $ | 121,332 | |
Undistributed (distributions in excess of) net investment income | | | (25 | ) | | | 17,214 | | | | 3,612 | | | | 8,632 | | | | 1,536 | | | | 6,769 | | | | 49 | |
Accumulated net realized gain (loss) | | | 100 | | | | 259,612 | | | | 54,262 | | | | (1,486 | ) | | | 80,693 | | | | 55,816 | | | | (4,019 | ) |
Net unrealized appreciation (depreciation) | | | (54 | ) | | | 43,673 | | | | 83,874 | | | | 5,494 | | | | 91,862 | | | | 97,958 | | | | 605 | |
Total Net Assets | | $ | 31,104 | | | $ | 1,599,603 | | | $ | 414,688 | | | $ | 309,552 | | | $ | 505,341 | | | $ | 511,224 | | | $ | 117,967 | |
| | | | | | | |
CAPITAL SHARES OUTSTANDING | | | 5,899 | | | | 147,173 | | | | 40,678 | | | | 57,951 | | | | 35,647 | | | | 56,512 | | | | 18,127 | |
| | | | | | | |
NET ASSET VALUE PER SHARE | | | $5.27 | | | | $10.87 | | | | $10.19 | | | | $5.34 | | | | $14.18 | | | | $9.05 | | | | $6.51 | |
| | | | | | | |
+COST | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in affiliated securities at cost | | $ | 30,170 | | | $ | 40,864 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Investments in unaffiliated securities at cost | | | 935 | | | | 1,375,495 | | | | 329,950 | | | | 301,869 | | | | 408,633 | | | | 412,617 | | | | 117,134 | |
Bullion at cost | | | — | | | | 134,921 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Cash denominated in foreign currencies at cost | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Written options premiums received at cost | | | — | | | | 1,392 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| * | Not shown due to rounding. |
| (1) | Consolidated Statement of Assets and Liabilities (See Note 6 in Notes to Financial Statements). |
See Accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Ivy Funds VIP | AS OF DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | | Global
Bond | | | Global
Growth(1) | | | Global
Natural
Resources | | | Growth | | | High
Income | | | International
Core Equity | | | Limited-
Term Bond | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities at value+ | | $ | 19,021 | | | $ | 429,281 | | | $ | 151,118 | | | $ | 873,821 | | | $ | 802,357 | | | $ | 656,562 | | | $ | 470,394 | |
Investments at Market Value | | | 19,021 | | | | 429,281 | | | | 151,118 | | | | 873,821 | | | | 802,357 | | | | 656,562 | | | | 470,394 | |
Cash | | | 10 | | | | 1 | | | | 1 | | | | 1 | | | | 2,221 | | | | 1 | | | | 1 | |
Cash denominated in foreign currencies at value+ | | | — | | | | 1 | | | | 38 | | | | — | | | | 4 | | | | 4 | | | | — | |
Restricted cash | | | — | | | | — | | | | — | | | | — | | | | — | | | | 21 | | | | — | |
Investment securities sold receivable | | | — | | | | 112 | | | | 8 | | | | 1,148 | | | | 2,793 | | | | 213 | | | | — | |
Dividends and interest receivable | | | 236 | | | | 681 | | | | 198 | | | | 586 | | | | 12,372 | | | | 995 | | | | 4,068 | |
Capital shares sold receivable | | | 13 | | | | 84 | | | | 314 | | | | 115 | | | | 386 | | | | 88 | | | | 123 | |
Unrealized appreciation on forward foreign currency contracts | | | 3 | | | | 1,473 | | | | 138 | | | | — | | | | 88 | | | | 86 | | | | — | |
Prepaid and other assets | | | — | * | | | 2 | | | | 1 | | | | 7 | | | | 7 | | | | 4 | | | | — | * |
Total Assets | | | 19,283 | | | | 431,635 | | | | 151,816 | | | | 875,678 | | | | 820,228 | | | | 657,974 | | | | 474,586 | |
| | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities purchased payable | | | — | | | | — | | | | 5,970 | | | | 3,488 | | | | 1,448 | | | | 843 | | | | — | |
Capital shares redeemed payable | | | 1 | | | | 81 | | | | 133 | | | | 543 | | | | 241 | | | | 340 | | | | 113 | |
Independent Trustees and Chief Compliance Officer fees payable | | | 1 | | | | 55 | | | | 17 | | | | 241 | | | | 49 | | | | 73 | | | | 10 | |
Distribution and service fees payable | | | — | * | | | 3 | | | | 1 | | | | 6 | | | | 6 | | | | 4 | | | | 3 | |
Shareholder servicing payable | | | — | * | | | 2 | | | | 1 | | | | 4 | | | | 2 | | | | 2 | | | | 1 | |
Investment management fee payable | | | — | | | | 10 | | | | 4 | | | | 16 | | | | 13 | | | | 15 | | | | 6 | |
Accounting services fee payable | | | 1 | | | | 10 | | | | 5 | | | | 18 | | | | 17 | | | | 14 | | | | 11 | |
Unrealized depreciation on forward foreign currency contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | 281 | | | | — | |
Other liabilities | | | 1 | | | | 11 | | | | 3 | | | | 7 | | | | 7 | | | | 29 | | | | 5 | |
Total Liabilities | | | 4 | | | | 172 | | | | 6,134 | | | | 4,323 | | | | 1,783 | | | | 1,601 | | | | 149 | |
Total Net Assets | | $ | 19,279 | | | $ | 431,463 | | | $ | 145,682 | | | $ | 871,355 | | | $ | 818,445 | | | $ | 656,373 | | | $ | 474,437 | |
| | | | | | | |
NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital paid in (shares authorized – unlimited) | | $ | 19,502 | | | $ | 358,851 | | | $ | 183,238 | | | $ | 514,814 | | | $ | 788,631 | | | $ | 559,438 | | | $ | 471,373 | |
Undistributed net investment income | | | 692 | | | | 2,046 | | | | 178 | | | | 707 | | | | 51,134 | | | | 5,183 | | | | 6,678 | |
Accumulated net realized gain (loss) | | | (105 | ) | | | 22,900 | | | | (25,707 | ) | | | 104,937 | | | | 8,543 | | | | 84,856 | | | | (5,440 | ) |
Net unrealized appreciation (depreciation) | | | (810 | ) | | | 47,666 | | | | (12,027 | ) | | | 250,897 | | | | (29,863 | ) | | | 6,896 | | | | 1,826 | |
Total Net Assets | | $ | 19,279 | | | $ | 431,463 | | | $ | 145,682 | | | $ | 871,355 | | | $ | 818,445 | | | $ | 656,373 | | | $ | 474,437 | |
| | | | | | | |
CAPITAL SHARES OUTSTANDING | | | 3,819 | | | | 48,781 | | | | 30,834 | | | | 72,115 | | | | 212,553 | | | | 36,471 | | | | 96,802 | |
| | | | | | | |
NET ASSET VALUE PER SHARE | | | $5.05 | | | | $8.84 | | | | $4.72 | | | | $12.08 | | | | $3.85 | | | | $18.00 | | | | $4.90 | |
| | | | | |
+COST | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities at cost | | $ | 19,829 | | | $ | 383,033 | | | $ | 163,284 | | | $ | 622,924 | | | $ | 832,304 | | | $ | 649,423 | | | $ | 468,568 | |
Cash denominated in foreign currencies at cost | | | — | | | | 1 | | | | 38 | | | | — | | | | 4 | | | | 4 | | | | — | |
| * | Not shown due to rounding. |
| (1) | Effective January 1, 2015, the Portfolio’s name changed from International Growth to Global Growth. |
See Accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Ivy Funds VIP | AS OF DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share amounts) | | Micro Cap
Growth | | | Mid Cap
Growth | | | Money
Market | | | Real Estate
Securities | | | Science and
Technology | | | Small Cap
Growth | | | Small Cap
Value | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities at value+ | | $ | 71,737 | | | $ | 559,669 | | | $ | 509,604 | | | $ | 52,267 | | | $ | 586,901 | | | $ | 425,661 | | | $ | 359,646 | |
Investments at Market Value | | | 71,737 | | | | 559,669 | | | | 509,604 | | | | 52,267 | | | | 586,901 | | | | 425,661 | | | | 359,646 | |
Cash | | | 82 | | | | — | * | | | 3 | | | | — | * | | | — | * | | | 1 | | | | 1 | |
Investment securities sold receivable | | | 35 | | | | 1,232 | | | | — | | | | 330 | | | | 291 | | | | — | | | | 2,397 | |
Dividends and interest receivable | | | 30 | | | | 353 | | | | 343 | | | | 289 | | | | 190 | | | | 52 | | | | 285 | |
Capital shares sold receivable | | | 4 | | | | 163 | | | | 1,029 | | | | 43 | | | | 518 | | | | 84 | | | | 51 | |
Receivable from affiliates | | | — | | | | 65 | | | | 952 | | | | — | | | | — | | | | — | | | | — | |
Prepaid and other assets | | | 1 | | | | 3 | | | | 1 | | | | — | * | | | 5 | | | | 3 | | | | 2 | |
Total Assets | | | 71,889 | | | | 561,485 | | | | 511,932 | | | | 52,929 | | | | 587,905 | | | | 425,801 | | | | 362,382 | |
| | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment securities purchased payable | | | 175 | | | | 4,019 | | | | — | | | | 371 | | | | 993 | | | | — | | | | 8,417 | |
Capital shares redeemed payable | | | 43 | | | | 319 | | | | 340 | | | | 266 | | | | 475 | | | | 108 | | | | 176 | |
Distributions payable | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | — | | | | — | |
Independent Trustees and Chief Compliance Officer fees payable | | | 7 | | | | 15 | | | | 33 | | | | 5 | | | | 71 | | | | 99 | | | | 28 | |
Distribution and service fees payable | | | — | * | | | 4 | | | | — | | | | — | * | | | 4 | | | | 3 | | | | 2 | |
Shareholder servicing payable | | | — | * | | | 2 | | | | 3 | | | | — | * | | | 2 | | | | 2 | | | | 1 | |
Investment management fee payable | | | 2 | | | | 13 | | | | 6 | | | | 1 | | | | 13 | | | | 10 | | | | 8 | |
Accounting services fee payable | | | 4 | | | | 11 | | | | 11 | | | | 4 | | | | 13 | | | | 10 | | | | 8 | |
Written options at value+ | | | — | | | | 117 | | | | — | | | | — | | | | 299 | | | | — | | | | — | |
Other liabilities | | | 2 | | | | 4 | | | | 6 | | | | 2 | | | | 6 | | | | 4 | | | | 4 | |
Total Liabilities | | | 233 | | | | 4,504 | | | | 408 | | | | 649 | | | | 1,876 | | | | 236 | | | | 8,644 | |
Total Net Assets | | $ | 71,656 | | | $ | 556,981 | | | $ | 511,524 | | | $ | 52,280 | | | $ | 586,029 | | | $ | 425,565 | | | $ | 353,738 | |
| | | | | | | |
NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital paid in (shares authorized – unlimited) | | $ | 46,739 | | | $ | 425,551 | | | $ | 511,521 | | | $ | 38,485 | | | $ | 348,642 | | | $ | 280,564 | | | $ | 277,710 | |
Undistributed (distributions in excess of) net investment income | | | 18 | | | | (200 | ) | | | — | | | | 594 | | | | 41 | | | | (99 | ) | | | 1,906 | |
Accumulated net realized gain | | | 10,589 | | | | 45,843 | | | | 3 | | | | 4,854 | | | | 34,759 | | | | 66,072 | | | | 25,744 | |
Net unrealized appreciation | | | 14,310 | | | | 85,787 | | | | — | | | | 8,347 | | | | 202,587 | | | | 79,028 | | | | 48,378 | |
Total Net Assets | | $ | 71,656 | | | $ | 556,981 | | | $ | 511,524 | | | $ | 52,280 | | | $ | 586,029 | | | $ | 425,565 | | | $ | 353,738 | |
| | | | | | | |
CAPITAL SHARES OUTSTANDING | | | 2,681 | | | | 51,360 | | | | 511,525 | | | | 5,454 | | | | 23,419 | | | | 35,019 | | | | 19,674 | |
| | | | | | | |
NET ASSET VALUE PER SHARE | | | $26.73 | | | | $10.84 | | | | $1.00 | | | | $9.59 | | | | $25.02 | | | | $12.15 | | | | $17.98 | |
| | | | | | | |
+COST | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities at cost | | $ | 57,427 | | | $ | 473,941 | | | $ | 509,604 | | | $ | 43,920 | | | $ | 384,261 | | | $ | 346,633 | | | $ | 311,268 | |
Written options premiums received at cost | | | — | | | | 176 | | | | — | | | | — | | | | 246 | | | �� | — | | | | — | |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
Ivy Funds VIP | AS OF DECEMBER 31, 2014 |
| | | | |
| (In thousands, except per share amounts) | | Value | |
ASSETS | | | | |
Investments in unaffiliated securities at value+ | | $ | 416,210 | |
Investments at Market Value | | | 416,210 | |
Cash | | | 1 | |
Investment securities sold receivable | | | 1,847 | |
Dividends and interest receivable | | | 562 | |
Capital shares sold receivable | | | 57 | |
Prepaid and other assets | | | 2 | |
Total Assets | | | 418,679 | |
| |
LIABILITIES | | | | |
Investment securities purchased payable | | | 1,926 | |
Capital shares redeemed payable | | | 294 | |
Independent Trustees and Chief Compliance Officer fees payable | | | 51 | |
Distribution and service fees payable | | | 3 | |
Shareholder servicing payable | | | 1 | |
Investment management fee payable | | | 8 | |
Accounting services fee payable | | | 10 | |
Written options at value+ | | | 190 | |
Other liabilities | | | 3 | |
Total Liabilities | | | 2,486 | |
Total Net Assets | | $ | 416,193 | |
| |
NET ASSETS | | | | |
Capital paid in (shares authorized – unlimited) | | $ | 298,390 | |
Undistributed net investment income | | | 8,841 | |
Accumulated net realized gain | | | 50,657 | |
Net unrealized appreciation | | | 58,305 | |
Total Net Assets | | $ | 416,193 | |
| |
CAPITAL SHARES OUTSTANDING | | | 56,343 | |
| |
NET ASSET VALUE PER SHARE | | $ | 7.39 | |
| |
+COST | | | | |
Investments in unaffiliated securities at cost | | $ | 357,984 | |
Written options premiums received at cost | | | 269 | |
See Accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS
Ivy Funds VIP | FOR THE YEAR ENDED DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Pathfinder
Aggressive | | | Pathfinder
Conservative | | | Pathfinder
Moderate | | | Pathfinder
Moderately
Aggressive | | | Pathfinder
Moderately
Conservative | | | Pathfinder
Moderate - Managed
Volatility | | | Pathfinder Moderately
Aggressive - Managed
Volatility | |
INVESTMENT INCOME | | | | | |
Dividends from affiliated securities | | $ | 2,404 | | | $ | 1,454 | | | $ | 15,849 | | | $ | 25,532 | | | $ | 4,361 | | | $ | 1,423 | | | $ | 608 | |
Interest and amortization from unaffiliated securities | | | — | * | | | 1 | | | | 1 | | | | — | * | | | — | * | | | 4 | | | | 1 | |
Total Investment Income | | | 2,404 | | | | 1,455 | | | | 15,850 | | | | 25,532 | | | | 4,361 | | | | 1,427 | | | | 609 | |
| | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment management fee | | | — | | | | — | | | | — | | | | — | | | | — | | | | 214 | | | | 57 | |
Shareholder servicing | | | 1 | | | | 2 | | | | 14 | | | | 17 | | | | 5 | | | | 1 | | | | — | * |
Offering costs | | | — | | | | — | | | | — | | | | — | | | | — | | | | 23 | | | | 23 | |
Custodian fees | | | 2 | | | | 2 | | | | 3 | | | | 3 | | | | 3 | | | | 4 | | | | 3 | |
Independent Trustees and Chief Compliance Officer fees | | | 5 | | | | 6 | | | | 47 | | | | 55 | | | | 15 | | | | 4 | | | | 1 | |
Accounting services fee | | | 26 | | | | 36 | | | | 153 | | | | 174 | | | | 61 | | | | 31 | | | | 12 | |
Professional fees | | | 13 | | | | 14 | | | | 37 | | | | 41 | | | | 18 | | | | 15 | | | | 13 | |
Other | | | 10 | | | | 13 | | | | 43 | | | | 50 | | | | 24 | | | | 9 | | | | 6 | |
Total Expenses | | | 57 | | | | 73 | | | | 297 | | | | 340 | | | | 126 | | | | 301 | | | | 115 | |
Net Investment Income | | | 2,347 | | | | 1,382 | | | | 15,553 | | | | 25,192 | | | | 4,235 | | | | 1,126 | | | | 494 | |
| | | | | | | |
REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in affiliated securities | | | 2,462 | | | | 3,542 | | | | 25,795 | | | | 29,983 | | | | 9,186 | | | | 480 | | | | 271 | |
Distributions of realized capital gains from affiliated securities | | | 6,179 | | | | 4,168 | | | | 48,232 | | | | 62,922 | | | | 12,980 | | | | 4,322 | | | | 1,499 | |
Futures contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | (121 | ) | | | (22 | ) |
Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Investments in affiliated securities | | | (6,882 | ) | | | (4,943 | ) | | | (51,453 | ) | | | (68,770 | ) | | | (15,176 | ) | | | (1,313 | ) | | | (961 | ) |
Futures contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | (38 | ) | | | (13 | ) |
Net Realized and Unrealized Gain | | | 1,759 | | | | 2,767 | | | | 22,574 | | | | 24,135 | | | | 6,990 | | | | 3,330 | | | | 774 | |
Net Increase in Net Assets Resulting from Operations | | $ | 4,106 | | | $ | 4,149 | | | $ | 38,127 | | | $ | 49,327 | | | $ | 11,225 | | | $ | 4,456 | | | $ | 1,268 | |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS
Ivy Funds VIP | FOR THE YEAR ENDED DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Pathfinder Moderately
Conservative - Managed
Volatility | | | Asset
Strategy(1) | | | Balanced | | | Bond | | | Core
Equity | | | Dividend
Opportunities | | | Energy | |
INVESTMENT INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends from unaffiliated securities | | $ | — | | | $ | 26,120 | | | $ | 4,951 | | | $ | — | | | $ | 6,528 | | | $ | 11,445 | | | $ | 1,368 | |
Dividends from affiliated securities | | | 255 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Foreign dividend withholding tax | | | — | | | | (973 | ) | | | (16 | ) | | | — | | | | (86 | ) | | | (69 | ) | | | (35 | ) |
Interest and amortization from unaffiliated securities | | | 1 | | | | 2,086 | | | | 2,867 | | | | 10,092 | | | | 6 | | | | 23 | | | | 6 | |
Foreign interest withholding tax | | | — | | | | — | * | | | — | | | | — | | | | — | | | | — | | | | — | |
Payment in-kind bond security income | | | — | | | | 4,907 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total Investment Income | | | 256 | | | | 32,140 | | | | 7,802 | | | | 10,092 | | | | 6,448 | | | | 11,399 | | | | 1,339 | |
| | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment management fee | | | 41 | | | | 11,446 | | | | 2,861 | | | | 1,494 | | | | 3,512 | | | | 3,427 | | | | 1,049 | |
Service fee | | | — | | | | 4,210 | | | | 1,022 | | | | 786 | | | | 1,254 | | | | 1,224 | | | | 308 | |
Shareholder servicing | | | — | * | | | 30 | | | | 7 | | | | 6 | | | | 8 | | | | 8 | | | | 2 | |
Offering costs | | | 23 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Custodian fees | | | 3 | | | | 103 | | | | 8 | | | | 8 | | | | 11 | | | | 11 | | | | 8 | |
Independent Trustees and Chief Compliance Officer fees | | | 1 | | | | 93 | | | | 29 | | | | 24 | | | | 43 | | | | 26 | | | | 6 | |
Accounting services fee | | | 10 | | | | 248 | | | | 123 | | | | 93 | | | | 133 | | | | 131 | | | | 60 | |
Professional fees | | | 13 | | | | 149 | | | | 30 | | | | 29 | | | | 29 | | | | 28 | | | | 20 | |
Other | | | 6 | | | | 159 | | | | 40 | | | | 17 | | | | 27 | | | | 28 | | | | 7 | |
Total Expenses | | | 97 | | | | 16,438 | | | | 4,120 | | | | 2,457 | | | | 5,017 | | | | 4,883 | | | | 1,460 | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses in excess of limit | | | — | | | | (100 | ) | | | — | | | | — | | | | (251 | ) | | | — | | | | — | |
Total Net Expenses | | | 97 | | | | 16,338 | | | | 4,120 | | | | 2,457 | | | | 4,766 | | | | 4,883 | | | | 1,460 | |
Net Investment Income (Loss) | | | 159 | | | | 15,802 | | | | 3,682 | | | | 7,635 | | | | 1,682 | | | | 6,516 | | | | (121 | ) |
| | | | | | | |
REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | — | | | | 263,644 | | | | 54,341 | | | | 2,959 | | | | 80,703 | | | | 55,800 | | | | 109 | |
Investments in affiliated securities | | | 235 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Distributions of realized capital gains from affiliated securities | | | 757 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Futures contracts | | | (67 | ) | | | (6,399 | ) | | | — | | | | (2,998 | ) | | | — | | | | — | | | | — | |
Written options | | | — | | | | 6,255 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swap agreements | | | — | | | | (6,843 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Forward foreign currency contracts | | | — | | | | 4,285 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Foreign currency exchange transactions | | | — | | | | (2 | ) | | | (3 | ) | | | — | | | | — | | | | 1 | | | | (6 | ) |
Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | — | | | | (352,396 | ) | | | (28,137 | ) | | | 6,151 | | | | (35,874 | ) | | | (15,845 | ) | | | (17,054 | ) |
Investments in affiliated securities | | | (395 | ) | | | (4,588 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Futures contracts | | | (5 | ) | | | (2,698 | ) | | | — | | | | (371 | ) | | | — | | | | — | | | | — | |
Written options | | | — | | | | 468 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Forward foreign currency contracts | | | — | | | | (8,039 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Foreign currency exchange transactions | | | — | | | | (94 | ) | | | — | | | | — | | | | — | | | | — | | | | — | * |
Net Realized and Unrealized Gain (Loss) | | | 525 | | | | (106,407 | ) | | | 26,201 | | | | 5,741 | | | | 44,829 | | | | 39,956 | | | | (16,951 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | | $ | 684 | | | $ | (90,605 | ) | | $ | 29,883 | | | $ | 13,376 | | | $ | 46,511 | | | $ | 46,472 | | | $ | (17,072 | ) |
| * | Not shown due to rounding. |
| (1) | Consolidated Statement of Operations (See Note 6 in Notes to Financial Statements). |
See Accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS
Ivy Funds VIP | FOR THE YEAR ENDED DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Global
Bond | | | Global
Growth(1) | | | Global
Natural
Resources | | | Growth | | | High
Income | | | International
Core Equity | | | Limited-
Term Bond | |
INVESTMENT INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends from unaffiliated securities | | $ | 84 | | | $ | 9,762 | | | $ | 2,593 | | | $ | 9,996 | | | $ | 227 | | | $ | 18,030 | | | $ | — | |
Foreign dividend withholding tax | | | (3 | ) | | | (1,033 | ) | | | (84 | ) | | | (59 | ) | | | — | | | | (1,647 | ) | | | — | |
Interest and amortization from unaffiliated securities | | | 727 | | | | 25 | | | | 5 | | | | 28 | | | | 58,083 | | | | 24 | | | | 10,144 | |
Foreign interest withholding tax | | | — | | | | — | * | | | — | | | | — | | | | — | | | | (1 | ) | | | — | |
Total Investment Income | | | 808 | | | | 8,754 | | | | 2,514 | | | | 9,965 | | | | 58,310 | | | | 16,406 | | | | 10,144 | |
| | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment management fee | | | 121 | | | | 3,607 | | | | 1,735 | | | | 6,544 | | | | 4,989 | | | | 5,714 | | | | 2,325 | |
Service fee | | | 48 | | | | 1,061 | | | | 433 | | | | 2,347 | | | | 2,027 | | | | 1,681 | | | | 1,162 | |
Shareholder servicing | | | — | * | | | 8 | | | | 4 | | | | 17 | | | | 12 | | | | 11 | | | | 6 | |
Custodian fees | | | 4 | | | | 40 | | | | 9 | | | | 19 | | | | 17 | | | | 72 | | | | 11 | |
Independent Trustees and Chief Compliance Officer fees | | | 1 | | | | 26 | | | | 10 | | | | 75 | | | | 42 | | | | 41 | | | | 22 | |
Accounting services fee | | | 13 | | | | 125 | | | | 66 | | | | 219 | | | | 196 | | | | 164 | | | | 129 | |
Professional fees | | | 20 | | | | 42 | | | | 26 | | | | 43 | | | | 51 | | | | 51 | | | | 33 | |
Other | | | 7 | | | | 32 | | | | 24 | | | | 42 | | | | 57 | | | | 42 | | | | 37 | |
Total Expenses | | | 214 | | | | 4,941 | | | | 2,307 | | | | 9,306 | | | | 7,391 | | | | 7,776 | | | | 3,725 | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses in excess of limit | | | (121 | ) | | | (127 | ) | | | — | | | | (265 | ) | | | (250 | ) | | | — | | | | — | |
Total Net Expenses | | | 93 | | | | 4,814 | | | | 2,307 | | | | 9,041 | | | | 7,141 | | | | 7,776 | | | | 3,725 | |
Net Investment Income | | | 715 | | | | 3,940 | | | | 207 | | | | 924 | | | | 51,169 | | | | 8,630 | | | | 6,419 | |
| | | | | | | |
REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | 19 | | | | 19,869 | | | | 2,273 | | | | 192,215 | | | | 8,174 | | | | 86,436 | | | | 1,441 | |
Futures contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,114 | ) |
Forward foreign currency contracts | | | (5 | ) | | | 4,325 | | | | 842 | | | | — | | | | 368 | | | | 2,750 | | | | — | |
Foreign currency exchange transactions | | | (2 | ) | | | (94 | ) | | | (10 | ) | | | — | | | | (28 | ) | | | (308 | ) | | | — | |
Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | (809 | ) | | | (24,858 | ) | | | (24,441 | ) | | | (103,553 | ) | | | (48,951 | ) | | | (86,464 | ) | | | 3,109 | |
Futures contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (481 | ) |
Written options | | | — | | | | — | | | | — | | | | — | | | | — | | | | 86 | | | | — | |
Forward foreign currency contracts | | | 10 | | | | 1,491 | | | | 277 | | | | — | | | | 213 | | | | (337 | ) | | | — | |
Foreign currency exchange transactions | | | (5 | ) | | | (107 | ) | | | (1 | ) | | | — | | | | (5 | ) | | | (73 | ) | | | — | |
Net Realized and Unrealized Gain (Loss) | | | (792 | ) | | | 626 | | | | (21,060 | ) | | | 88,662 | | | | (40,229 | ) | | | 2,090 | | | | (2,045 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | | $ | (77 | ) | | $ | 4,566 | | | $ | (20,853 | ) | | $ | 89,586 | | | $ | 10,940 | | | $ | 10,720 | | | $ | 4,374 | |
| * | Not shown due to rounding. |
| (1) | Effective January 1, 2015, the Portfolio’s name changed from International Growth to Global Growth. |
See Accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS
Ivy Funds VIP | FOR THE YEAR ENDED DECEMBER 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Micro Cap
Growth | | | Mid Cap
Growth | | | Money
Market | | | Real Estate
Securities | | | Science
and
Technology | | | Small Cap
Growth | | | Small Cap
Value | |
INVESTMENT INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends from unaffiliated securities | | $ | 114 | | | $ | 3,530 | | | $ | — | | | $ | 1,108 | | | $ | 3,698 | | | $ | 1,430 | | | $ | 3,136 | |
Foreign dividend withholding tax | | | — | | | | (13 | ) | | | — | | | | — | | | | (75 | ) | | | (4 | ) | | | — | |
Interest and amortization from unaffiliated securities | | | 3 | | | | 20 | | | | 1,133 | | | | — | * | | | 15 | | | | 20 | | | | 25 | |
Total Investment Income | | | 117 | | | | 3,537 | | | | 1,133 | | | | 1,108 | | | | 3,638 | | | | 1,446 | | | | 3,161 | |
| | | | | | | |
EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment management fee | | | 696 | | | | 3,936 | | | | 2,662 | | | | 420 | | | | 4,911 | | | | 3,713 | | | | 2,554 | |
Service fee | | | 183 | | | | 1,158 | | | | — | | | | 117 | | | | 1,445 | | | | 1,092 | | | | 751 | |
Shareholder servicing | | | 1 | | | | 7 | | | | 10 | | | | 1 | | | | 10 | | | | 8 | | | | 5 | |
Custodian fees | | | 7 | | | | 14 | | | | 17 | | | | 5 | | | | 29 | | | | 11 | | | | 10 | |
Independent Trustees and Chief Compliance Officer fees | | | 5 | | | | 22 | | | | 35 | | | | 3 | | | | 36 | | | | 33 | | | | 17 | |
Accounting services fee | | | 43 | | | | 129 | | | | 172 | | | | 30 | | | | 155 | | | | 128 | | | | 94 | |
Professional fees | | | 20 | | | | 26 | | | | 32 | | | | 24 | | | | 34 | | | | 28 | | | | 23 | |
Other | | | 9 | | | | 35 | | | | 48 | | | | 8 | | | | 49 | | | | 35 | | | | 16 | |
Total Expenses | | | 964 | | | | 5,327 | | | | 2,976 | | | | 608 | | | | 6,669 | | | | 5,048 | | | | 3,470 | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expenses in excess of limit | | | — | | | | (235 | ) | | | (1,976 | ) | | | (42 | ) | | | (116 | ) | | | (87 | ) | | | — | |
Total Net Expenses | | | 964 | | | | 5,092 | | | | 1,000 | | | | 566 | | | | 6,553 | | | | 4,961 | | | | 3,470 | |
Net Investment Income (Loss) | | | (847 | ) | | | (1,555 | ) | | | 133 | | | | 542 | | | | (2,915 | ) | | | (3,515 | ) | | | (309 | ) |
| | | | | | | |
REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | 10,617 | | | | 48,588 | | | | 10 | | | | 5,062 | | | | 36,095 | | | | 98,430 | | | | 27,617 | |
Written options | | | — | | | | (449 | ) | | | — | | | | 1 | | | | 455 | | | | — | | | | 58 | |
Foreign currency exchange transactions | | | — | | | | — | * | | | — | | | | — | * | | | (54 | ) | | | — | | | | — | |
Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities | | | (11,501 | ) | | | (9,195 | ) | | | — | | | | 6,551 | | | | (17,112 | ) | | | (98,411 | ) | | | (5,376 | ) |
Written options | | | — | | | | 70 | | | | — | | | | 1 | | | | (129 | ) | | | — | | | | — | |
Foreign currency exchange transactions | | | — | | | | — | * | | | — | | | | — | * | | | — | * | | | — | | | | — | |
Net Realized and Unrealized Gain (Loss) | | | (884 | ) | | | 39,014 | | | | 10 | | | | 11,615 | | | | 19,255 | | | | 19 | | | | 22,299 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | $ | (1,731 | ) | | $ | 37,459 | | | $ | 143 | | | $ | 12,157 | | | $ | 16,340 | | | $ | (3,496 | ) | | $ | 21,990 | |
*Not shown due to rounding.
See Accompanying Notes to Financial Statements.
STATEMENTS OF OPERATIONS
Ivy Funds VIP | FOR THE YEAR ENDED DECEMBER 31, 2014 |
| | | | |
| (In thousands) | | Value | |
INVESTMENT INCOME | | | | |
Dividends from unaffiliated securities | | $ | 6,405 | |
Foreign dividend withholding tax | | | (34 | ) |
Interest and amortization from unaffiliated securities | | | 23 | |
Total Investment Income | | | 6,394 | |
| |
EXPENSES | | | | |
Investment management fee | | | 2,611 | |
Service fee | | | 932 | |
Shareholder servicing | | | 6 | |
Custodian fees | | | 10 | |
Independent Trustees and Chief Compliance Officer fees | | | 23 | |
Accounting services fee | | | 117 | |
Professional fees | | | 30 | |
Other | | | 24 | |
Total Expenses | | | 3,753 | |
Less: | | | | |
Expenses in excess of limit | | | (37 | ) |
Total Net Expenses | | | 3,716 | |
Net Investment Income | | | 2,678 | |
| |
REALIZED AND UNREALIZED GAIN (LOSS) | | | | |
Net realized gain (loss) on: | | | | |
Investments in unaffiliated securities | | | 53,520 | |
Written options | | | (260 | ) |
Net change in unrealized appreciation (depreciation) on: | | | | |
Investments in unaffiliated securities | | | (20,122 | ) |
Written options | | | 1,872 | |
Net Realized and Unrealized Gain | | | 35,010 | |
Net Increase in Net Assets Resulting from Operations | | $ | 37,688 | |
See Accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Ivy Funds VIP
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pathfinder Aggressive | | | Pathfinder Conservative | | | Pathfinder Moderate | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 2,347 | | | $ | 731 | | | $ | 1,382 | | | $ | 1,290 | | | $ | 15,553 | | | $ | 9,583 | |
Net realized gain on investments | | | 8,641 | | | | 6,253 | | | | 7,710 | | | | 7,314 | | | | 74,027 | | | | 65,667 | |
Net change in unrealized appreciation (depreciation) | | | (6,882 | ) | | | 11,334 | | | | (4,943 | ) | | | 6,892 | | | | (51,453 | ) | | | 82,619 | |
Net Increase in Net Assets Resulting from Operations | | | 4,106 | | | | 18,318 | | | | 4,149 | | | | 15,496 | | | | 38,127 | | | | 157,869 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (731 | ) | | | (963 | ) | | | (1,290 | ) | | | (1,576 | ) | | | (9,590 | ) | | | (9,499 | ) |
Net realized gains | | | (6,254 | ) | | | (4,480 | ) | | | (7,315 | ) | | | (4,671 | ) | | | (65,663 | ) | | | (30,261 | ) |
Total Distributions to Shareholders | | | (6,985 | ) | | | (5,443 | ) | | | (8,605 | ) | | | (6,247 | ) | | | (75,253 | ) | | | (39,760 | ) |
Capital Share Transactions | | | 1,858 | | | | 4,098 | | | | 5,514 | | | | 4,958 | | | | 44,022 | | | | 70,984 | |
Net Increase (Decrease) in Net Assets | | | (1,021 | ) | | | 16,973 | | | | 1,058 | | | | 14,207 | | | | 6,896 | | | | 189,093 | |
Net Assets, Beginning of Period | | | 85,857 | | | | 68,884 | | | | 121,220 | | | | 107,013 | | | | 921,599 | | | | 732,506 | |
Net Assets, End of Period | | $ | 84,836 | | | $ | 85,857 | | | $ | 122,278 | | | $ | 121,220 | | | $ | 928,495 | | | $ | 921,599 | |
Undistributed net investment income | | $ | 2,343 | | | $ | 727 | | | $ | 1,378 | | | $ | 1,286 | | | $ | 15,521 | | | $ | 9,558 | |
| | | |
| | | Pathfinder Moderately
Aggressive | | | Pathfinder Moderately
Conservative | | | Pathfinder Moderate –
Managed Volatility | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Period from
8-1-13(1) to
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 25,192 | | | $ | 11,279 | | | $ | 4,235 | | | $ | 2,924 | | | $ | 1,126 | | | $ | (28 | ) |
Net realized gain on investments | | | 92,905 | | | | 76,002 | | | | 22,166 | | | | 18,973 | | | | 4,681 | | | | 110 | |
Net change in unrealized appreciation (depreciation) | | | (68,770 | ) | | | 122,975 | | | | (15,176 | ) | | | 21,924 | | | | (1,351 | ) | | | 959 | |
Net Increase in Net Assets Resulting from Operations | | | 49,327 | | | | 210,256 | | | | 11,225 | | | | 43,821 | | | | 4,456 | | | | 1,041 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (11,294 | ) | | | (11,573 | ) | | | (2,929 | ) | | | (3,438 | ) | | | (1,154 | ) | | | — | |
Net realized gains | | | (75,997 | ) | | | (42,000 | ) | | | (18,975 | ) | | | (10,234 | ) | | | (4,820 | ) | | | (12 | ) |
Total Distributions to Shareholders | | | (87,291 | ) | | | (53,573 | ) | | | (21,904 | ) | | | (13,672 | ) | | | (5,974 | ) | | | (12 | ) |
Capital Share Transactions | | | 46,422 | | | | 59,479 | | | | 2,211 | | | | 29,233 | | | | 170,669 | | | | 32,932 | |
Net Increase (Decrease) in Net Assets | | | 8,458 | | | | 216,162 | | | | (8,468 | ) | | | 59,382 | | | | 169,151 | | | | 33,961 | |
Net Assets, Beginning of Period | | | 1,089,474 | | | | 873,312 | | | | 299,816 | | | | 240,434 | | | | 33,961 | | | | — | |
Net Assets, End of Period | | $ | 1,097,932 | | | $ | 1,089,474 | | | $ | 291,348 | | | $ | 299,816 | | | $ | 203,112 | | | $ | 33,961 | |
Undistributed (distributions in excess of) net investment income | | $ | 25,158 | | | $ | 11,260 | | | $ | 4,222 | | | $ | 2,916 | | | $ | (26 | ) | | $ | (5 | ) |
| (1) | Commencement of operations. |
See Accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Ivy Funds VIP
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pathfinder
Moderately
Aggressive –
Managed
Volatility | | | Pathfinder
Moderately
Conservative –
Managed
Volatility | | | Asset Strategy(1) | |
| (In thousands) | | Year ended 12-31-14 | | | Period from
8-1-13(2) to
12-31-13 | | | Year ended
12-31-14 | | | Period from
8-1-13(2) to
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 494 | | | $ | (22 | ) | | $ | 159 | | | $ | (22 | ) | | $ | 15,802 | | | $ | 12,076 | |
Net realized gain on investments | | | 1,748 | | | | 49 | | | | 925 | | | | 54 | | | | 260,940 | | | | 237,268 | |
Net change in unrealized appreciation (depreciation) | | | (974 | ) | | | 428 | | | | (400 | ) | | | 346 | | | | (367,347 | ) | | | 88,247 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 1,268 | | | | 455 | | | | 684 | | | | 378 | | | | (90,605 | ) | | | 337,591 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (517 | ) | | | — | | | | (182 | ) | | | — | | | | (8,178 | ) | | | (18,794 | ) |
Net realized gains | | | (1,794 | ) | | | (8 | ) | | | (854 | ) | | | (5 | ) | | | (216,767 | ) | | | — | |
Total Distributions to Shareholders | | | (2,311 | ) | | | (8 | ) | | | (1,036 | ) | | | (5 | ) | | | (224,945 | ) | | | (18,794 | ) |
Capital Share Transactions | | | 33,567 | | | | 9,920 | | | | 21,636 | | | | 9,447 | | | | 210,680 | | | | 40,530 | |
Net Increase (Decrease) in Net Assets | | | 32,524 | | | | 10,367 | | | | 21,284 | | | | 9,820 | | | | (104,870 | ) | | | 359,327 | |
Net Assets, Beginning of Period | | | 10,367 | | | | — | | | | 9,820 | | | | — | | | | 1,704,473 | | | | 1,345,146 | |
Net Assets, End of Period | | $ | 42,891 | | | $ | 10,367 | | | $ | 31,104 | | | $ | 9,820 | | | $ | 1,599,603 | | | $ | 1,704,473 | |
Undistributed (distributions in excess of) net investment income | | $ | (25 | ) | | $ | (4 | ) | | $ | (25 | ) | | $ | (4 | ) | | $ | 17,214 | | | $ | 13,250 | |
| | | |
| | | Balanced | | | Bond | | | Core Equity | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 3,682 | | | $ | 3,810 | | | $ | 7,635 | | | $ | 10,522 | | | $ | 1,682 | | | $ | 2,439 | |
Net realized gain (loss) on investments | | | 54,338 | | | | 34,602 | | | | (39 | ) | | | 10,907 | | | | 80,703 | | | | 69,660 | |
Net change in unrealized appreciation (depreciation) | | | (28,137 | ) | | | 43,413 | | | | 5,780 | | | | (30,455 | ) | | | (35,874 | ) | | | 55,995 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 29,883 | | | | 81,825 | | | | 13,376 | | | | (9,026 | ) | | | 46,511 | | | | 128,094 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (3,847 | ) | | | (5,586 | ) | | | (11,937 | ) | | | (17,519 | ) | | | (2,471 | ) | | | (2,364 | ) |
Net realized gains | | | (34,578 | ) | | | (32,109 | ) | | | (9,440 | ) | | | (8,284 | ) | | | (69,613 | ) | | | (34,808 | ) |
Total Distributions to Shareholders | | | (38,425 | ) | | | (37,695 | ) | | | (21,377 | ) | | | (25,803 | ) | | | (72,084 | ) | | | (37,172 | ) |
Capital Share Transactions | | | 5,353 | | | | 19,028 | | | | 3,460 | | | | (161,639 | ) | | | 30,929 | | | | 18,263 | |
Net Increase (Decrease) in Net Assets | | | (3,189 | ) | | | 63,158 | | | | (4,541 | ) | | | (196,468 | ) | | | 5,356 | | | | 109,185 | |
Net Assets, Beginning of Period | | | 417,877 | | | | 354,719 | | | | 314,093 | | | | 510,561 | | | | 499,985 | | | | 390,800 | |
Net Assets, End of Period | | $ | 414,688 | | | $ | 417,877 | | | $ | 309,552 | | | $ | 314,093 | | | $ | 505,341 | | | $ | 499,985 | |
Undistributed net investment income | | $ | 3,612 | | | $ | 3,768 | | | $ | 8,632 | | | $ | 11,861 | | | $ | 1,536 | | | $ | 2,325 | |
| (1) | Consolidated Statements of Changes in Net Assets (See Note 6 in Notes to Financial Statements). |
| (2) | Commencement of operations. |
See Accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Ivy Funds VIP
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Dividend Opportunities | | | Energy | | | Global Bond | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 6,516 | | | $ | 5,366 | | | $ | (121 | ) | | $ | (200 | ) | | $ | 715 | | | $ | 413 | |
Net realized gain (loss) on investments | | | 55,801 | | | | 37,682 | | | | 103 | | | | 4,936 | | | | 12 | | | | (132 | ) |
Net change in unrealized appreciation (depreciation) | | | (15,845 | ) | | | 69,799 | | | | (17,054 | ) | | | 14,735 | | | | (804 | ) | | | (45 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 46,472 | | | | 112,847 | | | | (17,072 | ) | | | 19,471 | | | | (77 | ) | | | 236 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (5,596 | ) | | | (6,899 | ) | | | — | | | | — | | | | (415 | ) | | | — | |
Net realized gains | | | (37,543 | ) | | | (9,376 | ) | | | (3,701 | ) | | | (282 | ) | | | — | | | | — | |
Total Distributions to Shareholders | | | (43,139 | ) | | | (16,275 | ) | | | (3,701 | ) | | | (282 | ) | | | (415 | ) | | | — | |
Capital Share Transactions | | | 23,426 | | | | 1,455 | | | | 39,548 | | | | 12,791 | | | | 3,938 | | | | 4,656 | |
Net Increase in Net Assets | | | 26,759 | | | | 98,027 | | | | 18,775 | | | | 31,980 | | | | 3,446 | | | | 4,892 | |
Net Assets, Beginning of Period | | | 484,465 | | | | 386,438 | | | | 99,192 | | | | 67,212 | | | | 15,833 | | | | 10,941 | |
Net Assets, End of Period | | $ | 511,224 | | | $ | 484,465 | | | $ | 117,967 | | | $ | 99,192 | | | $ | 19,279 | | | $ | 15,833 | |
Undistributed net investment income | | $ | 6,769 | | | $ | 5,745 | | | $ | 49 | | | $ | 137 | | | $ | 692 | | | $ | 405 | |
| | | |
| | | Global Growth(1) | | | Global Natural Resources | | | Growth | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 3,940 | | | $ | 5,170 | | | $ | 207 | | | $ | (43 | ) | | $ | 924 | | | $ | 3,221 | |
Net realized gain (loss) on investments | | | 24,100 | | | | 39,595 | | | | 3,105 | | | | (10,587 | ) | | | 192,215 | | | | 145,325 | |
Net change in unrealized appreciation (depreciation) | | | (23,474 | ) | | | 40,135 | | | | (24,165 | ) | | | 24,070 | | | | (103,553 | ) | | | 194,791 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 4,566 | | | | 84,900 | | | | (20,853 | ) | | | 13,440 | | | | 89,586 | | | | 343,337 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (8,928 | ) | | | (4,721 | ) | | | — | | | | — | | | | (3,270 | ) | | | (4,695 | ) |
Net realized gains | | | (36,409 | ) | | | (10,103 | ) | | | — | | | | — | | | | (145,321 | ) | | | (83,930 | ) |
Total Distributions to Shareholders | | | (45,337 | ) | | | (14,824 | ) | | | — | | | | — | | | | (148,591 | ) | | | (88,625 | ) |
Capital Share Transactions | | | 53,264 | | | | (129,161 | ) | | | (5,991 | ) | | | (20,853 | ) | | | (271,109 | ) | | | (45,243 | ) |
Net Increase (Decrease) in Net Assets | | | 12,493 | | | | (59,085 | ) | | | (26,844 | ) | | | (7,413 | ) | | | (330,114 | ) | | | 209,469 | |
Net Assets, Beginning of Period | | | 418,970 | | | | 478,055 | | | | 172,526 | | | | 179,939 | | | | 1,201,469 | | | | 992,000 | |
Net Assets, End of Period | | $ | 431,463 | | | $ | 418,970 | | | $ | 145,682 | | | $ | 172,526 | | | $ | 871,355 | | | $ | 1,201,469 | |
Undistributed (distributions in excess of) net investment income | | $ | 2,046 | | | $ | 5,877 | | | $ | 178 | | | $ | (16 | ) | | $ | 707 | | | $ | 3,053 | |
| (1) | Effective January 1, 2015, the Portfolio’s name changed from International Growth to Global Growth. |
See Accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Ivy Funds VIP
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | High Income | | | International Core Equity | | | Limited-Term Bond | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 51,169 | | | $ | 39,696 | | | $ | 8,630 | | | $ | 10,024 | | | $ | 6,419 | | | $ | 2,376 | |
Net realized gain (loss) on investments | | | 8,514 | | | | 13,402 | | | | 88,878 | | | | 80,800 | | | | (4,673 | ) | | | 331 | |
Net change in unrealized appreciation (depreciation) | | | (48,743 | ) | | | 2,720 | | | | (86,788 | ) | | | 57,809 | | | | 2,628 | | | | (3,527 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 10,940 | | | | 55,818 | | | | 10,720 | | | | 148,633 | | | | 4,374 | | | | (820 | ) |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (39,918 | ) | | | (27,182 | ) | | | (16,870 | ) | | | (11,160 | ) | | | (2,598 | ) | | | — | |
Net realized gains | | | (6,022 | ) | | | — | | | | (52,403 | ) | | | — | | | | (605 | ) | | | (135 | ) |
Total Distributions to Shareholders | | | (45,940 | ) | | | (27,182 | ) | | | (69,273 | ) | | | (11,160 | ) | | | (3,203 | ) | | | (135 | ) |
Capital Share Transactions | | | 164,154 | | | | 211,658 | | | | 42,851 | | | | (87,256 | ) | | | 36,655 | | | | 314,950 | |
Net Increase (Decrease) in Net Assets | | | 129,154 | | | | 240,294 | | | | (15,702 | ) | | | 50,217 | | | | 37,826 | | | | 313,995 | |
Net Assets, Beginning of Period | | | 689,291 | | | | 448,997 | | | | 672,075 | | | | 621,858 | | | | 436,611 | | | | 122,616 | |
Net Assets, End of Period | | $ | 818,445 | | | $ | 689,291 | | | $ | 656,373 | | | $ | 672,075 | | | $ | 474,437 | | | $ | 436,611 | |
Undistributed net investment income | | $ | 51,134 | | | $ | 39,872 | | | $ | 5,183 | | | $ | 9,590 | | | $ | 6,678 | | | $ | 2,586 | |
| | | |
| | | Micro Cap Growth | | | Mid Cap Growth | | | Money Market | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | (847 | ) | | $ | (737 | ) | | $ | (1,555 | ) | | $ | (1,283 | ) | | $ | 133 | | | $ | 72 | |
Net realized gain on investments | | | 10,617 | | | | 10,502 | | | | 48,139 | | | | 27,540 | | | | 10 | | | | 1 | |
Net change in unrealized appreciation (depreciation) | | | (11,501 | ) | | | 18,252 | | | | (9,125 | ) | | | 65,124 | | | | — | | | | — | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | (1,731 | ) | | | 28,017 | | | | 37,459 | | | | 91,381 | | | | 143 | | | | 73 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | — | | | | — | | | | — | | | | — | | | | (133 | ) | | | (72 | ) |
Net realized gains | | | (9,754 | ) | | | (2,495 | ) | | | (26,432 | ) | | | (11,278 | ) | | | — | | | | — | |
Total Distributions to Shareholders | | | (9,754 | ) | | | (2,495 | ) | | | (26,432 | ) | | | (11,278 | ) | | | (133 | ) | | | (72 | ) |
Capital Share Transactions | | | 3,965 | | | | 4,836 | | | | 120,182 | | | | 81,550 | | | | (93,182 | ) | | | 359,751 | |
Net Increase (Decrease) in Net Assets | | | (7,520 | ) | | | 30,358 | | | | 131,209 | | | | 161,653 | | | | (93,172 | ) | | | 359,752 | |
Net Assets, Beginning of Period | | | 79,176 | | | | 48,818 | | | | 425,772 | | | | 264,119 | | | | 604,696 | | | | 244,944 | |
Net Assets, End of Period | | $ | 71,656 | | | $ | 79,176 | | | $ | 556,981 | | | $ | 425,772 | | | $ | 511,524 | | | $ | 604,696 | |
Undistributed (distributions in excess of) net investment income | | $ | 18 | | | $ | 8 | | | $ | (200 | ) | | $ | (84 | ) | | $ | — | | | $ | — | |
See Accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Ivy Funds VIP
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Real Estate Securities | | | Science and Technology | | | Small Cap Growth | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | 542 | | | $ | 422 | | | $ | (2,915 | ) | | $ | (2,126 | ) | | $ | (3,515 | ) | | $ | (4,310 | ) |
Net realized gain on investments | | | 5,063 | | | | 3,123 | | | | 36,496 | | | | 47,326 | | | | 98,430 | | | | 51,993 | |
Net change in unrealized appreciation (depreciation) | | | 6,552 | | | | (3,128 | ) | | | (17,241 | ) | | | 150,128 | | | | (98,411 | ) | | | 138,156 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | | | 12,157 | | | | 417 | | | | 16,340 | | | | 195,328 | | | | (3,496 | ) | | | 185,839 | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (469 | ) | | | (467 | ) | | | — | | | | — | | | | — | | | | — | |
Net realized gains | | | (2,680 | ) | | | — | | | | (46,854 | ) | | | (24,421 | ) | | | (43,758 | ) | | | — | |
Total Distributions to Shareholders | | | (3,149 | ) | | | (467 | ) | | | (46,854 | ) | | | (24,421 | ) | | | (43,758 | ) | | | — | |
Capital Share Transactions | | | 3,120 | | | | (206 | ) | | | 46,759 | | | | 64,753 | | | | (87,569 | ) | | | (73,598 | ) |
Net Increase (Decrease) in Net Assets | | | 12,128 | | | | (256 | ) | | | 16,245 | | | | 235,660 | | | | (134,823 | ) | | | 112,241 | |
Net Assets, Beginning of Period | | | 40,152 | | | | 40,408 | | | | 569,784 | | | | 334,124 | | | | 560,388 | | | | 448,147 | |
Net Assets, End of Period | | $ | 52,280 | | | $ | 40,152 | | | $ | 586,029 | | | $ | 569,784 | | | $ | 425,565 | | | $ | 560,388 | |
Undistributed (distributions in excess of) net investment income | | $ | 594 | | | $ | 521 | | | $ | 41 | | | $ | (72 | ) | | $ | (99 | ) | | $ | (87 | ) |
| | | |
| | | Small Cap Value | | | Value | | | | |
| (In thousands) | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | | | |
INCREASE (DECREASE) IN NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) | | $ | (309 | ) | | $ | (239 | ) | | $ | 2,678 | | | $ | 2,686 | | | | | | | | | |
Net realized gain on investments | | | 27,675 | | | | 44,086 | | | | 53,260 | | | | 50,309 | | | | | | | | | |
Net change in unrealized appreciation (depreciation) | | | (5,376 | ) | | | 35,573 | | | | (18,250 | ) | | | 52,204 | | | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 21,990 | | | | 79,420 | | | | 37,688 | | | | 105,199 | | | | | | | | | |
| | | | | | |
Distributions to Shareholders From: | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | | (253 | ) | | | (2,358 | ) | | | (3,881 | ) | | | (2,749 | ) | | | | | | | | |
Net realized gains | | | (43,526 | ) | | | (17,437 | ) | | | (47,695 | ) | | | (8,828 | ) | | | | | | | | |
Total Distributions to Shareholders | | | (43,779 | ) | | | (19,795 | ) | | | (51,576 | ) | | | (11,577 | ) | | | | | | | | |
Capital Share Transactions | | | 86,384 | | | | (16,009 | ) | | | 58,465 | | | | (30,379 | ) | | | | | | | | |
Net Increase in Net Assets | | | 64,595 | | | | 43,616 | | | | 44,577 | | | | 63,243 | | | | | | | | | |
Net Assets, Beginning of Period | | | 289,143 | | | | 245,527 | | | | 371,616 | | | | 308,373 | | | | | | | | | |
Net Assets, End of Period | | $ | 353,738 | | | $ | 289,143 | | | $ | 416,193 | | | $ | 371,616 | | | | | | | | | |
Undistributed net investment income | | $ | 1,906 | | | $ | 1,010 | | | $ | 8,841 | | | $ | 6,477 | | | | | | | | | |
See Accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Ivy Funds VIP | FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Net Asset
Value,
Beginning of
Period | | | Net
Investment
Income
(Loss) | | | Net Realized and Unrealized
Gain (Loss) on
Investments | | | Total from
Investment
Operations | | |
Distributions
From Net
Investment
Income | | | Distributions
From Net
Realized
Gains | | | Total
Distributions | |
Pathfinder Aggressive | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 5.95 | | | $ | 0.16 | (2) | | $ | 0.10 | | | $ | 0.26 | | | $ | (0.05 | ) | | $ | (0.43 | ) | | $ | (0.48 | ) |
Year ended 12-31-2013 | | | 5.04 | | | | 0.05 | (2) | | | 1.27 | | | | 1.32 | | | | (0.07 | ) | | | (0.34 | ) | | | (0.41 | ) |
Year ended 12-31-2012 | | | 4.77 | | | | 0.07 | (2) | | | 0.48 | | | | 0.55 | | | | (0.05 | ) | | | (0.23 | ) | | | (0.28 | ) |
Year ended 12-31-2011 | | | 5.16 | | | | 0.04 | (2) | | | (0.24 | ) | | | (0.20 | ) | | | (0.06 | ) | | | (0.13 | ) | | | (0.19 | ) |
Year ended 12-31-2010 | | | 4.63 | | | | 0.06 | | | | 0.63 | | | | 0.69 | | | | (0.05 | ) | | | (0.11 | ) | | | (0.16 | ) |
Pathfinder Conservative | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.77 | | | | 0.06 | (2) | | | 0.12 | | | | 0.18 | | | | (0.06 | ) | | | (0.35 | ) | | | (0.41 | ) |
Year ended 12-31-2013 | | | 5.33 | | | | 0.06 | (2) | | | 0.70 | | | | 0.76 | | | | (0.08 | ) | | | (0.24 | ) | | | (0.32 | ) |
Year ended 12-31-2012 | | | 5.18 | | | | 0.08 | (2) | | | 0.27 | | | | 0.35 | | | | (0.05 | ) | | | (0.15 | ) | | | (0.20 | ) |
Year ended 12-31-2011 | | | 5.32 | | | | 0.06 | (2) | | | (0.02 | ) | | | 0.04 | | | | (0.07 | ) | | | (0.11 | ) | | | (0.18 | ) |
Year ended 12-31-2010 | | | 5.02 | | | | 0.06 | | | | 0.39 | | | | 0.45 | | | | (0.05 | ) | | | (0.10 | ) | | | (0.15 | ) |
Pathfinder Moderate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 6.14 | | | | 0.10 | (2) | | | 0.14 | | | | 0.24 | | | | (0.07 | ) | | | (0.44 | ) | | | (0.51 | ) |
Year ended 12-31-2013 | | | 5.33 | | | | 0.07 | (2) | | | 1.02 | | | | 1.09 | | | | (0.07 | ) | | | (0.21 | ) | | | (0.28 | ) |
Year ended 12-31-2012 | | | 5.06 | | | | 0.07 | (2) | | | 0.40 | | | | 0.47 | | | | (0.05 | ) | | | (0.15 | ) | | | (0.20 | ) |
Year ended 12-31-2011 | | | 5.27 | | | | 0.06 | (2) | | | (0.13 | ) | | | (0.07 | ) | | | (0.06 | ) | | | (0.08 | ) | | | (0.14 | ) |
Year ended 12-31-2010 | | | 4.76 | | | | 0.06 | | | | 0.53 | | | | 0.59 | | | | (0.03 | ) | | | (0.05 | ) | | | (0.08 | ) |
Pathfinder Moderately Aggressive | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 6.38 | | | | 0.14 | (2) | | | 0.14 | | | | 0.28 | | | | (0.07 | ) | | | (0.45 | ) | | | (0.52 | ) |
Year ended 12-31-2013 | | | 5.45 | | | | 0.07 | (2) | | | 1.19 | | | | 1.26 | | | | (0.07 | ) | | | (0.26 | ) | | | (0.33 | ) |
Year ended 12-31-2012 | | | 5.09 | | | | 0.08 | (2) | | | 0.46 | | | | 0.54 | | | | (0.04 | ) | | | (0.14 | ) | | | (0.18 | ) |
Year ended 12-31-2011 | | | 5.37 | | | | 0.05 | (2) | | | (0.21 | ) | | | (0.16 | ) | | | (0.04 | ) | | | (0.08 | ) | | | (0.12 | ) |
Year ended 12-31-2010 | | | 4.80 | | | | 0.05 | | | | 0.63 | | | | 0.68 | | | | (0.04 | ) | | | (0.07 | ) | | | (0.11 | ) |
Pathfinder Moderately Conservative | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 6.03 | | | | 0.08 | (2) | | | 0.14 | | | | 0.22 | | | | (0.06 | ) | | | (0.39 | ) | | | (0.45 | ) |
Year ended 12-31-2013 | | | 5.41 | | | | 0.06 | (2) | | | 0.87 | | | | 0.93 | | | | (0.08 | ) | | | (0.23 | ) | | | (0.31 | ) |
Year ended 12-31-2012 | | | 5.19 | | | | 0.08 | (2) | | | 0.34 | | | | 0.42 | | | | (0.05 | ) | | | (0.15 | ) | | | (0.20 | ) |
Year ended 12-31-2011 | | | 5.34 | | | | 0.06 | (2) | | | (0.06 | ) | | | 0.00 | | | | (0.06 | ) | | | (0.09 | ) | | | (0.15 | ) |
Year ended 12-31-2010 | | | 4.94 | | | | 0.06 | | | | 0.47 | | | | 0.53 | | | | (0.05 | ) | | | (0.08 | ) | | | (0.13 | ) |
Pathfinder Moderate – Managed Volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.37 | | | | 0.06 | (2) | | | 0.14 | | | | 0.20 | | | | (0.03 | ) | | | (0.15 | ) | | | (0.18 | ) |
Year ended 12-31-2013(3) | | | 5.00 | | | | (0.01 | )(2) | | | 0.38 | | | | 0.37 | | | | — | | | | — | * | | | — | * |
Pathfinder Moderately Aggressive – Managed Volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.41 | | | | 0.09 | (2) | | | 0.11 | | | | 0.20 | | | | (0.07 | ) | | | (0.25 | ) | | | (0.32 | ) |
Year ended 12-31-2013(3) | | | 5.00 | | | | (0.02 | )(2) | | | 0.43 | | | | 0.41 | | | | — | | | | — | * | | | — | * |
Pathfinder Moderately Conservative – Managed Volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.31 | | | | 0.04 | (2) | | | 0.11 | | | | 0.15 | | | | (0.03 | ) | | | (0.16 | ) | | | (0.19 | ) |
Year ended 12-31-2013(3) | | | 5.00 | | | | (0.02 | )(2) | | | 0.33 | | | | 0.31 | | | | — | | | | — | * | | | — | * |
| * | Not shown due to rounding. |
| (1) | Based on net asset value. Total returns for periods less than one year are not annualized. |
| (2) | Based on average weekly shares outstanding. |
| (3) | For the period from August 1, 2013 (commencement of operations of the Portfolio) through December 31, 2013. |
| (5) | Ratios of expenses to average net assets excluding offering cost was 0.26%. |
| (6) | Ratios of expenses to average net assets excluding offering cost was 0.29%. |
| (7) | Ratios of expenses to average net assets excluding offering cost was 0.33%. |
| (8) | Ratios of expenses to average net assets excluding offering cost was 0.36%. |
| (9) | Ratios of expenses to average net assets excluding offering cost was 0.35%. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset
Value,
End of Period | | | Total
Return(1) | | | Net Assets,
End of Period
(in millions) | | | Ratio of
Expenses to
Average Net
Assets | | | Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets | | | Portfolio
Turnover
Rate | |
Pathfinder Aggressive | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 5.73 | | | | 4.86 | % | | $ | 85 | | | | 0.07 | % | | | 2.73 | % | | | 28 | % |
Year ended 12-31-2013 | | | 5.95 | | | | 27.13 | | | | 86 | | | | 0.07 | | | | 0.96 | | | | 38 | |
Year ended 12-31-2012 | | | 5.04 | | | | 12.18 | | | | 69 | | | | 0.08 | | | | 1.41 | | | | 38 | |
Year ended 12-31-2011 | | | 4.77 | | | | -4.15 | | | | 65 | | | | 0.07 | | | | 0.85 | | | | 18 | |
Year ended 12-31-2010 | | | 5.16 | | | | 15.53 | | | | 72 | | | | 0.08 | | | | 1.35 | | | | 24 | |
Pathfinder Conservative | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.54 | | | | 3.39 | | | | 122 | | | | 0.06 | | | | 1.13 | | | | 30 | |
Year ended 12-31-2013 | | | 5.77 | | | | 14.75 | | | | 121 | | | | 0.07 | | | | 1.15 | | | | 66 | |
Year ended 12-31-2012 | | | 5.33 | | | | 6.95 | | | | 107 | | | | 0.07 | | | | 1.57 | | | | 36 | |
Year ended 12-31-2011 | | | 5.18 | | | | 0.75 | | | | 88 | | | | 0.07 | | | | 1.17 | | | | 24 | |
Year ended 12-31-2010 | | | 5.32 | | | | 9.38 | | | | 71 | | | | 0.08 | | | | 1.65 | | | | 26 | |
Pathfinder Moderate | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.87 | | | | 4.24 | | | | 928 | | | | 0.03 | | | | 1.69 | | | | 24 | |
Year ended 12-31-2013 | | | 6.14 | | | | 20.83 | | | | 922 | | | | 0.03 | | | | 1.15 | | | | 39 | |
Year ended 12-31-2012 | | | 5.33 | | | | 9.53 | | | | 733 | | | | 0.04 | | | | 1.43 | | | | 24 | |
Year ended 12-31-2011 | | | 5.06 | | | | -1.46 | | | | 582 | | | | 0.04 | | | | 1.15 | | | | 16 | |
Year ended 12-31-2010 | | | 5.27 | | | | 12.63 | | | | 461 | | | | 0.04 | | | | 1.52 | | | | 18 | |
Pathfinder Moderately Aggressive | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 6.14 | | | | 4.61 | | | | 1,098 | | | | 0.03 | | | | 2.30 | | | | 23 | |
Year ended 12-31-2013 | | | 6.38 | | | | 23.81 | | | | 1,089 | | | | 0.03 | | | | 1.15 | | | | 33 | |
Year ended 12-31-2012 | | | 5.45 | | | | 10.82 | | | | 873 | | | | 0.04 | | | | 1.42 | | | | 25 | |
Year ended 12-31-2011 | | | 5.09 | | | | -3.02 | | | | 723 | | | | 0.04 | | | | 0.97 | | | | 14 | |
Year ended 12-31-2010 | | | 5.37 | | | | 14.46 | | | | 501 | | | | 0.04 | | | | 1.35 | | | | 23 | |
Pathfinder Moderately Conservative | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.80 | | | | 3.88 | | | | 291 | | | | 0.04 | | | | 1.43 | | | | 27 | |
Year ended 12-31-2013 | | | 6.03 | | | | 17.71 | | | | 300 | | | | 0.05 | | | | 1.09 | | | | 46 | |
Year ended 12-31-2012 | | | 5.41 | | | | 8.41 | | | | 240 | | | | 0.05 | | | | 1.57 | | | | 26 | |
Year ended 12-31-2011 | | | 5.19 | | | | 0.00 | | | | 194 | | | | 0.05 | | | | 1.12 | | | | 18 | |
Year ended 12-31-2010 | | | 5.34 | | | | 10.97 | | | | 151 | | | | 0.06 | | | | 1.60 | | | | 21 | |
Pathfinder Moderate – Managed
Volatility | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.39 | | | | 3.75 | | | | 203 | | | | 0.28 | (5) | | | 1.06 | | | | 23 | |
Year ended 12-31-2013(3) | | | 5.37 | | | | 7.50 | | | | 34 | | | | 0.58 | (4)(6) | | | -0.57 | (4) | | | 18 | |
Pathfinder Moderately Aggressive – Managed
Volatility | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.29 | | | | 3.91 | | | | 43 | | | | 0.41 | (7) | | | 1.74 | | | | 32 | |
Year ended 12-31-2013(3) | | | 5.41 | | | | 8.27 | | | | 10 | | | | 1.04 | (4)(8) | | | -1.03 | (4) | | | 15 | |
Pathfinder Moderately Conservative – Managed
Volatility | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.27 | | | | 3.06 | | | | 31 | | | | 0.47 | (8) | | | 0.76 | | | | 36 | |
Year ended 12-31-2013(3) | | | 5.31 | | | | 6.29 | | | | 10 | | | | 0.98 | (4)(9) | | | -0.97 | (4) | | | 21 | |
See Accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Ivy Funds VIP | FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Net Asset
Value,
Beginning of
Period | | | Net
Investment
Income
(Loss) | | | Net Realized
and Unrealized
Gain (Loss) on
Investments | | | Total from
Investment
Operations | | | Distributions
From Net
Investment
Income | | |
Distributions
From Net
Realized
Gains | | | Total
Distributions | |
Asset Strategy | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 13.25 | | | $ | 0.11 | (3) | | $ | (0.78 | ) | | $ | (0.67 | ) | | $ | (0.06 | ) | | $ | (1.65 | ) | | $ | (1.71 | ) |
Year ended 12-31-2013 | | | 10.73 | | | | 0.10 | (3) | | | 2.57 | | | | 2.67 | | | | (0.15 | ) | | | — | | | | (0.15 | ) |
Year ended 12-31-2012 | | | 9.11 | | | | 0.18 | (3) | | | 1.55 | | | | 1.73 | | | | (0.11 | ) | | | — | | | | (0.11 | ) |
Year ended 12-31-2011 | | | 9.91 | | | | 0.06 | (3) | | | (0.76 | ) | | | (0.70 | ) | | | (0.10 | ) | | | — | | | | (0.10 | ) |
Year ended 12-31-2010 | | | 9.23 | | | | 0.09 | | | | 0.69 | | | | 0.78 | | | | (0.10 | ) | | | — | | | | (0.10 | ) |
Balanced | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 10.46 | | | | 0.09 | (3) | | | 0.64 | | | | 0.73 | | | | (0.10 | ) | | | (0.90 | ) | | | (1.00 | ) |
Year ended 12-31-2013 | | | 9.37 | | | | 0.10 | (3) | | | 2.01 | | | | 2.11 | | | | (0.15 | ) | | | (0.87 | ) | | | (1.02 | ) |
Year ended 12-31-2012 | | | 9.01 | | | | 0.14 | (3) | | | 0.88 | | | | 1.02 | | | | (0.14 | ) | | | (0.52 | ) | | | (0.66 | ) |
Year ended 12-31-2011 | | | 9.59 | | | | 0.14 | (3) | | | 0.20 | | | | 0.34 | | | | (0.15 | ) | | | (0.77 | ) | | | (0.92 | ) |
Year ended 12-31-2010 | | | 8.48 | | | | 0.15 | | | | 1.26 | | | | 1.41 | | | | (0.17 | ) | | | (0.13 | ) | | | (0.30 | ) |
Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.49 | | | | 0.13 | (3) | | | 0.10 | | | | 0.23 | | | | (0.21 | ) | | | (0.17 | ) | | | (0.38 | ) |
Year ended 12-31-2013 | | | 5.90 | | | | 0.14 | (3) | | | (0.26 | ) | | | (0.12 | ) | | | (0.20 | ) | | | (0.09 | ) | | | (0.29 | ) |
Year ended 12-31-2012 | | | 5.80 | | | | 0.15 | (3) | | | 0.18 | | | | 0.33 | | | | (0.18 | ) | | | (0.05 | ) | | | (0.23 | ) |
Year ended 12-31-2011 | | | 5.60 | | | | 0.17 | (3) | | | 0.22 | | | | 0.39 | | | | (0.15 | ) | | | (0.04 | ) | | | (0.19 | ) |
Year ended 12-31-2010 | | | 5.50 | | | | 0.12 | | | | 0.20 | | | | 0.32 | | | | (0.22 | ) | | | — | | | | (0.22 | ) |
Core Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 15.13 | | | | 0.05 | (3) | | | 1.24 | | | | 1.29 | | | | (0.08 | ) | | | (2.16 | ) | | | (2.24 | ) |
Year ended 12-31-2013 | | | 12.38 | | | | 0.07 | (3) | | | 3.88 | | | | 3.95 | | | | (0.07 | ) | | | (1.13 | ) | | | (1.20 | ) |
Year ended 12-31-2012 | | | 11.70 | | | | 0.07 | (3) | | | 1.96 | | | | 2.03 | | | | (0.08 | ) | | | (1.27 | ) | | | (1.35 | ) |
Year ended 12-31-2011 | | | 11.91 | | | | 0.07 | (3) | | | 0.15 | | | | 0.22 | | | | (0.04 | ) | | | (0.39 | ) | | | (0.43 | ) |
Year ended 12-31-2010 | | | 9.95 | | | | 0.04 | | | | 2.02 | | | | 2.06 | | | | (0.10 | ) | | | — | | | | (0.10 | ) |
Dividend Opportunities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 9.04 | | | | 0.12 | (3) | | | 0.71 | | | | 0.83 | | | | (0.10 | ) | | | (0.72 | ) | | | (0.82 | ) |
Year ended 12-31-2013 | | | 7.24 | | | | 0.10 | (3) | | | 2.01 | | | | 2.11 | | | | (0.13 | ) | | | (0.18 | ) | | | (0.31 | ) |
Year ended 12-31-2012 | | | 6.47 | | | | 0.14 | (3) | | | 0.71 | | | | 0.85 | | | | (0.08 | ) | | | — | | | | (0.08 | ) |
Year ended 12-31-2011 | | | 6.86 | | | | 0.09 | (3) | | | (0.41 | ) | | | (0.32 | ) | | | (0.07 | ) | | | — | | | | (0.07 | ) |
Year ended 12-31-2010 | | | 5.96 | | | | 0.07 | | | | 0.90 | | | | 0.97 | | | | (0.07 | ) | | | — | | | | (0.07 | ) |
Energy | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 7.50 | | | | (0.01 | )(3) | | | (0.73 | ) | | | (0.74 | ) | | | — | | | | (0.25 | ) | | | (0.25 | ) |
Year ended 12-31-2013 | | | 5.89 | | | | (0.02 | )(3) | | | 1.65 | | | | 1.63 | | | | — | | | | (0.02 | ) | | | (0.02 | ) |
Year ended 12-31-2012 | | | 5.81 | | | | (0.01 | )(3) | | | 0.09 | | | | 0.08 | | | | — | | | | — | | | | — | |
Year ended 12-31-2011 | | | 6.39 | | | | (0.02 | )(3) | | | (0.56 | ) | | | (0.58 | ) | | | — | | | | — | | | | — | |
Year ended 12-31-2010 | | | 5.26 | | | | (0.01 | ) | | | 1.16 | | | | 1.15 | | | | (0.02 | ) | | | — | | | | (0.02 | ) |
Global Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.16 | | | | 0.19 | (3) | | | (0.18 | ) | | | 0.01 | | | | (0.12 | ) | | | — | | | | (0.12 | ) |
Year ended 12-31-2013 | | | 5.07 | | | | 0.15 | (3) | | | (0.06 | ) | | | 0.09 | | | | — | | | | — | | | | — | |
Year ended 12-31-2012 | | | 4.90 | | | | 0.15 | (3) | | | 0.16 | | | | 0.31 | | | | (0.14 | ) | | | — | * | | | (0.14 | ) |
Year ended 12-31-2011 | | | 5.00 | | | | 0.12 | (3) | | | (0.12 | ) | | | 0.00 | | | | (0.10 | ) | | | — | | | | (0.10 | ) |
Year ended 12-31-2010(4) | | | 5.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | — | | | | — | | | | — | |
| * | Not shown due to rounding. |
| (1) | Based on net asset value. Total returns for periods less than one year are not annualized. |
| (2) | Ratios excluding expense waivers are included only for periods in which the Portfolio had waived or reimbursed expenses. |
| (3) | Based on average weekly shares outstanding. |
| (4) | For the period from August 23, 2010 (commencement of operations of the Portfolio) through December 31, 2010. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset
Value,
End of Period | | | Total
Return(1) | | | Net Assets,
End of Period
(in millions) | | | Ratio of
Expenses to
Average Net
Assets
Including
Expense
Waiver | | | Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets
Including
Expense
Waiver | | | Ratio of
Expenses
to
Average
Net
Assets
Excluding
Expense
Waiver(2) | | | Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets
Excluding
Expense
Waiver(2) | | | Portfolio
Turnover
Rate | |
Asset Strategy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 10.87 | | | | -5.26 | % | | $ | 1,600 | | | | 0.97 | % | | | 0.94 | % | | | 0.98 | % | | | 0.93 | % | | | 130 | % |
Year ended 12-31-2013 | | | 13.25 | | | | 25.13 | | | | 1,704 | | | | 0.97 | | | | 0.82 | | | | 0.98 | | | | 0.81 | | | | 64 | |
Year ended 12-31-2012 | | | 10.73 | | | | 19.18 | | | | 1,345 | | | | 1.00 | | | | 1.83 | | | | 1.01 | | | | 1.82 | | | | 49 | |
Year ended 12-31-2011 | | | 9.11 | | | | -7.21 | | | | 1,197 | | | | 0.99 | | | | 0.62 | | | | 1.00 | | | | 0.61 | | | | 57 | |
Year ended 12-31-2010 | | | 9.91 | | | | 8.68 | | | | 1,295 | | | | 1.02 | | | | 1.07 | | | | 1.03 | | | | 1.06 | | | | 104 | |
Balanced | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 10.19 | | | | 7.57 | | | | 415 | | | | 1.01 | | | | 0.90 | | | | — | | | | — | | | | 43 | |
Year ended 12-31-2013 | | | 10.46 | | | | 23.70 | | | | 418 | | | | 1.01 | | | | 0.99 | | | | — | | | | — | | | | 38 | |
Year ended 12-31-2012 | | | 9.37 | | | | 11.75 | | | | 355 | | | | 1.01 | | | | 1.55 | | | | — | | | | — | | | | 43 | |
Year ended 12-31-2011 | | | 9.01 | | | | 3.31 | | | | 345 | | | | 1.01 | | | | 1.46 | | | | — | | | | — | | | | 32 | |
Year ended 12-31-2010 | | | 9.59 | | | | 17.11 | | | | 375 | | | | 1.01 | | | | 1.52 | | | | — | | | | — | | | | 48 | |
Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.34 | | | | 4.34 | | | | 310 | | | | 0.78 | | | | 2.43 | | | | — | | | | — | | | | 28 | |
Year ended 12-31-2013 | | | 5.49 | | | | -2.09 | | | | 314 | | | | 0.78 | | | | 2.50 | | | | — | | | | — | | | | 48 | |
Year ended 12-31-2012 | | | 5.90 | | | | 5.78 | | | | 511 | | | | 0.78 | | | | 2.62 | | | | — | | | | — | | | | 33 | |
Year ended 12-31-2011 | | | 5.80 | | | | 7.31 | | | | 640 | | | | 0.77 | | | | 3.02 | | | | — | | | | — | | | | 65 | |
Year ended 12-31-2010 | | | 5.60 | | | | 6.04 | | | | 508 | | | | 0.78 | | | | 2.25 | | | | — | | | | — | | | | 49 | |
Core Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 14.18 | | | | 9.68 | | | | 505 | | | | 0.95 | | | | 0.34 | | | | 1.00 | | | | 0.29 | | | | 57 | |
Year ended 12-31-2013 | | | 15.13 | | | | 33.51 | | | | 500 | | | | 0.96 | | | | 0.55 | | | | 1.01 | | | | 0.50 | | | | 70 | |
Year ended 12-31-2012 | | | 12.38 | | | | 18.60 | | | | 391 | | | | 0.97 | | | | 0.60 | | | | 1.02 | | | | 0.55 | | | | 53 | |
Year ended 12-31-2011 | | | 11.70 | | | | 1.66 | | | | 376 | | | | 0.96 | | | | 0.57 | | | | 1.01 | | | | 0.52 | | | | 70 | |
Year ended 12-31-2010 | | | 11.91 | | | | 20.89 | | | | 429 | | | | 0.96 | | | | 0.33 | | | | 1.01 | | | | 0.28 | | | | 100 | |
Dividend Opportunities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 9.05 | | | | 9.84 | | | | 511 | | | | 1.00 | | | | 1.33 | | | | — | | | | — | | | | 42 | |
Year ended 12-31-2013 | | | 9.04 | | | | 29.61 | | | | 484 | | | | 1.00 | | | | 1.23 | | | | — | | | | — | | | | 53 | |
Year ended 12-31-2012 | | | 7.24 | | | | 13.18 | | | | 386 | | | | 1.01 | | | | 1.95 | | | | — | | | | — | | | | 43 | |
Year ended 12-31-2011 | | | 6.47 | | | | -4.69 | | | | 343 | | | | 1.00 | | | | 1.30 | | | | — | | | | — | | | | 45 | |
Year ended 12-31-2010 | | | 6.86 | | | | 16.37 | | | | 296 | | | | 1.02 | | | | 1.37 | | | | — | | | | — | | | | 44 | |
Energy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 6.51 | | | | -10.56 | | | | 118 | | | | 1.18 | | | | -0.10 | | | | — | | | | — | | | | 21 | |
Year ended 12-31-2013 | | | 7.50 | | | | 27.76 | | | | 99 | | | | 1.23 | | | | -0.24 | | | | — | | | | — | | | | 33 | |
Year ended 12-31-2012 | | | 5.89 | | | | 1.38 | | | | 67 | | | | 1.25 | | | | -0.18 | | | | — | | | | — | | | | 38 | |
Year ended 12-31-2011 | | | 5.81 | | | | -9.08 | | | | 62 | | | | 1.24 | | | | -0.36 | | | | — | | | | — | | | | 14 | |
Year ended 12-31-2010 | | | 6.39 | | | | 21.96 | | | | 44 | | | | 1.28 | | | | -0.25 | | | | — | | | | — | | | | 27 | |
Global Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.05 | | | | 0.18 | | | | 19 | | | | 0.48 | | | | 3.69 | | | | 1.11 | | | | 3.06 | | | | 37 | |
Year ended 12-31-2013 | | | 5.16 | | | | 1.74 | | | | 16 | | | | 0.63 | | | | 3.00 | | | | 1.26 | | | | 2.37 | | | | 26 | |
Year ended 12-31-2012 | | | 5.07 | | | | 6.41 | | | | 11 | | | | 0.67 | | | | 3.01 | | | | 1.29 | | | | 2.39 | | | | 28 | |
Year ended 12-31-2011 | | | 4.90 | | | | 0.08 | | | | 7 | | | | 0.81 | | | | 2.45 | | | | 1.43 | | | | 1.83 | | | | 46 | |
Year ended 12-31-2010(4) | | | 5.00 | | | | -0.10 | | | | 5 | | | | 0.90 | (5) | | | 0.09 | (5) | | | 1.52 | (5) | | | -0.53 | (5) | | | 28 | |
See Accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Ivy Funds VIP | FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Net Asset
Value,
Beginning of
Period | | | Net
Investment
Income
(Loss) | | | Net Realized
and Unrealized
Gain (Loss) on
Investments | | | Total from
Investment
Operations | | | Distributions
From Net
Investment
Income | | | Distributions
From Net
Realized
Gains | | | Total
Distributions | |
Global Growth(6) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 9.81 | | | $ | 0.09 | (3) | | $ | 0.01 | | | $ | 0.10 | | | $ | (0.21 | ) | | $ | (0.86 | ) | | $ | (1.07 | ) |
Year ended 12-31-2013 | | | 8.46 | | | | 0.09 | (3) | | | 1.51 | | | | 1.60 | | | | (0.08 | ) | | | (0.17 | ) | | | (0.25 | ) |
Year ended 12-31-2012 | | | 7.86 | | | | 0.09 | (3) | | | 1.22 | | | | 1.31 | | | | (0.17 | ) | | | (0.54 | ) | | | (0.71 | ) |
Year ended 12-31-2011 | | | 8.51 | | | | 0.14 | (3) | | | (0.76 | ) | | | (0.62 | ) | | | (0.03 | ) | | | — | | | | (0.03 | ) |
Year ended 12-31-2010 | | | 7.49 | | | | 0.08 | | | | 1.01 | | | | 1.09 | | | | (0.07 | ) | | | — | | | | (0.07 | ) |
Global Natural Resources | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 5.43 | | | | 0.01 | (3) | | | (0.72 | ) | | | (0.71 | ) | | | — | | | | — | | | | — | |
Year ended 12-31-2013 | | | 5.04 | | | | 0.00 | *(3) | | | 0.39 | | | | 0.39 | | | | — | | | | — | | | | — | |
Year ended 12-31-2012 | | | 5.29 | | | | (0.01 | )(3) | | | 0.07 | | | | 0.06 | | | | — | | | | (0.31 | ) | | | (0.31 | ) |
Year ended 12-31-2011 | | | 6.73 | | | | (0.01 | )(3) | | | (1.43 | ) | | | (1.44 | ) | | | — | | | | — | | | | — | |
Year ended 12-31-2010 | | | 5.75 | | | | (0.02 | ) | | | 1.00 | | | | 0.98 | | | | — | | | | — | | | | — | |
Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 13.33 | | | | 0.01 | (3) | | | 1.28 | | | | 1.29 | | | | (0.06 | ) | | | (2.48 | ) | | | (2.54 | ) |
Year ended 12-31-2013 | | | 10.63 | | | | 0.03 | (3) | | | 3.65 | | | | 3.68 | | | | (0.05 | ) | | | (0.93 | ) | | | (0.98 | ) |
Year ended 12-31-2012 | | | 10.19 | | | | 0.05 | (3) | | | 1.20 | | | | 1.25 | | | | (0.01 | ) | | | (0.80 | ) | | | (0.81 | ) |
Year ended 12-31-2011 | | | 10.38 | | | | 0.01 | (3) | | | 0.22 | | | | 0.23 | | | | (0.04 | ) | | | (0.38 | ) | | | (0.42 | ) |
Year ended 12-31-2010 | | | 9.28 | | | | 0.04 | | | | 1.12 | | | | 1.16 | | | | (0.06 | ) | | | — | | | | (0.06 | ) |
High Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 4.00 | | | | 0.25 | (3) | | | (0.17 | ) | | | 0.08 | | | | (0.20 | ) | | | (0.03 | ) | | | (0.23 | ) |
Year ended 12-31-2013 | | | 3.80 | | | | 0.27 | (3) | | | 0.12 | | | | 0.39 | | | | (0.19 | ) | | | — | | | | (0.19 | ) |
Year ended 12-31-2012 | | | 3.42 | | | | 0.29 | (3) | | | 0.33 | | | | 0.62 | | | | (0.24 | ) | | | — | | | | (0.24 | ) |
Year ended 12-31-2011 | | | 3.49 | | | | 0.28 | (3) | | | (0.09 | ) | | | 0.19 | | | | (0.26 | ) | | | — | | | | (0.26 | ) |
Year ended 12-31-2010 | | | 3.30 | | | | 0.27 | | | | 0.19 | | | | 0.46 | | | | (0.27 | ) | | | — | | | | (0.27 | ) |
International Core Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 19.75 | | | | 0.24 | (3) | | | 0.10 | | | | 0.34 | | | | (0.51 | ) | | | (1.58 | ) | | | (2.09 | ) |
Year ended 12-31-2013 | | | 16.07 | | | | 0.27 | (3) | | | 3.70 | | | | 3.97 | | | | (0.29 | ) | | | — | | | | (0.29 | ) |
Year ended 12-31-2012 | | | 14.67 | | | | 0.25 | (3) | | | 1.64 | | | | 1.89 | | | | (0.36 | ) | | | (0.13 | ) | | | (0.49 | ) |
Year ended 12-31-2011 | | | 17.29 | | | | 0.32 | (3) | | | (2.68 | ) | | | (2.36 | ) | | | (0.26 | ) | | | — | | | | (0.26 | ) |
Year ended 12-31-2010 | | | 15.38 | | | | 0.26 | | | | 1.86 | | | | 2.12 | | | | (0.21 | ) | | | — | | | | (0.21 | ) |
Limited-Term Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 4.89 | | | | 0.07 | (3) | | | (0.02 | ) | | | 0.05 | | | | (0.03 | ) | | | (0.01 | ) | | | (0.04 | ) |
Year ended 12-31-2013 | | | 4.92 | | | | 0.05 | (3) | | | (0.08 | ) | | | (0.03 | ) | | | — | | | | — | * | | | — | * |
Year ended 12-31-2012 | | | 5.03 | | | | 0.07 | (3) | | | 0.10 | | | | 0.17 | | | | (0.15 | ) | | | (0.13 | ) | | | (0.28 | ) |
Year ended 12-31-2011 | | | 4.96 | | | | 0.06 | (3) | | | 0.09 | | | | 0.15 | | | | (0.08 | ) | | | — | | | | (0.08 | ) |
Year ended 12-31-2010(4) | | | 5.00 | | | | 0.02 | | | | (0.06 | ) | | | (0.04 | ) | | | — | | | | — | | | | — | |
Micro Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 31.78 | | | | (0.32 | )(3) | | | (0.66 | ) | | | (0.98 | ) | | | — | | | | (4.07 | ) | | | (4.07 | ) |
Year ended 12-31-2013 | | | 21.13 | | | | (0.31 | )(3) | | | 12.05 | | | | 11.74 | | | | — | | | | (1.09 | ) | | | (1.09 | ) |
Year ended 12-31-2012 | | | 20.56 | | | | (0.20 | )(3) | | | 2.57 | | | | 2.37 | | | | — | | | | (1.80 | ) | | | (1.80 | ) |
Year ended 12-31-2011 | | | 22.11 | | | | (0.26 | )(3) | | | (1.29 | ) | | | (1.55 | ) | | | — | | | | — | | | | — | |
Year ended 12-31-2010 | | | 15.70 | | | | (0.21 | ) | | | 6.62 | | | | 6.41 | | | | — | | | | — | | | | — | |
| * | Not shown due to rounding. |
| (1) | Based on net asset value. Total returns for periods less than one year are not annualized. |
| (2) | Ratios excluding expense waivers are included only for periods in which the Portfolio had waived or reimbursed expenses. |
| (3) | Based on average weekly shares outstanding. |
| (4) | For the period from August 23, 2010 (commencement of operations of the Portfolio) through December 31, 2010. |
| (6) | Effective January 1, 2015, the Portfolio’s name changed from International Growth to Global Growth. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset
Value,
End of Period | | | Total
Return(1) | | | Net Assets,
End of Period
(in millions) | | | Ratio of
Expenses to
Average Net
Assets
Including
Expense
Waiver | | | Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets
Including
Expense
Waiver | | | Ratio of
Expenses to
Average Net
Assets
Excluding
Expense
Waiver(2) | | | Ratio of Net
Investment
Income to
Average Net
Assets
Excluding
Expense
Waiver(2) | | | Portfolio
Turnover
Rate | |
Global Growth(6) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 8.84 | | | | 0.96 | % | | $ | 431 | | | | 1.13 | % | | | 0.93 | % | | | 1.16 | % | | | 0.90 | % | | | 65 | % |
Year ended 12-31-2013 | | | 9.81 | | | | 19.23 | | | | 419 | | | | 1.14 | | | | 1.06 | | | | 1.17 | | | | 1.03 | | | | 49 | |
Year ended 12-31-2012 | | | 8.46 | | | | 18.05 | | | | 478 | | | | 1.15 | | | | 1.09 | | | | 1.18 | | | | 1.06 | | | | 44 | |
Year ended 12-31-2011 | | | 7.86 | | | | -7.32 | | | | 266 | | | | 1.15 | | | | 1.67 | | | | 1.18 | | | | 1.64 | | | | 61 | |
Year ended 12-31-2010 | | | 8.51 | | | | 14.79 | | | | 331 | | | | 1.17 | | | | 1.22 | | | | 1.20 | | | | 1.19 | | | | 75 | |
Global Natural Resources | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 4.72 | | | | -13.04 | | | | 146 | | | | 1.33 | | | | 0.12 | | | | — | | | | — | | | | 31 | |
Year ended 12-31-2013 | | | 5.43 | | | | 7.80 | | | | 173 | | | | 1.35 | | | | -0.02 | | | | — | | | | — | | | | 134 | |
Year ended 12-31-2012 | | | 5.04 | | | | 1.89 | | | | 180 | | | | 1.36 | | | | -0.13 | | | | — | | | | — | | | | 102 | |
Year ended 12-31-2011 | | | 5.29 | | | | -21.45 | | | | 184 | | | | 1.37 | | | | -0.14 | | | | — | | | | — | | | | 100 | |
Year ended 12-31-2010 | | | 6.73 | | | | 17.06 | | | | 236 | | | | 1.37 | | | | -0.31 | | | | — | | | | — | | | | 117 | |
Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 12.08 | | | | 11.81 | | | | 871 | | | | 0.96 | | | | 0.10 | | | | 0.99 | | | | 0.07 | | | | 26 | |
Year ended 12-31-2013 | | | 13.33 | | | | 36.46 | | | | 1,201 | | | | 0.96 | | | | 0.30 | | | | 0.99 | | | | 0.27 | | | | 43 | |
Year ended 12-31-2012 | | | 10.63 | | | | 12.75 | | | | 992 | | | | 0.97 | | | | 0.47 | | | | 1.00 | | | | 0.44 | | | | 47 | |
Year ended 12-31-2011 | | | 10.19 | | | | 2.12 | | | | 859 | | | | 0.97 | | | | 0.07 | | | | 1.00 | | | | 0.04 | | | | 42 | |
Year ended 12-31-2010 | | | 10.38 | | | | 12.58 | | | | 917 | | | | 0.97 | | | | 0.42 | | | | 1.00 | | | | 0.39 | | | | 64 | |
High Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 3.85 | | | | 1.90 | | | | 818 | | | | 0.88 | | | | 6.31 | | | | 0.91 | | | | 6.28 | | | | 55 | |
Year ended 12-31-2013 | | | 4.00 | | | | 10.50 | | | | 689 | | | | 0.88 | | | | 6.99 | | | | 0.93 | | | | 6.94 | | | | 84 | |
Year ended 12-31-2012 | | | 3.80 | | | | 18.64 | | | | 449 | | | | 0.89 | | | | 7.86 | | | | 0.94 | | | | 7.81 | | | | 91 | |
Year ended 12-31-2011 | | | 3.42 | | | | 5.26 | | | | 272 | | | | 0.90 | | | | 8.01 | | | | 0.95 | | | | 7.96 | | | | 78 | |
Year ended 12-31-2010 | | | 3.49 | | | | 14.86 | | | | 243 | | | | 0.91 | | | | 8.27 | | | | 0.96 | | | | 8.22 | | | | 108 | |
International Core Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 18.00 | | | | 1.44 | | | | 656 | | | | 1.16 | | | | 1.28 | | | | — | | | | — | | | | 102 | |
Year ended 12-31-2013 | | | 19.75 | | | | 24.91 | | | | 672 | | | | 1.16 | | | | 1.51 | | | | — | | | | — | | | | 92 | |
Year ended 12-31-2012 | | | 16.07 | | | | 13.33 | | | | 622 | | | | 1.17 | | | | 1.64 | | | | — | | | | — | | | | 85 | |
Year ended 12-31-2011 | | | 14.67 | | | | -13.88 | | | | 521 | | | | 1.19 | | | | 1.96 | | | | — | | | | — | | | | 100 | |
Year ended 12-31-2010 | | | 17.29 | | | | 14.09 | | | | 580 | | | | 1.19 | | | | 1.70 | | | | — | | | | — | | | | 107 | |
Limited-Term Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 4.90 | | | | 0.97 | | | | 474 | | | | 0.80 | | | | 1.38 | | | | — | | | | — | | | | 34 | |
Year ended 12-31-2013 | | | 4.89 | | | | -0.54 | | | | 437 | | | | 0.82 | | | | 1.14 | | | | — | | | | — | | | | 25 | |
Year ended 12-31-2012 | | | 4.92 | | | | 3.37 | | | | 123 | | | | 0.81 | | | | 1.33 | | | | 0.82 | | | | 1.32 | | | | 60 | |
Year ended 12-31-2011 | | | 5.03 | | | | 3.17 | | | | 241 | | | | 0.76 | | | | 1.27 | | | | 0.84 | | | | 1.19 | | | | 55 | |
Year ended 12-31-2010(4) | | | 4.96 | | | | -0.85 | | | | 142 | | | | 0.76 | (5) | | | 0.92 | (5) | | | 0.84 | (5) | | | 0.84 | (5) | | | 15 | |
Micro Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 26.73 | | | | -1.74 | | | | 72 | | | | 1.32 | | | | -1.16 | | | | — | | | | — | | | | 51 | |
Year ended 12-31-2013 | | | 31.78 | | | | 57.28 | | | | 79 | | | | 1.34 | | | | -1.19 | | | | — | | | | — | | | | 61 | |
Year ended 12-31-2012 | | | 21.13 | | | | 11.84 | | | | 49 | | | | 1.35 | | | | -0.91 | | | | — | | | | — | | | | 52 | |
Year ended 12-31-2011 | | | 20.56 | | | | -7.01 | | | | 46 | | | | 1.34 | | | | -1.20 | | | | — | | | | — | | | | 57 | |
Year ended 12-31-2010 | | | 22.11 | | | | 40.85 | | | | 55 | | | | 1.35 | | | | -1.15 | | | | — | | | | — | | | | 77 | |
See Accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
Ivy Funds VIP | FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | Net Asset
Value,
Beginning of
Period | | | Net
Investment
Income
(Loss) | | | Net Realized
and Unrealized
Gain (Loss) on
Investments | | | Total from
Investment
Operations | | | Distributions
From Net
Investment
Income | | | Distributions
From Net
Realized
Gains | | | Total
Distributions | |
Mid Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 10.72 | | | $ | (0.04 | )(3) | | $ | 0.82 | | | $ | 0.78 | | | $ | — | | | $ | (0.66 | ) | | $ | (0.66 | ) |
Year ended 12-31-2013 | | | 8.54 | | | | (0.04 | )(3) | | | 2.54 | | | | 2.50 | | | | — | | | | (0.32 | ) | | | (0.32 | ) |
Year ended 12-31-2012 | | | 8.37 | | | | (0.02 | )(3) | | | 1.07 | | | | 1.05 | | | | — | | | | (0.88 | ) | | | (0.88 | ) |
Year ended 12-31-2011 | | | 8.69 | | | | (0.03 | )(3) | | | 0.01 | | | | (0.02 | ) | | | — | * | | | (0.30 | ) | | | (0.30 | ) |
Year ended 12-31-2010 | | | 6.61 | | | | 0.00 | | | | 2.08 | | | | 2.08 | | | | — | * | | | — | | | | — | * |
Money Market | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 1.00 | | | | 0.00 | *(3) | | | 0.00 | | | | 0.00 | * | | | — | * | | | — | | | | — | * |
Year ended 12-31-2013 | | | 1.00 | | | | 0.00 | *(3) | | | 0.00 | | | | 0.00 | * | | | — | * | | | — | | | | — | * |
Year ended 12-31-2012 | | | 1.00 | | | | 0.00 | *(3) | | | 0.00 | * | | | 0.00 | * | | | — | * | | | — | | | | — | * |
Year ended 12-31-2011 | | | 1.00 | | | | 0.00 | (3) | | | 0.00 | | | | 0.00 | | | | — | * | | | — | | | | — | * |
Year ended 12-31-2010 | | | 1.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | — | * | | | — | * | | | — | * |
Real Estate Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 7.90 | | | | 0.10 | (3) | | �� | 2.20 | | | | 2.30 | | | | (0.09 | ) | | | (0.52 | ) | | | (0.61 | ) |
Year ended 12-31-2013 | | | 7.89 | | | | 0.08 | (3) | | | 0.02 | | | | 0.10 | | | | (0.09 | ) | | | — | | | | (0.09 | ) |
Year ended 12-31-2012 | | | 6.75 | | | | 0.08 | (3) | | | 1.11 | | | | 1.19 | | | | (0.05 | ) | | | — | | | | (0.05 | ) |
Year ended 12-31-2011 | | | 6.48 | | | | 0.06 | (3) | | | 0.26 | | | | 0.32 | | | | (0.05 | ) | | | — | | | | (0.05 | ) |
Year ended 12-31-2010 | | | 5.14 | | | | 0.05 | | | | 1.40 | | | | 1.45 | | | | (0.11 | ) | | | — | | | | (0.11 | ) |
Science and Technology | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 26.58 | | | | (0.13 | )(3) | | | 0.74 | | | | 0.61 | | | | — | | | | (2.17 | ) | | | (2.17 | ) |
Year ended 12-31-2013 | | | 18.10 | | | | (0.11 | )(3) | | | 9.89 | | | | 9.78 | | | | — | | | | (1.30 | ) | | | (1.30 | ) |
Year ended 12-31-2012 | | | 15.25 | | | | (0.12 | )(3) | | | 4.22 | | | | 4.10 | | | | — | | | | (1.25 | ) | | | (1.25 | ) |
Year ended 12-31-2011 | | | 16.73 | | | | (0.13 | )(3) | | | (0.75 | ) | | | (0.88 | ) | | | — | | | | (0.60 | ) | | | (0.60 | ) |
Year ended 12-31-2010 | | | 15.30 | | | | (0.08 | ) | | | 1.96 | | | | 1.88 | | | | — | | | | (0.45 | ) | | | (0.45 | ) |
Small Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 13.76 | | | | (0.10 | )(3) | | | 0.11 | | | | 0.01 | | | | — | | | | (1.62 | ) | | | (1.62 | ) |
Year ended 12-31-2013 | | | 9.60 | | | | (0.10 | )(3) | | | 4.26 | | | | 4.16 | | | | — | | | | — | | | | — | |
Year ended 12-31-2012 | | | 9.34 | | | | (0.08 | )(3) | | | 0.57 | | | | 0.49 | | | | — | | | | (0.23 | ) | | | (0.23 | ) |
Year ended 12-31-2011 | | | 10.53 | | | | (0.10 | )(3) | | | (1.00 | ) | | | (1.10 | ) | | | — | | | | (0.09 | ) | | | (0.09 | ) |
Year ended 12-31-2010 | | | 8.17 | | | | (0.07 | ) | | | 2.43 | | | | 2.36 | | | | — | | | | — | | | | — | |
Small Cap Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 19.90 | | | | (0.01 | )(3) | | | 1.19 | | | | 1.18 | | | | (0.02 | ) | | | (3.08 | ) | | | (3.10 | ) |
Year ended 12-31-2013 | | | 16.04 | | | | (0.01 | )(3) | | | 5.20 | | | | 5.19 | | | | (0.16 | ) | | | (1.17 | ) | | | (1.33 | ) |
Year ended 12-31-2012 | | | 14.57 | | | | 0.12 | (3) | | | 2.44 | | | | 2.56 | | | | (0.07 | ) | | | (1.02 | ) | | | (1.09 | ) |
Year ended 12-31-2011 | | | 16.78 | | | | 0.08 | (3) | | | (2.21 | ) | | | (2.13 | ) | | | (0.08 | ) | | | — | | | | (0.08 | ) |
Year ended 12-31-2010 | | | 13.29 | | | | 0.07 | | | | 3.43 | | | | 3.50 | | | | (0.01 | ) | | | — | | | | (0.01 | ) |
Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 7.82 | | | | 0.05 | (3) | | | 0.71 | | | | 0.76 | | | | (0.09 | ) | | | (1.10 | ) | | | (1.19 | ) |
Year ended 12-31-2013 | | | 5.97 | | | | 0.05 | (3) | | | 2.03 | | | | 2.08 | | | | (0.05 | ) | | | (0.18 | ) | | | (0.23 | ) |
Year ended 12-31-2012 | | | 5.57 | | | | 0.07 | (3) | | | 0.91 | | | | 0.98 | | | | (0.08 | ) | | | (0.50 | ) | | | (0.58 | ) |
Year ended 12-31-2011 | | | 6.05 | | | | 0.06 | (3) | | | (0.50 | ) | | | (0.44 | ) | | | (0.04 | ) | | | — | | | | (0.04 | ) |
Year ended 12-31-2010 | | | 5.14 | | | | 0.03 | | | | 0.93 | | | | 0.96 | | | | (0.05 | ) | | | — | | | | (0.05 | ) |
| * | Not shown due to rounding. |
| (1) | Based on net asset value. Total returns for periods less than one year are not annualized. |
| (2) | Ratios excluding expense waivers are included only for periods in which the Portfolio had waived or reimbursed expenses. |
| (3) | Based on average weekly shares outstanding. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset
Value,
End of Period | | | Total
Return(1) | | | Net Assets,
End of Period
(in millions) | | | Ratio of
Expenses to
Average Net
Assets
Including
Expense
Waiver | | | Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets
Including
Expense
Waiver | | | Ratio of
Expenses to
Average Net
Assets
Excluding
Expense
Waiver(2) | | | Ratio of Net
Investment
Income (Loss)
to Average
Net Assets
Excluding
Expense
Waiver(2) | | | Portfolio
Turnover
Rate | |
Mid Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | $ | 10.84 | | | | 7.87 | % | | $ | 557 | | | | 1.10 | % | | | -0.34 | % | | | 1.15 | % | | | -0.39 | % | | | 43 | % |
Year ended 12-31-2013 | | | 10.72 | | | | 29.94 | | | | 426 | | | | 1.10 | | | | -0.36 | | | | 1.16 | | | | -0.42 | | | | 35 | |
Year ended 12-31-2012 | | | 8.54 | | | | 13.56 | | | | 264 | | | | 1.12 | | | | -0.27 | | | | 1.17 | | | | -0.32 | | | | 35 | |
Year ended 12-31-2011 | | | 8.37 | | | | -0.56 | | | | 173 | | | | 1.16 | | | | -0.32 | | | | 1.18 | | | | -0.34 | | | | 49 | |
Year ended 12-31-2010 | | | 8.69 | | | | 31.56 | | | | 142 | | | | 1.17 | | | | 0.01 | | | | 1.19 | | | | -0.01 | | | | 44 | |
Money Market | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 1.00 | | | | 0.02 | | | | 512 | | | | 0.15 | | | | 0.02 | | | | 0.45 | | | | -0.28 | | | | — | |
Year ended 12-31-2013 | | | 1.00 | | | | 0.02 | | | | 605 | | | | 0.19 | | | | 0.02 | | | | 0.45 | | | | -0.24 | | | | — | |
Year ended 12-31-2012 | | | 1.00 | | | | 0.02 | | | | 245 | | | | 0.30 | | | | 0.02 | | | | 0.47 | | | | -0.15 | | | | — | |
Year ended 12-31-2011 | | | 1.00 | | | | 0.02 | | | | 223 | | | | 0.28 | | | | 0.02 | | | | 0.47 | | | | -0.17 | | | | — | |
Year ended 12-31-2010 | | | 1.00 | | | | 0.08 | | | | 178 | | | | 0.42 | | | | 0.06 | | | | 0.49 | | | | -0.01 | | | | — | |
Real Estate Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 9.59 | | | | 30.17 | | | | 52 | | | | 1.21 | | | | 1.16 | | | | 1.30 | | | | 1.07 | | | | 81 | |
Year ended 12-31-2013 | | | 7.90 | | | | 1.13 | | | | 40 | | | | 1.24 | | | | 1.01 | | | | 1.33 | | | | 0.92 | | | | 43 | |
Year ended 12-31-2012 | | | 7.89 | | | | 17.72 | | | | 40 | | | | 1.33 | | | | 1.03 | | | | 1.34 | | | | 1.02 | | | | 47 | |
Year ended 12-31-2011 | | | 6.75 | | | | 5.01 | | | | 39 | | | | 1.33 | | | | 0.87 | | | | — | | | | — | | | | 54 | |
Year ended 12-31-2010 | | | 6.48 | | | | 28.51 | | | | 40 | | | | 1.36 | | | | 0.75 | | | | — | | | | — | | | | 67 | |
Science and Technology | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 25.02 | | | | 2.91 | | | | 586 | | | | 1.13 | | | | -0.51 | | | | 1.15 | | | | -0.53 | | | | 29 | |
Year ended 12-31-2013 | | | 26.58 | | | | 56.39 | | | | 570 | | | | 1.14 | | | | -0.49 | | | | 1.16 | | | | -0.51 | | | | 51 | |
Year ended 12-31-2012 | | | 18.10 | | | | 27.83 | | | | 334 | | | | 1.15 | | | | -0.67 | | | | 1.17 | | | | -0.69 | | | | 44 | |
Year ended 12-31-2011 | | | 15.25 | | | | -5.77 | | | | 279 | | | | 1.16 | | | | -0.77 | | | | 1.18 | | | | -0.79 | | | | 50 | |
Year ended 12-31-2010 | | | 16.73 | | | | 12.75 | | | | 326 | | | | 1.16 | | | | -0.48 | | | | 1.18 | | | | -0.50 | | | | 27 | |
Small Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 12.15 | | | | 1.59 | | | | 426 | | | | 1.14 | | | | -0.80 | | | | 1.16 | | | | -0.82 | | | | 85 | |
Year ended 12-31-2013 | | | 13.76 | | | | 43.36 | | | | 560 | | | | 1.14 | | | | -0.84 | | | | 1.16 | | | | -0.86 | | | | 74 | |
Year ended 12-31-2012 | | | 9.60 | | | | 5.17 | | | | 448 | | | | 1.14 | | | | -0.80 | | | | 1.16 | | | | -0.82 | | | | 85 | |
Year ended 12-31-2011 | | | 9.34 | | | | -10.60 | | | | 350 | | | | 1.14 | | | | -0.95 | | | | 1.16 | | | | -0.97 | | | | 80 | |
Year ended 12-31-2010 | | | 10.53 | | | | 28.85 | | | | 419 | | | | 1.14 | | | | -0.83 | | | | 1.16 | | | | -0.85 | | | | 60 | |
Small Cap Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 17.98 | | | | 7.05 | | | | 354 | | | | 1.15 | | | | -0.10 | | | | — | | | | — | | | | 81 | |
Year ended 12-31-2013 | | | 19.90 | | | | 33.53 | | | | 289 | | | | 1.16 | | | | -0.09 | | | | — | | | | — | | | | 54 | |
Year ended 12-31-2012 | | | 16.04 | | | | 18.63 | | | | 246 | | | | 1.17 | | | | 0.78 | | | | — | | | | — | | | | 64 | |
Year ended 12-31-2011 | | | 14.57 | | | | -12.79 | | | | 228 | | | | 1.17 | | | | 0.50 | | | | — | | | | — | | | | 59 | |
Year ended 12-31-2010 | | | 16.78 | | | | 26.41 | | | | 244 | | | | 1.17 | | | | 0.54 | | | | — | | | | — | | | | 78 | |
Value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12-31-2014 | | | 7.39 | | | | 10.94 | | | | 416 | | | | 1.00 | | | | 0.72 | | | | 1.01 | | | | 0.71 | | | | 76 | |
Year ended 12-31-2013 | | | 7.82 | | | | 35.34 | | | | 372 | | | | 1.00 | | | | 0.76 | | | | 1.01 | | | | 0.75 | | | | 63 | |
Year ended 12-31-2012 | | | 5.97 | | | | 18.88 | | | | 308 | | | | 1.00 | | | | 1.20 | | | | 1.02 | | | | 1.18 | | | | 67 | |
Year ended 12-31-2011 | | | 5.57 | | | | -7.32 | | | | 287 | | | | 1.00 | | | | 1.04 | | | | 1.01 | | | | 1.03 | | | | 60 | |
Year ended 12-31-2010 | | | 6.05 | | | | 18.71 | | | | 316 | | | | 1.01 | | | | 0.52 | | | | 1.02 | | | | 0.51 | | | | 51 | |
See Accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Ivy Funds VIP | December 31, 2014 |
Ivy Funds Variable Insurance Portfolios, a Delaware statutory trust (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is divided into 29 series (each a “Portfolio”). The assets belonging to each Portfolio, except Pathfinder Aggressive, Pathfinder Conservative, Pathfinder Moderate, Pathfinder Moderately Aggressive and Pathfinder Moderately Conservative (collectively, the “Pathfinder Portfolios”) and Pathfinder Moderate – Managed Volatility, Pathfinder Moderately Aggressive – Managed Volatility and Pathfinder Moderately Conservative – Managed Volatility (collectively, the “Managed Volatility Portfolios”), are held separately by the custodian. The investment objective, policies and risk factors of each Portfolio are described more fully in the Prospectus and Statement of Additional Information (“SAI”). Each Portfolio’s investment adviser is Waddell & Reed Investment Management Company (“WRIMCO”). Effective January 1, 2015, the name of International Growth has changed to Global Growth.
| 2. | | SIGNIFICANT ACCOUNTING POLICIES |
The following is a summary of significant accounting policies consistently followed by each Portfolio.
Security Transactions and Related Investment Income. Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Portfolio is informed of the ex-dividend date. All or a portion of the distributions received from a real estate investment trust or publicly traded partnership may be designated as a reduction of cost of the related investment and/or realized gain.
Foreign Currency Translation. Each Portfolio’s accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily, using foreign exchange rates obtained from an independent pricing service authorized by the Board of Trustees of the Trust (the “Board”). Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. Each Portfolio combines fluctuations from currency exchange rates and fluctuations in value when computing net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments. Foreign exchange rates are typically valued as of the close of the New York Stock Exchange (“NYSE”), normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
Dividends and Distributions to Shareholders. Dividends and distributions to shareholders are recorded by each Portfolio on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America (“U.S. GAAP”). If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital.
Income Taxes. It is the policy of each Portfolio to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, each Portfolio intends to pay distributions as required to avoid imposition of excise tax. Accordingly, no provision has been made for Federal income taxes. Management of the Trust periodically reviews all tax positions to assess that it is more likely than not that the position would be sustained upon examination by the relevant tax authority based on the technical merits of each position. As of and for the year ended December 31, 2014, management believes that no liability for unrecognized tax positions is required. The Portfolios are subject to examination by U.S. federal and state authorities for returns filed for tax years after 2010.
Segregation and Collateralization. In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that a Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls, financial futures contracts, foreign currency exchange contracts, options written, securities with extended settlement periods and swaps), the Portfolio will segregate collateral or designate on its books and records cash or other liquid securities having a value at least equal to the amount that is required to be physically segregated for the benefit of the counterparty. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party has requirements to deliver/deposit cash or securities as collateral for certain investments. Certain countries require that cash reserves be held while investing in companies incorporated in that country. These cash reserves and cash collateral that has been pledged to cover obligations of the Portfolios under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash.” Securities collateral pledged for the same purpose, if any, is noted on the Schedule of Investments.
Concentration of Market and Credit Risk. In the normal course of business, the Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Portfolios; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Portfolios may be exposed to counterparty credit risk, or the risk that an entity with which the Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The Portfolios manage counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Portfolios to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Portfolios’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded on the Portfolios’ Statement of Assets and Liabilities, less any collateral held by the Portfolios.
Certain Portfolios may hold high-yield and/or non-investment-grade bonds, which may be subject to a greater degree of credit risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. The Portfolios may acquire securities in default and are not obligated to dispose of securities whose issuers subsequently default.
Certain Portfolios may enter into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument, as reflected on the Statement of Assets and Liabilities.
If a Portfolio invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in financial derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Portfolio, or, in the case of hedging positions, that the Portfolio’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.
Inflation-Indexed Bonds. Certain Portfolios may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond will be included as interest income on the Statement of Operations, even though investors do not receive their principal until maturity.
Interest Only Obligations. These securities entitle the owner to receive only the interest portion from a bond, Treasury note or pool of mortgages. These securities are generally created by a third party separating a bond or pool of mortgages into distinct interest-only and principal-only securities. As the principal (par) amount of a bond or pool of mortgages is paid down, the amount of interest income earned by the owner will decline as well.
Payment In-Kind Securities. Certain Portfolios may invest in payment in-kind securities (“PIKs”). PIKs give the issuer the option at each interest payment date of making interest payments in either cash or additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro-rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statement of Assets and Liabilities.
Securities on a When-Issued or Delayed Delivery Basis. Certain Portfolios may purchase securities on a “when-issued” basis, and may purchase or sell securities on a “delayed delivery” basis. “When-issued” or “delayed delivery” refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. Delivery and payment for securities that have been purchased by a Portfolio on a when-issued basis normally take place within six months and possibly as long as two years or more after the trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The purchase of securities on a when-issued basis may increase the volatility of a Portfolio’s net asset value (“NAV”) to the extent the Portfolio executes such transactions while remaining substantially fully invested. When a Portfolio engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Portfolio to lose the opportunity to obtain or dispose of the security at a price and yield WRIMCO, or the Portfolio’s investment subadviser, as applicable, consider advantageous. The Portfolio maintains internally designated assets with a value equal to or greater than the amount of its purchase commitments. The Portfolio may also sell securities that it purchased on a when-issued or delayed delivery basis prior to settlement of the original purchase.
Loans. Certain Portfolios may invest in loans, the interest rates of which float or adjust periodically based upon a specified adjustment schedule, benchmark indicator, or prevailing interest rates, the debtor of which may be a domestic or foreign corporations, partnerships or other entity (“Borrower”). Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates generally include prime rates of one or more major U.S. banks, LIBOR rates or certificates of deposit rates. Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to which Borrowers repay cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturities. Loans are exempt from registration under the Securities Act of 1933, may contain certain restrictions on resale, and cannot be sold publicly. A Portfolio’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties.
When a Portfolio purchases assignments, it acquires all the rights and obligations under the loan agreement of the assigning lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than those held by the assigning lender. When a Portfolio purchases a participation of a loan interest, the Portfolio typically enters into a contractual agreement with the lender or other third party selling the participation. A participation interest in loans includes the right to receive payments of principal, interest and any fees to which it is entitled from the lender and only upon receipt by the lender of payments from the Borrower, but not from the Borrower directly. When investing in a participation interest, if a Borrower is unable to meet its obligations under a loan agreement, a Portfolio generally has no right to enforce compliance with the terms of the loan agreement. As a result, the Portfolio assumes the credit risk of the Borrower, the selling participant, and any other persons that are interpositioned between the Portfolio and the Borrower. If the lead lender in a typical lending syndicate becomes insolvent, enters Federal Deposit Insurance Corporation (“FDIC”) receivership or, if not FDIC insured, enters into bankruptcy, the Portfolio may incur certain costs and delays in receiving payment or may suffer a loss of principal and/or interest.
Custodian Fees. “Custodian fees” on the Statement of Operations may include interest expense incurred by a Portfolio on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. A Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by that Portfolio. The “Earnings credit” line item, if shown, represents earnings on cash balances maintained by that Portfolio during the period. Such interest expense and other custodian fees may be paid with these earnings.
Independent Trustees and Chief Compliance Officer Fees. Fees paid to the Independent Trustees can be paid in cash or deferred to a later date, at the election of the Trustee according to the Deferred Fee Agreement entered into between the Trust and the Trustee(s). Each Portfolio records its portion of the deferred fees as a liability on the Statement of Assets and Liabilities. All fees paid in cash plus any appreciation (depreciation) in the underlying deferred plan are shown on the Statement of Operations. Additionally, fees paid to the office of the Chief Compliance Officer of the Portfolios are shown on the Statement of Operations.
Indemnifications. The Trust’s organizational documents provide current and former Trustees and Officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Trust. In the normal course of business, the Trust may also enter into contracts that provide general indemnification. The Trust’s maximum exposure under these arrangements is unknown and is dependent on future claims that may be made against the Trust. The risk of material loss from such claims is considered remote.
Basis of Preparation. Each Portfolio is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). The accompanying financial statements were prepared in accordance with U.S. GAAP, including but not limited to ASC 946. U.S. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
New Rule Issuance. In July 2014, the SEC issued Final Rule Release No. 33-9616, Money Market Fund Reform; Amendments to Form PF, which amends the rules governing money market funds. The final amendments impose different implementation dates for the changes that certain money market funds will need to make. Management is currently evaluating the implication of these amendments and their impact of the Final Rule to the Portfolios’ financial statements and related disclosures.
Subsequent Events. Management has performed a review for subsequent events through the date this report was issued.
| 3. | | INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS |
Each Portfolio’s investments are reported at fair value. Fair value is defined as the price that each Portfolio would receive upon selling an asset or would pay upon satisfying a liability in an orderly transaction between market participants at the measurement date. Each Portfolio calculates the NAV of its shares as of the close of the NYSE, normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.
For purposes of calculating the NAV, the portfolio securities and other assets are valued on each business day using pricing and valuation methods as adopted by the Board. Where market quotes are readily available, fair value is generally determined on the basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services.
Prices for fixed-income securities are typically based on quotes that are obtained from an independent pricing service authorized by the Board. To determine values of fixed-income securities, the independent pricing service utilizes such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Securities that cannot be valued by the independent pricing service may be valued using quotes obtained from dealers that make markets in the securities.
Investments in Money Market Portfolio and short-term securities with maturities of 60 days or less are valued on the basis of amortized cost (which approximates value), whereby a portfolio security is valued at its cost initially, and thereafter valued to reflect a constant amortization to maturity of any discount or premium.
Because many foreign markets close before the NYSE, events may occur between the close of the foreign market and the close of the NYSE that could have a material impact on the valuation of foreign securities. Waddell & Reed Services Company (“WRSCO”), pursuant to procedures adopted by the Board, evaluates the impact of these events and may adjust the valuation of foreign securities to reflect the fair value as of the close of the NYSE. In addition, all securities for which values are not readily available or are deemed unreliable are appraised at fair value as determined in good faith under the supervision of the Board.
Where market quotes are not readily available, portfolio securities or assets are valued at fair value, as determined in good faith by the Board or WRSCO pursuant to procedures approved by the Board.
Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes), including where events occur after the close of the relevant market, but prior to the NYSE close, that materially affect the values of a Portfolio’s securities or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available.
The Board has delegated to WRSCO the responsibility for monitoring significant events that may materially affect the values of a Portfolio’s securities or assets and for determining whether the value of the applicable securities or assets should be re-evaluated in light of such significant events. WRSCO has established a Valuation Committee to administer and oversee the valuation process, including the use of third party pricing vendors.
The Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available. For instances in which daily market quotes are not readily available, investments may be valued, pursuant to procedures established by the Board, with reference to other securities or indices. In the event that the security or asset cannot be valued pursuant to one of the valuation methods established by the Board, the value of the security or asset will be determined in good faith by the Valuation Committee in accordance with the procedures adopted by the Board.
When a Portfolio uses these fair valuation methods applied by WRSCO that use significant unobservable inputs to determine its NAV, securities will be priced by a method that the Board or persons acting at their direction believe accurately reflects fair value and are categorized as Level 3 of the fair value hierarchy. These methods may require subjective determinations about the value of a security. The prices used by a Portfolio may differ from the value that will ultimately be realized at the time the securities were sold.
WRSCO is responsible for monitoring the implementation of the pricing and valuation policies through a series of activities to provide reasonable comfort of the accuracy of prices including: 1) periodic vendor due diligence meetings to review methodologies, new developments, and process at vendors, 2) daily and monthly multi-source pricing comparisons reviewed and submitted to the Valuation Committee, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by management and the Valuation Committee.
Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the factors that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs which are significant to the overall valuation.
The three-tier hierarchy of inputs is summarized as follows:
Level 1 – Observable input such as quoted prices, available in active markets, for identical assets or liabilities.
Level 2 – Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.
Level 3 – Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair value of investments.
A description of the valuation techniques applied to the Portfolios’ major classes of assets and liabilities measured at fair value on a recurring basis follows:
Asset-Backed Securities and Mortgage-Backed Securities. The fair value of asset-backed securities and mortgage-backed securities are estimated using recently executed transactions and based on models that consider the estimated cash flows of each debt tranche of the issuer, establish a benchmark yield, and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche including, but not limited to, the prepayment speed assumptions and attributes of the collateral. To the extent the inputs are observable and timely, the values would be categorized in Level 2 of the fair value hierarchy, and otherwise they would be categorized as Level 3.
Bullion. The fair value of bullion is at the last settlement price at the end of each day on the board of trade or exchange upon which they are traded and are categorized in Level 1 of the fair value hierarchy.
Corporate Bonds. The fair value of corporate bonds is estimated using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads adjusted for any basis difference between cash and derivative instruments. While most corporate bonds are categorized in Level 2 of the fair value hierarchy, in instances where lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they are categorized in Level 3 of the fair value hierarchy.
Derivative Instruments. Forward foreign currency contracts are valued based upon the closing prices of the forward currency rates determined at the close of the NYSE provided by an independent pricing service. Swaps are valued by an independent pricing service unless the price is unavailable, in which case they are valued at the price provided by a dealer in that security. Futures contracts traded on an exchange are generally valued at the settlement price. Listed options are ordinarily valued at the mean of the last bid and ask price provided by an independent pricing service unless the price is unavailable, in which case they are valued at a quotation obtained from a broker-dealer. Over the counter (“OTC”) options are ordinarily valued at the mean of the last bid and ask price provided by an independent pricing service for a comparable listed option unless such a price is unavailable, in which case they are valued at a quotation obtained from a broker-dealer. If no comparable listed option exists from which to obtain a price from an independent pricing service and a quotation cannot be obtained from a broker-dealer, the OTC option will be valued using a model reasonably designed to provide a current market price.
Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy. OTC derivative contracts include forward foreign currency contracts, swap agreements, and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices, or commodity prices. Depending on the product and the terms of the transaction, the fair value of the OTC derivative products are modeled taking into account the counterparties’ creditworthiness and using a series of techniques, including simulation models. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgments and the pricing inputs are observed from actively quoted markets, as is the case with interest rate swap and option contracts. OTC derivative products valued using pricing models with significant observable inputs are categorized within Level 2 of the fair value hierarchy.
Equity Securities. Equity securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day unless otherwise stated below. OTC equity securities and listed securities for which no price is readily available are valued at the average of the last bid and asked prices.
Mutual funds, including investment funds, typically are valued at the NAV reported as of the valuation date.
Securities that are stated at the last reported sales price or closing price on the day of valuation taken from the primary exchange where the security is principally traded and to the extent these securities are actively traded and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy.
Foreign securities, for which the primary trading market closes at the same time or after the NYSE, are valued based on quotations from the primary market in which they are traded and categorized in Level 1. Because many foreign securities markets and exchanges close prior to the close of the NYSE, closing prices for foreign securities in those markets or on those exchanges do not reflect the events that occur after that close. Certain foreign securities may be fair valued using a pricing service that considers the correlation of the trading patterns of the foreign security to the intra-day trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, exchange-traded funds, and the movement of certain indices of securities based on a statistical analysis of their historical relationship; such valuations generally are categorized in Level 2.
Preferred stock, repurchase agreements, and other equities traded on inactive markets or valued by reference to similar instruments are also generally categorized in Level 2.
Loans. Loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3.
Municipal Bonds. Municipal bonds are fair valued based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-wants lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable and timely, the fair values of municipal bonds would be categorized as Level 2; otherwise the fair values would be categorized as Level 3.
Restricted Securities. Restricted securities that are deemed to be both Rule 144A securities and illiquid, as well as restricted securities held in non-public entities, are included in Level 3 of the fair value hierarchy because they trade infrequently, and, therefore, the inputs are unobservable. Restricted securities that are valued at a discount to similar publicly traded securities may be categorized as Level 2 of the fair value hierarchy to the extent that the discount is considered to be insignificant to the fair value measurement in its entirety; otherwise they may be categorized as Level 3.
U.S. Government and Agency Securities. U.S. government and agency securities are normally valued using a model that incorporates market observable data such as reported sales of similar securities, broker quotes, yields, bids, offers, quoted market prices, and reference data. Accordingly, U.S. government and agency securities are normally categorized in Level 1 or 2 of the fair value hierarchy depending on the liquidity and transparency of the market.
Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information. Transfers between levels represent the values as of the beginning of the reporting period.
For fair valuations using unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. In accordance with the requirements of U.S. GAAP, a fair value hierarchy and Level 3 reconciliation, if any, have been included in the Notes to the Schedule of Investments for each respective Portfolio.
Net realized gain (loss) and net unrealized appreciation (depreciation), shown on the reconciliation of Level 3 investments if applicable, are included on the Statement of Operations in net realized gain (loss) on investments in unaffiliated securities and in net change in unrealized appreciation (depreciation) on investments in unaffiliated securities, respectively. Additionally, the net change in unrealized appreciation for all Level 3 investments still held as of December 31, 2014, if applicable, is included on the Statement of Operations in net change in unrealized appreciation (depreciation) on investments in unaffiliated securities.
The Portfolios may own different types of assets that are classified as Level 2 or Level 3. Assets classified as Level 2 can have a variety of observable inputs, including, but not limited to, benchmark yields, reported trades, broker quotes, benchmark securities, and bid/offer quotations. These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value.
| 4. | | DERIVATIVE INSTRUMENTS ($ amounts in thousands unless indicated otherwise) |
The following disclosures contain information on why and how the Portfolios use derivative instruments, the associated risks of investing in derivative instruments, and how derivative instruments affect the Portfolios’ financial positions and results of operations when presented by primary underlying risk exposure.
Forward Foreign Currency Contracts. Each Portfolio, other than Money Market and the Pathfinder Portfolios, may enter into forward foreign currency contracts (“forward contracts”) for the purchase or sale of a foreign currency at a negotiated rate at a future date. Forward contracts are reported on a schedule following the Schedule of Investments. Forward contracts will be valued daily based upon the closing prices of the forward currency rates provided by an independent pricing service determined at the close of the NYSE as provided by a bank, dealer or independent pricing service. The resulting unrealized appreciation and depreciation is reported on the Statement of Assets and Liabilities as a receivable or payable and on the Statement of Operations within the change in unrealized appreciation (depreciation). At contract close, the difference between the original cost of the contract and the value at the close date is recorded as a realized gain (loss) on the Statement of Operations.
Risks to a Portfolio related to the use of such contracts include both market and credit risk. Market risk is the risk that the value of the forward contract will depreciate due to unfavorable changes in the exchange rates. Credit risk arises from the possibility that the counterparty will default. If the counterparty defaults, a Portfolio’s maximum loss will consist of the aggregate unrealized gain on appreciated contracts that is not collateralized.
Futures Contracts. Each Portfolio, other than Money Market and the Pathfinder Portfolios, may engage in buying and selling futures contracts. Upon entering into a futures contract, the Portfolio is required to deposit, in a segregated account, an amount equal to a varying specified percentage of the contract amount. This amount is known as the initial margin. Subsequent payments (variation margins) are made or received by the Portfolio each day, dependent on the daily fluctuations in the value of the underlying debt security or index.
Futures contracts are reported on a schedule following the Schedule of Investments. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are identified on the Schedule of Investments. Cash held by the broker to cover initial margin requirements on open futures contracts and the receivable and/or payable for the daily mark to market for the variation margin are noted on the Statement of Assets and Liabilities. The net change in unrealized appreciation (depreciation) is reported on the Statement of Operations. Realized gains (losses) are reported on the Statement of Operations at the closing or expiration of futures contracts.
Risks of entering into futures contracts include the possibility of loss of securities or cash held as collateral, that there may be an illiquid market where the Portfolio is unable to close the contract or enter into an offsetting position and, if used for hedging purposes, the risk that the price of the contract will correlate imperfectly with the prices of the Portfolio’s securities.
Option Contracts. Options purchased by a Portfolio are accounted for in the same manner as portfolio securities. The cost of instruments acquired through the exercise of call options is increased by the premium paid to purchase the call. The proceeds from instruments sold through the exercise of put options are decreased by the premium paid to purchase the put.
When a Portfolio writes (sells) an option, an amount equal to the premium received by the Portfolio is recorded as a liability. The amount of the liability is subsequently adjusted to reflect the current value of the option written. When an option expires on its stipulated expiration date or a Portfolio enters into a closing purchase transaction, the Portfolio realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the call option was sold), and the liability related to such option is extinguished. When a written call option is exercised, the premium is added to the proceeds from the sale of the underlying instrument in determining whether a Portfolio has realized a gain or loss. For each Portfolio, when a written put is exercised, the cost basis of the instruments purchased by a Portfolio is reduced by the amount of the premium received.
Investments in options, whether purchased or written, involve certain risks. Writing put options and purchasing call options may increase a Portfolio’s exposure to the underlying instruments. With written options, there may be times when a Portfolio will be required to purchase or sell instruments to meet its obligation under the option contract where the required action is not beneficial to the Portfolio, due to unfavorable movement of the market price of the underlying instrument. Additionally, to the extent a Portfolio enters into OTC option transactions with counterparties, the Portfolio will be exposed to the risk that counterparties to these OTC transactions will be unable to meet their obligations under the terms of the transaction.
Swap Agreements. Each Portfolio, other than Money Market and the Pathfinder Portfolios, may invest in swap agreements.
Total return swaps involve a commitment to pay periodic interest payments in exchange for a market-linked return based on a security or a basket of securities representing a variety of securities or a particular index. To the extent the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
The creditworthiness of the counterparty with which a Portfolio enters into a swap agreement is monitored by WRIMCO. If a firm’s creditworthiness declines, the value of the agreement would likely decline, potentially resulting in losses. If a default occurs by the counterparty to such a transaction, the Portfolio will have contractual remedies pursuant to the agreement related to the transaction. The maximum loss a Portfolio may incur consists of the aggregate unrealized gain on appreciated contracts that is not collateralized.
Collateral and rights of offset. A Portfolio may mitigate credit risk with respect to OTC derivative counterparties through credit support annexes (“CSA”) included with an International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreement which is the standard contract governing most derivative transactions between the Portfolio and each of its counterparties. The CSA allows the Portfolio and its counterparty to offset certain derivative financial instruments’ payables and/or receivables against each other and/or with collateral, which is generally held by the Portfolio’s custodian. The amount of collateral moved to/from applicable counterparties is based upon minimum transfer amounts specified in the CSA. To the extent amounts due to the Portfolio from its counterparties are not fully collateralized contractually or otherwise, the Portfolio bears the risk of loss from counterparty non-performance. See Note 2 “Segregation and Collateralization” for additional information with respect to collateral practices.
Offsetting of Assets and Liabilities. FASB Accounting Standards Update 2011-11, Disclosures about Offsetting Assets and Liabilities, requires an entity that has financial instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement or similar agreement to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.
The following tables present financial instruments subject to master netting agreements as of December 31, 2014:
Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Gross Amounts Not Offset on the
Statement of Assets and Liabilities | |
| Portfolio | | Gross
Amounts of
Recognized
Assets | | | Gross
Amounts
Offset on the
Statement of
Assets and
Liabilities | | | Net Amounts
of Assets
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments
and
Derivatives
Available
for Offset | | | Non-Cash
Collateral
Received | | | Cash
Collateral
Received | | | Net
Amount
Receivable | |
Asset Strategy | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities at value* | | $ | 718 | | | $ | — | | | $ | 718 | | | $ | (453 | ) | | $ | (184 | ) | | $ | (81 | ) | | $ | — | |
Unrealized appreciation on forward foreign currency contracts(1) | | | 176 | | | | — | | | | 176 | | | | — | | | | — | | | | (176 | ) | | | — | |
Total | | $ | 894 | | | $ | — | | | $ | 894 | | | $ | (453 | ) | | $ | (184 | ) | | $ | (257 | ) | | $ | — | |
Global Bond | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized appreciation on forward foreign currency contracts | | $ | 3 | | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3 | |
Global Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized appreciation on forward foreign currency contracts(1) | | $ | 1,585 | | | $ | — | | | $ | 1,585 | | | $ | — | | | $ | (1,208 | ) | | $ | — | | | $ | 377 | |
Global Natural Resources | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized appreciation on forward foreign currency contracts(1) | | $ | 143 | | | $ | — | | | $ | 143 | | | $ | — | | | $ | — | | | $ | — | | | $ | 143 | |
High Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized appreciation on forward foreign currency contracts(1) | | $ | 89 | | | $ | — | | | $ | 89 | | | $ | — | | | $ | — | | | $ | — | | | $ | 89 | |
International Core Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized appreciation on forward foreign currency contracts | | $ | 86 | | | $ | — | | | $ | 86 | | | $ | (86 | ) | | $ | — | | | $ | — | | | $ | — | |
Science and Technology | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investments in unaffiliated securities at value* | | $ | 274 | | | $ | — | | | $ | 274 | | | $ | (274 | ) | | $ | — | | | $ | — | | | $ | — | |
| * | Purchased options are reported as investments in unaffiliated securities on the Statement of Assets and Liabilities. |
| (1) | Amounts include forward currency contracts that have an offset to an open and close contract, but have not settled. These amounts are included on the Statement of Assets and Liabilities line item for Investment securities sold receivable. |
Liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Gross Amounts Not Offset on the
Statement of Assets and Liabilities | |
| Portfolio | | Gross
Amounts of
Recognized
Liabilities | | | Gross
Amounts
Offset on the
Statement of
Assets and
Liabilities | | | Net Amounts
of Liabilities
Presented on
the Statement
of Assets and
Liabilities | | | Financial
Instruments
and
Derivatives
Available
for Offset | | | Non-Cash
Collateral
Pledged | | | Cash
Collateral
Pledged | | | Net
Amount
Payable | |
Asset Strategy | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Written options at value | | $ | 482 | | | $ | — | | | $ | 482 | | | $ | (453 | ) | | $ | (29 | ) | | $ | — | | | $ | — | |
International Core Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized depreciation on forward foreign currency contracts | | $ | 281 | | | $ | — | | | $ | 281 | | | $ | (86 | ) | | $ | — | | | $ | — | | | $ | 195 | |
Mid Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Written options at value | | $ | 117 | | | $ | — | | | $ | 117 | | | $ | — | | | $ | — | | | $ | — | | | $ | 117 | |
Science and Technology | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Written options at value | | $ | 299 | | | $ | — | | | $ | 299 | | | $ | (274 | ) | | $ | — | | | $ | — | | | $ | 25 | |
Additional Disclosure Related to Derivative Instruments
Fair values of derivative instruments as of December 31, 2014:
| | | | | | | | | | | | | | | | |
| | | | | Assets | | | | | Liabilities | |
| Portfolio | | Type of Risk
Exposure | | Statement of Assets & Liabilities
Location | | Value | | | | | Statement of Assets & Liabilities
Location | | Value | |
| Pathfinder Moderate – Managed Volatility | | Equity | | Unrealized appreciation on futures contracts** | | | $4 | | | | | Unrealized depreciation on futures contracts** | | | $17 | |
| Pathfinder Moderately Aggressive – Managed Volatility | | Equity | | Unrealized appreciation on futures contracts** | | | 1 | | | | | Unrealized depreciation on futures contracts** | | | 7 | |
| Pathfinder Moderately Conservative – Managed Volatility | | Equity | | Unrealized appreciation on futures contracts** | | | 2 | | | | | Unrealized depreciation on futures contracts** | | | 3 | |
| Asset Strategy | | Equity | | Investments in unaffiliated securities at value* | | | 718 | | | | | Written options at value | | | 482 | |
| | | Foreign currency | | Unrealized appreciation on forward foreign currency contracts | | | 105 | | | | | | | | — | |
| Global Bond | | Foreign currency | | Unrealized appreciation on forward foreign currency contracts | | | 3 | | | | | | | | — | |
| Global Growth | | Foreign currency | | Unrealized appreciation on forward foreign currency contracts | | | 1,473 | | | | | | | | — | |
| Global Natural Resources | | Foreign currency | | Unrealized appreciation on forward foreign currency contracts | | | 138 | | | | | | | | — | |
| High Income | | Foreign currency | | Unrealized appreciation on forward foreign currency contracts | | | 88 | | | | | | | | — | |
| International Core Equity | | Foreign currency | | Unrealized appreciation on forward foreign currency contracts | | | 86 | | | | | Unrealized depreciation on forward foreign currency contracts | | | 281 | |
| Mid Cap Growth | | Equity | | | | | — | | | | | Written options at value | | | 117 | |
| Science and Technology | | Equity | | Investments in unaffiliated securities at value* | | | 274 | | | | | Written options at value | | | 299 | |
| Value | | Equity | | | | | — | | | | | Written options at value | | | 190 | |
| * | Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments. |
| ** | The value presented includes cumulative gain (loss) on open futures contracts; however, the value reflected on the accompanying Statement of Assets and Liabilities is only the unsettled variation margin receivable (payable) as of December 31, 2014. |
Amount of realized gain (loss) on derivatives recognized on the Statement of Operations for the year ended December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Net realized gain (loss) on: | | | | |
| Portfolio | | Type of Risk
Exposure | | Investments in
unaffiliated
securities* | | | Swap
agreements | | | Futures
contracts | | | Written
options | | | Forward
foreign
currency
contracts | | | Total | |
Pathfinder Moderate – Managed Volatility | | Equity | | | $— | | | | $— | | | | $(121) | | | | $— | | | | $— | | | | $(121) | |
Pathfinder Moderately Aggressive – Managed Volatility | | Equity | | | — | | | | — | | | | (22 | ) | | | — | | | | — | | | | (22 | ) |
Pathfinder Moderately Conservative – Managed Volatility | | Equity | | | — | | | | — | | | | (67 | ) | | | — | | | | — | | | | (67 | ) |
| Asset Strategy | | Commodity | | | (44) | | | | — | | | | (6,384) | | | | (35) | | | | — | | | | (6,463) | |
| | Equity | | | (5,155) | | | | (6,843) | | | | (15) | | | | 6,290 | | | | — | | | | (5,723) | |
| | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 4,285 | | | | 4,285 | |
Bond | | Interest rate | | | — | | | | — | | | | (2,998 | ) | | | — | | | | — | | | | (2,998 | ) |
Global Bond | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | (5 | ) | | | (5 | ) |
Global Growth | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 4,325 | | | | 4,325 | |
Global Natural Resources | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 842 | | | | 842 | |
High Income | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 368 | | | | 368 | |
International Core Equity | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 2,750 | | | | 2,750 | |
Limited-Term Bond | | Interest rate | | | — | | | | — | | | | (6,114 | ) | | | — | | | | — | | | | (6,114 | ) |
Mid Cap Growth | | Equity | | | (2,212 | ) | | | — | | | | — | | | | (449 | ) | | | — | | | | (2,661 | ) |
Real Estate Securities | | Equity | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
Science and Technology | | Equity | | | 1,108 | | | | — | | | | — | | | | 455 | | | | — | | | | 1,563 | |
Small Cap Value | | Equity | | | — | | | | — | | | | — | | | | 58 | | | | — | | | | 58 | |
Value | | Equity | | | — | | | | — | | | | — | | | | (260 | ) | | | — | | | | (260 | ) |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
Change in unrealized appreciation (depreciation) on derivatives recognized on the Statement of Operations for the year ended December��31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Net change in unrealized appreciation (depreciation) on: | | | | |
| Portfolio | | Type of Risk
Exposure | | Investments in
unaffiliated
securities* | | | Swap
agreements | | | Futures
contracts | | | Written
options | | | Forward
foreign
currency
contracts | | | Total | |
Pathfinder Moderate – Managed Volatility | | Equity | | | $— | | | | $— | | | | $(38) | | | | $— | | | | $— | | | | $(38) | |
Pathfinder Moderately Aggressive – Managed Volatility | | Equity | | | — | | | | — | | | | (13 | ) | | | — | | | | — | | | | (13 | ) |
Pathfinder Moderately Conservative – Managed Volatility | | Equity | | | — | | | | — | | | | (5 | ) | | | — | | | | — | | | | (5 | ) |
| Asset Strategy | | Commodity | | | (3) | | | | — | | | | (2,698) | | | | (12) | | | | — | | | | (2,713) | |
| | Equity | | | (1,125) | | | | — | | | | — | | | | 480 | | | | — | | | | (645) | |
| | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | (8,039 | ) | | | (8,039 | ) |
Bond | | Interest rate | | | — | | | | — | | | | (371 | ) | | | — | | | | — | | | | (371 | ) |
Global Bond | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 10 | | | | 10 | |
Global Growth | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 1,491 | | | | 1,491 | |
Global Natural Resources | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 277 | | | | 277 | |
High Income | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | 213 | | | | 213 | |
| International Core Equity | | Equity | | | — | | | | — | | | | — | | | | 86 | | | | — | | | | 86 | |
| | | Foreign currency | | | — | | | | — | | | | — | | | | — | | | | (337 | ) | | | (337 | ) |
Limited-Term Bond | | Interest rate | | | — | | | | — | | | | (481 | ) | | | — | | | | — | | | | (481 | ) |
Mid Cap Growth | | Equity | | | 53 | | | | — | | | | — | | | | 70 | | | | — | | | | 123 | |
Real Estate Securities | | Equity | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
Science and Technology | | Equity | | | (213 | ) | | | — | | | | — | | | | (129 | ) | | | — | | | | (342 | ) |
Value | | Equity | | | — | | | | — | | | | — | | | | 1,872 | | | | — | | | | 1,872 | |
* Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.
During the year ended December 31, 2014, the average derivative volume was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio | | Long forward
contracts(1) | | | Short forward
contracts(1) | | | Long futures
contracts(1) | | | Short futures
contracts(1) | | | Swap
agreements(2) | | | Purchased
options(1) | | | Written
options(1) | |
Pathfinder Moderate – Managed Volatility | | $ | — | | | $ | — | | | $ | 1,505 | | | $ | 698 | | | $ | — | | | $ | — | | | $ | — | |
Pathfinder Moderately Aggressive – Managed Volatility | | | — | | | | — | | | | 582 | | | | 227 | | | | — | | | | — | | | | — | |
Pathfinder Moderately Conservative – Managed Volatility | | | — | | | | — | | | | 68 | | | | 243 | | | | — | | | | — | | | | — | |
Asset Strategy | | | 103,067 | | | | 57,591 | | | | — | | | | — | | | | 43,742 | | | | 2,410 | | | | 1,378 | |
Bond | | | — | | | | — | | | | — | | | | 30,267 | | | | — | | | | — | | | | — | |
Global Bond | | | 266 | | | | 266 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Global Growth | | | 53,733 | | | | 53,396 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Global Natural Resources | | | 14,353 | | | | 14,314 | | | | — | | | | — | | | | — | | | | — | | | | — | |
High Income | | | 5,145 | | | | 5,128 | | | | — | | | | — | | | | — | | | | — | | | | — | |
International Core Equity | | | 43,673 | | | | 43,654 | | | | — | | | | — | | | | — | | | | — | | | | 11 | |
Limited Term Bond | | | — | | | | — | | | | — | | | | 89,037 | | | | — | | | | — | | | | — | |
Mid Cap Growth | | | — | | | | — | | | | — | | | | — | | | | — | | | | 209 | | | | 208 | |
Real Estate Securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | * |
Science and Technology | | | — | | | | — | | | | — | | | | — | | | | — | | | | 454 | | | | 132 | |
Small Cap Value | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4 | |
Value | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 689 | |
| (1) | Average value outstanding during the period. |
| (2) | Average notional amount outstanding during the period. |
Objectives and Strategies
Pathfinder Moderate – Managed Volatility. The Portfolio’s objectives in using derivatives during the period were to manage the volatility of the Portfolio’s equity returns in an attempt to stabilize the equity returns of the Portfolio. To achieve this objective, the Portfolio utilized long and short exchange traded futures contracts on certain equity indices.
Pathfinder Moderately Aggressive – Managed Volatility. The Portfolio’s objectives in using derivatives during the period were to manage the volatility of the Portfolio’s equity returns in an attempt to stabilize the equity returns of the Portfolio. To achieve this objective, the Portfolio utilized long and short exchange traded futures contracts on certain equity indices.
Pathfinder Moderately Conservative – Managed Volatility. The Portfolio’s objectives in using derivatives during the period were to manage the volatility of the Portfolio’s equity returns in an attempt to stabilize the equity returns of the Portfolio. To achieve this objective, the Portfolio utilized long and short exchange traded futures contracts on certain equity indices.
Asset Strategy. The Portfolio’s objectives in using derivatives during the period included hedging market risk on equity securities, increasing exposure to various equity markets, managing exposure to various foreign currencies, and hedging certain event risks on positions held by the Portfolio. To achieve the objective of hedging market risk and increasing exposure to equity markets, the Portfolio utilized futures, total return swaps and option contracts, both written and purchased, on foreign and domestic equity indices. To manage foreign currency exposure, the Portfolio utilized forward contracts to either increase or decrease exposure to a given currency. To manage event risks, the Portfolio utilized short futures on commodities, as well as on foreign and domestic equity indices and option contracts, both written and purchased, on individual equity securities owned by the Portfolio.
Bond. The Portfolio’s objective in using derivatives during the period was to adjust the overall duration of the portfolio. To achieve this objective, the Portfolio primarily utilized Treasury futures contracts of varying lengths to either shorten or lengthen the duration of the Portfolio.
Global Bond. The Portfolio’s objective in using derivatives during the period was to manage the exposure to various foreign currencies. To achieve this objective, the Portfolio utilized forward contracts to either hedge a position held by the Portfolio, to gain exposure to a currency where a foreign bond is not available, or to take a fundamental position long or short in a particular currency.
Global Growth. The Portfolio’s objective in using derivatives during the period was to manage the exposure to various foreign currencies. To achieve this objective, the Portfolio utilized forward contracts to either increase or decrease exposure to a given currency.
Global Natural Resources. The Portfolio’s objective in using derivatives during the period was to manage the exposure to various foreign currencies. To achieve this objective, the Portfolio utilized forward contracts to either increase or decrease exposure to a given currency.
High Income. The Portfolio’s objective in using derivatives during the period was to hedge the exposure to foreign currencies from securities held in the portfolio. To achieve this objective, the Portfolio utilized forward contracts.
International Core Equity. The Portfolio’s objective in using derivatives during the period was to manage the exposure to various foreign currencies, to generate additional income from written option premiums, and to facilitate trading in certain securities. To achieve this objective, the Portfolio utilized forward contracts to either increase or decrease exposure to a given currency and utilized written options on individual equity securities.
Limited-Term Bond. The Portfolio’s objective in using derivatives during the period was to adjust the overall duration of the portfolio. To achieve this objective, the Portfolio primarily utilized Treasury futures contracts of varying lengths to either shorten or lengthen the duration of the Portfolio.
Mid Cap Growth. The Portfolio’s objectives in using derivatives during the period included gaining exposure to certain sectors, hedging certain event risks on positions held by the Portfolio and hedging market risk on equity securities. To achieve these objectives, the Portfolio utilized options, both written and purchased, on either an index or on individual or baskets of equity securities.
Real Estate Securities. The Portfolio’s objectives in using derivatives during the period included generating additional income from written option premiums and to facilitate trading in certain securities. To achieve these objectives, the Portfolio utilized written options on individual equity securities.
Science and Technology. The Portfolio’s objective in using derivatives during the period was to hedge market risk and individual security exposure in its portfolio. To achieve this objective, the Portfolio utilized options, both written and purchased, on individual equity securities owned by the Portfolio and on domestic equity indices.
Small Cap Value. The Portfolio’s objectives in using derivatives during the period included generating additional income from written option premiums and gaining exposure to, or facilitate trading in, certain securities. To achieve these objectives, the Portfolio utilized written options on individual equity securities.
Value. The Portfolio’s objectives in using derivatives during the period included generating additional income from written option premiums and gaining exposure to, or facilitate trading in, certain securities. To achieve these objectives, the Portfolio utilized written options on individual equity securities.
| 5. | | WRITTEN OPTION ACTIVITY ($ amounts in thousands) |
Transactions in written options were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio | | Outstanding
at 12-31-13 | | | Options
written | | | Options
closed | | | Options
exercised | | | Options
expired | | | Outstanding
at 12-31-14 | |
Asset Strategy | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | 5,327 | | | | 730,677 | | | | (701,899 | ) | | | (1,158 | ) | | | (29,914 | ) | | | 3,033 | |
Premium Received | | $ | 984 | | | $ | 10,699 | | | $ | (5,862 | ) | | $ | (32 | ) | | $ | (4,397 | ) | | $ | 1,392 | |
| | | | | | |
International Core Equity | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | 76,150 | | | | — | | | | — | | | | (76,150 | ) | | | — | | | | N/A | |
Premium Received | | $ | 63 | | | $ | — | | | $ | — | | | $ | (63 | ) | | $ | — | | | | N/A | |
| | | | | | |
Mid Cap Growth | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | 3,090 | | | | 13,595 | | | | (8,124 | ) | | | (2,629 | ) | | | (4,898 | ) | | | 1,034 | |
Premium Received | | $ | 167 | | | $ | 1,116 | | | $ | (449 | ) | | $ | (340 | ) | | $ | (318 | ) | | $ | 176 | |
| | | | | | |
Real Estate Securities | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | 20 | | | | — | | | | — | | | | — | | | | (20 | ) | | | N/A | |
Premium Received | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | (1 | ) | | | N/A | |
| | | | | | |
Science and Technology | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | 4,084 | | | | 12,201 | | | | (10,442 | ) | | | — | | | | (822 | ) | | | 5,021 | |
Premium Received | | $ | 511 | | | $ | 687 | | | $ | (849 | ) | | $ | — | | | $ | (103 | ) | | $ | 246 | |
| | | | | | |
Small Cap Value | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | N/A | | | | 650 | | | | — | | | | — | | | | (650 | ) | | | N/A | |
Premium Received | | | N/A | | | $ | 59 | | | $ | — | | | $ | — | | | $ | (59 | ) | | | N/A | |
| | | | | | |
Value | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Contracts | | | 4,856 | | | | 17,082 | | | | (6,128 | ) | | | (4,530 | ) | | | (9,638 | ) | | | 1,642 | |
Premium Received | | $ | 637 | | | $ | 2,807 | | | $ | (982 | ) | | $ | (1,318 | ) | | $ | (875 | ) | | $ | 269 | |
| 6. | | BASIS FOR CONSOLIDATION OF THE ASSET STRATEGY PORTFOLIO |
Ivy VIP ASF II, Ltd. (the “Subsidiary”), a Cayman Islands exempted company, was incorporated as a wholly owned subsidiary acting as an investment vehicle for Ivy Funds VIP Asset Strategy (referred to as “the Portfolio” in this subsection). VIP ASF III (SBP), LLC and VIP ASF, LLC (each a “Company”, collectively “the Companies”), Delaware limited liability companies, were incorporated as wholly owned companies acting as investment vehicles for the Portfolio. Each Subsidiary and Company acts as an investment vehicle for the Portfolio, in order to effect certain investments for the Portfolio consistent with the Portfolio’s investment objectives and policies as specified in its prospectus and SAI.
The Portfolio’s investment portfolio has been consolidated and includes the portfolio holdings of the Portfolio, its Subsidiary and the Companies. The consolidated financial statements include the accounts of the Portfolio, its Subsidiary and the Companies. All inter-company transactions and balances have been eliminated. A subscription agreement was entered into between the Portfolio and its Subsidiary and each Company comprising the entire issued share capital of the Subsidiary and each Company with the intent that the Portfolio will remain the sole shareholder and retain all rights. Under the Articles of Association, shares issued by the Subsidiary and each Company confer upon a shareholder the right to receive notice of, to attend and to vote at general meetings of the Subsidiary and each Company and shall confer upon the shareholder rights in a winding-up or repayment of capital and the right to participate in the profits or assets of the Subsidiary and each Company.
See the table below for details regarding the structure, incorporation and relationship as of December 31, 2014 of each Subsidiary and Company to the Portfolio (amounts in thousands).
| | | | | | | | | | | | | | | | | | | | |
| Subsidiary/Company | | Date of
Incorporation | | | Subscription
Agreement | | | Portfolio Net
Assets | | | Subsidiary
Net Assets | | | Percentage
of Portfolio
Net Assets | |
Ivy VIP ASF II, Ltd. | | | 1-31-13 | | | | 4-10-13 | | | $ | 1,599,603 | | | $ | 120,735 | | | | 7.55 | % |
VIP ASF III (SBP), LLC | | | 4-9-13 | | | | 4-23-13 | | | | 1,599,603 | | | | 36,283 | | | | 2.27 | |
VIP ASF, LLC | | | 12-10-12 | | | | 12-18-12 | | | | 1,599,603 | | | | 15,565 | | | | 0.97 | |
| 7. | | INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS ($ amounts in thousands unless indicated otherwise) |
Management Fees. WRIMCO, a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as each Portfolio’s investment adviser. The management fee is accrued daily by each Portfolio, except the Pathfinder Portfolios, at the following annual rates as a percentage of average daily net assets:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio (M – Millions) | | $0 to
$500M | | | $500 to
$1,000M | | | $1,000 to
$1,500M | | | $1,500 to
$2,000M | | | $2,000 to
$3,000M | | | Over
$3,000M | |
Asset Strategy | | | 0.700 | % | | | 0.700 | % | | | 0.650 | % | | | 0.650 | % | | | 0.600 | % | | | 0.550 | % |
Balanced | | | 0.700 | | | | 0.700 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
Bond | | | 0.525 | | | | 0.500 | | | | 0.450 | | | | 0.400 | | | | 0.400 | | | | 0.400 | |
Core Equity | | | 0.700 | | | | 0.700 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
Dividend Opportunities | | | 0.700 | | | | 0.700 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
Energy | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Global Bond | | | 0.625 | | | | 0.600 | | | | 0.550 | | | | 0.500 | | | | 0.500 | | | | 0.500 | |
Global Growth | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Global Natural Resources | | | 1.000 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Growth | | | 0.700 | | | | 0.700 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
High Income | | | 0.625 | | | | 0.600 | | | | 0.550 | | | | 0.500 | | | | 0.500 | | | | 0.500 | |
International Core Equity | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Limited-Term Bond | | | 0.500 | | | | 0.450 | | | | 0.400 | | | | 0.350 | | | | 0.350 | | | | 0.350 | |
Micro Cap Growth | | | 0.950 | | | | 0.950 | | | | 0.930 | | | | 0.930 | | | | 0.900 | | | | 0.860 | |
Mid Cap Growth | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Money Market | | | 0.400 | | | | 0.400 | | | | 0.400 | | | | 0.400 | | | | 0.400 | | | | 0.400 | |
Real Estate Securities | | | 0.900 | | | | 0.900 | | | | 0.870 | | | | 0.870 | | | | 0.840 | | | | 0.800 | |
Science and Technology | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Small Cap Growth | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Small Cap Value | | | 0.850 | | | | 0.850 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Value | | | 0.700 | | | | 0.700 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
Each Managed Volatility Portfolio pays a management fee to WRIMCO for providing investment advice and supervising its investments at the following annual rates as a percentage of average daily net assets:
| | | | | | | | | | | | |
| Portfolio (M – Millions) | | $0 to
$500M | | | $500 to
$1,000M | | | Over
$1,000M | |
Pathfinder Moderate – Managed Volatility | | | 0.200 | % | | | 0.170 | % | | | 0.150 | % |
Pathfinder Moderately Aggressive – Managed Volatility | | | 0.200 | | | | 0.170 | | | | 0.150 | |
Pathfinder Moderately Conservative – Managed Volatility | | | 0.200 | | | | 0.170 | | | | 0.150 | |
WRIMCO uses all of the management fee it receives from the Managed Volatility Portfolios to pay Advantus Capital Management Inc. (“Advantus Capital”). Accordingly, Advantus Capital receives a fee based on the total assets of the Managed Volatility Portfolios.
Effective October 1, 2006, under terms of a settlement agreement, the fee is payable at the following annual rates for those Portfolios included in the settlement agreement until September 30, 2016:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio (M – Millions) | | $0 to
$500M | | | $500 to
$1,000M | | | $1,000 to
$1,500M | | | $1,500 to
$2,000M | | | $2,000 to
$3,000M | | | Over
$3,000M | |
Asset Strategy | | | 0.690 | % | | | 0.690 | % | | | 0.650 | % | | | 0.650 | % | | | 0.600 | % | | | 0.550 | % |
Bond(1) | | | 0.485 | | | | 0.500 | | | | 0.450 | | | | 0.400 | | | | 0.400 | | | | 0.400 | |
Core Equity | | | 0.650 | | | | 0.650 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
Global Growth | | | 0.820 | | | | 0.820 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Growth | | | 0.670 | | | | 0.670 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
High Income | | | 0.575 | | | | 0.600 | | | | 0.550 | | | | 0.500 | | | | 0.500 | | | | 0.500 | |
Mid Cap Growth | | | 0.830 | | | | 0.830 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Science and Technology | | | 0.830 | | | | 0.830 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Small Cap Growth | | | 0.830 | | | | 0.830 | | | | 0.830 | | | | 0.830 | | | | 0.800 | | | | 0.760 | |
Value | | | 0.690 | | | | 0.690 | | | | 0.650 | | | | 0.650 | | | | 0.600 | | | | 0.550 | |
| (1) | Effective August 6, 2007, after completion of the merger between a former Limited-Term Bond Portfolio and Bond Portfolio, the fee is contractually payable by Bond Portfolio as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio (M – Millions) | | $0 to
$500M | | | $500 to
$1,000M | | | $1,000 to
$1,500M | | | $1,500 to
$2,000M | | | $2,000 to
$3,000M | | | Over
$3,000M | |
Bond | | | 0.475 | % | | | 0.475 | % | | | 0.450 | % | | | 0.400 | % | | | 0.400 | % | | | 0.400 | % |
The Pathfinder Portfolios pay no management fees; however, WRIMCO receives management fees from the underlying funds.
WRIMCO has agreed to waive a Portfolio’s investment management fee on any Portfolio, except the Pathfinder Portfolios and Managed Volatility Portfolios, that is not subadvised on any day that the Portfolio’s net assets are less than $25 million, subject to WRIMCO’s right to change or modify this waiver. See Expense Reimbursements and/or Waivers for more information.
WRIMCO has entered into Subadvisory Agreements with the following entities on behalf of certain Portfolios:
Wall Street Associates serves as subadvisor to Micro Cap Growth. Advantus Capital serves as subadvisor to Real Estate Securities and the Managed Volatility Portfolios. Each subadvisor makes investment decisions in accordance with the Portfolio’s investment objectives, policies and restrictions under the supervision of WRIMCO and the Board of Trustees. WRIMCO pays all applicable costs of the subadvisors.
Accounting Services Fees. The Trust has an Accounting and Administrative Services Agreement with Waddell & Reed Services Company (“WRSCO”), doing business as WI Services Company (“WISC”), an affiliate of W&R. Under the agreement, WISC acts as the agent in providing bookkeeping and accounting services and assistance to the Trust, including maintenance of Portfolio records, pricing of Portfolio shares and preparation of certain shareholder reports. For these services, each Portfolio (excluding Pathfinder Portfolios and Managed Volatility Portfolios) pays WISC a monthly fee of one-twelfth of the annual fee based on the average net asset levels shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (M – Millions) | | $0 to
$10M | | | $10 to
$25M | | | $25 to
$50M | | | $50 to
$100M | | | $100 to
$200M | | | $200 to
$350M | | | $350 to
$550M | | | $550 to
$750M | | | $750 to
$1,000M | | | Over
$1,000M | |
Annual Fee Rate | | $ | 0.00 | | | $ | 11.50 | | | $ | 23.10 | | | $ | 35.50 | | | $ | 48.40 | | | $ | 63.20 | | | $ | 82.50 | | | $ | 96.30 | | | $ | 121.60 | | | $ | 148.50 | |
Under the Accounting Services Agreement, each Pathfinder Portfolio and Managed Volatility Portfolio pays WISC a monthly fee of one-twelfth of the annual fee shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (M – Millions) | | $0 to
$10M | | | $10 to
$25M | | | $25 to
$50M | | | $50 to
$100M | | | $100 to
$200M | | | $200 to
$350M | | | $350 to
$550M | | | $550 to
$750M | | | $750 to
$1,000M | | | Over
$1,000M | |
Annual Fee Rate | | $ | 0.00 | | | $ | 5.75 | | | $ | 11.55 | | | $ | 17.75 | | | $ | 24.20 | | | $ | 31.60 | | | $ | 41.25 | | | $ | 48.15 | | | $ | 60.80 | | | $ | 74.25 | |
Administrative Fee. Each Portfolio also pays WISC a monthly fee at the annual rate of 0.01%, or one basis point, for the first $1 billion of net assets with no fee charged for net assets in excess of $1 billion. This fee is voluntarily waived by WISC until a Portfolio’s net assets are at least $10 million and is included in “Accounting services fee” on the Statement of Operations.
Shareholder Servicing. Under the Transfer Agency Agreement between the Trust and WISC, each Portfolio reimburses WISC for certain out-of-pocket costs.
Service Plan. Under a Service Plan adopted by the Trust pursuant to Rule 12b–1 under the 1940 Act, each Portfolio, except Money Market, the Pathfinder Portfolios and the Managed Volatility Portfolios, may pay a service fee to W&R in an amount not to exceed 0.25% of the Portfolio’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the provision of personal services to Policyowners and/or maintenance of Policyowner accounts.
Expense Reimbursements and/or Waivers. During the year ended December 31, 2014, the following amounts were waived as a result of the reduced management fees related to the settlement agreement:
| | | | |
Asset Strategy | | $ | 100 | |
Core Equity | | | 251 | |
Global Growth | | | 127 | |
Growth | | | 265 | |
High Income | | | 250 | |
Mid Cap Growth | | | 93 | |
Science and Technology | | | 116 | |
Small Cap Growth | | | 87 | |
Value | | | 37 | |
Effective January 28, 2010, WRIMCO has voluntarily agreed to reimburse sufficient expenses of Money Market to maintain a minimum annualized yield of 0.02%. For the year ended December 31, 2014, expenses in the amount of $1,976 were reimbursed. This reimbursement serves to reduce shareholder servicing.
For the period from August 23, 2010 through August 31, 2011, W&R and/or WRSCO have contractually agreed to reimburse sufficient expenses of Limited-Term Bond to cap the expenses for the Portfolio at 0.76%. For the period from September 1, 2011 through January 31, 2012, W&R and/or WRSCO have voluntarily agreed to reimburse sufficient expenses of Limited-Term Bond to cap the expenses for the Portfolio at 0.76%. This reimbursement serves to reduce 12b-1 fees and/or accounting services fees.
Effective May 1, 2012, W&R and/or WRSCO have voluntarily agreed to reimburse sufficient expenses of Mid Cap Growth to cap the expenses for the Portfolio at 1.10%. For the year ended December 31, 2014, expenses in the amount of $142 were reimbursed. This reimbursement serves to reduce 12b-1 fees and/or accounting services fees.
Effective December 3, 2012, WRIMCO has contractually agreed to reduce the management fee computed and paid by Real Estate Securities Portfolio each day on NAV by 0.09% on an annualized basis. For the year ended December 31, 2014, expenses in the amount of $42 were reimbursed.
During the year ended December 31, 2014, the following amounts were waived as a result of the reduced management fees related to the voluntary waiver of management fee to any Portfolio, excluding Pathfinder Portfolios and Managed Volatility Portfolios, having less than $25 million in net assets:
Any amounts due to the Portfolios as a reimbursement but not paid as of December 31, 2014 are shown as a receivable from affiliates on the Statement of Assets and Liabilities.
Offering costs. Each Portfolio bears all costs associated with the offering expenses of the Portfolio including legal, printing and support services. All such costs are amortized as an expense of the new Portfolio on a straight-line basis over twelve months from commencement of operations.
| 8. | | INTERFUND LENDING PROGRAM |
Pursuant to an exemptive order issued by the SEC (“Order”), the Trust and the Advisors Fund Complex (Waddell & Reed Advisors Funds, Ivy Funds and InvestEd Portfolios; referred to with the Funds for purposes of this section as Funds) have the ability to lend money to, and borrow money from, each other pursuant to a master interfund lending agreement (“Interfund Lending Program”). Under the Interfund Lending Program, the Funds may lend or borrow money for temporary purposes directly to or from one another (each an “Interfund Loan”), subject to meeting the conditions of the Order. The interest rate to be charged on an Interfund Loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The Funds made no Interfund Loans under the Interfund Lending Program during the year ended December 31, 2014.
| 9. | | AFFILIATED COMPANY TRANSACTIONS (All amounts in thousands) |
A summary of the transactions in affiliated companies during the period ended December 31, 2014 follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Asset Strategy | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Media Group Holdings LLC, Series H(1) | | | 32 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | 32 | | | $ | 18,532 | |
Media Group Holdings LLC, Series I(1) | | | 19 | | | | — | | | | — | | | | — | | | | — | | | | 19 | | | | 10,597 | |
Media Group Holdings LLC, Series T(1) | | | 4 | | | | — | | | | — | | | | — | | | | — | | | | 4 | | | | 7,147 | |
| | | | | | | | | | | | | | $ | — | | | $ | — | | | | | | | $ | 36,276 | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Aggressive | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ivy Funds VIP Global Growth | | | 1,311 | | | $ | 2,608 | | | $ | 1,414 | | | $ | 1,300 | | | $ | 273 | | | | 1,429 | | | $ | 12,636 | |
Ivy Funds VIP Growth | | | 1,234 | | | | 5,264 | | | | 3,237 | | | | 3,026 | | | | 289 | | | | 1,398 | | | | 16,894 | |
Ivy Funds VIP International Core Equity | | | 434 | | | | 1,659 | | | | 1,086 | | | | 304 | | | | 714 | | | | 460 | | | | 8,285 | |
Ivy Funds VIP Limited-Term Bond | | | 2,540 | | | | 1,545 | | | | 1,841 | | | | 28 | | | | 72 | | | | 2,478 | | | | 12,147 | |
Ivy Funds VIP Mid Cap Growth | | | 712 | | | | 2,442 | | | | 1,073 | | | | 801 | | | | 137 | | | | 799 | | | | 8,665 | |
Ivy Funds VIP Money Market | | | 4,163 | | | | 5,005 | | | | 9,167 | | | | — | | | | 1 | | | | N/A | | | | — | |
Ivy Funds VIP Small Cap Growth | | | 550 | | | | 2,977 | | | | 1,081 | | | | 921 | | | | 224 | | | | 694 | | | | 8,438 | |
Ivy Funds VIP Small Cap Value | | | 391 | | | | 2,648 | | | | 830 | | | | 1,061 | | | | 398 | | | | 483 | | | | 8,691 | |
Ivy Funds VIP Value | | | 990 | | | | 2,736 | | | | 1,361 | | | | 1,200 | | | | 296 | | | | 1,133 | | | | 8,368 | |
| | | | | | | | | | | | | | $ | 8,641 | | | $ | 2,404 | | | | | | | $ | 84,124 | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Conservative | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ivy Funds VIP Dividend Opportunities | | | 2,034 | | | $ | 3,382 | | | $ | 3,948 | | | $ | 2,797 | | | $ | 292 | | | | 1,801 | | | $ | 16,295 | |
Ivy Funds VIP Growth | | | 1,115 | | | | 6,060 | | | | 3,200 | | | | 2,899 | | | | 264 | | | | 1,339 | | | | 16,183 | |
Ivy Funds VIP International Core Equity | | | 310 | | | | 1,676 | | | | 915 | | | | 404 | | | | 504 | | | | 339 | | | | 6,104 | |
Ivy Funds VIP Limited-Term Bond | | | 4,843 | | | | 3,369 | | | | 3,213 | | | | 52 | | | | 136 | | | | 4,871 | | | | 23,872 | |
Ivy Funds VIP Mid Cap Growth | | | 226 | | | | 2,771 | | | | 1,114 | | | | 435 | | | | 24 | | | | 353 | | | | 3,831 | |
Ivy Funds VIP Money Market | | | 47,611 | | | | 12,563 | | | | 18,337 | | | | — | | | | 10 | | | | 41,837 | | | | 41,837 | |
Ivy Funds VIP Small Cap Growth | | | 350 | | | | 3,477 | | | | 1,325 | | | | 711 | | | | 118 | | | | 511 | | | | 6,216 | |
Ivy Funds VIP Small Cap Value | | | N/A | | | | 2,552 | | | | 82 | | | | 4 | | | | — | | | | 142 | | | | 2,561 | |
Ivy Funds VIP Value | | | 314 | | | | 3,085 | | | | 386 | | | | 408 | | | | 106 | | | | 668 | | | | 4,932 | |
| | | | | | | | | | | | | | $ | 7,710 | | | $ | 1,454 | | | | | | | $ | 121,831 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Moderate | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ivy Funds VIP Dividend Opportunities | | | 15,432 | | | $ | 17,159 | | | $ | 10,043 | | | $ | 15,685 | | | $ | 2,562 | | | | 15,656 | | | $ | 141,632 | |
Ivy Funds VIP Global Growth | | | 9,481 | | | | 18,446 | | | | 7,993 | | | | 9,159 | | | | 1,951 | | | | 10,571 | | | | 93,504 | |
Ivy Funds VIP Growth | | | 9,868 | | | | 38,439 | | | | 23,463 | | | | 26,059 | | | | 2,191 | | | | 10,865 | | | | 131,277 | |
Ivy Funds VIP International Core Equity | | | 2,356 | | | | 8,795 | | | | 4,455 | | | | 1,869 | | | | 3,832 | | | | 2,555 | | | | 45,987 | |
Ivy Funds VIP Limited-Term Bond | | | 27,558 | | | | 11,959 | | | | 12,052 | | | | 259 | | | | 777 | | | | 27,528 | | | | 134,916 | |
Ivy Funds VIP Mid Cap Growth | | | 2,576 | | | | 20,559 | | | | 7,692 | | | | 3,874 | | | | 368 | | | | 3,547 | | | | 38,467 | |
Ivy Funds VIP Money Market | | | 225,790 | | | | 65,296 | | | | 110,937 | | | | — | | | | 48 | | | | 180,149 | | | | 180,149 | |
Ivy Funds VIP Small Cap Growth | | | 3,979 | | | | 26,659 | | | | 8,566 | | | | 6,612 | | | | 1,501 | | | | 5,395 | | | | 65,563 | |
Ivy Funds VIP Small Cap Value | | | 1,415 | | | | 24,757 | | | | 2,326 | | | | 3,603 | | | | 1,422 | | | | 2,683 | | | | 48,235 | |
Ivy Funds VIP Value | | | 4,773 | | | | 22,739 | | | | 8,680 | | | | 6,907 | | | | 1,197 | | | | 6,289 | | | | 46,458 | |
| | | | | | | | | | | | | | $ | 74,027 | | | $ | 15,849 | | | | | | | $ | 926,188 | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Moderately Aggressive | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ivy Funds VIP Dividend Opportunities | | | 18,231 | | | $ | 16,855 | | | $ | 9,739 | | | $ | 17,470 | | | $ | 3,033 | | | | 18,472 | | | $ | 167,099 | |
Ivy Funds VIP Global Growth | | | 11,201 | | | | 19,654 | | | | 7,682 | | | | 10,542 | | | | 2,309 | | | | 12,472 | | | | 110,315 | |
Ivy Funds VIP Growth | | | 11,658 | | | | 42,609 | | | | 26,182 | | | | 29,772 | | | | 2,594 | | | | 12,818 | | | | 154,879 | |
Ivy Funds VIP International Core Equity | | | 5,567 | | | | 18,640 | | | | 8,073 | | | | 4,823 | | | | 9,073 | | | | 6,029 | | | | 108,506 | |
Ivy Funds VIP Limited-Term Bond | | | 32,559 | | | | 13,918 | | | | 14,284 | | | | 303 | | | | 919 | | | | 32,471 | | | | 159,145 | |
Ivy Funds VIP Mid Cap Growth | | | 4,058 | | | | 24,655 | | | | 9,000 | | | | 5,250 | | | | 653 | | | | 5,231 | | | | 56,733 | |
Ivy Funds VIP Money Market | | | 160,056 | | | | 69,046 | | | | 122,850 | | | | — | | | | 35 | | | | 106,252 | | | | 106,252 | |
Ivy Funds VIP Small Cap Growth | | | 5,484 | | | | 32,066 | | | | 9,458 | | | | 8,712 | | | | 2,132 | | | | 7,274 | | | | 88,401 | |
Ivy Funds VIP Small Cap Value | | | 3,343 | | | | 34,870 | | | | 4,269 | | | | 8,180 | | | | 3,367 | | | | 5,064 | | | | 91,056 | |
Ivy Funds VIP Value | | | 5,639 | | | | 26,096 | | | | 9,880 | | | | 7,853 | | | | 1,417 | | | | 7,420 | | | | 54,809 | |
| | | | | | | | | | | | | | $ | 92,905 | | | $ | 25,532 | | | | | | | $ | 1,097,195 | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Moderately Conservative | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ivy Funds VIP Dividend Opportunities | | | 5,033 | | | $ | 5,319 | | | $ | 8,108 | | | $ | 7,016 | | | $ | 715 | | | | 4,280 | | | $ | 38,714 | |
Ivy Funds VIP Global Growth | | | 1,546 | | | | 3,140 | | | | 1,960 | | | | 1,482 | | | | 314 | | | | 1,667 | | | | 14,745 | |
Ivy Funds VIP Growth | | | 2,988 | | | | 12,756 | | | | 6,962 | | | | 7,737 | | | | 705 | | | | 3,426 | | | | 41,400 | |
Ivy Funds VIP International Core Equity | | | 768 | | | | 3,002 | | | | 1,930 | | | | 788 | | | | 1,233 | | | | 806 | | | | 14,501 | |
Ivy Funds VIP Limited-Term Bond | | | 11,983 | | | | 4,799 | | | | 6,799 | | | | 121 | | | | 333 | | | | 11,568 | | | | 56,696 | |
Ivy Funds VIP Mid Cap Growth | | | 840 | | | | 6,640 | | | | 2,850 | | | | 1,256 | | | | 118 | | | | 1,119 | | | | 12,135 | |
Ivy Funds VIP Money Market | | | 88,364 | | | | 21,812 | | | | 39,200 | | | | — | | | | 18 | | | | 70,976 | | | | 70,976 | |
Ivy Funds VIP Small Cap Growth | | | 1,081 | | | | 8,163 | | | | 3,174 | | | | 1,974 | | | | 387 | | | | 1,458 | | | | 17,721 | |
Ivy Funds VIP Small Cap Value | | | 154 | | | | 6,704 | | | | 457 | | | | 458 | | | | 153 | | | | 508 | | | | 9,129 | |
Ivy Funds VIP Value | | | 1,167 | | | | 7,370 | | | | 1,137 | | | | 1,333 | | | | 385 | | | | 1,983 | | | | 14,649 | |
| | | | | | | | | | | | | | $ | 22,165 | | | $ | 4,361 | | | | | | | $ | 290,666 | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Moderate – Managed Volatility | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ivy Funds VIP Dividend Opportunities | | | 541 | | | $ | 25,837 | | | $ | 1,197 | | | $ | 974 | | | $ | 229 | | | | 3,314 | | | $ | 29,978 | |
Ivy Funds VIP Global Growth | | | 332 | | | | 18,103 | | | | 618 | | | | 747 | | | | 174 | | | | 2,237 | | | | 19,789 | |
Ivy Funds VIP Growth | | | 344 | | | | 25,402 | | | | 1,849 | | | | 1,856 | | | | 196 | | | | 2,302 | | | | 27,815 | |
Ivy Funds VIP International Core Equity | | | 82 | | | | 9,013 | | | | 371 | | | | 109 | | | | 342 | | | | 542 | | | | 9,752 | |
Ivy Funds VIP Limited-Term Bond | | | 967 | | | | 25,291 | | | | 1,165 | | | | 26 | | | | 70 | | | | 5,880 | | | | 28,819 | |
Ivy Funds VIP Mid Cap Growth | | | 90 | | | | 7,567 | | | | 663 | | | | 96 | | | | 33 | | | | 749 | | | | 8,121 | |
Ivy Funds VIP Money Market | | | 7,913 | | | | 46,095 | | | | 15,544 | | | | — | | | | 5 | | | | 38,465 | | | | 38,465 | |
Ivy Funds VIP Small Cap Growth | | | 140 | | | | 12,904 | | | | 754 | | | | 413 | | | | 136 | | | | 1,144 | | | | 13,899 | |
Ivy Funds VIP Small Cap Value | | | 49 | | | | 9,341 | | | | 188 | | | | 263 | | | | 128 | | | | 567 | | | | 10,199 | |
Ivy Funds VIP Value | | | 167 | | | | 9,374 | | | | 764 | | | | 318 | | | | 110 | | | | 1,336 | | | | 9,866 | |
| | | | | | | | | | | | | | $ | 4,802 | | | $ | 1,423 | | | | | | | $ | 196,703 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/
(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Moderately Aggressive – Managed Volatility | |
Ivy Funds VIP Dividend Opportunities | | | 167 | | | $ | 5,415 | | | $ | 659 | | | $ | 323 | | | $ | 72 | | | | 698 | | | $ | 6,315 | |
Ivy Funds VIP Global Growth | | | 103 | | | | 3,845 | | | | 399 | | | | 244 | | | | 55 | | | | 471 | | | | 4,169 | |
Ivy Funds VIP Growth | | | 106 | | | | 5,520 | | | | 847 | | | | 610 | | | | 62 | | | | 485 | | | | 5,857 | |
Ivy Funds VIP International Core Equity | | | 51 | | | | 3,821 | | | | 434 | | | | 87 | | | | 216 | | | | 228 | | | | 4,106 | |
Ivy Funds VIP Limited-Term Bond | | | 298 | | | | 5,319 | | | | 719 | | | | 9 | | | | 22 | | | | 1,234 | | | | 6,050 | |
Ivy Funds VIP Mid Cap Growth | | | 37 | | | | 1,994 | | | | 302 | | | | 47 | | | | 15 | | | | 197 | | | | 2,140 | |
Ivy Funds VIP Money Market | | | 1,464 | | | | 6,788 | | | | 4,215 | | | | — | | | | 1 | | | | 4,038 | | | | 4,038 | |
Ivy Funds VIP Small Cap Growth | | | 50 | | | | 3,155 | | | | 361 | | | | 171 | | | | 51 | | | | 275 | | | | 3,345 | |
Ivy Funds VIP Small Cap Value | | | 31 | | | | 3,141 | | | | 238 | | | | 173 | | | | 80 | | | | 191 | | | | 3,438 | |
Ivy Funds VIP Value | | | 52 | | | | 2,033 | | | | 323 | | | | 106 | | | | 34 | | | | 281 | | | | 2,076 | |
| | | | | | | | | | | | | | $ | 1,770 | | | $ | 608 | | | | | | | $ | 41,534 | |
| | | | | | | |
| Portfolio | | 12-31-13
Share
Balance | | | Purchases
at cost | | | Sales at
Cost | | | Realized
Gain/
(Loss)(2) | | | Distributions
Received | | | 12-31-14
Share
Balance | | | 12-31-14
Value | |
Pathfinder Moderately Conservative – Managed Volatility | |
Ivy Funds VIP Dividend Opportunities | | | 157 | | | $ | 3,399 | | | $ | 811 | | | $ | 235 | | | $ | 42 | | | | 443 | | | $ | 4,004 | |
Ivy Funds VIP Global Growth | | | 48 | | | | 1,355 | | | | 200 | | | | 83 | | | | 18 | | | | 173 | | | | 1,526 | |
Ivy Funds VIP Growth | | | 93 | | | | 3,830 | | | | 650 | | | | 421 | | | | 41 | | | | 354 | | | | 4,283 | |
Ivy Funds VIP International Core Equity | | | 24 | | | | 1,346 | | | | 211 | | | | 30 | | | | 72 | | | | 83 | | | | 1,502 | |
Ivy Funds VIP Limited-Term Bond | | | 373 | | | | 4,857 | | | | 786 | | | | 10 | | | | 19 | | | | 1,201 | | | | 5,886 | |
Ivy Funds VIP Mid Cap Growth | | | 26 | | | | 1,211 | | | | 265 | | | | 32 | | | | 7 | | | | 116 | | | | 1,254 | |
Ivy Funds VIP Money Market | | | 2,748 | | | | 8,165 | | | | 3,545 | | | | — | | | | 1 | | | | 7,368 | | | | 7,368 | |
Ivy Funds VIP Small Cap Growth | | | 34 | | | | 1,752 | | | | 314 | | | | 93 | | | | 23 | | | | 151 | | | | 1,834 | |
Ivy Funds VIP Small Cap Value | | | 5 | | | | 942 | | | | 102 | | | | 23 | | | | 9 | | | | 52 | | | | 943 | |
Ivy Funds VIP Value | | | 36 | | | | 1,433 | | | | 183 | | | | 65 | | | | 23 | | | | 205 | | | | 1,517 | |
| | | | | | | | | | | | | | $ | 992 | | | $ | 255 | | | | | | | $ | 30,117 | |
| (1) | No dividends were paid during the preceding 12 months. |
| (2) | Included in Realized Gain/Loss, if applicable, are distributions from capital gains from the underlying securities. |
| 10. | | INVESTMENT SECURITIES TRANSACTIONS ($ amounts in thousands) |
The cost of purchases and the proceeds from maturities and sales of investment securities (excluding short-term securities) for the year ended December 31, 2014, were as follows:
| | | | | | | | | | | | | | | | |
| | | Purchases | | | Sales | |
| | | U.S. Government | | | Other Issuers | | | U.S. Government | | | Other Issuers | |
Pathfinder Aggressive | | $ | — | | | $ | 26,884 | | | $ | — | | | $ | 23,551 | |
Pathfinder Conservative | | | — | | | | 38,935 | | | | — | | | | 36,062 | |
Pathfinder Moderate | | | — | | | | 254,808 | | | | — | | | | 222,003 | |
Pathfinder Moderately Aggressive | | | — | | | | 298,409 | | | | — | | | | 251,400 | |
Pathfinder Moderately Conservative | | | — | | | | 79,705 | | | | — | | | | 81,762 | |
Pathfinder Moderate – Managed Volatility | | | — | | | | 188,927 | | | | — | | | | 23,592 | |
Pathfinder Moderately Aggressive – Managed Volatility | | | — | | | | 41,031 | | | | — | | | | 8,768 | |
Pathfinder Moderately Conservative – Managed Volatility | | | — | | | | 28,290 | | | | — | | | | 7,303 | |
Asset Strategy | | | — | | | | 1,629,553 | | | | — | | | | 1,656,612 | |
Balanced | | | 9,178 | | | | 163,357 | | | | 12,524 | | | | 186,903 | |
Bond | | | 12,731 | | | | 72,076 | | | | 26,972 | | | | 86,563 | |
Core Equity | | | — | | | | 281,802 | | | | — | | | | 333,263 | |
Dividend Opportunities | | | — | | | | 201,611 | | | | — | | | | 228,208 | |
Energy | | | — | | | | 61,769 | | | | — | | | | 25,425 | |
Global Bond | | | 3,300 | | | | 7,789 | | | | 3,754 | | | | 2,796 | |
Global Growth | | | — | | | | 265,421 | | | | — | | | | 284,394 | |
Global Natural Resources | | | — | | | | 52,543 | | | | — | | | | 55,579 | |
Growth | | | — | | | | 245,451 | | | | — | | | | 338,588 | |
High Income | | | — | | | | 560,471 | | | | — | | | | 421,561 | |
International Core Equity | | | — | | | | 653,575 | | | | — | | | | 657,704 | |
Limited-Term Bond | | | 5,403 | | | | 202,276 | | | | 11,477 | | | | 136,417 | |
Micro Cap Growth | | | — | | | | 35,862 | | | | — | | | | 41,335 | |
Mid Cap Growth | | | — | | | | 282,302 | | | | — | | | | 194,814 | |
| | | | | | | | | | | | | | | | |
| | | Purchases | | | Sales | |
| | | U.S. Government | | | Other Issuers | | | U.S. Government | | | Other Issuers | |
Money Market | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Real Estate Securities | | | — | | | | 39,357 | | | | — | | | | 37,457 | |
Science and Technology | | | — | | | | 168,344 | | | | — | | | | 163,335 | |
Small Cap Growth | | | — | | | | 381,161 | | | | — | | | | 370,063 | |
Small Cap Value | | | — | | | | 285,249 | | | | — | | | | 229,637 | |
Value | | | — | | | | 272,019 | | | | — | | | | 275,929 | |
| 11. | | CAPITAL SHARE TRANSACTIONS (All amounts in thousands) |
The Trust has authorized an unlimited number of no par value shares of beneficial interest. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pathfinder Aggressive | | | | | Pathfinder Conservative | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 747 | | | $ | 4,305 | | | | 1,112 | | | $ | 6,069 | | | | | | 2,064 | | | $ | 11,433 | | | | 3,330 | | | $ | 18,341 | |
Shares issued in reinvestment of distributions to shareholders | | | 1,273 | | | | 6,985 | | | | 1,045 | | | | 5,443 | | | | | | 1,597 | | | | 8,605 | | | | 1,162 | | | | 6,247 | |
Shares redeemed | | | (1,649 | ) | | | (9,432 | ) | | | (1,377 | ) | | | (7,414 | ) | | | | | (2,599 | ) | | | (14,524 | ) | | | (3,561 | ) | | | (19,630 | ) |
| | | | | | | | | | |
Net increase | | | 371 | | | $ | 1,858 | | | | 780 | | | $ | 4,098 | | | | | | 1,062 | | | $ | 5,514 | | | | 931 | | | $ | 4,958 | |
| | | | | | | | | | |
| | | |
| | | Pathfinder Moderate | | | | | Pathfinder Moderately Aggressive | |
| | | Year ended 12-31-14 | | | Year ended 12-31-13 | | | | | Year ended 12-31-14 | | | Year ended 12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 3,228 | | | $ | 19,159 | | | | 10,828 | | | $ | 60,932 | | | | | | 2,244 | | | $ | 13,878 | | | | 7,454 | | | $ | 43,164 | |
Shares issued in reinvestment of distributions to shareholders | | | 13,275 | | | | 75,253 | | | | 7,168 | | | | 39,760 | | | | | | 14,771 | | | | 87,292 | | | | 9,423 | | | | 53,573 | |
Shares redeemed | | | (8,549 | ) | | | (50,390 | ) | | | (5,186 | ) | | | (29,708 | ) | | | | | (8,905 | ) | | | (54,748 | ) | | | (6,339 | ) | | | (37,258 | ) |
| | | | | | | | | | |
Net increase | | | 7,954 | | | $ | 44,022 | | | | 12,810 | | | $ | 70,984 | | | | | | 8,110 | | | $ | 46,422 | | | | 10,538 | | | $ | 59,479 | |
| | | | | | | | | | |
| | | |
| | | Pathfinder Moderately Conservative | | | | | Pathfinder Moderate - Managed Volatility | |
| | | Year ended 12-31-14 | | | Year ended 12-31-13 | | | | | Year ended 12-31-14 | | | Period from
8-1-13(1) to 12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 1,311 | | | $ | 7,695 | | | | 5,868 | | | $ | 33,093 | | | | | | 31,417 | | | $ | 171,351 | | | | 6,375 | | | $ | 33,213 | |
Shares issued in reinvestment of distributions to shareholders | | | 3,895 | | | | 21,903 | | | | 2,468 | | | | 13,672 | | | | | | 1,132 | | | | 5,973 | | | | 2 | | | | 12 | |
Shares redeemed | | | (4,692 | ) | | | (27,387 | ) | | | (3,094 | ) | | | (17,532 | ) | | | | | (1,212 | ) | | | (6,655 | ) | | | (56 | ) | | | (293 | ) |
| | | | | | | | | | |
Net increase | | | 514 | | | $ | 2,211 | | | | 5,242 | | | $ | 29,233 | | | | | | 31,337 | | | $ | 170,669 | | | | 6,321 | | | $ | 32,932 | |
| | | | | | | | | | |
| | | |
| | | Pathfinder Moderately Aggressive -
Managed Volatility | | | | | Pathfinder Moderately Conservative -
Managed Volatility | |
| | | Year ended
12-31-14 | | | Period from
8-1-13(1) to 12-31-13 | | | | | Year ended
12-31-14 | | | Period from
8-1-13(1) to 12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 6,690 | | | $ | 36,541 | | | | 1,969 | | | $ | 10,193 | | | | | | 4,956 | | | $ | 26,598 | | | | 1,873 | | | $ | 9,571 | |
Shares issued in reinvestment of distributions to shareholders | | | 447 | | | | 2,311 | | | | 2 | | | | 8 | | | | | | 200 | | | | 1,036 | | | | 1 | | | | 5 | |
Shares redeemed | | | (948 | ) | | | (5,285 | ) | | | (54 | ) | | | (281 | ) | | | | | (1,106 | ) | | | (5,998 | ) | | | (25 | ) | | | (129 | ) |
| | | | | | | | | | |
Net increase | | | 6,189 | | | $ | 33,567 | | | | 1,917 | | | $ | 9,920 | | | | | | 4,050 | | | $ | 21,636 | | | | 1,849 | | | $ | 9,447 | |
| | | | | | | | | | |
| (1) | Commencement of operations. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | Asset Strategy | | | | | Balanced | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 21,679 | | | $ | 258,981 | | | | 23,733 | | | $ | 279,518 | | | | | | 2,842 | | | $ | 28,726 | | | | 2,732 | | | $ | 26,790 | |
Shares issued in reinvestment of distributions to shareholders | | | 20,293 | | | | 224,946 | | | | 1,627 | | | | 18,794 | | | | | | 3,988 | | | | 38,426 | | | | 4,011 | | | | 37,695 | |
Shares redeemed | | | (23,452 | ) | | | (273,247 | ) | | | (22,118 | ) | | | (257,782 | ) | | | | | (6,109 | ) | | | (61,799 | ) | | | (4,637 | ) | | | (45,457 | ) |
| | | | | | | | | | |
Net increase | | | 18,520 | | | $ | 210,680 | | | | 3,242 | | | $ | 40,530 | | | | | | 721 | | | $ | 5,353 | | | | 2,106 | | | $ | 19,028 | |
| | | | | | | | | | |
| | | |
| | | Bond | | | | | Core Equity | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 3,799 | | | $ | 20,608 | | | | 23,585 | | | $ | 131,474 | | | | | | 1,770 | | | $ | 25,364 | | | | 3,111 | | | $ | 41,991 | |
Shares issued in reinvestment of distributions to shareholders | | | 4,054 | | | | 21,376 | | | | 4,581 | | | | 25,803 | | | | | | 5,503 | | | | 72,083 | | | | 2,848 | | | | 37,173 | |
Shares redeemed | | | (7,120 | ) | | | (38,524 | ) | | | (57,504 | ) | | | (318,916 | ) | | | | | (4,665 | ) | | | (66,518 | ) | | | (4,485 | ) | | | (60,901 | ) |
| | | | | | | | | | |
Net increase (decrease) | | | 733 | | | $ | 3,460 | | | | (29,338 | ) | | $ | (161,639 | ) | | | | | 2,608 | | | $ | 30,929 | | | | 1,474 | | | $ | 18,263 | |
| | �� | | | | | | | | |
| | | |
| | | Dividend Opportunities | | | | | Energy | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 5,652 | | | $ | 49,996 | | | | 5,070 | | | $ | 41,103 | | | | | | 6,777 | | | $ | 53,541 | | | | 3,804 | | | $ | 26,268 | |
Shares issued in reinvestment of distributions to shareholders | | | 5,114 | | | | 43,139 | | | | 2,023 | | | | 16,275 | | | | | | 464 | | | | 3,701 | | | | 42 | | | | 282 | |
Shares redeemed | | | (7,820 | ) | | | (69,709 | ) | | | (6,868 | ) | | | (55,923 | ) | | | | | (2,333 | ) | | | (17,694 | ) | | | (2,030 | ) | | | (13,759 | ) |
| | | | | | | | | | |
Net increase | | | 2,946 | | | $ | 23,426 | | | | 225 | | | $ | 1,455 | | | | | | 4,908 | | | $ | 39,548 | | | | 1,816 | | | $ | 12,791 | |
| | | | | | | | | | |
| | | |
| | | Global Bond | | | | | Global Growth | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 2,214 | | | $ | 11,534 | | | | 1,795 | | | $ | 9,147 | | | | | | 5,686 | | | $ | 51,687 | | | | 6,955 | | | $ | 61,355 | |
Shares issued in reinvestment of distributions to shareholders | | | 80 | | | | 415 | | | | — | | | | — | | | | | | 5,096 | | | | 45,337 | | | | 1,643 | | | | 14,824 | |
Shares redeemed | | | (1,545 | ) | | | (8,011 | ) | | | (884 | ) | | | (4,491 | ) | | | | | (4,688 | ) | | | (43,760 | ) | | | (22,389 | ) | | | (205,340 | ) |
| | | | | | | | | | |
Net increase (decrease) | | | 749 | | | $ | 3,938 | | | | 911 | | | $ | 4,656 | | | | | | 6,094 | | | $ | 53,264 | | | | (13,791 | ) | | $ | (129,161 | ) |
| | | | | | | | | | |
| | | |
| | | Global Natural Resources | | | | | Growth | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 7,458 | | | $ | 41,162 | | | | 5,473 | | | $ | 28,427 | | | | | | 7,325 | | | $ | 87,478 | | | | 3,778 | | | $ | 43,895 | |
Shares issued in reinvestment of distributions to shareholders | | | — | | | | — | | | | — | | | | — | | | | | | 13,698 | | | | 148,590 | | | | 7,954 | | | | 88,625 | |
Shares redeemed | | | (8,380 | ) | | | (47,153 | ) | | | (9,421 | ) | | | (49,280 | ) | | | | | (39,022 | ) | | | (507,177 | ) | | | (14,966 | ) | | | (177,763 | ) |
| | | | | | | | | | |
Net (decrease) | | | (922 | ) | | $ | (5,991 | ) | | | (3,948 | ) | | $ | (20,853 | ) | | | | | (17,999 | ) | | $ | (271,109 | ) | | | (3,234 | ) | | $ | (45,243 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | High Income | | | | | International Core Equity | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 94,562 | | | $ | 380,482 | | | | 92,634 | | | $ | 359,958 | | | | | | 2,368 | | | $ | 44,147 | | | | 2,233 | | | $ | 38,477 | |
Shares issued in reinvestment of distributions to shareholders | | | 11,698 | | | | 45,940 | | | | 7,054 | | | | 27,182 | | | | | | 3,766 | | | | 69,273 | | | | 636 | | | | 11,160 | |
Shares redeemed | | | (66,208 | ) | | | (262,268 | ) | | | (45,498 | ) | | | (175,482 | ) | | | | | (3,691 | ) | | | (70,569 | ) | | | (7,540 | ) | | | (136,893 | ) |
| | | | | | | | | | |
Net increase (decrease) | | | 40,052 | | | $ | 164,154 | | | | 54,190 | | | $ | 211,658 | | | | | | 2,443 | | | $ | 42,851 | | | | (4,671 | ) | | $ | (87,256 | ) |
| | | | | | | | | | |
| | | |
| | | Limited-Term Bond | | | | | Micro Cap Growth | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 16,115 | | | $ | 79,082 | | | | 77,472 | | | $ | 378,791 | | | | | | 412 | | | $ | 11,765 | | | | 472 | | | $ | 12,724 | |
Shares issued in reinvestment of distributions to shareholders | | | 653 | | | | 3,203 | | | | 27 | | | | 135 | | | | | | 403 | | | | 9,753 | | | | 105 | | | | 2,495 | |
Shares redeemed | | | (9,292 | ) | | | (45,630 | ) | | | (13,099 | ) | | | (63,976 | ) | | | | | (626 | ) | | | (17,553 | ) | | | (396 | ) | | | (10,383 | ) |
| | | | | | | | | | |
Net increase | | | 7,476 | | | $ | 36,655 | | | | 64,400 | | | $ | 314,950 | | | | | | 189 | | | $ | 3,965 | | | | 181 | | | $ | 4,836 | |
| | | | | | | | | | |
| | | |
| | | Mid Cap Growth | | | | | Money Market | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 14,956 | | | $ | 156,737 | | | | 13,582 | | | $ | 130,242 | | | | | | 274,736 | | | $ | 274,736 | | | | 421,420 | | | $ | 421,420 | |
Shares issued in reinvestment of distributions to shareholders | | | 2,653 | | | | 26,432 | | | | 1,216 | | | | 11,278 | | | | | | 135 | | | | 135 | | | | 72 | | | | 72 | |
Shares redeemed | | | (5,954 | ) | | | (62,987 | ) | | | (6,029 | ) | | | (59,970 | ) | | | | | (368,053 | ) | | | (368,053 | ) | | | (61,741 | ) | | | (61,741 | ) |
| | | | | | | | | | |
Net increase (decrease) | | | 11,655 | | | $ | 120,182 | | | | 8,769 | | | $ | 81,550 | | | | | | (93,182 | ) | | $ | (93,182 | ) | | | 359,751 | | | $ | 359,751 | |
| | | | | | | | | | |
| | | |
| | | Real Estate Securities | | | | | Science and Technology | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 1,108 | | | $ | 9,681 | | | | 969 | | | $ | 8,005 | | | | | | 4,963 | | | $ | 126,886 | | | | 5,970 | | | $ | 132,226 | |
Shares issued in reinvestment of distributions to shareholders | | | 372 | | | | 3,149 | | | | 53 | �� | | | 467 | | | | | | 2,014 | | | | 46,854 | | | | 1,217 | | | | 24,421 | |
Shares redeemed | | | (1,108 | ) | | | (9,710 | ) | | | (1,059 | ) | | | (8,678 | ) | | | | | (4,991 | ) | | | (126,981 | ) | | | (4,206 | ) | | | (91,894 | ) |
| | | | | | | | | | |
Net increase (decrease) | | | 372 | | | $ | 3,120 | | | | (37 | ) | | $ | (206 | ) | | | | | 1,986 | | | $ | 46,759 | | | | 2,981 | | | $ | 64,753 | |
| | | | | | | | | | |
| | | |
| | | Small Cap Growth | | | | | Small Cap Value | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | Year ended
12-31-14 | | | Year ended
12-31-13 | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | Shares | | | Value | | | Shares | | | Value | |
Shares issued from sale of shares | | | 7,646 | | | $ | 92,766 | | | | 3,444 | | | $ | 39,928 | | | | | | 4,405 | | | $ | 76,940 | | | | 1,199 | | | $ | 21,467 | |
Shares issued in reinvestment of distributions to shareholders | | | 4,050 | | | | 43,759 | | | | — | | | | — | | | | | | 2,615 | | | | 43,779 | | | | 1,141 | | | | 19,795 | |
Shares redeemed | | | (17,412 | ) | | | (224,094 | ) | | | (9,399 | ) | | | (113,526 | ) | | | | | (1,875 | ) | | | (34,335 | ) | | | (3,116 | ) | | | (57,271 | ) |
| | | | | | | | | | |
Net increase (decrease) | | | (5,716 | ) | | $ | (87,569 | ) | | | (5,955 | ) | | $ | (73,598 | ) | | | | | 5,145 | | | $ | 86,384 | | | | (776 | ) | | $ | (16,009 | ) |
| | | | | | | | | | |
| | | |
| | | Value | | | | | | |
| | | Year ended
12-31-14 | | | Year ended
12-31-13 | | | | | | | | | |
| | | Shares | | | Value | | | Shares | | | Value | | | | | | | | | | | | | | | |
Shares issued from sale of shares | | | 10,972 | | | $ | 80,723 | | | | 5,419 | | | $ | 37,864 | | | | | | | | | | | | | | | | | | | |
Shares issued in reinvestment of distributions to shareholders | | | 7,565 | | | | 51,576 | | | | 1,678 | | | | 11,577 | | | | | | | | | | | | | | | | | | | |
Shares redeemed | | | (9,741 | ) | | | (73,834 | ) | | | (11,193 | ) | | | (79,820 | ) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | 8,796 | | | $ | 58,465 | | | | (4,096 | ) | | $ | (30,379 | ) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| 12. | | COMMITMENTS ($ amounts in thousands) |
Bridge loan commitments may obligate a Portfolio to furnish temporary financing to a borrower until permanent financing can be arranged. At year ended December 31, 2014, High Income had outstanding bridge loan commitments of $13,606. In connection with these commitments, the Portfolio earns a commitment fee, typically set as a percentage of the commitment amount. Such fee income is included in interest income on the Statements of Operations.
| 13. | | FEDERAL INCOME TAX MATTERS ($ amounts in thousands) |
For Federal income tax purposes, cost of investments owned at December 31, 2014 and the related unrealized appreciation (depreciation) were as follows:
| | | | | | | | | | | | | | | | |
| Portfolio | | Cost of Investments | | | Gross Appreciation | | | Gross Depreciation | | | Net Unrealized
Appreciation
(Depreciation) | |
Pathfinder Aggressive | | $ | 80,538 | | | $ | 5,145 | | | $ | 949 | | | $ | 4,196 | |
Pathfinder Conservative | | | 117,269 | | | | 5,265 | | | | 128 | | | | 5,137 | |
Pathfinder Moderate | | | 859,675 | | | | 68,314 | | | | 970 | | | | 67,344 | |
Pathfinder Moderately Aggressive | | | 1,005,256 | | | | 91,939 | | | | — | | | | 91,939 | |
Pathfinder Moderately Conservative | | | 274,891 | | | | 16,550 | | | | 213 | | | | 16,337 | |
Pathfinder Moderate – Managed Volatility | | | 203,574 | | | | 1,087 | | | | 1,466 | | | | (379 | ) |
Pathfinder Moderately Aggressive – Managed Volatility | | | 43,455 | | | | 203 | | | | 743 | | | | (540 | ) |
Pathfinder Moderately Conservative – Managed Volatility | | | 31,106 | | | | 153 | | | | 207 | | | | (54 | ) |
Asset Strategy | | | 1,541,075 | | | | 111,549 | | | | 58,628 | | | | 52,921 | |
Balanced | | | 329,912 | | | | 87,094 | | | | 3,182 | | | | 83,912 | |
Bond | | | 302,158 | | | | 10,468 | | | | 5,263 | | | | 5,205 | |
Core Equity | | | 408,753 | | | | 97,021 | | | | 5,279 | | | | 91,742 | |
Dividend Opportunities | | | 412,153 | | | | 100,530 | | | | 2,108 | | | | 98,422 | |
Energy | | | 117,081 | | | | 9,763 | | | | 9,105 | | | | 658 | |
Global Bond | | | 19,829 | | | | 321 | | | | 1,129 | | | | (808 | ) |
Global Growth | | | 383,051 | | | | 55,022 | | | | 8,792 | | | | 46,230 | |
Global Natural Resources | | | 163,405 | | | | 8,107 | | | | 20,394 | | | | (12,287 | ) |
Growth | | | 622,954 | | | | 253,579 | | | | 2,712 | | | | 250,867 | |
High Income | | | 832,334 | | | | 6,596 | | | | 36,573 | | | | (29,977 | ) |
International Core Equity | | | 652,948 | | | | 42,292 | | | | 38,678 | | | | 3,614 | |
Limited-Term Bond | | | 469,427 | | | | 2,075 | | | | 1,108 | | | | 967 | |
Micro Cap Growth | | | 57,427 | | | | 19,418 | | | | 5,108 | | | | 14,310 | |
Mid Cap Growth | | | 474,521 | | | | 102,001 | | | | 16,853 | | | | 85,148 | |
Money Market | | | 509,604 | | | | — | | | | — | | | | — | |
Real Estate Securities | | | 44,008 | | | | 9,244 | | | | 985 | | | | 8,259 | |
Science and Technology | | | 384,218 | | | | 222,615 | | | | 19,932 | | | | 202,683 | |
Small Cap Growth | | | 347,372 | | | | 90,947 | | | | 12,658 | | | | 78,289 | |
Small Cap Value | | | 310,805 | | | | 52,299 | | | | 3,458 | | | | 48,841 | |
Value | | | 354,910 | | | | 68,332 | | | | 7,032 | | | | 61,300 | |
For Federal income tax purposes, the Portfolios’ distributed and undistributed earnings and profit for the year ended December 31, 2014 and the post-October and late-year ordinary activity updated with information available through the date of this report were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio | | Distributed
Ordinary
Income | | | Undistributed
Ordinary
Income | | | Distributed
Long-Term
Capital Gains | | | Undistributed
Long-Term
Capital Gains | | | Tax Return of
Capital | | | Post-October
Capital Losses
Deferred | | | Late-Year
Ordinary
Losses
Deferred | |
Pathfinder Aggressive | | $ | 949 | | | $ | 2,386 | | | $ | 6,036 | | | $ | 8,601 | | | $ | — | | | $ | — | | | $ | — | |
Pathfinder Conservative | | | 1,952 | | | | 1,392 | | | | 6,653 | | | | 7,697 | | | | — | | | | — | | | | — | |
Pathfinder Moderate | | | 11,327 | | | | 15,569 | | | | 63,926 | | | | 73,996 | | | | — | | | | — | | | | — | |
Pathfinder Moderately Aggressive | | | 12,275 | | | | 25,237 | | | | 75,016 | | | | 92,849 | | | | — | | | | — | | | | — | |
Pathfinder Moderately Conservative | | | 3,503 | | | | 4,245 | | | | 18,401 | | | | 22,150 | | | | — | | | | — | | | | — | |
Pathfinder Moderate – Managed Volatility | | | 1,691 | | | | — | | | | 4,283 | | | | — | | | | — | | | | 67 | | | | — | |
Pathfinder Moderately Aggressive – Managed Volatility | | | 814 | | | | — | | | | 1,497 | | | | — | | | | — | | | | 25 | | | | — | |
Pathfinder Moderately Conservative – Managed Volatility | | | 302 | | | | 79 | | | | 734 | | | | 21 | | | | — | | | | — | | | | — | |
Asset Strategy | | | 8,178 | | | | 13,641 | | | | 216,767 | | | | 253,265 | | | | — | | | | — | | | | — | |
Balanced | | | 7,921 | | | | 4,688 | | | | 30,504 | | | | 53,231 | | | | — | | | | — | | | | — | |
Bond | | | 11,941 | | | | 8,712 | | | | 9,436 | | | | — | | | | — | | | | — | | | | — | |
Core Equity | | | 15,331 | | | | 12,231 | | | | 56,753 | | | | 70,279 | | | | — | | | | — | | | | — | |
Dividend Opportunities | | | 8,905 | | | | 13,346 | | | | 34,234 | | | | 48,800 | | | | — | | | | — | | | | — | |
Energy | | | 232 | | | | — | | | | 3,469 | | | | 960 | | | | — | | | | 2,165 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Portfolio | | Distributed
Ordinary
Income | | | Undistributed
Ordinary
Income | | | Distributed
Long-Term
Capital Gains | | | Undistributed
Long-Term
Capital Gains | | | Tax Return of
Capital | | | Post-October
Capital Losses
Deferred | | | Late-Year
Ordinary
Losses
Deferred | |
Global Bond | | $ | 415 | | | $ | 697 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Global Growth | | | 8,928 | | | | 2,100 | | | | 36,409 | | | | 24,390 | | | | — | | | | — | | | | — | |
Global Natural Resources | | | — | | | | 172 | | | | — | | | | — | | | | — | | | | 2,148 | | | | — | |
Growth | | | 15,505 | | | | 6,345 | | | | 133,086 | | | | 99,569 | | | | — | | | | — | | | | — | |
High Income | | | 39,918 | | | | 53,342 | | | | 6,022 | | | | 6,501 | | | | — | | | | — | | | | — | |
International Core Equity | | | 55,559 | | | | 33,621 | | | | 13,714 | | | | 59,822 | | | | — | | | | — | | | | — | |
Limited-Term Bond | | | 2,601 | | | | 6,692 | | | | 602 | | | | — | | | | — | | | | 140 | | | | — | |
Micro Cap Growth | | | 172 | | | | — | | | | 9,582 | | | | 10,589 | | | | — | | | | — | | | | — | |
Mid Cap Growth | | | 8,594 | | | | 4,501 | | | | 17,838 | | | | 41,734 | | | | — | | | | — | | | | — | |
Money Market | | | 133 | | | | 36 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Real Estate Securities | | | 469 | | | | 1,668 | | | | 2,680 | | | | 3,771 | | | | — | | | | — | | | | — | |
Science and Technology | | | — | | | | — | | | | 46,854 | | | | 34,789 | | | | — | | | | — | | | | 4 | |
Small Cap Growth | | | 11,898 | | | | — | | | | 31,860 | | | | 66,810 | | | | — | | | | — | | | | — | |
Small Cap Value | | | 14,775 | | | | 1,817 | | | | 29,004 | | | | 25,285 | | | | — | | | | — | | | | — | |
Value | | | 14,922 | | | | 13,749 | | | | 36,654 | | | | 42,724 | | | | — | | | | — | | | | — | |
Internal Revenue Code regulations permit each Portfolio to elect to defer into its next fiscal year capital losses incurred between each November 1 and the end of its fiscal year. Each Portfolio is also permitted to defer into its next fiscal year late-year ordinary losses that arise from the netting of activity generated between each November 1 and the end of its fiscal year on certain specified ordinary items.
Accumulated capital losses represent net capital loss carryovers as of December 31, 2014 that may be available to offset future realized capital gains and thereby reduce future capital gains distributions. Under the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”), the Portfolio is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those future taxable years will be required to be utilized prior to any losses incurred in pre-enactment taxable years which have only an eight year carryforward period. As a result of this ordering rule, pre-enactment capital loss carryovers may expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under the previous law. The Portfolio’s first fiscal year end subject to the Modernization Act was December 31, 2011. The following table shows the expiration dates for capital loss carryovers from pre-enactment taxable years and the amounts of capital loss carryovers, if any, by each of the applicable portfolios electing to be taxed as a regulated investment company during the period end December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pre-Enactment | | | Post-Enactment | |
| Portfolio | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | Short-Term
Capital Loss
Carryover | | | Long-Term
Capital Loss
Carryover | |
Pathfinder Aggressive | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Pathfinder Conservative | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pathfinder Moderate | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pathfinder Moderately Aggressive | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pathfinder Moderately Conservative | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pathfinder Moderate – Managed Volatility | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pathfinder Moderately Aggressive – Managed Volatility | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Pathfinder Moderately Conservative – Managed Volatility | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Asset Strategy | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Balanced | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Bond | | | — | | | | — | | | | — | | | | — | | | | 94 | | | | 1,104 | |
Core Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Dividend Opportunities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Energy | | | — | | | | 432 | | | | 1,950 | | | | 432 | | | | — | | | | — | |
Global Bond | | | — | | | | — | | | | — | | | | — | | | | 44 | | | | 59 | |
Global Growth | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Global Natural Resources | | | — | | | | — | | | | — | | | | — | | | | 2,442 | | | | 20,833 | |
Growth | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
High Income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
International Core Equity | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Limited-Term Bond | | | — | | | | — | | | | — | | | | — | | | | 876 | | | | 3,565 | |
Micro Cap Growth | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Mid Cap Growth | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Money Market | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Real Estate Securities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Science and Technology | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Small Cap Growth | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Small Cap Value | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Value | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. These differences are due to differing treatments for items such as deferral of wash sales, post-October losses, late-year ordinary losses, foreign currency transactions, net operating losses, income from passive foreign investment companies (PFICs), partnership transactions, and expiring capital loss carryovers. At December 31, 2014, the following reclassifications were made:
| | | | | | | | | | | | |
| Portfolio | | Undistributed Net
Investment
Income | | | Accumulated Net
Realized Gain
(Loss) | | | Paid - In
Capital | |
Pathfinder Aggressive | | $ | — | | | $ | — | | | $ | — | |
Pathfinder Conservative | | | — | | | | — | | | | — | |
Pathfinder Moderate | | | — | | | | — | | | | — | |
Pathfinder Moderately Aggressive | | | — | | | | — | | | | — | |
Pathfinder Moderately Conservative | | | — | | | | — | | | | — | |
Pathfinder Moderate – Managed Volatility | | | 7 | | | | 10 | | | | (17 | ) |
Pathfinder Moderately Aggressive – Managed Volatility | | | 2 | | | | 4 | | | | (6 | ) |
Pathfinder Moderately Conservative – Managed Volatility | | | 2 | | | | (2 | ) | | | — | |
Asset Strategy | | | (3,660 | ) | | | 10,175 | | | | (6,515 | ) |
Balanced | | | 10 | | | | (9 | ) | | | (1 | ) |
Bond | | | 1,073 | | | | (1,073 | ) | | | — | |
Core Equity | | | — | | | | — | | | | — | |
Dividend Opportunities | | | 104 | | | | (100 | ) | | | (4 | ) |
Energy | | | 32 | | | | 263 | | | | (295 | ) |
Global Bond | | | (13 | ) | | | 13 | | | | — | |
Global Growth | | | 1,156 | | | | (1,156 | ) | | | — | |
Global Natural Resources | | | (13 | ) | | | 10 | | | | 3 | |
Growth | | | — | | | | (87,171 | ) | | | 87,171 | |
High Income | | | 11 | | | | (11 | ) | | | — | * |
International Core Equity | | | 3,833 | | | | (3,833 | ) | | | — | |
Limited-Term Bond | | | 271 | | | | (271 | ) | | | — | |
Micro Cap Growth | | | 857 | | | | (25 | ) | | | (832 | ) |
Mid Cap Growth | | | 1,438 | | | | (1,438 | ) | | | — | * |
Money Market | | | — | | | | — | | | | — | |
Real Estate Securities | | | — | * | | | — | * | | | — | |
Science and Technology | | | 3,027 | | | | (1,646 | ) | | | (1,381 | ) |
Small Cap Growth | | | 3,503 | | | | (32,253 | ) | | | 28,750 | |
Small Cap Value | | | 1,457 | | | | (1,456 | ) | | | (1 | ) |
Value | | | 3,567 | | | | (3,559 | ) | | | (8 | ) |
| * | Not shown due to rounding. |
In certain circumstances, a Portfolio may distribute portfolio securities rather than cash as payment for redemption of Portfolio shares (“in-kind redemption”). For financial reporting purposes, a Portfolio recognizes a gain on the in-kind redemptions to the extent the value of the distributed securities on the date of redemption exceeds the cost of those securities; a Portfolio recognizes a loss if cost exceeds value. Gains and losses realized on the in-kind redemptions are not recognized for tax purposes, and are reclassified from accumulated net realized gains (losses) to paid-in capital. During the year ended December 31, 2014, the following Portfolios realized gains or losses from in-kind redemptions ($ amounts in thousands) of:
| | | | | | | | |
| Portfolio | | Realized Gains | | | Realized Losses | |
Growth | | $ | 89,798 | | | $ | (2,588 | ) |
Small Cap Growth | | | 39,468 | | | | (7,415 | ) |
| 15. | | REGULATORY AND LITIGATION MATTERS |
On July 24, 2006, WRIMCO, W&R and WRSCO (collectively, “Waddell & Reed”) reached a settlement with the SEC to resolve proceedings brought in connection with its investigation of frequent trading and market timing in certain Waddell & Reed Advisors Funds.
Under the terms of the SEC’s cease-and desist order (“SEC Order”), pursuant to which Waddell & Reed neither admitted nor denied any of the findings contained therein, among other provisions Waddell & Reed agreed to pay $40 million in disgorgement and $10 million in civil money penalties.
Pursuant to the terms of the SEC order, the $50 million in disgorgement and civil penalties, plus accrued interest (“Fair Fund”), must be distributed in accordance with a distribution plan developed by an independent distribution consultant, in consultation with W&R and as approved by the SEC, using a distribution methodology acceptable to the Funds’ Disinterested Trustees. The SEC Order also required that the independent distribution consultant develop the distribution methodology pursuant to which Fund shareholders shall receive their proportionate share of losses, if any, suffered by the Funds due to market timing. On July 15, 2014, the SEC ordered that the Fair Fund be distributed to investors as provided for in the distribution plan.
The foregoing is only a summary of the SEC Order. A copy of the SEC Order and the distribution plan are available on the SEC’s website at www.sec.gov.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ivy Funds VIP
To the Shareholders and Board of Trustees of Ivy Funds Variable Insurance Portfolios:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Ivy Funds Variable Insurance Portfolios (the “Funds”), comprising Ivy Funds VIP Pathfinder Aggressive, Ivy Funds VIP Pathfinder Conservative, Ivy Funds VIP Pathfinder Moderate, Ivy Funds VIP Pathfinder Moderately Aggressive, Ivy Funds VIP Pathfinder Moderately Conservative, Ivy Funds VIP Pathfinder Moderate — Managed Volatility, Ivy Funds VIP Pathfinder Moderately Aggressive — Managed Volatility, Ivy Funds VIP Pathfinder Moderately Conservative — Managed Volatility, Ivy Funds VIP Asset Strategy, Ivy Funds VIP Balanced, Ivy Funds VIP Bond, Ivy Funds VIP Core Equity, Ivy Funds VIP Dividend Opportunities, Ivy Funds VIP Energy, Ivy Funds VIP Global Bond, Ivy Funds VIP Global Growth (formerly, Ivy Funds VIP International Growth), Ivy Funds VIP Global Natural Resources, Ivy Funds VIP Growth, Ivy Funds VIP High Income, Ivy Funds VIP International Core Equity, Ivy Funds VIP Limited-Term Bond, Ivy Funds VIP Micro Cap Growth, Ivy Funds VIP Mid Cap Growth, Ivy Funds VIP Money Market, Ivy Funds VIP Real Estate Securities, Ivy Funds VIP Science and Technology, Ivy Funds VIP Small Cap Growth, Ivy Funds VIP Small Cap Value, and Ivy Funds VIP Value Portfolios, as of December 31, 2014, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended (as to the Ivy Funds VIP Pathfinder Moderate — Managed Volatility, Ivy Funds VIP Pathfinder Moderately Aggressive — Managed Volatility, and Ivy Funds VIP Pathfinder Moderately Conservative — Managed Volatility, for the year then ended and for the period from August 1, 2013 (commencement of operations) through December 31, 2013), and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian, transfer agent, agent banks, and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the portfolios constituting Ivy Funds Variable Insurance Portfolios as of December 31, 2014, the results of their operations, the changes in their net assets, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Kansas City, Missouri
February 17, 2015
INCOME TAX INFORMATION
Ivy Funds VIP | AMOUNTS NOT ROUNDED (UNAUDITED) |
The Portfolios hereby designate the following amounts of dividends paid from net ordinary income as dividends qualifying for the 70% dividends received deduction for corporations for the tax period ended December 31, 2014:
| | | | |
| | | Dividends
Received
Deduction for
Corporations | |
Pathfinder Aggressive | | $ | 322,981 | |
Pathfinder Conservative | | | 416,353 | |
Pathfinder Moderate | | | 3,753,083 | |
Pathfinder Moderately Aggressive | | | 4,850,624 | |
Pathfinder Moderately Conservative | | | 1,044,291 | |
Pathfinder Moderate – Managed Volatility | | | 448,587 | |
Pathfinder Moderately Aggressive – Managed Volatility | | | 150,867 | |
Pathfinder Moderately Conservative – Managed Volatility | | | 65,105 | |
Asset Strategy | | | 8,177,799 | |
Balanced | | | 4,067,422 | |
Bond | | | — | |
Core Equity | | | 5,779,615 | |
Dividend Opportunities | | | 7,852,386 | |
Energy | | | 232,293 | |
Global Bond | | | 13,031 | |
Global Growth | | | 211,887 | |
Global Natural Resources | | | — | |
Growth | | | 12,317,256 | |
High Income | | | — | |
International Core Equity | | | — | |
Limited-Term Bond | | | — | |
Micro Cap Growth | | | 66,762 | |
Mid Cap Growth | | | 2,651,842 | |
Money Market | | | — | |
Real Estate Securities | | | — | |
Science and Technology | | | — | |
Small Cap Growth | | | 1,480,554 | |
Small Cap Value | | | 2,651,080 | |
Value | | | 4,928,302 | |
The Portfolios hereby designate the following amounts as distributions of long-term capital gains:
| | | | |
Pathfinder Aggressive | | $ | 6,036,035 | |
Pathfinder Conservative | | | 6,652,843 | |
Pathfinder Moderate | | | 63,925,949 | |
Pathfinder Moderately Aggressive | | | 75,016,947 | |
Pathfinder Moderately Conservative | | | 18,400,313 | |
Pathfinder Moderate – Managed Volatility | | | 4,282,956 | |
Pathfinder Moderately Aggressive – Managed Volatility | | | 1,497,582 | |
Pathfinder Moderately Conservative – Managed Volatility | | | 733,506 | |
Asset Strategy | | | 216,767,585 | * |
Balanced | | | 30,504,769 | |
Bond | | | 9,436,341 | |
Core Equity | | | 56,752,527 | |
Dividend Opportunities | | | 34,234,238 | |
Energy | | | 3,468,861 | |
Global Bond | | | — | |
Global Growth | | | 36,408,520 | |
Global Natural Resources | | | — | |
Growth | | | 133,085,662 | |
High Income | | | 6,022,261 | |
International Core Equity | | | 13,714,324 | |
Limited-Term Bond | | | 601,539 | |
Micro Cap Growth | | | 9,581,803 | |
Mid Cap Growth | | | 17,837,396 | |
Money Market | | | — | |
Real Estate Securities | | | 2,680,536 | |
Science and Technology | | | 46,853,666 | |
Small Cap Growth | | | 31,860,465 | |
Small Cap Value | | | 29,004,735 | |
Value | | | 36,653,230 | |
*Of this amount $8,787,664 is Collectibles Gain.
Internal Revenue Code regulations permit each qualifying Portfolio to elect to pass through a foreign tax credit to shareholders with respect to foreign taxes paid by the Portfolio. Each Portfolio elected to pass the following amounts of creditable foreign taxes through to their shareholders:
| | | | | | | | |
| | | Foreign Tax
Credit | | | Foreign
Derived
Income | |
Pathfinder Aggressive | | $ | 44,437 | | | $ | 461,364 | |
Pathfinder Conservative | | | 11,605 | | | | 153,917 | |
Pathfinder Moderate | | | 288,449 | | | | 2,910,047 | |
Pathfinder Moderately Aggressive | | | 445,917 | | | | 4,830,358 | |
Pathfinder Moderately Conservative | | | 60,613 | | | | 656,582 | |
Pathfinder Moderate – Managed Volatility | | | 25,775 | | | | 260,009 | |
Pathfinder Moderately Aggressive – Managed Volatility | | | 10,609 | | | | 114,913 | |
Pathfinder Moderately Conservative – Managed Volatility | | | 3,528 | | | | 38,215 | |
Global Growth | | | 881,526 | | | | 9,380,143 | |
International Core Equity | | | 1,244,190 | | | | 17,632,746 | |
BOARD OF TRUSTEES AND OFFICERS
Ivy Funds VIP
Each of the individuals listed below serves as a trustee for the Trust (29 portfolios), and for the portfolios within the Waddell & Reed Advisors Funds (20 portfolios) and InvestEd Portfolios (3 portfolios) (collectively, the “Advisors Fund Complex”). The Advisors Fund Complex, together with the Ivy Family of Funds, comprises the Waddell & Reed/Ivy Fund Complex (“Fund Complex”). The Ivy Family of Funds consists of the portfolios in the Ivy Funds (34 portfolios) and Ivy High Income Opportunities Fund (a closed-end fund) (“IVH”). Jarold Boettcher, Joseph
Harroz, Jr., Henry J. Herrmann and Eleanor B. Schwartz also serve as trustees of each of the funds in the Ivy Family of Funds.
Board members who are not “interested persons” of the Funds as defined in Section 2(a)(19) of the 1940 Act (Disinterested Trustees) constitute at least 75% of the Board.
Joseph Harroz, Jr. serves as the Independent Chairman of the Trust’s Board and of the board of trustees of the other funds in the Advisors Fund Complex. Subject to the Trustee Emeritus and Retirement Policy, a Trustee serves until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
The Statement of Additional Information (“SAI”) for the Trust includes additional information about the Trust’s trustees. The SAI is available without charge, upon request, by calling 1.888.WADDELL. It is also available on the Waddell & Reed website, www.waddell.com.
Disinterested Trustees
| | | | | | | | |
Name, Address and
Year of Birth | | Position(s)
Held with
the Trust and
Fund Complex | | Trustee Since* | | Principal Occupation(s)
During Past 5 Years | | Other Directorships Held |
Jarold W. Boettcher 6300 Lamar Avenue Overland Park, KS 66202 1940 | | Trustee | | Trust: 2009 Fund Complex: 2007 | | President of Boettcher Enterprises, Inc. (agricultural products and services) (1979 to present), Boettcher Supply, Inc. (electrical and plumbing supplies distributor) (1979 to present); Boettcher Aerial, Inc. (Aerial AG Applicator) (1982 to present). | | Director, Guaranty State Bank & Trust Co. (financial services) (1981 to present); Director, Guaranty, Inc. (financial services) (1981 to present); Member, Kansas Board of Regents (2007 to 2011); Member, Kansas State University Foundation (2009 to present); Director, Kansas Bioscience Authority (2009 to present); Committee Member, Kansas Foundation for Medical Care (2001 to 2011); Trustee, Ivy Funds (34 portfolios overseen); Trustee, Ivy High Income Opportunities Fund (1 portfolio overseen). |
James M. Concannon 6300 Lamar Avenue Overland Park, KS 66202 1947 | | Trustee | | Trust: 2009 Fund Complex: 1997 | | Professor of Law, Washburn School of Law (1973 to present). | | Director, Kansas Legal Services for Prisoners, Inc.; Director, U.S. Alliance Corporation (Insurance) (2009 to present). |
John A. Dillingham 6300 Lamar Avenue Overland Park, KS 66202 1939 | | Trustee | | Trust: 2009 Fund Complex: 1997 | | President and Trustee, JoDill Corp. (1997 to present) and Dillingham Enterprises, Inc. (1997 to present), both farming enterprises. | | Former Advisory Director, UMB Northland Board (financial services) (1995 to 2012); Trustee, Liberty Memorial Association (WWI National Museum) (1998 to 2013); Trustee, Harry S. Truman Library Institute (education) (2007 to present); Chairman (2005 to 2013) and current Trustee, Freedoms Frontier National Heritage Area (education); Trustee, CGSC Foundation (government) (2004 to 2012); Chairman, Kansas City Municipal Assistance Corporation (bond issuance) (1980 to present); President, Men of Month Fraternity (community service) (2007 to 2011); Director, Metropolitan Comm. College Found. (1980 to 2014). |
Joseph Harroz, Jr. 6300 Lamar Avenue Overland Park, KS 66202 1967 | | Trustee Independent Chairman | | Trust: 2009 Fund Complex: 1998 Trust: 2015 Fund Complex: 2015 | | Dean of the College of Law, Vice President and Professor, University of Oklahoma (2010 to present); Managing Member, Harroz Investments, LLC (commercial enterprise investments) (1998 to present). | | Director and Shareholder, Valliance Bank , N.A. (2007 to present); Director, Foundation HealthCare (2008 to present); Trustee, The Mewbourne Family Support Organization (non-profit) (2006 to present); Independent Director, LSQ Manager, Inc. (Real Estate) (2007 to present); Director, OK Foundation for Excellence (non-profit) (2008 to present); Independent Chairman and Trustee, Ivy Funds (34 portfolios overseen); Trustee, Ivy High Income Opportunities Fund (1 portfolio overseen). |
| | | | | | | | |
Name, Address and
Year of Birth | | Position(s) Held with
the Trust and
Fund Complex | | Trustee Since* | | Principal Occupation(s)
During Past 5 Years | | Other Directorships Held |
Albert W. Herman FHFMA, CPA 6300 Lamar Avenue Overland Park, KS 66202 1938 | | Trustee | | Trust: 2009 Fund Complex: 2008 | | Business Consultant (1998 to present); Treasurer and Director, Wellness Council of America (health care initiatives) (1996 to present). | | Finance Committee Member, Ascension Health (non-profit health system) (2007 to 2014); Director, Baylor Health Care System Foundation (non-profit health care) (1998-2009). |
Frank J. Ross, Jr. Polsinelli PC 900 West 48th Place, Suite 900 Kansas City, MO 64112 1953 | | Trustee | | Trust: 2009 Fund Complex: 1996 | | Shareholder/Director, Polsinelli PC, (law firm) (1980 to present). | | Director, American Red Cross (community service) (2003-2010); Director, Rockhurst University (education) (2003-2009); Director, March of Dimes Birth Defects Foundation, Greater Kansas City Chapter (2001-2009). |
Eleanor B. Schwartz 6300 Lamar Avenue Overland Park, KS 66202 1937 | | Trustee | | Trust: 2009 Fund Complex: 1995 | | Professor Emeritus, University of Missouri at Kansas City (2003 to present); Chancellor Emeritus, University of Missouri at Kansas City (1999 to present). | | Trustee, Ivy Funds (34 portfolios overseen); Trustee, Ivy High Income Opportunities Fund (1 portfolio overseen). |
Interested Trustees
Messrs. Avery and Herrmann are “interested” by virtue of their current or former engagement as officers of Waddell & Reed Financial, Inc. (“WDR”) or its wholly owned subsidiaries, including the Fund’s investment manager, Waddell & Reed Investment Management Company (“WRIMCO”), each Fund’s principal underwriter, Waddell & Reed, Inc. (“Waddell & Reed”), and each Fund’s shareholder servicing and accounting services agent, Waddell & Reed Services Company, doing business as WI Services Company (“WISC”), as well as by virtue of their personal ownership of shares of WDR. The address for each Interested Trustee and each of the officers in the following tables is 6300 Lamar Avenue, Overland Park, KS 66202.
| | | | | | | | |
| Name and Year of Birth | | Position(s) Held with
the Trust and
Fund Complex | | Trustee/Officer
Since* | | Principal Occupation(s)
During Past 5 Years | | Other Directorships Held |
Michael L. Avery 1953 | | Trustee | | Trust: 2009 Fund Complex: 2007 | | President of WDR (2010 to present); formerly Chief Investment Officer (CIO) of WDR (2005 to 2011); Executive Vice President of WRIMCO (2005 to present); Executive Vice President of IICO (2007 to present); portfolio manager for investment companies managed by WRIMCO and IICO (1994 to present). | | Director of WRIMCO and IICO. |
Henry J. Herrmann 1942 | | President Trustee | | Trust: 2009 Fund Complex: 2001 Trust: 2009 Fund Complex: 1998 | | Chairman of WDR (2010 to present); CEO of WDR (2005 to present); President, CEO and Chairman of WRIMCO (1993 to present); President, CEO and Chairman of IICO (2002 to present); President and Trustee of each of the funds in the Fund Complex. | | Director of WDR, IICO, WRIMCO, WISC, W&R Capital Management Group, Inc. and Waddell & Reed, Inc.; Director, Blue Cross Blue Shield of Kansas City, 2007 to present); Trustee, Ivy Funds (34 portfolios overseen); Trustee, Ivy High Income Opportunities Fund (1 portfolio overseen). |
*Each Trustee became a Trustee (and, as applicable, an officer) in 2009, as reflected by the first date shown. The second date shows when the Trustee first became a director (and, as applicable, an officer) of one or more Predecessor Fund.
Officers
The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Herrmann, who is President, the Trust’s principal officers are:
| | | | | | | | |
| Name and Year of Birth | | Position(s) Held with the
Trust and Fund Complex | | Officer of
Trust Since | | Officer of Fund
Complex Since* | | Principal Occupation(s) During Past 5 Years |
Mara D. Herrington 1964 | | Vice President Secretary | | 2009 2009 | | 2006 2006 | | Vice President and Secretary of each of the funds in the Fund Complex (2006 to present); Vice President of WRIMCO and IICO (2006 to present). |
Joseph W. Kauten 1969 | | Vice President Treasurer Principal Financial Officer Principal Accounting Officer | | 2009 2009 2009 2009 | | 2006 2006 2007 2006 | | Principal Financial Officer of each of the funds in the Fund Complex (2007 to present); Vice President, Treasurer and Principal Accounting Officer of each of the funds in the Fund Complex (2006 to present). |
Scott J. Schneider 1968 | | Vice President Chief Compliance Officer | | 2009 2009 | | 2006 2004 | | Chief Compliance Officer (2004 to present) and Vice President (2006 to present) of each of the funds in the Fund Complex. |
Wendy J. Hills 1970 | | Vice President General Counsel Assistant Secretary | | 2014 2014 2014 | | 2014 2014 2014 | | Senior Vice President and General Counsel of WDR, Waddell & Reed, WRIMCO and WISC (2014 to present); Senior Vice President and General Counsel of IICO (2014 to present); Vice President, General Counsel and Assistant Secretary for each of the funds in the Fund Complex (2014 to present). |
Philip A. Shipp 1969 | | Assistant Secretary | | 2012 | | 2012 | | Assistant Secretary of each of the funds in the Fund Complex (2012 to present); Vice President of Waddell & Reed, Inc. and IFDI (2010 to present). |
*This is the date when the Officer first became an officer of one or more Predecessor Funds.
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
Ivy Funds VIP
At its meeting on August 12 and 13, 2014, the Trust’s Board of Trustees, including all of the Disinterested Trustees, considered and approved the continuance of the existing Investment Management Agreement between WRIMCO and the Trust as to each of its Portfolios (“Management Agreement”), and, for certain Portfolios, of the Investment Subadvisory Agreement (each, a “Subadvisory Agreement”) between WRIMCO and the Portfolio subadvisor pursuant to which the subadvisor provides investment advisory services. The Disinterested Trustees were assisted in their review by independent legal counsel and met with such counsel separately from representatives of WRIMCO. The Disinterested Trustees also received and considered a memorandum from their independent legal counsel regarding the Disinterested Trustees’ responsibilities in evaluating the Management Agreement and, if applicable, the Subadvisory Agreement, for each Portfolio. This memorandum explained the regulatory requirements pertaining to the Disinterested Trustees’ evaluation of the Management Agreement and the Subadvisory Agreements. In addition, the Disinterested Trustees engaged a fee consultant whose responsibilities included managing the process by which the proposed management fees under the Management Agreement were negotiated with WRIMCO.
Prior to the Board meeting, independent legal counsel sent to WRIMCO and, as applicable, to each subadvisor, a request letter for information to be provided to the Trustees in connection with their consideration of the continuance of the Management Agreement with respect to each Portfolio and of the Subadvisory Agreements, as applicable. WRIMCO and each subadvisor provided materials to the Trustees that included responses to the request letter and other information WRIMCO and the subadvisor, as applicable, believed was useful in evaluating the continuation of the Management Agreement and the Subadvisory Agreements (“Initial Response”). Thereafter, independent legal counsel sent to WRIMCO a supplemental request letter for certain additional information, and WRIMCO provided additional information in response to this request letter. The Trustees also received reports prepared by an independent third party, Lipper Inc. (“Lipper”), relating to performance and expenses of each Portfolio except for Pathfinder Moderate — Managed Volatility, Pathfinder Moderately Aggressive — Managed Volatility, and Pathfinder Moderately Conservative - Managed Volatility (collectively, the “Managed Volatility Portfolios), each of which commenced operations in August 2013, compared to the performance of the universe of comparable mutual funds selected by Lipper (the “Performance Universe”) and to the expenses of a peer group of comparable funds selected by Lipper (the “Peer Group”), respectively. Further, the Trustees received a written evaluation from the fee consultant. At their meeting, the Trustees received a presentation from representatives of WRIMCO regarding services provided by it and its affiliates (collectively, “W&R”) to each Portfolio. In connection with its deliberations, the Trustees also considered the broad range of information relevant to the Trustees’ consideration of the continuance of the Management Agreement and Subadvisory Agreements, as applicable, with respect to each Portfolio that is provided by W&R to the Trustees (including its various standing committees) at meetings throughout the year.
Nature, Extent and Quality of Services
Provided to the Portfolios
The Trustees considered the nature, extent and quality of the services provided to each Portfolio pursuant to the Management Agreement and by each subadvisor pursuant to its Subadvisory Agreement.
The Trustees considered WRIMCO’s and, as applicable, each subadvisor’s research and portfolio management capabilities and that W&R also provides oversight of day-to-day portfolio operations, including but not limited to portfolio accounting and administration and assistance in meeting legal and regulatory requirements. The Trustees also considered WRIMCO’s and, as applicable, each subadvisor’s practices regarding the selection and compensation of brokers and dealers that execute portfolio transactions for each Portfolio and, as applicable, those brokers’ and dealers’ provision of brokerage and research services to WRIMCO, and the benefits derived by each Portfolio and the other funds in the Advisors Fund Complex and by other clients of WRIMCO from such services. The Trustees considered the information provided by WRIMCO and, as applicable, each subadvisor regarding its compliance program and compliance matters, if any, over the past year. The Trustees also considered the favorable history, reputation, qualification and background of WRIMCO and W&R’s extensive administrative, accounting and compliance infrastructure, as well as WRIMCO’s supervisory activities over each subadvisor.
Portfolio Performance, Management Fee and Expense Ratio.
The Trustees considered each Portfolio’s performance, both on an absolute basis and in relation to the performance of its Performance Universe. The Trustees factored into its evaluation of each Portfolio’s performance the limitations inherent in the methodology for constructing a peer group and determining which investment companies should be included in a peer group. Each Portfolio’s performance was also compared to relevant market indices and to a Lipper index, as applicable. In this regard, the Trustees noted that performance, especially short-term performance, is only one of factors that it deems relevant to its consideration of the continuance of the Management Agreement and the Subadvisory Agreements, and that, after considering all relevant factors, it may be appropriate to approve the continuance of the Management Agreement and Subadvisory Agreement with respect to a Portfolio notwithstanding the Portfolio’s performance.
The Trustees considered the management fees and total expenses of each Portfolio and also considered each Portfolio’s management fees and total expenses in relation to the management fees and total expenses, respectively, of its Peer Group. The Trustees’ review also included consideration of each Portfolio’s management fees at various asset levels in relation to the management fees at those asset levels of funds within a peer group of comparable mutual funds selected by and as shown in the reports from Lipper (“Lipper Group”). They also considered each Portfolio’s non-management fees in relation to the non-management fees of its Peer Group, the amount of assets in each Portfolio, and factors affecting the Portfolios’ expense ratios. In addition, the Trustees considered, for each Portfolio, the management fees, if any, paid to WRIMCO (or its affiliate) by other mutual funds managed by WRIMCO (or its affiliate) with a similar investment objective (or objectives) and similar investment policies and strategies as the Portfolio (“Similar Funds”). The Trustees also considered, for each Portfolio, the subadvisory fees, if any, paid to WRIMCO or the subadvisor, as applicable, (or their respective affiliates) by other mutual funds advised by WRIMCO or the subadvisor (or their respective affiliates), as well as the management fees, if any, paid by other client accounts managed by WRIMCO or the subadvisor (or their respective affiliates), with a similar investment objective (or objectives) and similar investment policies and strategies as the Portfolio (each of such accounts, an “Other Account”).
Additional Considerations with Respect to Each Portfolio
Asset Strategy
The Trustees considered that Asset Strategy’s total return performance was higher than the Performance Universe median for the one-, three-, seven-, and ten-year periods and higher than the Lipper index for the one- and three-year periods. They noted that no Lipper index data were available for the five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were lower than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Balanced
The Trustees considered that Balanced’s total return performance was higher than the Performance Universe median for the one-, three-, seven-, and ten-year periods and was higher than the Lipper index for the one-, three-, five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were equal to the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were equal to or lower than the median for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was lower for one asset level, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Bond
The Trustees considered that Bond’s total return performance was lower than the Performance Universe median and the Lipper index for the one-, three-, five-, seven-, and ten-year periods. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s investments in higher credit-quality bonds and duration management had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was higher than the Peer Group median but that the Portfolio’s overall expense ratio was lower than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at certain asset levels were higher than the medians for its Lipper Group, except for two asset levels at which the Portfolio’s effective management fees were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for certain asset levels, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Core Equity
The Trustees considered that Core Equity’s total return performance was higher than the Performance Universe median and the Lipper index for the one-, three-, five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was higher than the Peer Group median and that the Portfolio’s overall expense ratio was equal to the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level and the Similar Funds’ advisory fees were lower for other asset levels, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Dividend Opportunities
The Trustees considered that Dividend Opportunities’ total return performance was higher than the Performance Universe median for the one-, seven-, and ten-year periods, was higher than the Lipper index for the one- and ten-year periods, and was equal to the Lipper index for the seven-year period. They also considered the information provided by WRIMCO in its Initial Response. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response and noted that, despite the Portfolio’s underperformance for the three- and five-year periods ended March 31, 2014, the Portfolio’s performance relative to its Performance Universe appeared to be improving and was good for the one-, seven-, and ten-year periods. In addition, the Trustees considered the change in the Portfolio’s portfolio manager in 2013.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was lower than the Peer Group median and that the Portfolio’s overall expense ratio was higher than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Energy
The Trustees considered that Energy’s total return performance was higher than the Performance Universe median and the Lipper index for the one-, three-, five-, and seven-year periods for which information was provided, since the Portfolio did not have a ten-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was equal to the Peer Group median and that the Portfolio’s overall expense ratio was higher than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were higher than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Global Bond
The Trustees considered that Global Bond’s total return performance was higher than the Performance Universe median for the one-year period, was equal to the Performance Universe median for the three-year period, and was higher than the Lipper index for the one- and three-year periods for which information was provided, since the Portfolio did not have a five-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were lower than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group. The Trustees considered that WRIMCO had voluntarily agreed to waive the management fee if Portfolio assets totaled less than $25 million, which resulted in a fee waiver for the fiscal year ended December 31, 2013.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that a Similar Fund’s advisory fee was lower for one asset level, and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Global Natural Resources
The Trustees considered that Global Natural Resources’ total return performance was lower than the Performance Universe median and the Lipper index for the one-, three-, five-, and seven-year periods for which information was provided, since the Portfolio did not have a ten-year performance record as of March 31, 2014. They also considered the information provided by WRIMCO in its Initial Response. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response. In addition, the Trustees considered the termination of the Portfolio’s sub-adviser and change in the Portfolio’s portfolio manager in 2013.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were higher than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were higher than the medians for its Lipper Group.
The Trustees also considered that there was a Similar Fund that had an advisory fee schedule that was the same as the Portfolio’s advisory fee schedule and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Fund to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Growth
The Trustees considered that Growth’s total return performance was higher than the Performance Universe median for the one-, three-, seven-, and ten-year periods. They noted that information for a Lipper index was not provided.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was lower than the Peer Group median and that the Portfolio’s overall expense ratio was higher than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
High Income
The Trustees considered that High Income’s total return performance was higher than the Performance Universe median for the one-, three-, five-, seven-, and ten-year periods. They noted that information for a Lipper index was not provided.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were lower than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the median for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that the Other Accounts has average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
International Core Equity
The Trustees considered that Core Equity’s total return performance was higher than the Performance Universe median for the one-, five-, seven-, and ten-year periods. They noted that information for a Lipper index was not provided. The Trustees also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s geographic positioning, stock selection, and sector weightings had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response and noted that, despite the Portfolio’s underperformance for the three-year period ended March 31, 2014, the Portfolio’s performance relative to its Performance Universe appeared to be improving and was good for the one-, five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was higher than the Peer Group median and that the Portfolio’s overall expense ratio was lower than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at certain asset levels were higher than, and at other asset levels were lower than or equal to, the medians for its Lipper Group.
The Trustees also considered that there was a Similar Fund that had an advisory fee schedule that was the same as the Portfolio’s advisory fee schedule, except that the Similar Fund’s advisory fee was lower for one asset level, and that the Other Account had an advisory fee that was lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Fund and Other Account to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, the difference in fees paid by the Other Account was consistent with the additional management and other services provided by WRIMCO to the Portfolio.
International Growth (Effective January 1, 2015, the name of International Growth has changed to Global Growth.)
The Trustees considered that International Growth’s total return performance was higher than the Performance Universe median and the Lipper Index for the one-, three-, five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were lower than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group, except for two asset levels at which the Portfolio’s effective management fees were higher than or equal to the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level and lower for another asset level, and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Limited-Term Bond
The Trustees considered that Limited-Term Bond’s total return performance was lower than the Performance Universe median and the Lipper index for the one-year period, and was higher than the Performance Universe median and the Lipper index for the three-year period for which information was provided, since the Portfolio did not have a five-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was equal to the Peer Group median and that the Portfolio’s overall expense ratio was higher than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were equal to or lower than the median for its Lipper Group.
The Trustees also considered that there was a Similar Fund that had an advisory fee schedule that was the same as the Portfolio’s advisory fee schedule and that the Other Account had an advisory fee that was lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Fund and Other Account to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, the difference in fees paid by the Other Account was consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Managed Volatility Portfolios
The Trustees considered that each Managed Volatility Portfolio had commenced operations in August 2013 and, thus, was not included in the Lipper data. The Trustees considered the information that they had received from WRIMCO since each Managed Volatility Portfolio’s inception regarding the operations of the Managed Volatility Portfolios.
The Trustees noted that they considered the range and average of the management fees and expense ratios of a peer group of comparable funds when they approved the initial Management Agreement. They also considered the proposed management fee schedule had breakpoints and that all of the proposed management fee paid to WRIMCO would be paid to the subadvisor as a subadvisory fee.
Micro Cap Growth
The Trustees considered that Micro Cap Growth’s total return performance was higher than the Performance Universe median and the Lipper index for the one-, three-, five-, seven-, and ten-year periods. The Trustees also noted that WRIMCO recommended the continuance of the Sub-Advisory Agreement with Wall Street Associates, the Portfolio’s sub-adviser.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were higher than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were higher than the medians for its Lipper Group.
The Trustees also considered that there was a Similar Fund that had an advisory fee schedule that was the same as the Portfolio’s advisory fee schedule (including a sub-advisory fee to the sub-adviser that was the same as the Portfolio’s) and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees also considered that the Other Accounts of a similar size managed by the sub-adviser had advisory fees that were higher than the sub-advisory fees for the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Fund and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Mid Cap Growth
The Trustees considered that Mid Cap Growth’s total return performance was higher than the Performance Universe median and the Lipper index for the five- and seven-year periods for which information was provided, since the Portfolio did not have a ten-year performance record as of March 31, 2014. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, stock selection had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was higher than the Peer Group median but that the Portfolio’s overall expense ratio was lower than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were higher than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Money Market
The Trustees considered that Money Market’s total return performance was higher than the Performance Universe median and Lipper index for the one-, three-, five-, and seven-year periods and was equal to the Performance Universe median for the ten-year period.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was equal to the Peer Group median and that the Portfolio’s overall expense ratio was higher than the Peer Group median. They also considered that the Portfolio’s effective management fees at certain asset levels were higher than, and at other asset levels were lower than or equal to, the medians for its Lipper Group. The Trustees also considered the expenses incurred by WRIMCO to maintain the yield of the Portfolio at a minimum of at least two basis points.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Pathfinder Aggressive
The Trustees considered that Pathfinder Aggressive’s total return performance was higher than the Performance Universe median for the one- and three-year periods, and was higher than the Lipper index for the one-, three-, and five-year periods for which information was provided, since the Portfolio did not have a seven-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio did not have a management fee but that the Portfolio’s overall expense ratio was higher than the Peer Group median.
Pathfinder Conservative
The Trustees considered that Pathfinder Conservative’s total return performance was higher than the Performance Universe median and the Lipper index for the one- and three-year periods and was lower than the Performance Universe median and the Lipper index for the five-year period for which information was provided, since the Portfolio did not have a seven-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio did not have a management fee but that the Portfolio’s overall expense ratio was higher than the Peer Group median.
Pathfinder Moderate
The Trustees considered that Pathfinder Moderate’s total return performance was higher than the Performance Universe median and the Lipper index for the one- and three-year periods and was lower than the Performance Universe median and the Lipper index for the five-year period for which information was provided, since the Portfolio did not have a seven-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio did not have a management fee but that the Portfolio’s overall expense ratio was higher than the Peer Group median.
Pathfinder Moderately Aggressive
The Trustees considered that Pathfinder Moderately Aggressive’s total return performance was higher than the Performance Universe median and the Lipper index for the one-, three-, and five-year periods for which information was provided, since the Portfolio did not have a seven-year performance record as of March 31, 2014.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio did not have a management fee but that the Portfolio’s overall expense ratio was higher than the Peer Group median.
Pathfinder Moderately Conservative
The Trustees considered that Pathfinder Moderately Conservative’s total return performance was lower than the Performance Universe median and the Lipper index for the three- and five-year periods for which information was provided, since the Portfolio did not have a seven-year performance record as of March 31, 2014. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s investments in international equity funds had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio did not have a management fee but that the Portfolio’s overall expense ratio was higher than the Peer Group median.
Real Estate Securities
The Trustees considered that Real Estate Securities’ total return performance was higher than the Lipper index for the three-, five-, and seven-year periods, and was lower than the Performance Universe median for the one-, three-, five-, and seven-year periods for which information was provided, since the Portfolio did not have a ten-year performance record as of March 31, 2014. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s investments in higher-quality securities, underweighting in large capitalization companies, and sector weightings had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response. In addition, the Trustees considered the changes in the Portfolio’s investment strategy in 2012 and the appointment of a new portfolio manager for the Portfolio in 2014. The Trustees noted that WRIMCO recommended the continuance of the Sub-Advisory Agreement with Advantus Capital Management, Inc. (“Advantus”).
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were higher than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were higher than the medians for its Lipper Group. The Trustees considered that WRIMCO had contractually agreed to reduce the management fee by an annual rate of 0.09% of average daily net assets until April 30, 2015.
The Trustees also considered that there was a Similar Fund that had an advisory fee schedule that was the same as the Portfolio’s advisory fee schedule (including a sub-advisory fee to the sub-adviser that was the same as the Portfolio’s) and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees also considered that the Other Accounts of a similar size managed by the sub-adviser had advisory fees that were close to or higher than the sub-advisory fees for the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Fund and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Science and Technology
The Trustees considered that Science and Technology’s total return performance was higher than the Performance Universe median and the Lipper index for the one-, three-, five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were lower than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Small Cap Growth
The Trustees considered that Small Cap Growth’s total return performance was lower than the Performance Universe median and the Lipper index for the three-, five-, seven-, and ten-year periods. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s focus on high quality stocks, its stock selection, and its sector weightings had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee was equal to the Peer Group median and that the Portfolio’s overall expense ratio was higher than the Peer Group median. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the medians for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Small Cap Value
The Trustees considered that Small Cap Value’s total return performance was lower than the Performance Universe median for the one-, three-, five-, and ten-year periods and lower than the Lipper index for the one-, three-, and five-year periods. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s stock selection, sector weightings, and cash position had adversely affected the Portfolio’s performance over the three-year period. They further considered the year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were higher than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were higher than the medians for its Lipper Group.
The Trustees also considered that there was a Similar Fund that had an advisory fee schedule that was the same as the Portfolio’s advisory fee schedule and that there were no Other Accounts managed by WRIMCO or its affiliates with a similar investment objective and similar investment policies and strategies as the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Fund to evaluate the appropriateness and reasonableness of the Portfolio’s management fee.
Value
The Trustees considered that Value’s total return performance was higher than the Performance Universe median and the Lipper index for the one-, five-, seven-, and ten-year periods. They also considered the information provided by WRIMCO in its Initial Response explaining that, among other factors, the Portfolio’s stock selection had adversely affected the Portfolio’s performance over the three-year period. They further considered the
year-to-date performance information through June 11, 2014, provided by WRIMCO in its Initial Response and noted that, despite the Portfolio’s underperformance for the three-year period ended March 31, 2014, the Portfolio’s performance relative to its Performance Universe appeared to be improving and was good for the one-, five-, seven-, and ten-year periods.
The Trustees considered the range and average of the management fees and expense ratios of the Peer Group. They considered that the Portfolio’s management fee and overall expense ratio were higher than the Peer Group medians. They also considered that, with the breakpoints in the fee schedule, the Portfolio’s effective management fees at various asset levels were lower than the median for its Lipper Group.
The Trustees also considered that the Similar Funds had advisory fee schedules that were the same as the Portfolio’s advisory fee schedule, except that one Similar Fund’s advisory fee was higher for one asset level, and that the Other Accounts had average advisory fees that were lower than the management fee of the Portfolio. The Trustees considered the relevance of the fee information provided for the Similar Funds and Other Accounts to evaluate the appropriateness and reasonableness of the Portfolio’s management fee. The Trustees recognized that, among other factors, differences in fees paid by the Other Accounts were consistent with the additional management and other services provided by WRIMCO to the Portfolio.
Profitability and Economies of Scale
The Trustees also considered that the management fee structure of each Portfolio (except Money Market, which has a single management fee rate, and Pathfinder Aggressive, Pathfinder Conservative, Pathfinder Moderate, Pathfinder Moderately Aggressive and Pathfinder Moderately Conservative (each, a “Pathfinder Portfolio”), which have no management fee) includes breakpoints that provide for a reduction of payments to reflect anticipated economies of scale. The Trustees also considered the management fee rate reductions that became effective October 1, 2006, and remain in effect for Asset Strategy, Bond, Core Equity, Growth, High Income, International Growth, Mid Cap Growth, Science and Technology, Small Cap Growth, Value and certain other funds in the Advisors Fund Complex, and the anticipated impact of the fee rate reduction for each of these Portfolios on its investment management fees and overall expense ratio. In concluding that the benefits accruing to WRIMCO and its affiliates by virtue of their relationship to each Portfolio were reasonable in comparison with the costs of providing the investment management services and the benefits accruing to the Portfolio, the Trustees considered specific data as to WRIMCO’s profit, if any, with respect to the Portfolio for a recent period. The Trustees also considered WRIMCO’s methodology for determining this data. In addition, the Trustees considered the soft dollar arrangements with respect to portfolio transactions, as applicable.
In determining whether to approve the proposed continuance of the Management Agreement as to a Portfolio and, as applicable, a Portfolio’s Subadvisory Agreement, the Trustees considered the best interests of the Portfolio, the reasonableness of the management fee paid under the Management Agreement, and, as applicable, the subadvisory fee paid under the Subadvisory Agreement, and the overall fairness of the Management Agreement, and, as applicable, the Subadvisory Agreement. The Trustees considered the following factors to be of primary importance to their approval of the continuance of the Management Agreement as to a Portfolio and, as applicable, its Subadvisory Agreement, without any one factor being dispositive:
| • | | the performance of the Portfolio compared with the performance of its Performance Universe and with relevant indices; |
| • | | the Portfolio’s investment management fees and total expenses compared with the management fees and total expenses of its Peer Group; |
| • | | the existence or appropriateness of breakpoints in the Portfolio’s management fees (except for the Pathfinder Portfolios); |
| • | | the Portfolio’s investment management fees compared with the management fees of Similar Funds or Other Accounts managed by WRIMCO (or its affiliate), as applicable, and the Portfolio’s subadvisory fees compared with the subadvisory fees of Other Accounts managed by the subadvisor, as applicable; |
| • | | the cost/profitability to WRIMCO and any actual or anticipated economies of scale in relation to the services it provides to the Portfolio; |
| • | | the other benefits that accrue to WRIMCO as a result of its relationship with the Portfolio; and |
| • | | the favorable history, reputation, qualification and background of WRIMCO as well as the qualifications of its personnel. |
Based on the discussions, considerations and information described generally above, including the evaluation provided by the fee consultant, the Board determined that each Portfolio’s Management Agreement and, as applicable, its Subadvisory Agreement, are fair and reasonable and that continuance of the Management Agreement and, as applicable, the Subadvisory Agreement, is in the best interests of the Portfolio. In reaching these determinations as to each Portfolio, the Board concluded that: the nature, extent and quality of the services provided by WRIMCO for the Portfolio are adequate and appropriate; except as described above, the performance of the Portfolio was satisfactory; it retained confidence in WRIMCO’s and, as applicable, the subadvisor’s overall ability to manage the Portfolio; and the management fee paid to WRIMCO is reasonable in light of comparative management fee information, the breakpoints in the management fee for the Portfolio (other than Money Market and the Pathfinder Portfolios), the services provided by WRIMCO, the costs of the services provided, and the profits realized, if any, and other benefits likely to be derived by WRIMCO from its relationship with the Portfolio. In the case of certain Portfolios that underperformed their respective Performance Universe medians and Lipper indices for certain periods of time, based on the assessment and information WRIMCO provided, including as to relevant market conditions and/or remedial actions that WRIMCO had taken or planned to take, such response was satisfactory to the Board.
ANNUAL PRIVACY NOTICE
Ivy Funds VIP
Waddell & Reed, Inc., the Waddell & Reed Advisors Funds, the Ivy Funds Variable Insurance Portfolios and the InvestEd Portfolios (“Waddell & Reed”) are committed to ensuring their clients have access to a broad range of products and services to help them achieve their personal financial goals. Accurate information lies at the heart of our pledge to provide these products and services, and we strive to protect your personal nonpublic information. In the course of doing business with Waddell & Reed, clients are requested to share financial information and they may be asked to provide other personal details. Clients can be assured that Waddell & Reed is diligent in its efforts to keep such information confidential.
Recognition of a Client’s Expectation of Privacy
At Waddell & Reed, we believe the confidentiality and protection of client information is one of our fundamental responsibilities. And while information is critical to providing quality service, we recognize that one of our most important assets is our clients’ trust. Thus, the safekeeping of client information is a priority for Waddell & Reed.
Information Collected
In order to tailor available financial products to your specific needs, Waddell & Reed may request that you complete a variety of forms that require nonpublic personal information about your financial history and other personal details, including but not limited to, your name, address, social security number, assets, income and investments. Waddell & Reed may also gather information about your transactions with us, our affiliates and others.
Categories of Information that may be Disclosed
While Waddell & Reed may disclose information it collects from applications and other forms, as described above, we at Waddell & Reed also want to assure all of our clients that whenever information is used, it is done with discretion. The safeguarding of client information is an issue we take seriously.
Categories of Parties to whom we disclose nonpublic personal information
Waddell & Reed may disclose nonpublic personal information about you to selectively chosen financial service providers, whom we believe have valuable products or services that could benefit you. Whenever we do this, we carefully review the company and the product or service to make sure that it provides value to our clients. We share the minimum amount of information necessary for that company to offer its product or service. We may also share information with unaffiliated companies that assist us in providing our products and services to our clients; in the normal course of our business (for example, with consumer reporting agencies and government agencies); when legally required or permitted in connection with fraud investigations and litigation; and at the request or with the permission of a client.
In addition, Waddell & Reed, Inc. has entered into a Protocol with a number of other brokerage firms intended to further our clients’ freedom of choice in connection with the movement of their financial advisors to new firms. In the event your account is maintained through Waddell & Reed, Inc. and your financial advisor leaves Waddell & Reed to join a firm that has likewise entered the Protocol, Waddell & Reed may disclose your name, address and telephone number to the departed advisor’s new firm.
Opt Out Right
If you prefer that we not disclose nonpublic personal information about you to nonaffiliated third parties, you may opt out of those disclosures; that is, you may direct us not to make those disclosures (other than disclosures permitted by law). If you wish to opt out of disclosures to nonaffiliated third parties, you may make this request in writing to: Waddell & Reed, Attn: Opt Out Notices, P.O. Box 29220, Shawnee Mission, KS 66201, or you may call 1.888.WADDELL and a Client Services Representative will assist you.
Confidentiality and Security
We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products and services to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. If you decide to close your account(s) or become an inactive client, we will adhere to the privacy policies and practices as described in this notice.
PROXY VOTING INFORMATION
Ivy Funds VIP
Proxy Voting Guidelines
A description of the policies and procedures Ivy Funds Variable Insurance Portfolios uses to determine how to vote proxies relating to portfolio securities is available (i) without charge, upon request, by calling 1.888.WADDELL and (ii) on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
Proxy Voting Records
Information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on Form N-PX through Waddell & Reed’s website at www.waddell.com and on the SEC’s website at www.sec.gov.
SHAREHOLDER MEETING RESULTS
Ivy Funds VIP
On July 2, 2014, a special shareholder meeting (“Meeting”) for Ivy Funds VIP Micro Cap Growth was held at the offices of Waddell & Reed Financial, Inc., 6300 Lamar Avenue, Overland Park, Kansas, 66202. The Meeting was held for the following purpose (and with the following results):
Proposal No. 1: To approve a new investment subadvisory agreement between Wall Street Associates, LLC, the Fund’s subadviser, and Waddell & Reed Investment Management Company (“WRIMCO”), the Fund’s investment manager.
| | | | | | | | | | | | | | | | |
| PORTFOLIO NAME | | FOR | | | AGAINST | | | ABSTAIN | | | TOTAL | |
Ivy Funds VIP Micro Cap Growth | | | 2,126,196 | | | | 156,300 | | | | 182,198 | | | | 2,464,694 | |
Proposal No. 2: To approve the use of a “manager of managers” structure, whereby WRIMCO will be able to hire and replace subadvisers for the fund without shareholder approval.
| | | | | | | | | | | | | | | | |
| PORTFOLIO NAME | | FOR | | | AGAINST | | | ABSTAIN | | | TOTAL | |
Ivy Funds VIP Micro Cap Growth | | | 1,966,751 | | | | 294,963 | | | | 202,980 | | | | 2,464,694 | |
QUARTERLY PORTFOLIO SCHEDULE INFORMATION
Ivy Funds VIP
Portfolio holdings can be found on the Trust’s website at www.waddell.com. Alternatively, a complete schedule of portfolio holdings of each Portfolio for the first and third quarters of each fiscal year is filed with the SEC and can be found on the Trust’s Form N-Q. These holdings may be viewed in the following ways:
| • | | On the SEC’s website at www.sec.gov. |
| • | | For review and copy at the SEC’s Public Reference Room in Washington, DC. Information on the operations of the Public Reference Room may be obtained by calling 1.800.SEC.0330. |
The Ivy Funds Family
Global/International Portfolios
Global Growth1
1(formerly known as International Growth)
International Core Equity
Domestic Equity Portfolios
Core Equity
Dividend Opportunities
Growth
Micro Cap Growth
Mid Cap Growth
Small Cap Growth
Small Cap Value
Value
Fixed Income Portfolios
Bond
Global Bond
High Income
Limited-Term Bond
Money Market Portfolios
Money Market
Specialty
Asset Strategy
Balanced
Energy
Global Natural Resources
Pathfinder Aggressive
Pathfinder Conservative
Pathfinder Moderate
Pathfinder Moderately Aggressive
Pathfinder Moderately Conservative
Pathfinder Moderate - Managed Volatility
Pathfinder Moderately Aggressive - Managed Volatility
Pathfinder Moderately Conservative - Managed Volatility
Real Estate Securities
Science and Technology
The underlying portfolios discussed in this report are only available as investment options in variable annuity and variable life insurance contracts issued by life insurance companies. They are not offered or made available directly to the general public.
This report is submitted for the general information of the shareholders of Ivy Funds Variable Insurance Portfolios. It is not authorized for distribution to prospective investors in a Portfolio unless accompanied with or preceded by the current Portfolio prospectus as well as the variable product prospectus.
ANN-IVYVIP (12-14)
ITEM 2. CODE OF ETHICS
| (a) | As of December 31, 2014, the Registrant has adopted a code of ethics (the Code), as defined in Item 2 of Form N-CSR, that applies to the Principal Executive Officer and Principal Financial Officer or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. |
| (b) | There have been no amendments, during the period covered by this report, to a provision of the Code that applies to the registrant’s Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the Code. |
| (c) | During the period covered by this report, the registrant did not grant any waivers, including an implicit waiver, from a provision of the Code that applies to the registrant’s Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller, or persons performing similar functions, regardless of whether those individuals were employed by the registrant or a third party, that related to one or more of the items set forth in paragraph (b) of this item’s instructions. |
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the Registrant has determined that Albert W. Herman is an audit committee financial expert, as defined in Item 3 of Form N-CSR, serving on its audit committee. Mr. Herman is independent for purposes of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for each of the last two fiscal years are as follows:
| | | | |
2013 | | $ | 325,500 | |
2014 | | | 351,000 | |
The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s annual financial statements and are not reported under paragraph (a) of this Item are as follows:
These fees are related to the review of Form N-1A.
The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning are as follows:
| | | | |
2013 | | $ | 160,706 | |
2014 | | | 191,984 | |
These fees are related to the review of the registrant’s tax returns.
The aggregate fees billed for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this item are as follows:
These fees are related to the review of internal control.
| (e)(1) | Registrant’s audit committee considers with the principal accountants all audit services to be provided by the principal accountants and pre-approves all such audit services. |
| | The audit committee shall pre-approve all non-audit services to be provided by the principal accountants to the registrant; provided that the pre-approval requirement does not apply to non-audit services that (i) were not identified as such at the time of the pre-approval and (ii) do not aggregate more than 5% of total fees paid to the principal accountants by the registrant during the fiscal year in which the services are provided, if the audit committee approves the provision of such non-audit services prior to the completion of the audit. |
| | The audit committee shall pre-approve all non-audit services to be provided by the principal accountants to the investment adviser (not including any subadvisor whose role is primarily portfolio management and is subcontracted and overseen by the investment advisor) or any entity controlling, controlled by, or |
| | under common control with the investment adviser that provides ongoing services to the registrant if the engagement relates directly to the operations or financial reporting of the registrant; provided that the pre-approval requirement does not apply to non-audit services that (i) were not identified as such at the time of the pre-approval and (ii) do not aggregate more than 5% of total fees paid to the principal accountants by the registrant for all services and by the registrant’s investment adviser for non-audit services if the engagement relates directly to the operations or financial reporting of the registrant during the fiscal year in which those services are provided, if the audit committee approves the provision of such non-audit services prior to the completion of the audit. |
| (e)(2) | None of the services described in each of paragraphs (b) through (d) of this Item were approved by the audit committee pursuant to the waiver provisions of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| (g) | $160,706 and $207,555 are the aggregate non-audit fees billed in each of the last two fiscal years for services rendered by the principal accountant to the registrant. $168,700 and $144,310 are the aggregate non-audit fees billed in each of the last two fiscal years for services rendered by the principal accountant to the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. |
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
| (a) | See Item 1 Shareholder Report. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
| (a) | The Registrant’s Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, based on their evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, have concluded that such controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective and adequately designed to ensure that information required to be disclosed by the Registrant in its reports that it files or submits is accumulated and communicated to the Registrant’s management, including the Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. |
| (b) | There were no significant changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
ITEM 12. EXHIBITS.
| (a)(1) | The Code described in Item 2 of this Form N-CSR. |
Attached hereto as Exhibit 99.CODE.
| (a)(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)). |
Attached hereto as Exhibit 99.CERT.
| (b) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)). |
Attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS
(Registrant)
| | |
| By | | /s/ Mara D. Herrington |
| | Mara D. Herrington, Vice President and Secretary |
| |
| Date: | | March 6, 2015 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| By | | /s/ Henry J. Herrmann |
| | Henry J. Herrmann, Principal Executive Officer |
| |
| Date: | | March 6, 2015 |
| |
| By | | /s/ Joseph W. Kauten |
| | Joseph W. Kauten, Principal Financial Officer |
| |
| Date: | | March 6, 2015 |
