Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-09491
Allianz Variable Insurance Products Trust
(Exact name of registrant as specified in charter)
5701 Golden Hills Drive, Minneapolis, MN | 55416-1297 | |
(Address of principal executive offices) | (Zip code) |
Citi Funds Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219-8000
(Name and address of agent for service)
Registrant’s telephone number, including area code: 877-833-7113
Date of fiscal year end: December 31
Date of reporting period: December 31, 2010
Item 1. Reports to Stockholders.
TABLE OF CONTENTS
Table of Contents
AZL® Allianz AGIC Opportunity Fund
(formerly AZL® OCC Opportunity Fund)
Annual Report
December 31, 2010
(formerly AZL® OCC Opportunity Fund)
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 7
Page 7
Statement of Operations
Page 8
Page 8
Statements of Changes in Net Assets
Page 9
Page 9
Financial Highlights
Page 10
Page 10
Notes to the Financial Statements
Page 11
Page 11
Report of Independent Registered Public Accounting Firm
Page 18
Page 18
Other Information
Page 19
Page 19
Approval of Investment Advisory and Subadvisory Agreements
Page 20
Page 20
Information about the Board of Trustees and Officers
Page 24
Page 24
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Allianz AGIC Opportunity Fund (formerly AZL® OCC Opportunity Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Allianz AGIC Opportunity Fund and Allianz Global Investors Capital (“AGIC”) serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Allianz AGIC Opportunity Fund had a return of 18.78%. That compared to a 29.09% total return for its benchmark, the Russell 2000® Growth Index1.
The stock market experienced some volatility during the period in question, due primarily to Europe’s fiscal crisis and ongoing worries about the health of the U.S. economy. However, increased consumer spending and new financial legislation helped boost investor confidence, leading to strong gains across the equity market. Small-cap stocks performed well in this environment.
These conditions helped the Fund produce a strong absolute return. The Fund invests in a diversified range of small-cap stocks with significant growth potential. The Fund aims to recognize and purchase stocks poised to accelerate in value before they have gained broader market recognition.
The Fund’s sector weightings during the period were closely in line with its benchmark. The Fund ended the period with a slight overweight position in the energy and industrials sectors, and a slight underweight in the consumer discretionary sector.*
The Fund’s top performing holding during the period was a mortgage insurance company in the financial sector, which benefited from stabilization in the housing market. In the consumer discretionary sector, the Fund benefited from individual stock selection, including exposure to a firm that runs a chain of fitness centers. The technology sector, particularly one holding in the semiconductor industry, also contributed to the Fund’s relative performance.*
The Fund’s underperformance relative to its benchmark was due to poor stock selection across multiple sectors, particularly in the energy sector. While the sector outperformed the benchmark during the period, the Fund’s investments suffered from a challenging operating environment. For example, several of the Fund’s weakest performers during the period were natural gas exploration and production companies. Natural gas prices remained low over the period under review, particularly in contrast to the price of oil, resulting in lower-than- expected valuation for these equities, despite extremely strong operational execution.
Individual holdings in the consumer discretionary and health care sectors also dragged on relative performance during the period.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Allianz AGIC Opportunity Fund Review
Fund Objective
The Fund’s investment objective is to seek capital appreciation. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 65% of its assets in common stocks of “growth” companies with market capitalizations of less than $2 billion at the time of investment.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Small- to mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
Returns on growth stocks may not move in tandem with returns on other categories of stocks or the market as a whole. Growth stocks may be susceptible to rapid price swings or to adverse developments in certain sectors of the market.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/1/02) | |||||||||||||
AZL® Allianz AGIC Opportunity Fund | 18.78 | % | -0.25 | % | 3.83 | % | 6.96 | % | ||||||||
Russell 2000® Growth Index | 29.09 | % | 2.18 | % | 5.30 | % | 6.08 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Allianz AGIC Opportunity Fund | 1.23 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.35% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the Russell 2000® Growth Index is calculated from 4/30/02. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 2000® Growth Index, an unmanaged index that measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Allianz AGIC Opportunity Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Allianz AGIC Opportunity Fund | $ | 1,000.00 | $ | 1,221.10 | $ | 6.66 | 1.19 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Allianz AGIC Opportunity Fund | $ | 1,000.00 | $ | 1,019.21 | $ | 6.06 | 1.19 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Allianz AGIC Opportunity Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 4.0 | % | ||
Airlines | 2.3 | |||
Auto Components | 0.8 | |||
Biotechnology | 0.9 | |||
Capital Markets | 0.9 | |||
Commercial Services & Supplies | 4.8 | |||
Communications Equipment | 2.4 | |||
Computers & Peripherals | 0.9 | |||
Construction & Engineering | 0.8 | |||
Consumer Finance | 1.2 | |||
Diversified Consumer Services | 2.4 | |||
Diversified Financial Services | 1.5 | |||
Health Care Equipment & Supplies | 7.5 | |||
Health Care Providers & Services | 1.1 | |||
Health Care Technology | 0.8 | |||
Hotels, Restaurants & Leisure | 3.1 | |||
Household Durables | 1.5 | |||
Internet & Catalog Retail | 3.3 | |||
Internet Software & Services | 5.2 | |||
IT Services | 2.4 | |||
Life Sciences Tools & Services | 1.2 | |||
Machinery | 1.6 | |||
Metals & Mining | 4.4 | |||
Oil, Gas & Consumable Fuels | 11.1 | |||
Personal Products | 0.9 | |||
Pharmaceuticals | 4.5 | |||
Professional Services | 2.3 | |||
Road & Rail | 4.3 | |||
Semiconductors & Semiconductor Equipment | 10.3 | |||
Software | 3.0 | |||
Specialty Retail | 0.9 | |||
Textiles, Apparel & Luxury Goods | 2.1 | |||
Thrifts & Mortgage Finance | 2.1 | |||
Trading Companies & Distributors | 1.8 | |||
Transportation Infrastructure | 0.9 | |||
Investment Company | 1.7 | |||
100.9 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (99.2%): | ||||||||
Aerospace & Defense (4.0%): | ||||||||
400,904 | AerCap Holdings NV* | $ | 5,660,764 | |||||
112,450 | Hexcel Corp.* | 2,034,221 | ||||||
7,694,985 | ||||||||
Airlines (2.3%): | ||||||||
29,425 | Allegiant Travel Co. | 1,448,887 | ||||||
51,449 | Copa Holdings SA, Class A | 3,027,259 | ||||||
4,476,146 | ||||||||
Auto Components (0.8%): | ||||||||
92,075 | Stoneridge, Inc.* | 1,453,864 | ||||||
Biotechnology (0.9%): | ||||||||
77,675 | Emergent Biosolutions, Inc.* | 1,822,255 | ||||||
Capital Markets (0.9%): | ||||||||
204,450 | MF Global Holdings, Ltd.* | 1,709,202 | ||||||
Commercial Services & Supplies (4.8%): | ||||||||
73,973 | EnerNOC, Inc.* | 1,768,695 | ||||||
89,175 | Higher One Holdings, Inc.* | 1,804,010 | ||||||
418,529 | Innerworkings, Inc.* | 2,741,365 | ||||||
151,942 | Mobile Mini, Inc.* | 2,991,738 | ||||||
9,305,808 | ||||||||
Communications Equipment (2.4%): | ||||||||
26,216 | Acme Packet, Inc.* | 1,393,642 | ||||||
156,875 | Ciena Corp.* | 3,302,219 | ||||||
4,695,861 | ||||||||
Computers & Peripherals (0.9%): | ||||||||
115,832 | Keyw Holding Corp. (The)* | 1,699,255 | ||||||
Construction & Engineering (0.8%): | ||||||||
49,600 | Chicago Bridge & Iron Co. NV, NYS* | 1,631,840 | ||||||
Consumer Finance (1.2%): | ||||||||
45,172 | World Acceptance Corp.* | 2,385,082 | ||||||
Diversified Consumer Services (2.4%): | ||||||||
122,574 | American Public Education* | 4,564,656 | ||||||
Diversified Financial Services (1.5%): | ||||||||
145,725 | Financial Engines, Inc.* | 2,889,727 | ||||||
Health Care Equipment & Supplies (7.5%): | ||||||||
74,543 | Abaxis, Inc.* | 2,001,480 | ||||||
169,310 | Align Technology, Inc.* | 3,308,317 | ||||||
73,659 | Masimo Corp. | 2,141,267 | ||||||
216,470 | NuVasive, Inc.* | 5,552,456 | ||||||
39,400 | ZOLL Medical Corp.* | 1,466,862 | ||||||
14,470,382 | ||||||||
Health Care Providers & Services (1.1%): | ||||||||
52,195 | IPC The Hospitalist Co.* | 2,036,127 | ||||||
Health Care Technology (0.8%): | ||||||||
20,900 | Quality Systems, Inc. | 1,459,238 | ||||||
Hotels, Restaurants & Leisure (3.1%): | ||||||||
35,095 | Buffalo Wild Wings, Inc.* | 1,538,916 | ||||||
74,362 | Life Time Fitness, Inc.* | 3,048,098 | ||||||
128,050 | Shuffle Master, Inc.* | 1,466,173 | ||||||
6,053,187 | ||||||||
Household Durables (1.5%): | ||||||||
73,104 | Tempur-Pedic International, Inc.* | 2,928,546 | ||||||
Internet & Catalog Retail (3.3%): | ||||||||
126,357 | Constant Contact, Inc.* | 3,915,804 | ||||||
71,675 | Shutterfly, Inc.* | 2,510,775 | ||||||
6,426,579 | ||||||||
Internet Software & Services (5.2%): | ||||||||
67,500 | Ancestry.com, Inc.* | 1,911,600 | ||||||
269,376 | Terremark Worldwide, Inc.* | 3,488,419 | ||||||
102,418 | VistaPrint NV* | 4,711,228 | ||||||
10,111,247 | ||||||||
IT Services (2.4%): | ||||||||
144,924 | CIBER, Inc.* | 678,244 | ||||||
82,475 | iSoftStone Holdings, Ltd., ADR* | 1,498,571 | ||||||
52,732 | Syntel, Inc. | 2,520,062 | ||||||
4,696,877 | ||||||||
Life Sciences Tools & Services (1.2%): | ||||||||
108,602 | PAREXEL International Corp.* | 2,305,620 | ||||||
Machinery (1.6%): | ||||||||
65,375 | Dynamic Materials Corp. | 1,475,514 | ||||||
142,950 | Wabash National Corp.* | 1,693,957 | ||||||
3,169,471 | ||||||||
Metals & Mining (4.4%): | ||||||||
188,500 | Globe Specialty Metals, Inc. | 3,221,465 | ||||||
51,973 | Haynes International, Inc. | 2,174,031 | ||||||
231,079 | Horsehead Holding Corp.* | 3,013,270 | ||||||
8,408,766 | ||||||||
Oil, Gas & Consumable Fuels (11.1%): | ||||||||
247,886 | Comstock Resources, Inc.* | 6,088,080 | ||||||
300,458 | Goodrich Petroleum Corp.* | 5,300,079 | ||||||
344,122 | Petrohawk Energy Corp.* | 6,280,227 | ||||||
260,212 | Quicksilver Resources, Inc.* | 3,835,525 | ||||||
21,503,911 | ||||||||
Personal Products (0.9%): | ||||||||
59,800 | Medifast, Inc.* | 1,727,024 | ||||||
Pharmaceuticals (4.5%): | ||||||||
319,745 | Cardiome Pharma Corp.* | 2,052,763 | ||||||
653,921 | Durect Corp.* | 2,256,027 | ||||||
299,612 | POZEN, Inc.* | 1,992,420 | ||||||
51,950 | Salix Pharmaceuticals, Inc.* | 2,439,572 | ||||||
8,740,782 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Professional Services (2.3%): | ||||||||
51,532 | Corporate Executive Board Co. | $ | 1,935,027 | |||||
137,900 | Resources Connection, Inc. | 2,563,561 | ||||||
4,498,588 | ||||||||
Road & Rail (4.3%): | ||||||||
142,922 | Celadon Group, Inc.* | 2,113,816 | ||||||
135,625 | Knight Transportation, Inc. | 2,576,875 | ||||||
59,050 | Old Dominion Freight Line, Inc.* | 1,889,010 | ||||||
132,057 | Vitran Corp., Inc.* | 1,732,588 | ||||||
8,312,289 | ||||||||
Semiconductors & Semiconductor Equipment (10.3%): | ||||||||
174,614 | Atheros Communications* | 6,272,135 | ||||||
155,486 | Netlogic Microsystems, Inc.* | 4,883,815 | ||||||
33,875 | Power Integrations, Inc. | 1,359,742 | ||||||
141,925 | Rubicon Technology, Inc.* | 2,991,779 | ||||||
311,039 | Teradyne, Inc.* | 4,366,988 | ||||||
19,874,459 | ||||||||
Software (3.0%): | ||||||||
54,383 | Commvault Systems, Inc.* | 1,556,441 | ||||||
71,995 | NetSuite, Inc.* | 1,799,875 | ||||||
116,193 | Rosetta Stone, Inc.* | 2,465,616 | ||||||
5,821,932 | ||||||||
Specialty Retail (0.9%): | ||||||||
81,800 | Cabela’s, Inc., Class A* | 1,779,150 | ||||||
Textiles, Apparel & Luxury Goods (2.1%): | ||||||||
151,125 | Crocs, Inc.* | 2,587,260 | ||||||
74,425 | Iconix Brand Group, Inc.* | 1,437,147 | ||||||
4,024,407 | ||||||||
Thrifts & Mortgage Finance (2.1%): | ||||||||
397,276 | MGIC Investment Corp.* | 4,048,242 | ||||||
Trading Companies & Distributors (1.8%): | ||||||||
72,680 | Titan Machinery, Inc.* | 1,402,724 | ||||||
88,300 | United Rentals, Inc.* | 2,008,825 | ||||||
3,411,549 | ||||||||
Transportation Infrastructure (0.9%): | ||||||||
163,335 | Scorpio Tankers, Inc.* | 1,651,317 | ||||||
Total Common Stocks (Cost $164,048,428) | 191,788,371 | |||||||
Investment Company (1.7%): | ||||||||
3,273,677 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 3,273,677 | ||||||
Total Investment Company (Cost $3,273,677) | 3,273,677 | |||||||
Total Investment Securities (Cost $167,322,105)(b) — 100.9% | 195,062,048 | |||||||
Net other assets (liabilities) — (0.9)% | (1,828,098 | ) | ||||||
Net Assets — 100.0% | $ | 193,233,950 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
ADR—American Depositary Receipt
NYS—New York Shares
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Bermuda | 2 | .4% | |||
Canada | 1 | .9 | |||
Cayman Islands | 0 | .8 | |||
Marshall Islands | 0 | .8 | |||
Netherlands | 3 | .7 | |||
Panama | 1 | .6 | |||
United States | 88 | .8 | |||
100 | .0% | ||||
6
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Allianz | ||||
AGIC | ||||
Opportunity Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 167,322,105 | ||
Investment securities, at value | $ | 195,062,048 | ||
Dividends receivable | 12,431 | |||
Receivable for capital shares issued | 28,199 | |||
Receivable for expenses paid indirectly | 13,461 | |||
Receivable for investments sold | 382,302 | |||
Prepaid expenses | 2,413 | |||
Total Assets | 195,500,854 | |||
Liabilities: | ||||
Payable for investments purchased | 1,935,609 | |||
Payable for capital shares redeemed | 108,729 | |||
Manager fees payable | 137,287 | |||
Administration fees payable | 7,933 | |||
Distribution fees payable | 40,378 | |||
Custodian fees payable | 5,230 | |||
Administrative and compliance services fees payable | 1,731 | |||
Trustee fees payable | 346 | |||
Other accrued liabilities | 29,661 | |||
Total Liabilities | 2,266,904 | |||
Net Assets | $ | 193,233,950 | ||
Net Assets Consist of: | ||||
Capital | $ | 191,089,751 | ||
Accumulated net investment income/(loss) | — | |||
Accumulated net realized gains/(losses) from investment transactions | (25,595,744 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 27,739,943 | |||
Net Assets | $ | 193,233,950 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 14,763,167 | |||
Net Asset Value (offering and redemption price per share) | $ | 13.09 | ||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Allianz | ||||
AGIC | ||||
Opportunity Fund | ||||
Investment Income: | ||||
Dividends | $ | 657,455 | ||
Total Investment Income | 657,455 | |||
Expenses: | ||||
Manager fees | 1,459,838 | |||
Administration fees | 80,193 | |||
Distribution fees | 429,363 | |||
Custodian fees | 23,267 | |||
Administrative and compliance services fees | 6,587 | |||
Trustees’ fees | 13,243 | |||
Professional fees | 20,818 | |||
Shareholder reports | 15,439 | |||
Other expenses | 7,315 | |||
Total expenses before reductions | 2,056,063 | |||
Less expenses paid indirectly | (181,257 | ) | ||
Net expenses | 1,874,806 | |||
Net Investment Income/(Loss) | (1,217,351 | ) | ||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 18,639,479 | |||
Net realized gains/(losses) on futures transactions | 227,288 | |||
Change in unrealized appreciation/(depreciation) on investments | 9,195,995 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 28,062,762 | |||
Change in Net Assets Resulting From Operations | $ | 26,845,411 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Statements of Changes in Net Assets
AZL Allianz | ||||||||
AGIC Opportunity Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | (1,217,351 | ) | $ | (954,751 | ) | ||
Net realized gains/(losses) on investment transactions | 18,866,767 | 7,147,001 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 9,195,995 | 45,896,618 | ||||||
Change in net assets resulting from operations | 26,845,411 | 52,088,868 | ||||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 65,928,023 | 46,988,369 | ||||||
Value of shares redeemed | (50,719,178 | ) | (34,943,833 | ) | ||||
Change in net assets resulting from capital transactions | 15,208,845 | 12,044,536 | ||||||
Change in net assets | 42,054,256 | 64,133,404 | ||||||
Net Assets: | ||||||||
Beginning of period | 151,179,694 | 87,046,290 | ||||||
End of period | $ | 193,233,950 | $ | 151,179,694 | ||||
Accumulated net investment income/(loss) | $ | — | $ | — | ||||
Share Transactions: | ||||||||
Shares issued | 5,461,396 | 5,307,608 | ||||||
Shares redeemed | (4,423,141 | ) | (4,064,986 | ) | ||||
Change in shares | 1,038,255 | 1,242,622 | ||||||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.01 | $ | 6.97 | $ | 14.97 | $ | 15.84 | $ | 14.69 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | (0.08 | ) | (0.07 | ) | (0.04 | ) | (0.07 | ) | (0.14 | ) | ||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.16 | 4.11 | (6.60 | ) | 1.49 | 1.80 | ||||||||||||||
Total from Investment Activities | 2.08 | 4.04 | (6.64 | ) | 1.42 | 1.66 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Realized Gains | — | — | (1.36 | ) | (2.29 | ) | (0.51 | ) | ||||||||||||
Total Dividends | — | — | (1.36 | ) | (2.29 | ) | (0.51 | ) | ||||||||||||
Net Asset Value, End of Period | $ | 13.09 | $ | 11.01 | $ | 6.97 | $ | 14.97 | $ | 15.84 | ||||||||||
Total Return(a) | 18.78 | % | 58.11 | % | (47.15 | )% | 8.89 | % | 11.68 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 193,234 | $ | 151,180 | $ | 87,046 | $ | 195,330 | $ | 158,687 | ||||||||||
Net Investment Income/(Loss) | (0.71 | )% | (0.81 | )% | (0.38 | )% | (0.47 | )% | (0.92 | )% | ||||||||||
Expenses Before Reductions(b) | 1.20 | % | 1.23 | % | 1.25 | % | 1.21 | % | 1.22 | % | ||||||||||
Expenses Net of Reductions | 1.09 | % | 1.08 | % | 1.06 | % | 1.10 | % | 1.20 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.20 | % | 1.23 | % | 1.25 | % | 1.21 | % | 1.22 | % | ||||||||||
Portfolio Turnover Rate | 137.90 | % | 162.87 | % | 202.73 | % | 183.55 | % | 269.47 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Allianz AGIC Opportunity Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
11
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. As of December 31, 2010, the Fund did not hold any futures contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain (Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on | $ | 227,288 | $ | — | |||||
futures transactions/change in unrealized appreciation/(depreciation) on investments |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an affiliated money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective October 23, 2009, as amended July 1, 2010, between the Manager and Allianz Global Investors Capital (“AGIC”), AGIC provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to July 1, 2010, the Fund was subadvised by an AGIC subsidiary Oppenheimer Capital LLC. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.35%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Allianz AGIC Opportunity Fund | 0.85 | % | 1.35 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements, continued
December 31, 2010
wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $4,880 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements, continued
December 31, 2010
remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 191,788,371 | $ | — | $ | — | $ | 191,788,371 | ||||||||
Investment Company | 3,273,677 | — | — | 3,273,677 | ||||||||||||
Total Investment Securities | $ | 195,062,048 | $ | — | $ | — | $ | 195,062,048 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Allianz AGIC Opportunity Fund
AZL Allianz AGIC Opportunity Fund
Notes to the Financial Statements, continued
December 31, 2010
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Allianz AGIC Opportunity Fund | $ | 245,423,130 | $ | 231,666,051 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $174,116,985. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 32,579,865 | ||
Unrealized depreciation | (11,634,802 | ) | ||
Net unrealized appreciation | $ | 20,945,063 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Allianz AGIC Opportunity Fund | $ | 13,745,477 | $ | 4,701,355 |
During the year ended December 31, 2010, the Fund utilized $16,974,646 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $354,032 of deferred post October capital losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||
AZL Allianz AGIC Opportunity Fund | $ | — | $ | (18,800,864 | ) | $ | 20,945,063 | $ | 2,144,199 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
17
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Allianz AGIC Opportunity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
20
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
21
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
22
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
24
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
25
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® BlackRock Capital Appreciation Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 7
Page 7
Statement of Operations
Page 8
Page 8
Statements of Changes in Net Assets
Page 9
Page 9
Financial Highlights
Page 10
Page 10
Notes to the Financial Statements
Page 11
Page 11
Report of Independent Registered Public Accounting Firm
Page 19
Page 19
Other Federal Income Tax Information
Page 20
Page 20
Other Information
Page 21
Page 21
Special Joint Meeting of Shareholders
Page 22
Page 22
Approval of Investment Advisory and Subadvisory Agreements
Page 23
Page 23
Information about the Board of Trustees and Officers
Page 27
Page 27
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® BlackRock Capital Appreciation Fund
Allianz Investment Management LLC serves as the Manager for the AZL® BlackRock Capital Appreciation Fund and BlackRock Capital Management, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010 the AZL® BlackRock Capital Appreciation Fund returned 19.20%. That compared to a 16.71% return for its benchmark, the Russell 1000® Growth Index1.
The U.S. stock market generated positive returns in 2010, despite heightened levels of volatility and concerns about the health of the global economy. During the first half of the year, market conditions remained similar to 2008 and 2009. There was a high correlation among the performance of all stocks in U.S. markets, with fundamental differences between companies playing a relatively small role in the performance of individual stocks. Investors tended to view the stock market as one unit, as evidenced by the many days on which the market as a whole performed very strongly or very poorly.
That environment posed challenges for an actively managed fund, which were reflected in the Fund’s poor performance relative to its benchmark during the first half of the year. Conditions changed after the second quarter, as strong earnings reports and easing of fears of a “double-dip” recession prompted a return to a more traditional focus on fundamentals and strong relative returns for the Fund.
The Fund performed in line with its benchmark, the Russell 1000® Growth Index. The same sectors that drove absolute performance in 2010 were also the sectors in which the Fund maintained consistent overweight positions: consumer discretionary, industrials and materials. These cyclical sectors tend to perform best when the economy is recovering from a recession.*
The Fund’s bottom-up approach to stock selection favored a heavy weighting for consumer discretionary shares. Expectations at the beginning of the year were low for the sector due to high unemployment and other economic pressures, but surprisingly strong consumer spending helped buoy shares. The Fund’s relative performance was particularly helped by a sharp increase in the popularity of watching movies online, which boosted shares of one subscription movie provider.*
In industrials, the Fund continued to hold an overweight position in truck manufacturers based on the conviction that the average age of a truck in the U.S. and European trucking fleets had peaked. Slowing sales of new trucks due to the recession and new emissions standards led the Fund’s manager to conclude that a new truck replacement cycle was due. Two truck manufacturers in the Fund’s portfolio saw significant increases in the number of truck units sold, which helped boost returns relative to the benchmark index.*
The Fund went into the year with heavy positions in companies poised to benefit from a trend toward cloud computing computer2 applications. Shares in these companies showed significant growth through the year. Shares in a California-based firm that provides sales and customer service applications for businesses contributed positively to the Fund’s relative performance.*
The Fund’s relative returns were hurt most significantly by an overweight position in health care stocks. The manager expected certain companies that provide critical medical services and products to be relatively sheltered from recessionary pressures. However, the sector took a discretionary turn due to consumers’ willingness to spread out prescription drug refills, delay medical treatments and find other ways to trim their medical expenses.
Poor timing on the purchase of shares in several financial companies also dragged slightly on the Fund’s returns. The financial sector was impacted by numerous regulatory changes throughout the period, and the Fund did not benefit as much as it could have from the impact of these changes on individual stock prices.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index. | |
2 | Cloud computing is location-independent computing, whereby stored servers provide resources, software, and data to computers and other devices on demand, as with the electricity grid. |
1
Table of Contents
AZL® BlackRock Capital Appreciation Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term growth of capital. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in at least 80% of total assets in common and preferred stock and securities convertible into common and preferred stock.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Small- to mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
Growth based investments can perform differently from the market as a whole and can be more volatile than other types of securities.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (4/29/05) | |||||||||||||
AZL® BlackRock Capital Appreciation Fund | 19.20 | % | 0.90 | % | 2.97 | % | 6.09 | % | ||||||||
Russell 1000® Growth Index | 16.71 | % | -0.47 | % | 3.75 | % | 5.55 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® BlackRock Capital Appreciation Fund | 1.15 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.70% on the first $200 million of assets and 0.65% on assets above $200 million. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 0.70% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 1000® Growth Index, an unmanaged index that measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL BlackRock Capital Appreciation Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending Account | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 1,000.00 | $ | 1,297.00 | $ | 5.79 | 1.00 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL BlackRock Capital Appreciation Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investment | net assets* | |||
Aerospace & Defense | 2.4 | % | ||
Air Freight & Logistics | 2.1 | |||
Airlines | 2.6 | |||
Auto Components | 1.7 | |||
Automobiles | 1.0 | |||
Beverages | 2.4 | |||
Biotechnology | 1.7 | |||
Capital Markets | 0.8 | |||
Chemicals | 1.8 | |||
Communications Equipment | 4.9 | |||
Computers & Peripherals | 7.2 | |||
Construction & Engineering | 0.9 | |||
Diversified Financial Services | 1.3 | |||
Diversified Telecommunication Services | 1.0 | |||
Energy Equipment & Services | 3.3 | |||
Food & Staples Retailing | 1.3 | |||
Health Care Providers & Services | 2.8 | |||
Health Care Technology | 1.2 | |||
Hotels, Restaurants & Leisure | 4.8 | |||
Household Products | 3.1 | |||
Internet & Catalog Retail | 3.5 | |||
Internet Software & Services | 5.3 | |||
IT Services | 1.8 | |||
Life Sciences Tools & Services | 2.6 | |||
Machinery | 7.6 | |||
Media | 1.4 | |||
Metals & Mining | 2.1 | |||
Multiline Retail | 3.1 | |||
Oil, Gas & Consumable Fuels | 4.5 | |||
Pharmaceuticals | 1.1 | |||
Professional Services | 1.3 | |||
Semiconductors & Semiconductor Equipment | 4.4 | |||
Software | 9.9 | |||
Specialty Retail | 1.8 | |||
Wireless Telecommunication Services | 0.7 | |||
Investment Company | 0.8 | |||
100.2 | % | |||
* | Investment are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (99.4%): | ||||||||
Aerospace & Defense (2.4%): | ||||||||
96,600 | Boeing Co. (The) | $ | 6,304,116 | |||||
101,700 | General Dynamics Corp. | 7,216,632 | ||||||
13,520,748 | ||||||||
Air Freight & Logistics (2.1%): | ||||||||
163,200 | United Parcel Service, Inc., Class B | 11,845,056 | ||||||
Airlines (2.6% | ): | |||||||
835,100 | Delta Air Lines, Inc.* | 10,522,260 | ||||||
171,400 | United Continental Holdings, Inc.* | 4,082,748 | ||||||
14,605,008 | ||||||||
Auto Components (1.7%): | ||||||||
159,900 | General Motors Co.* | 5,893,914 | ||||||
91,000 | Johnson Controls, Inc. | 3,476,200 | ||||||
9,370,114 | ||||||||
Automobiles (1.0%): | ||||||||
337,600 | Ford Motor Co.* | 5,668,304 | ||||||
Beverages (2.4%): | ||||||||
203,400 | Coca-Cola Co. (The) | 13,377,618 | ||||||
Biotechnology (1.7%): | ||||||||
60,500 | Alexion Pharmaceuticals, Inc.* | 4,873,275 | ||||||
136,200 | Dendreon Corp.* | 4,756,104 | ||||||
9,629,379 | ||||||||
Capital Markets (0.8%): | ||||||||
172,400 | Jefferies Group, Inc. | 4,591,012 | ||||||
Chemicals (1.8%): | ||||||||
79,500 | Ecolab, Inc. | 4,008,390 | ||||||
87,500 | Monsanto Co. | 6,093,500 | ||||||
10,101,890 | ||||||||
Communications Equipment (4.9%): | ||||||||
45,800 | F5 Networks, Inc.* | 5,961,328 | ||||||
85,500 | Juniper Networks, Inc.* | 3,156,660 | ||||||
377,400 | QUALCOMM, Inc. | 18,677,526 | ||||||
27,795,514 | ||||||||
Computers & Peripherals (7.2%): | ||||||||
100,400 | Apple Computer, Inc.* | 32,385,024 | ||||||
149,000 | NetApp, Inc.* | 8,189,040 | ||||||
40,574,064 | ||||||||
Construction & Engineering (0.9%): | ||||||||
77,300 | Fluor Corp. | 5,121,898 | ||||||
Diversified Financial Services (1.3%): | ||||||||
267,700 | Moody’s Corp. | 7,104,758 | ||||||
Diversified Telecommunication Services (1.0%): | ||||||||
163,600 | Verizon Communications, Inc. | 5,853,608 | ||||||
Energy Equipment & Services (3.3%): | ||||||||
118,900 | Halliburton Co. | 4,854,687 | ||||||
162,500 | Schlumberger, Ltd. | 13,568,750 | ||||||
18,423,437 | ||||||||
Food & Staples Retailing (1.3%): | ||||||||
148,800 | Whole Foods Market, Inc.* | 7,527,792 | ||||||
Health Care Providers & Services (2.8%): | ||||||||
177,600 | Express Scripts, Inc.* | 9,599,280 | ||||||
220,350 | Lincare Holdings, Inc. | 5,911,990 | ||||||
15,511,270 | ||||||||
Health Care Technology (1.2%): | ||||||||
71,900 | Cerner Corp.* | 6,811,806 | ||||||
Hotels, Restaurants & Leisure (4.8%): | ||||||||
150,400 | Ctrip.com International, Ltd., SP ADR* | 6,083,680 | ||||||
181,200 | Las Vegas Sands Corp.* | 8,326,140 | ||||||
220,700 | Starbucks Corp. | 7,091,091 | ||||||
88,600 | Starwood Hotels & Resorts Worldwide, Inc. | 5,385,108 | ||||||
26,886,019 | ||||||||
Household Products (3.1%): | ||||||||
268,000 | Procter & Gamble Co. (The) | 17,240,440 | ||||||
Internet & Catalog Retail (3.5%): | ||||||||
78,000 | Amazon.com, Inc.* | 14,040,000 | ||||||
31,000 | Netflix, Inc.* | 5,446,700 | ||||||
19,486,700 | ||||||||
Internet Software & Services (5.3%): | ||||||||
92,500 | Akamai Technologies, Inc.* | 4,352,125 | ||||||
50,900 | Baidu, Inc., SP ADR* | 4,913,377 | ||||||
34,800 | Google, Inc., Class A* | 20,670,156 | ||||||
29,935,658 | ||||||||
IT Services (1.8%): | ||||||||
59,800 | Accenture plc, Class A | 2,899,702 | ||||||
95,300 | Cognizant Technology Solutions Corp., Class A* | 6,984,537 | ||||||
9,884,239 | ||||||||
Life Sciences Tools & Services (2.6%): | ||||||||
118,000 | Covance, Inc.* | 6,066,380 | ||||||
132,100 | Illumina, Inc.* | 8,367,214 | ||||||
14,433,594 | ||||||||
Machinery (7.6%): | ||||||||
35,200 | Caterpillar, Inc. | 3,296,832 | ||||||
312,100 | Danaher Corp. | 14,721,757 | ||||||
69,100 | Joy Global, Inc. | 5,994,425 | ||||||
201,200 | PACCAR, Inc. | 11,552,904 | ||||||
69,900 | Stanley Black & Decker, Inc. | 4,674,213 | ||||||
86,500 | Terex Corp.* | 2,684,960 | ||||||
42,925,091 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Media (1.4%): | ||||||||
204,100 | Walt Disney Co. (The) | $ | 7,655,791 | |||||
Metals & Mining (2.1%): | ||||||||
32,100 | Agnico-Eagle Mines, Ltd. | 2,462,070 | ||||||
79,900 | Freeport-McMoRan Copper & Gold, Inc. | 9,595,191 | ||||||
12,057,261 | ||||||||
Multiline Retail (3.1%): | ||||||||
132,800 | Kohl’s Corp.* | 7,216,352 | ||||||
168,800 | Target Corp. | 10,149,944 | ||||||
17,366,296 | ||||||||
Oil, Gas & Consumable Fuels (4.5%): | ||||||||
177,500 | Anadarko Petroleum Corp. | 13,518,400 | ||||||
223,100 | Massey Energy Co. | 11,969,315 | ||||||
25,487,715 | ||||||||
Pharmaceuticals (1.1%): | ||||||||
89,800 | Allergan, Inc. | 6,166,566 | ||||||
Professional Services (1.3%): | ||||||||
116,600 | Manpower, Inc. | 7,317,816 | ||||||
Semiconductors & Semiconductor Equipment (4.4%): | ||||||||
149,500 | Broadcom Corp., Class A | 6,510,725 | ||||||
120,700 | Cree, Inc.* | 7,952,923 | ||||||
105,400 | Lam Research Corp.* | 5,457,612 | ||||||
610,400 | Micron Technology, Inc.* | 4,895,408 | ||||||
24,816,668 | ||||||||
Software (9.9%): | ||||||||
230,400 | Check Point Software Technologies, Ltd.* | 10,658,304 | ||||||
377,500 | Microsoft Corp. | 10,539,800 | ||||||
290,300 | Oracle Corp. | 9,086,390 | ||||||
188,400 | Red Hat, Inc.* | 8,600,460 | ||||||
80,800 | Salesforce.com, Inc.* | 10,665,600 | ||||||
70,500 | VMware, Inc., Class A* | 6,268,155 | ||||||
55,818,709 | ||||||||
Specialty Retail (1.8%): | ||||||||
196,000 | Home Depot, Inc. | 6,871,760 | ||||||
90,500 | Urban Outfitters, Inc.* | 3,240,805 | ||||||
10,112,565 | ||||||||
Wireless Telecommunication | ||||||||
Services (0.7% | ): | |||||||
88,700 | NII Holdings, Inc.* | 3,961,342 | ||||||
Total Common Stocks (Cost $412,334,164) | 558,985,746 | |||||||
Investment Company (0.8%): | ||||||||
4,711,783 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 4,711,783 | ||||||
Total Investment Company (Cost $4,711,783) | 4,711,783 | |||||||
Total Investment Securities (Cost $417,045,947)(b) — 100.2% | 563,697,529 | |||||||
Net other assets (liabilities) — (0.2)% | (896,258 | ) | ||||||
Net Assets — 100.0% | $ | 562,801,271 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Canada | 0 | .4% | |||
Cayman Islands | 2 | .0 | |||
Ireland (Republic of) | 0 | .5 | |||
Israel | 1 | .9 | |||
Netherlands | 2 | .4 | |||
United States | 92 | .8 | |||
100 | .0% | ||||
6
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Statement of Assets and Liabilities
December 31, 2010
AZL BlackRock | ||||
Capital | ||||
Appreciation Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 417,045,947 | ||
Investment securities, at value | $ | 563,697,529 | ||
Dividends receivable | 159,813 | |||
Foreign currency, at value (cost $816) | 795 | |||
Receivable for capital shares issued | 73,756 | |||
Receivable for investments sold | 424,097 | |||
Reclaims receivable | 391 | |||
Prepaid expenses | 7,691 | |||
Total Assets | 564,364,072 | |||
Liabilities: | ||||
Payable for investments purchased | 978,337 | |||
Payable for capital shares redeemed | 37,723 | |||
Manager fees payable | 316,136 | |||
Administration fees payable | 20,864 | |||
Distribution fees payable | 118,324 | |||
Custodian fees payable | 4,622 | |||
Administrative and compliance services fees payable | 4,716 | |||
Trustee fees payable | 943 | |||
Other accrued liabilities | 81,136 | |||
Total Liabilities | 1,562,801 | |||
Net Assets | $ | 562,801,271 | ||
Net Assets Consist of: | ||||
Capital | $ | 535,970,469 | ||
Accumulated net investment income/(loss) | — | |||
Accumulated net realized gains/(losses) from investment transactions | (119,820,756 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 146,651,558 | |||
Net Assets | $ | 562,801,271 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 40,692,641 | |||
Net Asset Value (offering and redemption price per share) | $ | 13.83 | ||
See accompanying notes to the financial statements.
7
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL BlackRock | ||||
Capital | ||||
Appreciation Fund | ||||
Investment Income: | ||||
Dividends | $ | 4,579,998 | ||
Foreign withholding tax | (907 | ) | ||
Total Investment Income | 4,579,091 | |||
Expenses: | ||||
Manager fees | 3,894,849 | |||
Administration fees | 214,694 | |||
Distribution fees | 1,217,138 | |||
Custodian fees | 20,888 | |||
Administrative and compliance services fees | 18,229 | |||
Trustees’ fees | 36,763 | |||
Professional fees | 55,220 | |||
Shareholder reports | 42,247 | |||
Other expenses | 17,160 | |||
Total expenses before reductions | 5,517,188 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (630,284 | ) | ||
Less expenses paid indirectly | (11 | ) | ||
Net expenses | 4,886,893 | |||
Net Investment Income/(Loss) | (307,802 | ) | ||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 47,984,490 | |||
Change in unrealized appreciation/(depreciation) on investments | 42,107,784 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 90,092,274 | |||
Change in Net Assets Resulting From Operations | $ | 89,784,472 | ||
See accompanying notes to the financial statements.
8
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Statements of Changes in Net Assets
AZL BlackRock Capital Appreciation Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | (307,802 | ) | $ | 240,595 | |||
Net realized gains/(losses) on investment transactions | 47,984,490 | 21,506,910 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 42,107,784 | 50,549,583 | ||||||
Change in net assets resulting from operations | 89,784,472 | 72,297,088 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (235,335 | ) | (8,995 | ) | ||||
From net realized gains on investments | (4,787,118 | ) | — | |||||
From return of capital | (35 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (5,022,488 | ) | (8,995 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 86,852,940 | 120,602,024 | ||||||
Proceeds from shares issued in merger | 6,489,469 | 232,007,838 | ||||||
Proceeds from dividends reinvested | 5,022,488 | 8,995 | ||||||
Value of shares redeemed | (110,255,726 | ) | (34,321,273 | ) | ||||
Change in net assets resulting from capital transactions | (11,890,829 | ) | 318,297,584 | |||||
Change in net assets | 72,871,155 | 390,585,677 | ||||||
Net Assets: | ||||||||
Beginning of period | 489,930,116 | 99,344,439 | ||||||
End of period | $ | 562,801,271 | $ | 489,930,116 | ||||
Accumulated net investment income/(loss) | $ | — | $ | 235,348 | ||||
Share Transactions: | ||||||||
Shares issued | 7,098,066 | 12,969,364 | ||||||
Shares issued in merger | 513,942 | 20,627,523 | ||||||
Dividends reinvested | 427,810 | 827 | ||||||
Shares redeemed | (9,131,292 | ) | (3,288,306 | ) | ||||
Change in shares | (1,091,474 | ) | 30,309,408 | |||||
See accompanying notes to the financial statements
9
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.73 | $ | 8.66 | $ | 13.61 | $ | 12.27 | $ | 12.08 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | ) | 0.01 | 0.01 | (0.01 | ) | (0.02 | ) | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.24 | 3.06 | (4.96 | ) | 1.35 | 0.21 | ||||||||||||||
Total from Investment Activities | 2.23 | 3.07 | (4.95 | ) | 1.34 | 0.19 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.01 | ) | — | (a) | — | — | — | |||||||||||||
Net Realized Gains | (0.12 | ) | — | — | — | — | ||||||||||||||
Return of Capital | — | (a) | — | — | — | — | ||||||||||||||
Total Dividends | (0.13 | ) | — | (a) | — | — | — | |||||||||||||
Net Asset Value, End of Period | $ | 13.83 | $ | 11.73 | $ | 8.66 | $ | 13.61 | $ | 12.27 | ||||||||||
Total Return(b) | 19.20 | % | 35.46 | % | (36.37 | )% | 10.92 | % | 1.57 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 562,801 | $ | 489,930 | $ | 99,344 | $ | 62,264 | $ | 49,384 | ||||||||||
Net Investment Income/(Loss) | (0.06 | )% | 0.11 | % | 0.08 | % | (0.11 | )% | (0.22 | )% | ||||||||||
Expenses Before Reductions(c) | 1.13 | % | 1.15 | % | 1.20 | % | 1.18 | % | 1.19 | % | ||||||||||
Expenses Net of Reductions | 1.00 | % | 1.07 | % | 1.16 | % | 1.16 | % | 1.18 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.00 | % | 1.07 | % | 1.19 | % | 1.18 | % | 1.19 | % | ||||||||||
Portfolio Turnover Rate | 80.01 | %(e) | 80.26 | %(f) | 175.17 | % | 75.74 | % | 88.02 | % |
(a) | Represents less than $0.005. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(d) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. | |
(e) | Cost of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 81.37%. | |
(f) | Cost of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 102.12%. |
See accompanying notes to financial statements.
10
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL BlackRock Capital Appreciation Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
11
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and BlackRock Capital Management, Inc. (“BlackRock Capital”), BlackRock Capital provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL BlackRock Capital Appreciation Fund | 0.80 | % | 1.20 | % |
* | The Manager voluntarily reduced the management fee to 0.70% on the first $200 million of assets and 0.65% on assets above $200 million. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 0.70% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $15,587 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized Level 2 in the fair valve hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 558,985,746 | $ | — | $ | — | $ | 558,985,746 | ||||||||
Investment Company | 4,711,783 | — | — | 4,711,783 | ||||||||||||
Total Investment Securities | $ | 563,697,529 | $ | — | $ | — | $ | 563,697,529 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL BlackRock Capital Appreciation Fund | $ | 382,104,238* | $ | 406,392,729 |
* | Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from these amounts. The cost of purchases excluded are $6,489,909. |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $419,985,780. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 149,146,962 | ||
Unrealized depreciation | (5,435,213 | ) | ||
Net unrealized appreciation | $ | 143,711,749 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
Expires | Expires | |||||||
12/31/2015 | 12/31/2016 | |||||||
AZL BlackRock Capital Appreciation Fund | $ | 52,607,994 | $ | 64,272,929 |
During the year ended December 31, 2010, the Fund utilized $44,935,094 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||||||||||
Ordinary | Long-Term | Total Taxable | Return of | Total | ||||||||||||||||
Income | Capital Gains | Distributions | Capital | Distributions(a) | ||||||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 968,338 | $ | 4,054,115 | $ | 5,022,453 | $ | 35 | $ | 5,022,488 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 8,995 | $ | — | $ | 8,995 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||
Accumulated | Accumulated | |||||||||||
Capital and | Unrealized | Earnings | ||||||||||
Other Losses | Appreciation(a) | (Deficit) | ||||||||||
AZL BlackRock Capital Appreciation Fund | $ | (116,880,923 | ) | $ | 143,711,725 | $ | 26,830,802 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
7. Acquisition of Funds
On October 15, 2010, the Fund acquired all of the net assets of the AZL Allianz AGIC Growth Fund, an open-end investment company, pursuant to a plan of reorganization approved by AZL Allianz AGIC Growth Fund shareholders on October 13, 2010. The purpose of the transaction was to combine two funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 513,942 shares of the Fund, valued at $6,489,469, for 613,239 shares of the AZL Allianz AGIC Growth Fund outstanding on October 15, 2010.
The investment portfolio of the AZL Allianz AGIC Growth Fund, with a fair value of $6,496,014 and identified cost of $6,496,014 at October 15, 2010, was the principal asset acquired by the Fund. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the AZL Allianz AGIC Growth Fund was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the net assets of the Fund were $503,465,867. All fees and expenses
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL BlackRock Capital Appreciation Fund
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements, continued
December 31, 2010
incurred by the AZL Allianz AGIC Growth Fund and the Fund directly in connection with the plan of reorganization were borne by the Manager.
Assuming the acquisition had been completed on January 1, 2010, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the year ended December 31, 2010, are as follows:
Net investment income/(loss) | $ | (262,251 | ) | |
Net realized/unrealized gains/(losses) | $ | 89,994,948 | ||
Change in net assets resulting from operations | $ | 89,732,697 | ||
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the AZL Allianz AGIC Growth Fund that have been included in the Fund’s statement of operations since October 15, 2010.
On October 23, 2009, the Fund acquired all of the net assets of the AZL BlackRock Growth Fund and AZL Columbia Technology Fund (the “Acquired Funds”), open-end investment companies, pursuant to a plan of reorganization approved by the Acquired Funds shareholders on October 21, 2009. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 20,627,523 shares of the Fund, valued at $232,007,838, for 23,744,269 shares of the AZL BlackRock Growth Fund and 11,800,476 shares of the AZL Columbia Technology Fund outstanding on October 23, 2009.
18
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL BlackRock Capital Appreciation Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
During the year ended December 31, 2010, the Fund declared net long-term capital gain distributions of $4,054,115.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $732,990.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Special Joint Meeting of the Shareholders (Unaudited)
On October 13, 2010, there was a special joint meeting of shareholders of the AZL Allianz AGIC Growth Fund.
To approve an Agreement and Plan of Reorganization (the “Plan”) between the AZL Allianz AGIC Growth Fund, which is a series of the Allianz Variable Insurance Products Trust (the “VIP Trust”), and the AZL BlackRock Capital Appreciation Fund (the “Acquiring Fund”), which is another series of the VIP Trust.
Under the Plan, the Acquiring Fund would acquire all of the assets and assume all of the liabilities of each Acquired Fund in exchange for shares of the Acquiring Fund, which would be distributed proportionately to the shareholders of the Acquired Funds in complete liquidation of the Acquired Fund, and the assumption of the Acquired Fund’s liabilities. Each Plan was voted upon by the shareholders of the respective Acquired Fund voting separately.
The number of shares voted is as follows:
% of Outstanding | % of Outstanding | % of Outstanding | ||||||||||||||||||||
For | Against | Abstain | For | Against | Abstain | |||||||||||||||||
590,989.534 | 0.352 | 77,365.564 | 88.424 | % | 0.000 | % | 11.576 | % |
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory Agreement (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
23
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
24
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
25
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
27
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
28
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Columbia Mid Cap Value Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 19
Page 19
Other Federal Income Tax Information
Page 20
Page 20
Other Information
Page 21
Page 21
Approval of Investment Advisory and Subadvisory Agreements
Page 22
Page 22
Information about the Board of Trustees and Officers
Page 26
Page 26
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Columbia Mid Cap Value Fund
Allianz Investment Management LLC serves as the Manager for the AZL ®Columbia Mid Cap Value Fund and Columbia Management Investment Advisers, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance for the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Columbia Mid Cap Value Fund returned 22.66%1. That compared to a return of 24.75% for its benchmark, the Russell Midcap® Value Index2.
The stock market performed well during the period in question. There were concerns of a “double-dip” recession in August due to continued unemployment in the U.S. and fiscal troubles in Europe. However, investor confidence rebounded late in the period thanks to the election of fiscal conservatives in the mid-term elections and improving economic data over the last quarter of the year. Mid-cap stocks performed well in that environment, outpacing large-cap stocks during the 12-month period and boosting the Fund’s absolute performance.
Relative to its benchmark, the Fund’s performance was boosted by an overweight allocation within the consumer discretionary sector. The Fund also benefited from stock selection in this sector, with a focus on select retail brands and auto parts. These holdings grew in value as consumer spending and leisure travel increased. The Fund also benefited from an overweight position relative to its benchmark in the materials sector, as well as strong stock selection within the technology sector.*
The Fund’s relative returns were hurt most by individual holdings in the energy sector during the period. The Gulf of Mexico oil spill and a West Virginia mining accident contributed to a decline in consumer confidence in such stocks during the period. Certain holdings in the consumer staples and industrial sectors also dampened the Fund’s relative performance.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Columbia Mid Cap Value Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term growth of capital. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of net assets in equity securities of companies that have market capitalizations in the range of the companies in the Russell Midcap® Value Index.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility than larger companies.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||
1 | 3 | Inception | ||||||||||
Year | Year | (5/1/06) | ||||||||||
AZL® Columbia Mid Cap Value Fund | 22.66 | % | -8.09 | % | -4.15 | % | ||||||
Russell Midcap® Value Index | 24.75 | % | 1.01 | % | 2.59 | % | ||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio2 | Gross | |||
AZL® Columbia Mid Cap Value Fund | 1.15 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.30% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the Russell Midcap® Value Index is calculated from 4/30/06. | |
2 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fund Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and Expenses the Fund’s gross ratio would be 1.13%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell Midcap® Value Index, an unmanaged index that measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Columbia Mid Cap Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Columbia Mid Cap Value Fund | $ | 1,000.00 | $ | 1,279.10 | $ | 6.26 | 1.09 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Columbia Mid Cap Value Fund | $ | 1,000.00 | $ | 1,019.71 | $ | 5.55 | 1.09 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Columbia Mid Cap Value Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investment | net assets* | |||
Aerospace & Defense | 1.8 | % | ||
Airlines | 0.5 | |||
Auto Components | 1.8 | |||
Automobiles | 0.8 | |||
Beverages | 0.7 | |||
Capital Markets | 2.2 | |||
Chemicals | 4.1 | |||
Commercial Banks | 6.1 | |||
Communications Equipment | 0.5 | |||
Computers & Peripherals | 1.0 | |||
Construction & Engineering | 1.0 | |||
Consumer Finance | 1.7 | |||
Containers & Packaging | 1.2 | |||
Diversified Financial Services | 1.2 | |||
Diversified Telecommunication Services | 0.8 | |||
Electric Utilities | 1.8 | |||
Electrical Equipment | 1.1 | |||
Electronic Equipment, Instruments & Components | 2.6 | |||
Energy Equipment & Services | 4.3 | |||
Food Products | 1.4 | |||
Gas Utilities | 0.6 | |||
Health Care Equipment & Supplies | 2.1 | |||
Health Care Providers & Services | 0.5 | |||
Hotels, Restaurants & Leisure | 3.2 | |||
Household Durables | 0.8 | |||
Household Products | 1.3 | |||
Independent Power Producers & Energy Traders | 0.5 | |||
Insurance | 6.0 | |||
Internet & Catalog Retail | 0.5 | |||
Leisure Equipment & Products | 1.3 | |||
Life Sciences Tools & Services | 0.5 | |||
Machinery | 5.7 | |||
Media | 1.6 | |||
Metals & Mining | 0.8 | |||
Multi-Utilities | 6.8 | |||
Oil, Gas & Consumable Fuels | 8.0 | |||
Paper & Forest Products | 0.7 | |||
Personal Products | 1.5 | |||
Pharmaceuticals | 0.5 | |||
Professional Services | 1.0 | |||
Real Estate Investment Trusts (REITs) | 7.2 | |||
Real Estate Management & Development | 0.7 | |||
Road & Rail | 2.1 | |||
Semiconductors & Semiconductor Equipment | 1.7 | |||
Software | 1.4 | |||
Specialty Retail | 1.7 | |||
Textiles, Apparel & Luxury Goods | 0.5 | |||
Thrifts & Mortgage Finance | 0.9 | |||
Investment Company | 3.2 | |||
99.9 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
Schedule of Portfolio Investments
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Convertible Preferred Stocks (0.3%): | ||||||||
Diversified Financial Services (0.3%): | ||||||||
2,200 | Fifth Third Bancorp, Series G | $ | 326,898 | |||||
Total Convertible Preferred Stocks (Cost $309,038) | 326,898 | |||||||
Common Stocks (96.4%): | ||||||||
Aerospace & Defense (1.8%): | ||||||||
89,179 | AerCap Holdings NV* | 1,259,208 | ||||||
8,800 | L-3 Communications Holdings, Inc. | 620,312 | ||||||
26,200 | Spirit AeroSystems Holdings, Inc., Class A* | 545,222 | ||||||
2,424,742 | ||||||||
Airlines (0.5%): | ||||||||
47,600 | Delta Air Lines, Inc.* | 599,760 | ||||||
Auto Components (1.8%): | ||||||||
18,100 | BorgWarner, Inc.* | 1,309,716 | ||||||
26,100 | Tenneco, Inc.* | 1,074,276 | ||||||
2,383,992 | ||||||||
Automobiles (0.8%): | ||||||||
29,300 | Harley-Davidson, Inc. | 1,015,831 | ||||||
Beverages (0.7%): | ||||||||
17,800 | Molson Coors Brewing Co. | 893,382 | ||||||
Capital Markets (2.2%): | ||||||||
42,400 | Raymond James Financial, Inc. | 1,386,480 | ||||||
83,000 | TD AMERITRADE Holding Corp. | 1,576,170 | ||||||
2,962,650 | ||||||||
Chemicals (4.1%): | ||||||||
20,800 | Albemarle Corp. | 1,160,224 | ||||||
28,700 | Celanese Corp., Series A | 1,181,579 | ||||||
13,000 | International Flavor & Fragrances, Inc. | 722,670 | ||||||
11,200 | LyondellBasell Industries NV, Class A* | 385,280 | ||||||
24,600 | PPG Industries, Inc. | 2,068,122 | ||||||
5,517,875 | ||||||||
Commercial Banks (6.1%): | ||||||||
21,235 | City National Corp. | �� | 1,302,980 | |||||
24,600 | Comerica, Inc. | 1,039,104 | ||||||
22,000 | Cullen/Frost Bankers, Inc. | 1,344,640 | ||||||
90,200 | Fifth Third Bancorp | 1,324,136 | ||||||
147,903 | Huntington Bancshares, Inc. | 1,016,094 | ||||||
20,251 | SVB Financial Group* | 1,074,315 | ||||||
43,200 | Zions Bancorp | 1,046,736 | ||||||
8,148,005 | ||||||||
Communications Equipment (0.5%): | ||||||||
113,500 | Brocade Communications Systems, Inc.* | 600,415 | ||||||
Computers & Peripherals (1.0%): | ||||||||
42,000 | Diebold, Inc. | 1,346,100 | ||||||
Construction & Engineering (1.0%): | ||||||||
39,400 | Foster Wheeler AG* | 1,360,088 | ||||||
Consumer Finance (1.7%): | ||||||||
123,068 | Discover Financial Services | 2,280,450 | ||||||
Containers & Packaging (1.2%): | ||||||||
63,900 | Packaging Corp. of America | 1,651,176 | ||||||
Diversified Financial Services (0.9%): | ||||||||
25,900 | CIT Group, Inc.* | 1,219,890 | ||||||
Diversified Telecommunication Services (0.8%): | ||||||||
146,500 | Qwest Communications International, Inc. | 1,114,865 | ||||||
Electric Utilities (1.8%): | ||||||||
40,200 | American Electric Power Co., Inc. | 1,446,396 | ||||||
30,600 | Northeast Utilities | 975,528 | ||||||
2,421,924 | ||||||||
Electrical Equipment (1.1%): | ||||||||
24,000 | Cooper Industries plc | 1,398,960 | ||||||
Electronic Equipment, Instruments & Components (2.6%): | ||||||||
26,900 | Agilent Technologies, Inc.* | 1,114,467 | ||||||
34,000 | Arrow Electronics, Inc.* | 1,164,500 | ||||||
53,800 | Molex, Inc. | 1,222,336 | ||||||
3,501,303 | ||||||||
Energy Equipment & Services (4.3%): | ||||||||
21,700 | Cameron International Corp.* | 1,100,841 | ||||||
29,600 | Dresser-Rand Group, Inc.* | 1,260,664 | ||||||
29,300 | Noble Corp. | 1,048,061 | ||||||
29,300 | Pride International, Inc.* | 966,900 | ||||||
59,300 | Weatherford International, Ltd.* | 1,352,040 | ||||||
5,728,506 | ||||||||
Food Products (1.4%): | ||||||||
39,600 | Dean Foods Co.* | 350,064 | ||||||
22,006 | J.M. Smucker Co. (The) | 1,444,694 | ||||||
1,794,758 | ||||||||
Gas Utilities (0.6%): | ||||||||
22,200 | QEP Resources, Inc. | 806,082 | ||||||
Health Care Equipment & Supplies (2.1%): | ||||||||
12,500 | Cooper Companies, Inc. | 704,250 | ||||||
21,900 | Teleflex, Inc. | 1,178,439 | ||||||
17,900 | Zimmer Holdings, Inc.* | 960,872 | ||||||
2,843,561 | ||||||||
Health Care Providers & Services (0.5%): | ||||||||
18,600 | Community Health Systems, Inc.* | 695,082 | ||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
Schedule of Portfolio Investments, continued
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure (3.2%): | ||||||||
15,400 | Bally Technologies, Inc.* | $ | 649,726 | |||||
8,800 | Darden Restaurants, Inc. | 408,672 | ||||||
48,563 | International Game Technology | 859,079 | ||||||
27,800 | Royal Caribbean Cruises, Ltd.* | 1,306,600 | ||||||
17,900 | Starwood Hotels & Resorts Worldwide, Inc. | 1,087,962 | ||||||
4,312,039 | ||||||||
Household Durables (0.8%): | ||||||||
91,700 | D. R. Horton, Inc. | 1,093,981 | ||||||
Household Products (1.3%): | ||||||||
16,500 | Clorox Co. (The) | 1,044,120 | ||||||
10,000 | Energizer Holdings, Inc.* | 729,000 | ||||||
1,773,120 | ||||||||
Independent Power Producers & Energy Traders (0.5%): | ||||||||
54,269 | AES Corp. (The)* | 660,996 | ||||||
Insurance (6.0%): | ||||||||
21,700 | ACE, Ltd. | 1,350,825 | ||||||
40,300 | Assured Guaranty, Ltd. | 713,310 | ||||||
29,900 | Axis Capital Holdings, Ltd. | 1,072,812 | ||||||
74,105 | Lincoln National Corp. | 2,060,860 | ||||||
31,900 | Reinsurance Group of America, Inc. | 1,713,349 | ||||||
51,435 | XL Group plc | 1,122,312 | ||||||
8,033,468 | ||||||||
Internet & Catalog Retail (0.5%): | ||||||||
42,300 | Liberty Media Corp. — Capital, Series A* | 667,071 | ||||||
Leisure Equipment & Products (1.3%): | ||||||||
19,900 | Hasbro, Inc. | 938,882 | ||||||
29,800 | Mattel, Inc. | 757,814 | ||||||
1,696,696 | ||||||||
Life Sciences Tools & Services (0.5%): | ||||||||
4,500 | Mettler-Toledo International, Inc.* | 680,445 | ||||||
Machinery (5.7%): | ||||||||
11,100 | AGCO Corp.* | 562,326 | ||||||
19,200 | Crane Co. | 788,544 | ||||||
33,500 | Ingersoll-Rand plc | 1,577,515 | ||||||
18,300 | Kennametal, Inc. | 722,118 | ||||||
11,100 | Navistar International Corp.* | 642,801 | ||||||
23,700 | Parker Hannifin Corp. | 2,045,310 | ||||||
17,800 | Stanley Black & Decker, Inc. | 1,190,286 | ||||||
7,528,900 | ||||||||
Media (1.6%): | ||||||||
62,300 | CBS Corp. | 1,186,815 | ||||||
48,800 | DISH Network Corp., Class A* | 959,408 | ||||||
2,146,223 | ||||||||
Metals & Mining (0.8%): | ||||||||
18,100 | United States Steel Corp. | 1,057,402 | ||||||
Multi-Utilities (6.8%): | ||||||||
42,200 | CMS Energy Corp. | 784,920 | ||||||
24,800 | PG&E Corp. | 1,186,432 | ||||||
34,300 | Public Service Enterprise Group, Inc. | 1,091,083 | ||||||
42,200 | Sempra Energy | 2,214,656 | ||||||
33,500 | Wisconsin Energy Corp. | 1,971,810 | ||||||
76,000 | Xcel Energy, Inc. | 1,789,800 | ||||||
9,038,701 | ||||||||
Oil, Gas & Consumable Fuels (8.0%): | ||||||||
40,200 | Cabot Oil & Gas Corp. | 1,521,570 | ||||||
21,900 | Ensco plc, SP ADR | 1,169,022 | ||||||
26,500 | Frontier Oil Corp.* | 477,265 | ||||||
22,500 | Murphy Oil Corp. | 1,677,375 | ||||||
15,000 | Newfield Exploration Co.* | 1,081,650 | ||||||
33,251 | Peabody Energy Corp. | 2,127,399 | ||||||
92,000 | Spectra Energy Corp. | 2,299,080 | ||||||
19,000 | Tesoro Corp.* | 352,260 | ||||||
10,705,621 | ||||||||
Paper & Forest Products (0.7%): | ||||||||
52,085 | Weyerhaeuser Co. | 985,969 | ||||||
Personal Products (1.5%): | ||||||||
44,000 | Avon Products, Inc. | 1,278,640 | ||||||
8,800 | Estee Lauder Co., Inc. (The), Class A | 710,160 | ||||||
1,988,800 | ||||||||
Pharmaceuticals (0.5%): | ||||||||
12,600 | Watson Pharmaceuticals, Inc.* | 650,790 | ||||||
Professional Services (1.0%): | ||||||||
21,700 | Manpower, Inc. | 1,361,892 | ||||||
Real Estate Investment Trusts (REITs) (7.2%): | ||||||||
13,800 | Alexandria Real Estate Equities, Inc. | 1,010,988 | ||||||
16,300 | Boston Properties, Inc. | 1,403,430 | ||||||
36,400 | Equity Residential Property Trust | 1,890,980 | ||||||
20,490 | General Growth Properties, Inc. | 317,185 | ||||||
78,323 | Host Hotels & Resorts, Inc. | 1,399,632 | ||||||
65,300 | ProLogis Trust | 942,932 | ||||||
27,800 | Rayonier, Inc. | 1,460,056 | ||||||
23,300 | Taubman Centers, Inc. | 1,176,184 | ||||||
9,601,387 | ||||||||
Real Estate Management & Development (0.7%): | ||||||||
45,700 | CB Richard Ellis Group, Inc., Class A* | 935,936 | ||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
Schedule of Portfolio Investments, continued
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail (2.1%): | ||||||||
10,000 | Canadian Pacific Railway, Ltd. | $ | 648,100 | |||||
21,772 | Con-way, Inc. | 796,202 | ||||||
94,500 | Hertz Global Holdings, Inc.* | 1,369,305 | ||||||
2,813,607 | ||||||||
Semiconductors & Semiconductor Equipment (1.7%): | ||||||||
79,900 | Advanced Micro Devices, Inc.* | 653,582 | ||||||
47,100 | Atmel Corp.* | 580,272 | ||||||
23,800 | Avago Technologies, Ltd. | 677,586 | ||||||
8,700 | Varian Semiconductor Equipment Associates, Inc.* | 321,639 | ||||||
2,233,079 | ||||||||
Software (1.4%): | ||||||||
28,200 | Autodesk, Inc.* | 1,077,240 | ||||||
45,400 | Nuance Communications, Inc.* | 825,372 | ||||||
1,902,612 | ||||||||
Specialty Retail (1.7%): | ||||||||
64,900 | Foot Locker, Inc. | 1,273,338 | ||||||
31,600 | Limited Brands, Inc. | 971,068 | ||||||
2,244,406 | ||||||||
Textiles, Apparel & Luxury Goods (0.5%): | ||||||||
23,900 | Hanesbrands, Inc.* | 607,060 | ||||||
Thrifts & Mortgage Finance (0.9%): | ||||||||
38,619 | MGIC Investment Corp.* | 393,528 | ||||||
54,000 | People’s United Financial, Inc. | 756,540 | ||||||
1,150,068 | ||||||||
Total Common Stocks (Cost $99,757,549) | 128,579,666 | |||||||
Investment Company (3.2%): | ||||||||
4,299,958 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 4,299,958 | ||||||
Total Investment Company (Cost $4,299,958) | 4,299,958 | |||||||
Total Investment Securities (Cost $104,366,545)(b) — 99.9% | 133,206,522 | |||||||
Net other assets (liabilities) — 0.1% | 133,233 | |||||||
Net Assets — 100.0% | $ | 133,339,755 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Bermuda | 2 | .4% | |||
Canada | 0 | .5 | |||
Ireland (Republic of) | 3 | .1 | |||
Liberia | 1 | .0 | |||
Netherlands | 1 | .2 | |||
Singapore | 0 | .5 | |||
Switzerland | 2 | .8 | |||
United Kingdom | 0 | .9 | |||
United States | 87 | .6 | |||
100 | .0% | ||||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Columbia | ||||
Mid Cap | ||||
Value Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 104,366,545 | ||
Investment securities, at value | $ | 133,206,522 | ||
Dividends receivable | 152,522 | |||
Receivable for capital shares issued | 119,424 | |||
Receivable for expenses paid indirectly | 5,920 | |||
Reclaims receivable | 1,029 | |||
Prepaid expenses | 1,599 | |||
Total Assets | 133,487,016 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 10,192 | |||
Manager fees payable | 81,779 | |||
Administration fees payable | 5,592 | |||
Distribution fees payable | 27,260 | |||
Custodian fees payable | 2,628 | |||
Administrative and compliance services fees payable | 1,087 | |||
Trustee fees payable | 217 | |||
Other accrued liabilities | 18,506 | |||
Total Liabilities | 147,261 | |||
Net Assets | $ | 133,339,755 | ||
Net Assets Consist of: | ||||
Capital | $ | 137,618,972 | ||
Accumulated net investment income/(loss) | 1,209,916 | |||
Accumulated net realized gains/(losses) from investment transactions | (34,329,123 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 28,839,990 | |||
Net Assets | $ | 133,339,755 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 16,621,229 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.02 | ||
See accompanying notes to the financial statements.
8
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Columbia | ||||
Mid Cap | ||||
Value Fund | ||||
Investment Income: | ||||
Interest | $ | 2,528 | ||
Dividends | 2,339,254 | |||
Foreign withholding tax | (777 | ) | ||
Total Investment Income | 2,341,005 | |||
Expenses: | ||||
Manager fees | 811,698 | |||
Administration fees | 53,558 | |||
Distribution fees | 270,566 | |||
Custodian fees | 12,559 | |||
Administrative and compliance services fees | 4,185 | |||
Trustees’ fees | 8,479 | |||
Professional fees | 12,287 | |||
Shareholder reports | 9,787 | |||
Other expenses | 4,446 | |||
Total expenses before reductions | 1,187,565 | |||
Less expenses paid indirectly | (63,428 | ) | ||
Net expenses | 1,124,137 | |||
Net Investment Income/(Loss) | 1,216,868 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 15,847,470 | |||
Change in unrealized appreciation/(depreciation) on investments | 5,565,527 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 21,412,997 | |||
Change in Net Assets Resulting From Operations | $ | 22,629,865 | ||
See accompanying notes to the financial statements.
9
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Statements of Changes in Net Assets
AZL Columbia Mid Cap Value Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 1,216,868 | $ | 679,453 | ||||
Net realized gains/(losses) on investment transactions | 15,847,470 | 1,931,509 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 5,565,527 | 19,608,588 | ||||||
Change in net assets resulting from operations | 22,629,865 | 22,219,550 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (679,585 | ) | (589,892 | ) | ||||
Change in net assets resulting from dividends to shareholders | (679,585 | ) | (589,892 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 50,635,019 | 43,893,491 | ||||||
Proceeds from dividends reinvested | 679,585 | 589,892 | ||||||
Value of shares redeemed | (40,832,757 | ) | (17,518,006 | ) | ||||
Change in net assets resulting from capital transactions | 10,481,847 | 26,965,377 | ||||||
Change in net assets | 32,432,127 | 48,595,035 | ||||||
Net Assets: | ||||||||
Beginning of period | 100,907,628 | 52,312,593 | ||||||
End of period | $ | 133,339,755 | $ | 100,907,628 | ||||
Accumulated net investment income/(loss) | $ | 1,209,916 | $ | 679,581 | ||||
Share Transactions: | ||||||||
Shares issued | 7,127,210 | 8,216,310 | ||||||
Dividends reinvested | 98,634 | 94,232 | ||||||
Shares redeemed | (5,947,092 | ) | (3,409,975 | ) | ||||
Change in shares | 1,278,752 | 4,900,567 | ||||||
See accompanying notes to the financial statements.
10
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 1, 2006 to | ||||||||||||||||||||
Year Ended December 31, | December 31, | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006(a) | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 6.58 | $ | 5.01 | $ | 10.53 | $ | 10.14 | $ | 10.00 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.07 | 0.03 | 0.06 | 0.05 | 0.03 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.41 | 1.59 | (5.53 | ) | 0.34 | 0.14 | ||||||||||||||
Total from Investment Activities | 1.48 | 1.62 | (5.47 | ) | 0.39 | 0.17 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.04 | ) | (0.05 | ) | (0.05 | ) | — | (b) | (0.03 | ) | ||||||||||
Total Dividends | (0.04 | ) | (0.05 | ) | (0.05 | ) | — | (b) | (0.03 | ) | ||||||||||
Net Asset Value, End of Period | $ | 8.02 | $ | 6.58 | $ | 5.01 | $ | 10.53 | $ | 10.14 | ||||||||||
Total Return(c)(d) | 22.66 | % | 32.30 | % | (52.15 | )% | 3.85 | % | 1.72 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 133,340 | $ | 100,908 | $ | 52,313 | $ | 94,377 | $ | 65,535 | ||||||||||
Net Investment Income/(Loss)(e) | 1.12 | % | 0.98 | % | 0.74 | % | 0.50 | % | 0.59 | % | ||||||||||
Expenses Before Reductions(e)(f) | 1.10 | % | 1.13 | % | 1.13 | % | 1.10 | % | 1.14 | % | ||||||||||
Expenses Net of Reductions(e) | 1.04 | % | 1.07 | % | 1.10 | % | 1.07 | % | 1.12 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e)(g) | 1.10 | % | 1.13 | % | 1.13 | % | 1.10 | % | 1.14 | % | ||||||||||
Portfolio Turnover Rate(d) | 70.69 | % | 67.46 | % | 98.79 | % | 62.98 | % | 16.03 | % |
(a) | Period from commencement of operations. | |
(b) | Represents less than $0.005. | |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(d) | Not annualized for periods less than one year. | |
(e) | Annualized for periods less than one year. | |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(g) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
See accompanying notes to financial statements.
11
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered-under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Columbia Mid Cap Value Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and Columbia Management Investment Advisers, LLC (“CMIA”), CMIA provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.30%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Columbia Mid Cap Value Fund | 0.75 | % | 1.30 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-l. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $3,087 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 128,579,666 | $ | — | $ | — | $ | 128,579,666 | ||||||||
Convertible Preferred Stocks | 326,898 | — | — | 326,898 | ||||||||||||
Investment Company | 4,299,958 | — | — | 4,299,958 | ||||||||||||
Total Investment Securities | $ | 133,206,522 | $ | — | $ | — | $ | 133,206,522 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Columbia Mid Cap Value Fund | $ | 83,447,752 | $ | 73,956,630 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $105,219,882. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 29,408,360 | ||
Unrealized depreciation | (1,421,720 | ) | ||
Net unrealized appreciation | $ | 27,986,640 | ||
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Mid Cap Value Fund
AZL Columbia Mid Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | ||||
12/31/2017 | ||||
AZL Columbia Mid Cap Value Fund | $ | 33,475,786 |
During the year ended December 31, 2010, the Fund utilized $15,998,822 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Columbia Mid Cap Value Fund | $ | 679,585 | $ | — | $ | 679,585 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Columbia Mid Cap Value Fund | $ | 589,892 | $ | — | $ | 589,892 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||||||
Ordinary | Accumulated | Capital and | Unrealized | Earnings | ||||||||||||||||
Income | Earnings | Other Losses | Appreciation(a) | (Deficit) | ||||||||||||||||
AZL Columbia Mid Cap Value Fund | $ | 1,209,916 | $ | 1,209,916 | $ | (33,475,786 | ) | $ | 27,986,653 | $ | (4,279,217 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
18
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Columbia Mid Cap Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
22
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
23
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
24
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
26
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
27
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Columbia Small Cap Value Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 10
Page 10
Statement of Operations
Page 11
Page 11
Statements of Changes in Net Assets
Page 12
Page 12
Financial Highlights
Page 13
Page 13
Notes to the Financial Statements
Page 14
Page 14
Report of Independent Registered Public Accounting Firm
Page 22
Page 22
Other Federal Income Tax Information
Page 23
Page 23
Other Information
Page 24
Page 24
Approval of Investment Advisory and Subadvisory Agreements
Page 25
Page 25
Information about the Board of Trustees and Officers
Page 29
Page 29
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Columbia Small Cap Value Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Columbia Small Cap Value Fund and Columbia Management Investment Advisers, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Columbia Small Cap Value Fund returned 25.93%1. That compared to a return of 24.50% for its benchmark, the Russell 2000® Value Index 2.
The stock market made slow gains during the period in question. Despite fears of a “double-dip” recession in August, improving economic data and the mid-term election of fiscal conservatives helped to rebuild investor confidence in the last quarter of the year. Stocks, particularly small-cap and mid-cap stocks, performed well in that environment. Small-cap stocks as a whole outperformed large-caps and slightly underperformed mid-caps during the year. The Fund benefited in absolute terms in that environment.
The Fund focuses on shares of high-quality companies with strong balance sheets and healthy cash flow. That strategy contributed to the Fund’s performance relative to its benchmark during the period.*
Relative to its benchmark, the Fund benefited from overweight positions in the industrial, technology and consumer discretionary sectors, which tend to follow cyclical trends in the stock market. Those sectors performed well during the period, and the technology sector was the Fund’s top performing sector during the 12 months through December 2010. An underweight position in the utility sector and strong stock selection in the energy and consumer discretionary sectors also helped the Fund’s relative performance. In particular, the Fund benefited from its exposure to certain oil, gas, consumable fuel and retail companies.*
The Fund’s relative return was dampened somewhat by stock selection among insurance and banking companies in the financial sector, and among chemical and mining companies in the materials sector.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Russell 2000 ® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Columbia Small Cap Value Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term capital appreciation. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of net assets in equity securities of companies that have market capitalizations in the range of the companies in the Russell 2000® Value Index.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Smaller companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/2/04) | |||||||||||||
AZL® Columbia Small Cap Value Fund | 25.93 | % | 2.17 | % | 2.10 | % | 5.14 | % | ||||||||
Russell 2000® Value Index | 24.50 | % | 2.19 | % | 3.52 | % | 6.28 | %1 | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Columbia Small Cap Value Fund | 1.40 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager has voluntarily reduced the management fee to 0.85%. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.35% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The since inception performance data and hypothetical $10,000 investment for the Russell 2000® Value Index is calculated from 4/30/04. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 2000® Value Index, an unmanaged index that measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Columbia Small Cap Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Columbia Small Cap Value Fund | $ | 1,000.00 | $ | 1,268.10 | $ | 6.92 | 1.21% |
* | Expenses are equal to the average account value times the Fund’s annualize expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Columbia Small Cap Value Fund | $ | 1,000.00 | $ | 1,019.11 | $ | 6.16 | 1.21% |
* | Expenses are equal to the average account value times the Fund’s annualize expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Columbia Small Cap Value Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 0.9 | % | ||
Air Freight & Logistics | 0.3 | |||
Airlines | 0.3 | |||
Building Products | 0.9 | |||
Capital Markets | 3.2 | |||
Chemicals | 2.2 | |||
Commercial Banks | 7.2 | |||
Commercial Services & Supplies | 2.0 | |||
Communications Equipment | 2.2 | |||
Construction & Engineering | 3.1 | |||
Construction Materials | 0.2 | |||
Consumer Finance | 0.6 | |||
Containers & Packaging | 2.1 | |||
Diversified Consumer Services | 0.6 | |||
Diversified Financial Services | 0.5 | |||
Diversified Telecommunication Services | 0.6 | |||
Electric Utilities | 1.1 | |||
Electrical Equipment | 2.0 | |||
Electronic Equipment, Instruments & Components | 3.6 | |||
Energy Equipment & Services | 3.6 | |||
Food & Staples Retailing | 1.3 | |||
Food Products | 0.7 | |||
Gas Utilities | 0.5 | |||
Health Care Equipment & Supplies | 2.9 | |||
Health Care Providers & Services | 4.1 | |||
Hotels, Restaurants & Leisure | 2.0 | |||
Household Durables | 1.1 | |||
Household Products | 0.3 | |||
Insurance | 8.8 | |||
Internet Software & Services | 1.0 | |||
IT Services | 2.9 | |||
Leisure Equipment & Products | 0.4 | |||
Machinery | 3.5 | |||
Marine | 0.8 | |||
Metals & Mining | 2.5 | |||
Multi-Utilities | 1.5 | |||
Oil, Gas & Consumable Fuels | 4.6 | |||
Pharmaceuticals | 0.5 | |||
Professional Services | 1.4 | |||
Real Estate Investment Trusts (REITs) | 5.0 | |||
Real Estate Management & Development | 0.3 | |||
Road & Rail | 1.3 | |||
Semiconductors & Semiconductor Equipment | 2.1 | |||
Software | 1.7 | |||
Specialty Retail | 4.5 | |||
Textiles, Apparel & Luxury Goods | 0.4 | |||
Thrifts & Mortgage Finance | 4.7 | |||
Trading Companies & Distributors | 0.8 | |||
Wireless Telecommunication Services | 0.9 | |||
Investment Company | 0.7 | |||
100.4 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (99.7%): | ||||||||
Aerospace & Defense (0.9%): | ||||||||
24,100 | AAR Corp.* | $ | 662,027 | |||||
27,815 | Ceradyne, Inc.* | 877,007 | ||||||
1,539,034 | ||||||||
Air Freight & Logistics (0.3%): | ||||||||
69,277 | Pacer International, Inc.* | 473,855 | ||||||
Airlines (0.3%): | ||||||||
32,171 | SkyWest, Inc. | 502,511 | ||||||
Building Products (0.9%): | ||||||||
10,790 | Ameron International Corp. | 824,032 | ||||||
17,563 | Universal Forest Products, Inc. | 683,201 | ||||||
1,507,233 | ||||||||
Capital Markets (3.2%): | ||||||||
15,467 | Federated Investors, Inc. | 404,771 | ||||||
137,143 | GFI Group, Inc. | 643,201 | ||||||
38,790 | International Assets Holding Corp.* | 915,444 | ||||||
54,875 | Investment Technology Group, Inc.* | 898,304 | ||||||
80,940 | Knight Capital Group, Inc., Class A* | 1,116,163 | ||||||
35,935 | OptionsXpress Holdings, Inc. | 563,101 | ||||||
21,531 | Piper Jaffray Cos., Inc.* | 753,800 | ||||||
5,294,784 | ||||||||
Chemicals (2.2%): | ||||||||
46,400 | H.B. Fuller Co. | 952,128 | ||||||
12,940 | Minerals Technologies, Inc. | 846,405 | ||||||
49,317 | OM Group, Inc.* | 1,899,198 | ||||||
3,697,731 | ||||||||
Commercial Banks (7.2%): | ||||||||
60,712 | Ameris Bancorp* | 639,904 | ||||||
17,030 | BancFirst Corp. | 701,466 | ||||||
44,580 | BancTrust Financial Group, Inc.* | 119,028 | ||||||
34,835 | Bryn Mawr Bank Corp. | 607,871 | ||||||
41,710 | Chemical Financial Corp. | 923,876 | ||||||
44,200 | Columbia Banking System, Inc. | 930,852 | ||||||
27,130 | Community Trust Bancorp, Inc. | 785,685 | ||||||
5,780 | First Citizens BancShares, Inc., Class A | 1,092,709 | ||||||
143,497 | First Commonwealth Financial Corp. | 1,015,959 | ||||||
30,240 | First Financial Corp. | 1,062,633 | ||||||
211 | First National Bank Alaska | 377,690 | ||||||
22,138 | Hancock Holding Co. | 771,731 | ||||||
42,609 | Investors Bancorp, Inc.* | 559,030 | ||||||
27,177 | Merchants Bancshares, Inc. | 748,998 | ||||||
40,390 | Northfield Bancorp, Inc. | 537,995 | ||||||
32,243 | Northrim BanCorp, Inc. | 622,935 | ||||||
179,612 | West Coast Bancorp* | 506,506 | ||||||
12,004,868 | ||||||||
Commercial Services & Supplies (2.0%): | ||||||||
26,490 | ABM Industries, Inc. | 696,687 | ||||||
13,961 | Consolidated Graphics, Inc.* | 676,131 | ||||||
29,767 | Ennis, Inc. | 509,016 | ||||||
20,909 | G & K Services, Inc., Class A | 646,297 | ||||||
12,120 | United Stationers, Inc.* | 773,377 | ||||||
3,301,508 | ||||||||
Communications Equipment (2.2%): | ||||||||
31,500 | Anaren, Inc.* | 656,775 | ||||||
19,994 | Bel Fuse, Inc., Class B | 477,857 | ||||||
19,952 | Black Box Corp. | 763,962 | ||||||
13,801 | Plantronics, Inc. | 513,673 | ||||||
77,575 | Symmetricom, Inc.* | 550,007 | ||||||
60,500 | Tekelec* | 720,555 | ||||||
3,682,829 | ||||||||
Construction & Engineering (3.1%): | ||||||||
43,586 | Comfort Systems USA, Inc. | 574,028 | ||||||
59,973 | Dycom Industries, Inc.* | 884,602 | ||||||
33,420 | Emcor Group, Inc.* | 968,511 | ||||||
25,576 | KBR, Inc. | 779,301 | ||||||
33,056 | KHD Humboldt Wedag International AG | 306,754 | ||||||
20,290 | Layne Christensen Co.* | 698,382 | ||||||
59,163 | Pike Electric Corp.* | 507,618 | ||||||
35,568 | Sterling Construction Co., Inc.* | 463,807 | ||||||
5,183,003 | ||||||||
Construction Materials (0.2%): | ||||||||
12,784 | Eagle Materials, Inc. | 361,148 | ||||||
Consumer Finance (0.6%): | ||||||||
26,729 | Cash America International, Inc. | 987,102 | ||||||
Containers & Packaging (2.1%): | ||||||||
9,733 | Greif, Inc., Class A | 602,473 | ||||||
25,210 | Greif, Inc., Class B | 1,537,810 | ||||||
22,896 | Packaging Corp. of America | 591,633 | ||||||
22,320 | Silgan Holdings, Inc. | 799,279 | ||||||
3,531,195 | ||||||||
Diversified Consumer Services (0.6%): | ||||||||
26,165 | Lincoln Educational Services Corp. | 405,819 | ||||||
36,234 | Regis Corp. | 601,485 | ||||||
1,007,304 | ||||||||
Diversified Financial Services (0.5%): | ||||||||
43,443 | Medallion Financial Corp. | 356,233 | ||||||
13,157 | PICO Holdings, Inc.* | 418,392 | ||||||
774,625 | ||||||||
Diversified Telecommunication Services (0.6%): | ||||||||
40,391 | Neutral Tandem, Inc.* | 583,246 | ||||||
32,129 | Warwick Valley Telephone Co. | 444,987 | ||||||
1,028,233 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities (1.1%): | ||||||||
25,568 | ALLETE, Inc. | $ | 952,664 | |||||
20,440 | MGE Energy, Inc. | 874,014 | ||||||
1,826,678 | ||||||||
Electrical Equipment (2.0%): | ||||||||
15,692 | A.O. Smith Corp. | 597,551 | ||||||
20,140 | Belden CDT, Inc. | 741,555 | ||||||
319,316 | Broadwind Energy, Inc.* | 737,620 | ||||||
39,968 | GrafTech International, Ltd.* | 792,965 | ||||||
15,570 | Powell Industries, Inc.* | 511,942 | ||||||
3,381,633 | ||||||||
Electronic Equipment, Instruments & Components (3.6%): | ||||||||
14,495 | Anixter International, Inc. | 865,786 | ||||||
47,465 | Benchmark Electronics, Inc.* | 861,964 | ||||||
67,342 | Brightpoint, Inc.* | 587,896 | ||||||
50,693 | CTS Corp. | 560,664 | ||||||
33,495 | Electro Scientific Industries, Inc.* | 536,925 | ||||||
14,896 | Littlelfuse, Inc. | 701,006 | ||||||
49,079 | Methode Electronics, Inc. | 636,555 | ||||||
17,058 | MTS Systems Corp. | 638,993 | ||||||
98,285 | Nam Tai Electronics, Inc. | 629,024 | ||||||
6,018,813 | ||||||||
Energy Equipment & Services (3.6%): | ||||||||
114,600 | Cal Dive International, Inc.* | 649,782 | ||||||
18,310 | Dawson Geophysical Co.* | 584,089 | ||||||
34,847 | Gulf Island Fabrication, Inc. | 981,989 | ||||||
48,595 | Matrix Service Co.* | 591,887 | ||||||
38,337 | Patterson-UTI Energy, Inc. | 826,162 | ||||||
20,190 | T-3 Energy Services, Inc.* | 804,168 | ||||||
74,349 | TGC Industries, Inc.* | 282,526 | ||||||
13,012 | Tidewater, Inc. | 700,566 | ||||||
85,608 | Union Drilling, Inc.* | 623,226 | ||||||
6,044,395 | ||||||||
Food & Staples Retailing (1.3%): | ||||||||
20,310 | Andersons, Inc. (The) | 738,268 | ||||||
21,032 | Ruddick Corp. | 774,819 | ||||||
35,782 | Spartan Stores, Inc. | 606,505 | ||||||
2,119,592 | ||||||||
Food Products (0.7%): | ||||||||
45,180 | Fresh Del Monte Produce, Inc. | 1,127,241 | ||||||
Gas Utilities (0.5%): | ||||||||
22,456 | Laclede Group, Inc. (The) | 820,542 | ||||||
Health Care Equipment & Supplies (2.9%): | ||||||||
9,380 | Analogic Corp. | 464,404 | ||||||
35,549 | AngioDynamics, Inc.* | 546,388 | ||||||
31,444 | Cantel Medical Corp. | 735,790 | ||||||
13,892 | ICU Medical, Inc.* | 507,058 | ||||||
24,697 | Kensey Nash Corp.* | 687,318 | ||||||
55,126 | Medical Action Industries, Inc.* | 528,107 | ||||||
31,892 | Quidel Corp.* | 460,839 | ||||||
53,566 | Symmetry Medical, Inc.* | 495,485 | ||||||
14,418 | Young Innovations, Inc. | 461,520 | ||||||
4,886,909 | ||||||||
Health Care Providers & Services (4.1%): | ||||||||
32,347 | AmSurg Corp.* | 677,670 | ||||||
19,090 | Centene Corp.* | 483,740 | ||||||
46,396 | Healthspring, Inc.* | 1,230,886 | ||||||
46,668 | Kindred Healthcare, Inc.* | 857,291 | ||||||
16,060 | Magellan Health Services, Inc.* | 759,317 | ||||||
57,106 | MedCath Corp.* | 796,629 | ||||||
32,896 | NovaMed, Inc.* | 379,291 | ||||||
21,718 | Owens & Minor, Inc. | 639,161 | ||||||
25,970 | Triple-S Management Corp., Class B* | 495,507 | ||||||
26,450 | U.S. Physical Therapy, Inc.* | 524,239 | ||||||
6,843,731 | ||||||||
Hotels, Restaurants & Leisure (2.0%): | ||||||||
65,540 | Benihana, Inc., Class A* | 532,840 | ||||||
25,272 | Bob Evans Farms, Inc. | 832,965 | ||||||
13,390 | CEC Entertainment, Inc.* | 519,934 | ||||||
32,424 | Chesapeake Lodging Trust | 609,895 | ||||||
20,030 | Jack in the Box, Inc.* | 423,234 | ||||||
22,334 | Red Robin Gourmet Burgers* | 479,511 | ||||||
3,398,379 | ||||||||
Household Durables (1.1%): | ||||||||
25,515 | American Greetings Corp., Class A | 565,412 | ||||||
14,447 | Cavco Industries, Inc.* | 674,530 | ||||||
28,345 | CSS Industries, Inc. | 584,191 | ||||||
1,824,133 | ||||||||
Household Products (0.3%): | ||||||||
26,400 | Aaron’s, Inc. | 538,296 | ||||||
Insurance (8.8%): | ||||||||
8,970 | Allied World Assurance Co. Holdings, Ltd. | 533,177 | ||||||
38,470 | American Safety Insurance Holdings, Ltd.* | 822,488 | ||||||
24,600 | Argo Group International Holdings, Ltd. | 921,270 | ||||||
26,289 | Baldwin & Lyons, Inc., Class B | 618,580 | ||||||
45,000 | CNA Surety Corp.* | 1,065,600 | ||||||
70,668 | eHealth, Inc.* | 1,002,779 | ||||||
29,351 | EMC Insurance Group, Inc. | 664,507 | ||||||
29,846 | FBL Financial Group, Inc., Class A | 855,685 | ||||||
80,477 | Global Indemnity plc* | 1,645,755 | ||||||
15,345 | Hanover Insurance Group, Inc. (The) | 716,918 | ||||||
15,340 | Harleysville Group, Inc. | 563,592 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
58,311 | Horace Mann Educators Corp. | $ | 1,051,930 | |||||
3,230 | National Western Life Insurance Co., Class A | 538,506 | ||||||
21,497 | Navigators Group, Inc.* | 1,082,374 | ||||||
22,510 | Safety Insurance Group, Inc. | 1,070,801 | ||||||
44,528 | Stewart Information Services Corp. | 513,408 | ||||||
46,523 | United Fire & Casualty Co. | 1,038,393 | ||||||
14,705,763 | ||||||||
Internet Software & Services (1.0%): | ||||||||
62,900 | InfoSpace, Inc.* | 522,070 | ||||||
94,641 | United Online, Inc. | 624,631 | ||||||
37,100 | ValueClick, Inc.* | 594,713 | ||||||
1,741,414 | ||||||||
IT Services (2.9%): | ||||||||
35,056 | Acxiom Corp.* | 601,210 | ||||||
16,124 | CACI International, Inc., Class A* | 861,022 | ||||||
31,810 | CSG Systems International, Inc.* | 602,481 | ||||||
182,266 | Global Cash Access Holdings, Inc.* | 581,429 | ||||||
8,880 | Maximus, Inc. | 582,350 | ||||||
244,164 | MoneyGram International, Inc.* | 661,685 | ||||||
46,660 | TeleTech Holdings, Inc.* | 960,729 | ||||||
4,850,906 | ||||||||
Leisure Equipment & Products (0.4%): | ||||||||
39,672 | JAKKS Pacific, Inc.* | 722,824 | ||||||
Machinery (3.5%): | ||||||||
18,406 | Astec Industries, Inc.* | 596,538 | ||||||
16,989 | CIRCOR International, Inc. | 718,295 | ||||||
21,585 | Enpro Industries, Inc.* | 897,073 | ||||||
19,152 | Freightcar America, Inc. | 554,259 | ||||||
18,201 | Harsco Corp. | 515,452 | ||||||
32,486 | Kadant, Inc.* | 765,695 | ||||||
15,910 | L.B. Foster Co., Class A* | 651,355 | ||||||
26,708 | Mueller Industries, Inc. | 873,352 | ||||||
7,408 | Robbins & Myers, Inc. | 265,058 | ||||||
5,837,077 | ||||||||
Marine (0.8%): | ||||||||
43,020 | Diana Shipping, Inc.* | 517,100 | ||||||
33,440 | Nordic American Tanker Shipping, Ltd. | 870,109 | ||||||
1,387,209 | ||||||||
Metals & Mining (2.5%): | ||||||||
10,773 | Carpenter Technology Corp. | 433,505 | ||||||
19,219 | Haynes International, Inc. | 803,931 | ||||||
27,079 | Olympic Steel, Inc. | 776,626 | ||||||
18,588 | RTI International Metals, Inc.* | 501,504 | ||||||
59,390 | Terra Nova Royalty Corp. | 463,836 | ||||||
81,510 | Thompson Creek Metals Co., Inc.* | 1,199,827 | ||||||
4,179,229 | ||||||||
Multi-Utilities (1.5%): | ||||||||
42,397 | Avista Corp. | 954,780 | ||||||
14,963 | CH Energy Group, Inc. | 731,541 | ||||||
27,748 | NorthWestern Corp. | 799,975 | ||||||
2,486,296 | ||||||||
Oil, Gas & Consumable Fuels (4.6%): | ||||||||
18,910 | Berry Petroleum Co., Class A | 826,367 | ||||||
21,420 | Bill Barrett Corp.* | 881,005 | ||||||
16,404 | Forest Oil Corp.* | 622,860 | ||||||
16,700 | Holly Corp. | 680,859 | ||||||
93,068 | International Coal Group, Inc.* | 720,346 | ||||||
26,030 | James River Coal Co.* | 659,340 | ||||||
41,786 | Stone Energy Corp.* | 931,410 | ||||||
26,977 | Swift Energy Co.* | 1,056,149 | ||||||
79,573 | VAALCO Energy, Inc.* | 569,743 | ||||||
21,040 | World Fuel Services Corp. | 760,806 | ||||||
7,708,885 | ||||||||
Pharmaceuticals (0.5%): | ||||||||
29,510 | Medicis Pharmaceutical Corp., Class A | 790,573 | ||||||
Professional Services (1.4%): | ||||||||
31,067 | CDI Corp. | 577,536 | ||||||
15,988 | FTI Consulting, Inc.* | 596,033 | ||||||
31,859 | Korn/Ferry International* | 736,261 | ||||||
53,636 | Navigant Consulting, Inc.* | 493,451 | ||||||
2,403,281 | ||||||||
Real Estate Investment Trusts (REITs) (5.0%): | ||||||||
149,710 | DCT Industrial Trust, Inc. | 794,960 | ||||||
91,256 | DiamondRock Hospitality, Co.* | 1,095,072 | ||||||
48,638 | Franklin Street Properties Corp. | 693,091 | ||||||
21,770 | Getty Realty Corp. | 680,966 | ||||||
16,558 | National Health Investors, Inc. | 745,441 | ||||||
28,247 | Potlatch Corp. | 919,440 | ||||||
45,710 | Starwood Property Trust, Inc. | 981,851 | ||||||
53,366 | Sunstone Hotel Investors, Inc.* | 551,271 | ||||||
32,540 | Terreno Realty Corp.* | 583,442 | ||||||
17,580 | Universal Health Realty Income Trust | 642,197 | ||||||
37,502 | Urstadt Biddle Properties, Inc., Class A | 729,414 | ||||||
8,417,145 | ||||||||
Real Estate Management & Development (0.3%): | ||||||||
28,114 | Avatar Holdings, Inc.* | 557,220 | ||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail (1.3%): | ||||||||
32,202 | Heartland Express, Inc. | $ | 515,876 | |||||
12,817 | Ryder System, Inc. | 674,687 | ||||||
43,346 | Werner Enterprises, Inc. | 979,620 | ||||||
2,170,183 | ||||||||
Semiconductors & Semiconductor Equipment (2.1%): | ||||||||
70,280 | Amkor Technology, Inc.* | 519,369 | ||||||
28,270 | ATMI, Inc.* | 563,704 | ||||||
80,120 | Integrated Device Technology, Inc.* | 533,599 | ||||||
19,570 | MKS Instruments, Inc.* | 479,269 | ||||||
21,250 | Tessera Technologies, Inc.* | 470,688 | ||||||
12,330 | Varian Semiconductor Equipment Associates, Inc.* | 455,840 | ||||||
58,221 | Zoran Corp.* | 512,345 | ||||||
3,534,814 | ||||||||
Software (1.7%): | ||||||||
50,166 | Compuware Corp.* | 585,437 | ||||||
14,750 | Jack Henry & Associates, Inc. | 429,963 | ||||||
46,054 | Monotype Imaging Holdings, Inc.* | 511,199 | ||||||
23,455 | Parametric Technology Corp.* | 528,441 | ||||||
19,200 | Progress Software Corp.* | 812,544 | ||||||
2,867,584 | ||||||||
Specialty Retail (4.5%): | ||||||||
20,342 | America’s Car-Mart, Inc.* | 550,861 | ||||||
42,745 | Finish Line, Inc. (The), Class A | 734,787 | ||||||
45,440 | Foot Locker, Inc. | 891,533 | ||||||
31,246 | GameStop Corp., Class A* | 714,908 | ||||||
28,167 | Men’s Wearhouse, Inc. (The) | 703,612 | ||||||
42,740 | OfficeMax, Inc.* | 756,498 | ||||||
169,771 | Pacific Sunwear of California, Inc.* | 920,159 | ||||||
43,561 | Rent-A-Center, Inc. | 1,406,149 | ||||||
32,968 | Shoe Carnival, Inc.* | 890,136 | ||||||
7,568,643 | ||||||||
Textiles, Apparel & Luxury Goods (0.4%): | ||||||||
43,181 | Movado Group, Inc.* | 696,941 | ||||||
Thrifts & Mortgage Finance (4.7%): | ||||||||
136,990 | Bank Mutual Corp. | 654,812 | ||||||
79,426 | BankFinancial Corp. | 774,403 | ||||||
93,860 | Beneficial Mutual Bancorp, Inc.* | 828,784 | ||||||
95,856 | Brookline Bancorp, Inc. | 1,040,038 | ||||||
48,432 | Clifton Savings Bancorp, Inc. | 523,550 | ||||||
42,587 | ESSA Bancorp, Inc. | 563,000 | ||||||
62,802 | Home Federal Bancorp, Inc. | 770,581 | ||||||
92,021 | TrustCo Bank Corp. | 583,413 | ||||||
38,930 | United Financial Bancorp, Inc. | 594,461 | ||||||
50,539 | Washington Federal, Inc. | 855,120 | ||||||
84,300 | Westfield Financial, Inc. | 779,775 | ||||||
7,967,937 | ||||||||
�� | ||||||||
Trading Companies & Distributors (0.8%): | ||||||||
20,422 | Applied Industrial Technologies, Inc. | 663,307 | ||||||
24,260 | Kaman Corp., Class A | 705,238 | ||||||
1,368,545 | ||||||||
Wireless Telecommunication Services (0.9%): | ||||||||
46,417 | NTELOS Holdings Corp. | 884,244 | ||||||
30,156 | Shenandoah Telecommunications Co. | 564,822 | ||||||
1,449,066 | ||||||||
Total Common Stocks (Cost $137,848,318) | 167,118,840 | |||||||
Investment Company (0.7%): | ||||||||
1,092,153 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 1,092,153 | ||||||
Total Investment Company (Cost $1,092,153) | 1,092,153 | |||||||
Total Investment Securities (Cost $138,940,471)(b) — 100.4% | 168,210,993 | |||||||
Net other assets (liabilities) — (0.4)% | (588,544 | ) | ||||||
Net Assets — 100.0% | $ | 167,622,449 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
plc—Public Limited Company
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Bermuda | 1 | .3% | |||
British Virgin Islands | 0 | .4 | |||
Canada | 1 | .0 | |||
Cayman Islands | 0 | .7 | |||
Germany | 0 | .2 | |||
Greece | 0 | .3 | |||
Ireland (Republic of) | 1 | .0 | |||
United States | 95 | .1 | |||
100 | .0% | ||||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Columbia | ||||
Small Cap | ||||
Value Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 138,940,471 | ||
Investment securities, at value | $ | 168,210,993 | ||
Dividends receivable | 171,870 | |||
Receivable for capital shares issued | 58,211 | |||
Receivable for expenses paid indirectly | 6,667 | |||
Receivable for investments sold | 6,067 | |||
Prepaid expenses | 2,143 | |||
Total Assets | 168,455,951 | |||
Liabilities: | ||||
Payable for investments purchased | 625,700 | |||
Payable for capital shares redeemed | 11,713 | |||
Manager fees payable | 118,653 | |||
Administration fees payable | 7,028 | |||
Distribution fees payable | 34,898 | |||
Custodian fees payable | 8,751 | |||
Administrative and compliance services fees payable | 1,483 | |||
Trustee fees payable | 297 | |||
Other accrued liabilities | 24,979 | |||
Total Liabilities | 833,502 | |||
Net Assets | $ | 167,622,449 | ||
Net Assets Consist of: | ||||
Capital | $ | 148,806,070 | ||
Accumulated net investment income/(loss) | 922,273 | |||
Accumulated net realized gains/(losses) from investment transactions | (11,376,416 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 29,270,522 | |||
Net Assets | $ | 167,622,449 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 15,407,013 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.88 | ||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Columbia | ||||
Small Cap | ||||
Value Fund | ||||
Investment Income: | ||||
Dividends | $ | 2,425,637 | ||
Foreign withholding tax | (5,784 | ) | ||
Total Investment Income | 2,419,853 | |||
Expenses: | ||||
Manager fees | 1,107,573 | |||
Administration fees | 61,596 | |||
Distribution fees | 307,659 | |||
Custodian fees | 40,436 | |||
Administrative and compliance services fees | 4,380 | |||
Trustees’ fees | 8,760 | |||
Professional fees | 12,556 | |||
Shareholder reports | 10,476 | |||
Recoupment of prior expenses reimbursed by the Manager | 8,124 | |||
Other expenses | 4,766 | |||
Total expenses before reductions | 1,566,326 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (61,534 | ) | ||
Less expenses paid indirectly | (75,741 | ) | ||
Net expenses | 1,429,051 | |||
Net Investment Income/(Loss) | 990,802 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 8,139,327 | |||
Net realized gains/(losses) on forward foreign currency contracts | (65 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 18,973,108 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 27,112,370 | |||
Change in Net Assets Resulting From Operations | $ | 28,103,172 | ||
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Statements of Changes in Net Assets
AZL Columbia | ||||||||
Small Cap Value Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 990,802 | $ | 381,248 | ||||
Net realized gains/(losses) on investment transactions | 8,139,262 | (3,458,848 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 18,973,108 | 20,099,039 | ||||||
Change in net assets resulting from operations | 28,103,172 | 17,021,439 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (449,988 | ) | (203,681 | ) | ||||
Change in net assets resulting from dividends to shareholders | (449,988 | ) | (203,681 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 78,879,111 | 46,101,634 | ||||||
Proceeds from dividends reinvested | 449,988 | 203,681 | ||||||
Value of shares redeemed | (27,042,552 | ) | (11,860,374 | ) | ||||
Change in net assets resulting from capital transactions | 52,286,547 | 34,444,941 | ||||||
Change in net assets | 79,939,731 | 51,262,699 | ||||||
Net Assets: | ||||||||
Beginning of period | 87,682,718 | 36,420,019 | ||||||
End of period | $ | 167,622,449 | $ | 87,682,718 | ||||
Accumulated net investment income/(loss) | $ | 922,273 | $ | 381,244 | ||||
Share Transactions: | ||||||||
Shares issued | 8,154,328 | 6,574,628 | ||||||
Dividends reinvested | 49,777 | 24,161 | ||||||
Shares redeemed | (2,910,115 | ) | (1,711,589 | ) | ||||
Change in shares | 5,293,990 | 4,887,200 | ||||||
12
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 8.67 | $ | 6.97 | $ | 11.29 | $ | 13.20 | $ | 12.30 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.05 | 0.02 | 0.04 | 0.05 | 0.03 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.19 | 1.70 | (3.43 | ) | (1.09 | ) | 1.57 | |||||||||||||
Total from Investment Activities | 2.24 | 1.72 | (3.39 | ) | (1.04 | ) | 1.60 | |||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.03 | ) | (0.02 | ) | (0.05 | ) | (0.03 | ) | (0.01 | ) | ||||||||||
Net Realized Gains | — | — | (0.88 | ) | (0.84 | ) | (0.69 | ) | ||||||||||||
Total Dividends | (0.03 | ) | (0.02 | ) | (0.93 | ) | (0.87 | ) | (0.70 | ) | ||||||||||
Net Asset Value, End of Period | $ | 10.88 | $ | 8.67 | $ | 6.97 | $ | 11.29 | $ | 13.20 | ||||||||||
Total Return(a) | 25.93 | % | 24.69 | % | (32.09 | )% | (8.24 | )% | 13.40 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 167,622 | $ | 87,683 | $ | 36,420 | $ | 59,468 | $ | 73,914 | ||||||||||
Net Investment Income/(Loss) | 0.80 | % | 0.60 | % | 0.52 | % | 0.33 | % | 0.28 | % | ||||||||||
Expenses Before Reductions(b) | 1.27 | % | 1.40 | % | 1.49 | % | 1.29 | % | 1.35 | % | ||||||||||
Expenses Net of Reductions | 1.16 | % | 1.30 | % | 1.37 | % | 1.23 | % | 1.31 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.22 | % | 1.35 | % | 1.37 | % | 1.24 | % | 1.31 | % | ||||||||||
Portfolio Turnover Rate | 36.84 | % | 45.74 | % | 214.25 | % | 60.22 | % | 90.10 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Columbia Small Cap Value Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain (Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | (65 | ) | $ | — |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and Columbia Management Investment Advisers, LLC (“CMIA”), CMIA provides investment advisory services as the Subadvisor for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses excluding, interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.35%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL Columbia Small Cap Value Fund | 0.90% | 1.35% |
* | The Manager voluntarily reduced the management fee to 0.85%. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $3,339 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Construction & Engineering | $ | 4,876,249 | $ | 306,754 | $ | — | $ | 5,183,003 | ||||||||
All Other Common Stocks+ | 161,935,837 | — | — | 161,935,837 | ||||||||||||
Investment Company | 1,092,153 | — | — | 1,092,153 | ||||||||||||
Total Investment Securities | $ | 167,904,239 | $ | 306,754 | $ | — | $ | 168,210,993 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Columbia Small Cap Value Fund | $ | 97,361,672 | $ | 44,464,445 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $143,843,315. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 31,385,376 | ||
Unrealized depreciation | (7,017,698 | ) | ||
Net unrealized appreciation | $ | 24,367,678 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Columbia Small Cap Value Fund | $ | 3,378,962 | $ | 3,293,541 |
During the year ended December 31, 2010, the Fund utilized $8,183,190 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Gains | Distributions(a) | ||||||||||
AZL Columbia Small Cap Value Fund | $ | 449,988 | $ | — | $ | 449,988 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Columbia Small Cap Value Fund
AZL Columbia Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Gains | Distributions(a) | ||||||||||
AZL Columbia Small Cap Value Fund | $ | 203,681 | $ | — | $ | 203,681 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||||||
Ordinary | Accumulated | Capital and | Unrealized | Earnings | ||||||||||||||||
Income | Earnings | Other Losses | Appreciation(a) | (Deficit) | ||||||||||||||||
AZL Columbia Small Cap Value Fund | $ | 1,121,203 | $ | 1,121,203 | $ | (6,672,503 | ) | $ | 24,367,679 | $ | 18,816,379 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
21
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Columbia Small Cap Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
25
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
26
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
27
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
29
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
30
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Davis NY Venture Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 21
Page 21
Other Federal Income Tax Information
Page 22
Page 22
Other Information
Page 23
Page 23
Approval of Investment Advisory and Subadvisory Agreements
Page 24
Page 24
Information about the Board of Trustees and Officers
Page 28
Page 28
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Davis NY Venture Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Davis NY Venture Fund and Davis Selected Advisers, L.P. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010 the AZL® Davis NY Venture Fund returned 12.05%. That compared to a 15.51% total return for its benchmark, the Russell 1000® Value Index1.
On an absolute basis, the Fund benefited from strong returns in the equity market during the 12-month period. All sectors of the market generated positive returns over the year. The three strongest performing sectors within the Russell 1000® Value Index were consumer discretionary, energy and industrials. The health care and utilities sectors showed the smallest gains.
The Fund held more of its assets in financials than in any other sector, investing an average of 29% of assets in financials, compared to the Index’s 27%. Financials were the most important contributor to the Fund’s absolute performance results. The Fund’s financial holdings outperformed the corresponding sector within the Russell 1000® Value Index (up 15% versus 13% for the Index during the period). Consumer staples holdings within the Fund were the second most important contributor to absolute performance. The Fund held an average of 15% of its assets in the sector, versus 8% for the Index. The Fund’s consumer staples investments outperformed the corresponding sector within the Index (up 17% versus 16% for the Index).*
The Fund’s underperformance relative to the Index was driven in part by the Fund’s holdings in the energy sector. The Fund held approximately the same portion of assets in energy as the Index (both 15%), but its energy company investments underperformed the corresponding sector within the Index (up 10% versus 26% for the Index). The Fund’s investments in the information technology sector also contributed to relative underperformance. The Fund held 8% of assets in information technology stocks (versus 5% for the Index) and underperformed the corresponding sector within the Index (up 4% versus 13% for the Index).*
The Fund held approximately 19% of its assets in foreign companies (including American Depositary Receipts) on December 31, 2010. As a whole, these investments outperformed the Fund’s domestic investments during the period.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Davis NY Venture Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term growth of capital. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing the majority of its assets in equity securities issued by large companies with market capitalizations of at least $10 billion.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (11/5/01) | |||||||||||||
AZL® Davis NY Venture Fund | 12.05 | % | -4.21 | % | 0.84 | % | 2.90 | % | ||||||||
Russell 1000® Value Index | 15.51 | % | -4.42 | % | 1.28 | % | 4.77 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio2 | Gross | |||
AZL® Davis NY Venture Fund | 1.12 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.75% on the first $100 million of assets, 0.70% on assets from $100 million to $500 million, and 0.65% on assets over $500 million. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the Russell 1000® Value Index is calculated from 10/31/01. | |
2 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fund Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and Expenses the Fund’s gross ratio would be 1.11%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 1000® Value Index, an unmanaged index that measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided by the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Davis NY Venture Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Davis NY Venture Fund | $ | 1,000.00 | $ | 1,210.80 | $ | 5.74 | 1.03% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Davis NY Venture Fund | $ | 1,000.00 | $ | 1,020.01 | $ | 5.24 | 1.03 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Davis NY Venture Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 0.6 | % | ||
Automobiles | 1.0 | |||
Beverages | 4.2 | |||
Capital Markets | 6.8 | |||
Chemicals | 2.7 | |||
Commercial Banks | 4.5 | |||
Commercial Services & Supplies | 1.4 | |||
Computers & Peripherals | 0.9 | |||
Construction Materials | 1.0 | |||
Consumer Finance | 4.2 | |||
Containers & Packaging | 2.1 | |||
Diversified Financial Services | 0.9 | |||
Electronic Equipment, Instruments & Components | 1.9 | |||
Energy Equipment & Services | 0.8 | |||
Food & Staples Retailing | 7.7 | |||
Food Products | 1.6 | |||
Health Care Equipment & Supplies | 1.7 | |||
Health Care Providers & Services | 1.9 | |||
Household Durables | 0.2 | |||
Household Products | 1.8 | |||
Insurance | 9.6 | |||
Internet & Catalog Retail | 0.3 | |||
Internet Software & Services | 1.0 | |||
IT Services | 0.2 | |||
Marine | 1.0 | |||
Media | 1.0 | |||
Metals & Mining | 1.1 | |||
Oil, Gas & Consumable Fuels | 14.5 | |||
Paper & Forest Products | 1.7 | |||
Personal Products | 0.4 | |||
Pharmaceuticals | 8.5 | |||
Real Estate Management & Development | 1.2 | |||
Semiconductors & Semiconductor Equipment | 2.2 | |||
Software | 1.8 | |||
Specialty Retail | 2.9 | |||
Tobacco | 1.0 | |||
Transportation Infrastructure | 1.1 | |||
Wireless Telecommunication Services | 0.4 | |||
Investment Company | 2.3 | |||
100.1 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (97.6%): | ||||||||
Aerospace & Defense (0.6%): | ||||||||
38,450 | Lockheed Martin Corp. | $ | 2,688,040 | |||||
Automobiles (1.0%): | ||||||||
126,190 | Harley-Davidson, Inc. | 4,375,007 | ||||||
Beverages (4.2%): | ||||||||
129,250 | Coca-Cola Co. (The) | 8,500,772 | ||||||
56,110 | Diageo plc, SP ADR | 4,170,656 | ||||||
117,746 | Heineken Holding NV | 5,124,113 | ||||||
17,795,541 | ||||||||
Capital Markets (6.8%): | ||||||||
69,630 | Ameriprise Financial, Inc. | 4,007,206 | ||||||
533,650 | Bank of New York Mellon Corp. | 16,116,230 | ||||||
14,000 | Charles Schwab Corp. | 239,540 | ||||||
65,750 | GAM Holding, Ltd.* | 1,086,615 | ||||||
13,870 | Goldman Sachs Group, Inc. | 2,332,379 | ||||||
112,550 | Julius Baer Group, Ltd. | 5,273,028 | ||||||
29,054,998 | ||||||||
Chemicals (2.7%): | ||||||||
10,510 | Air Products & Chemicals, Inc. | 955,884 | ||||||
85,320 | Monsanto Co. | 5,941,685 | ||||||
18,732 | Potash Corp. of Saskatchewan, Inc. | 2,900,276 | ||||||
16,900 | Praxair, Inc. | 1,613,443 | ||||||
11,411,288 | ||||||||
Commercial Banks (4.5%): | ||||||||
613,476 | Wells Fargo & Co. | 19,011,621 | ||||||
Commercial Services & Supplies (1.4%): | ||||||||
237,880 | Iron Mountain, Inc. | 5,949,379 | ||||||
Computers & Peripherals (0.9%): | ||||||||
86,520 | Hewlett-Packard Co. | 3,642,492 | ||||||
Construction Materials (1.0%): | ||||||||
30,640 | Martin Marietta Materials, Inc. | 2,826,233 | ||||||
27,430 | Vulcan Materials Co. | 1,216,795 | ||||||
4,043,028 | ||||||||
Consumer Finance (4.2%): | ||||||||
411,340 | American Express Co. | 17,654,713 | ||||||
Containers & Packaging (2.1%): | ||||||||
346,280 | Sealed Air Corp. | 8,812,826 | ||||||
Diversified Financial Services (0.9%): | ||||||||
21,614 | Bank of America Corp. | 288,331 | ||||||
14,336 | JPMorgan Chase & Co. | 608,133 | ||||||
113,900 | Moody’s Corp. | 3,022,906 | ||||||
3,919,370 | ||||||||
Electronic Equipment, Instruments & Components (1.9%): | ||||||||
114,190 | Agilent Technologies, Inc.* | 4,730,892 | ||||||
81,840 | Tyco International, Ltd. | 3,391,449 | ||||||
8,122,341 | ||||||||
Energy Equipment & Services (0.8%): | ||||||||
11,100 | Schlumberger, Ltd. | 926,850 | ||||||
37,759 | Transocean, Ltd.* | 2,624,628 | ||||||
3,551,478 | ||||||||
Food & Staples Retailing (7.7%): | ||||||||
253,020 | Costco Wholesale Corp. | 18,270,574 | ||||||
416,389 | CVS Caremark Corp. | 14,477,846 | ||||||
32,748,420 | ||||||||
Food Products (1.6%): | ||||||||
21,720 | Hershey Co. | 1,024,098 | ||||||
39,300 | Kraft Foods, Inc., Class A | 1,238,343 | ||||||
40,490 | Nestle SA | 2,372,565 | ||||||
64,950 | Unilever NV, NYS | 2,039,430 | ||||||
6,674,436 | ||||||||
Health Care Equipment & Supplies (1.7%): | ||||||||
69,000 | Baxter International, Inc. | 3,492,780 | ||||||
45,190 | Becton Dickinson & Co. | 3,819,459 | ||||||
7,312,239 | ||||||||
Health Care Providers & Services (1.9%): | ||||||||
152,120 | Express Scripts, Inc.* | 8,222,086 | ||||||
Household Durables (0.2%): | ||||||||
14,272 | Hunter Douglas NV | 755,045 | ||||||
Household Products (1.8%): | ||||||||
120,050 | Procter & Gamble Co. (The) | 7,722,817 | ||||||
Insurance (9.6%): | ||||||||
9,080 | Aon Corp. | 417,771 | ||||||
88 | Berkshire Hathaway, Inc., Class A* | 10,599,600 | ||||||
7,640 | Everest Re Group, Ltd. | 648,025 | ||||||
4,010 | Fairfax Financial Holdings, Ltd. | 1,642,335 | ||||||
1,990 | Fairfax Financial Holdings, Ltd.(a) | 818,803 | ||||||
311,550 | Loews Corp. | 12,122,410 | ||||||
1,100 | Markel Corp.* | 415,943 | ||||||
504,510 | Progressive Corp. (The) | 10,024,614 | ||||||
80,498 | Transatlantic Holdings, Inc. | 4,155,307 | ||||||
40,844,808 | ||||||||
Internet & Catalog Retail (0.3%): | ||||||||
76,160 | Liberty Media Corp. — Capital, Series A* | 1,201,043 | ||||||
Internet Software & Services (1.0%): | ||||||||
7,020 | Google, Inc., Class A* | 4,169,669 | ||||||
IT Services (0.2%): | ||||||||
14,090 | Visa, Inc., Class A | 991,654 | ||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Marine (1.0%): | ||||||||
852,300 | China Shipping Development Co., Ltd., Share H | $ | 1,135,415 | |||||
22,070 | Kuehne & Nagel International AG, Registered Shares | 3,067,162 | ||||||
4,202,577 | ||||||||
Media (1.0%): | ||||||||
82,480 | Grupo Televisa SA, SP ADR* | 2,138,707 | ||||||
6,086 | Liberty Media-Starz, Series A* | 404,597 | ||||||
118,480 | News Corp. | 1,725,069 | ||||||
4,268,373 | ||||||||
Metals & Mining (1.1%): | ||||||||
56,850 | BHP Billiton plc | 2,266,235 | ||||||
36,815 | Rio Tinto plc | 2,581,558 | ||||||
4,847,793 | ||||||||
Oil, Gas & Consumable Fuels (14.5%): | ||||||||
283,220 | Canadian Natural Resources, Ltd. | 12,580,632 | ||||||
1,825,700 | China Coal Energy Co., Share H | 2,850,517 | ||||||
178,680 | Devon Energy Corp. | 14,028,167 | ||||||
142,610 | EOG Resources, Inc. | 13,035,980 | ||||||
164,750 | Occidental Petroleum Corp. | 16,161,975 | ||||||
235,660 | OGX Petroleo e Gas Participacoes SA* | 2,840,081 | ||||||
61,497,352 | ||||||||
Paper & Forest Products (1.5%): | ||||||||
267,530 | Sino-Forest Corp., Class A*(a) | 6,268,384 | ||||||
Personal Products (0.4%): | ||||||||
19,080 | Mead Johnson Nutrition Co., Class A | 1,187,730 | ||||||
24,990 | Natura Cosmeticos SA | 718,300 | ||||||
1,906,030 | ||||||||
Pharmaceuticals (8.5%): | ||||||||
155,140 | Johnson & Johnson Co. | 9,595,409 | ||||||
340,302 | Merck & Co., Inc. | 12,264,484 | ||||||
439,550 | Pfizer, Inc. | 7,696,521 | ||||||
44,700 | Roche Holding AG | 6,554,787 | ||||||
36,111,201 | ||||||||
Real Estate Management & Development (1.2%): | ||||||||
53,560 | Brookfield Asset Management, Inc., Class A | 1,783,012 | ||||||
486,800 | Hang Lung Group, Ltd. | 3,199,469 | ||||||
4,982,481 | ||||||||
Semiconductors & Semiconductor Equipment (2.2%): | ||||||||
287,300 | Texas Instruments, Inc. | 9,337,250 | ||||||
Software (1.8%): | ||||||||
168,750 | Activision Blizzard, Inc. | 2,099,250 | ||||||
206,490 | Microsoft Corp. | 5,765,201 | ||||||
7,864,451 | ||||||||
Specialty Retail (2.9%): | ||||||||
153,610 | Bed Bath & Beyond, Inc.* | 7,549,931 | ||||||
144,410 | CarMax, Inc.* | 4,603,791 | ||||||
12,153,722 | ||||||||
Tobacco (1.0%): | ||||||||
75,910 | Philip Morris International, Inc. | 4,443,012 | ||||||
Transportation Infrastructure (1.1%): | ||||||||
1,107,728 | China Merchants Holdings International Co., Ltd. | 4,373,843 | ||||||
83,490 | LLX Logistica SA* | 237,996 | ||||||
95,490 | PortX Operacoes Portuarias SA* | 213,466 | ||||||
4,825,305 | ||||||||
Wireless Telecommunication Services (0.4%): | ||||||||
31,500 | America Movil, SAB de C.V., SP ADR, Series L | 1,806,210 | ||||||
Total Common Stocks (Cost $279,205,841) | 415,188,480 | |||||||
Convertible Bond (0.2%): | ||||||||
Paper & Forest Products (0.2%): | ||||||||
$ | 488,000 | Sino-Forest Corp., 5.00%, 8/1/13(b) | 654,530 | |||||
Total Convertible Bond (Cost $488,000) | 654,530 | |||||||
Investment Company (2.3%): | ||||||||
9,716,886 | Dreyfus Treasury Prime Cash Management, 0.00%(c) | 9,716,886 | ||||||
Total Investment Company (Cost $9,716,886) | 9,716,886 | |||||||
Total Investment Securities (Cost $289,410,727)(d) — 100.1% | 425,559,896 | |||||||
Net other assets (liabilities) — (0.1)% | (254,987 | ) | ||||||
Net Assets — 100.0% | $ | 425,304,909 | ||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Percentages indicated are based on net assets as of December 31, 2010.
NYS—New York Shares
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investor. The sub-adviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. | |
(b) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2010, these securities represent 0.2% of the net assets of the Fund. | |
(c) | The rate represents the effective yield at December 31, 2010. | |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Bermuda | 0 | .2% | |||
Brazil | 0 | .9 | |||
Canada | 6 | .1 | |||
China | 0 | .9 | |||
Hong Kong | 1 | .8 | |||
Mexico | 0 | .9 | |||
Netherlands | 2 | .1 | |||
Switzerland | 5 | .7 | |||
United Kingdom | 2 | .1 | |||
United States | 79 | .3 | |||
100 | .0% | ||||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Davis | ||||
NY Venture | ||||
Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 289,410,727 | ||
Investment securities, at value | $ | 425,559,896 | ||
Interest and dividends receivable | 360,134 | |||
Receivable for capital shares issued | 1,131 | |||
Receivable for investments sold | 18,439 | |||
Reclaims receivable | 101,184 | |||
Prepaid expenses | 4,723 | |||
Total Assets | 426,045,507 | |||
Liabilities: | ||||
Payable for investments purchased | 117,062 | |||
Payable for capital shares redeemed | 171,423 | |||
Manager fees payable | 253,642 | |||
Administration fees payable | 18,727 | |||
Distribution fees payable | 89,070 | |||
Custodian fees payable | 7,874 | |||
Administrative and compliance services fees payable | 4,408 | |||
Trustee fees payable | 882 | |||
Other accrued liabilities | 77,510 | |||
Total Liabilities | 740,598 | |||
Net Assets | $ | 425,304,909 | ||
Net Assets Consist of: | ||||
Capital | $ | 477,835,342 | ||
Accumulated net investment income/(loss) | 1,467,256 | |||
Accumulated net realized gains/(losses) from investment transactions | (190,162,777 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 136,165,088 | |||
Net Assets | $ | 425,304,909 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 36,745,525 | |||
Net Asset Value (offering and redemption price per share) | $ | 11.57 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Davis | ||||
NY Venture | ||||
Fund | ||||
Investment Income: | ||||
Interest | $ | 358,865 | ||
Dividends | 7,001,247 | |||
Foreign withholding tax | (105,074 | ) | ||
Total Investment Income | 7,255,038 | |||
Expenses: | ||||
Manager fees | 3,436,003 | |||
Administration fees | 208,875 | |||
Distribution fees | 1,145,334 | |||
Custodian fees | 21,691 | |||
Administrative and compliance services fees | 12,136 | |||
Trustees’ fees | 24,060 | |||
Professional fees | 36,238 | |||
Shareholder reports | 26,983 | |||
Other expenses | 19,879 | |||
Total expenses before reductions | 4,931,199 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (193,110 | ) | ||
Less expenses paid indirectly | (2,831 | ) | ||
Net expenses | 4,735,258 | |||
Net Investment Income/(Loss) | 2,519,780 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 27,996,709 | |||
Net realized gains/(losses) on forward foreign currency contracts | 81,530 | |||
Net realized gains/(losses) on futures transactions | (2,299,442 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 25,298,725 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 51,077,522 | |||
Change in Net Assets Resulting From Operations | $ | 53,597,302 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Statements of Changes in Net Assets
AZL Davis NY Venture Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 2,519,780 | $ | 8,456,878 | ||||
Net realized gains/(losses) on investment transactions | 25,778,797 | (57,053,441 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 25,298,725 | 195,511,316 | ||||||
Change in net assets resulting from operations | 53,597,302 | 146,914,753 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (9,651,159 | ) | (3,881,294 | ) | ||||
Change in net assets resulting from dividends to shareholders | (9,651,159 | ) | (3,881,294 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 24,360,643 | 73,164,815 | ||||||
Proceeds from dividends reinvested | 9,651,159 | 3,881,294 | ||||||
Value of shares redeemed | (225,958,105 | ) | (98,769,181 | ) | ||||
Change in net assets resulting from capital transactions | (191,946,303 | ) | (21,723,072 | ) | ||||
Change in net assets | (148,000,160 | ) | 121,310,387 | |||||
Net Assets: | ||||||||
Beginning of period | 573,305,069 | 451,994,682 | ||||||
End of period | $ | 425,304,909 | $ | 573,305,069 | ||||
Accumulated net investment income/(loss) | $ | 1,467,256 | $ | 8,356,843 | ||||
Share Transactions: | ||||||||
Shares issued | 2,278,023 | 9,390,578 | ||||||
Dividends reinvested | 940,659 | 389,297 | ||||||
Shares redeemed | (20,627,259 | ) | (11,529,737 | ) | ||||
Change in shares | (17,408,577 | ) | (1,749,862 | ) | ||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.59 | $ | 8.09 | $ | 14.13 | $ | 13.61 | $ | 11.99 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.14 | 0.16 | 0.07 | 0.11 | 0.06 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.10 | 2.41 | (5.70 | ) | 0.47 | 1.59 | ||||||||||||||
Total from Investment Activities | 1.24 | 2.57 | (5.63 | ) | 0.58 | 1.65 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.26 | ) | (0.07 | ) | (0.11 | ) | (0.06 | ) | (0.03 | ) | ||||||||||
Net Realized Gains | — | — | (0.30 | ) | — | — | ||||||||||||||
Total Dividends | (0.26 | ) | (0.07 | ) | (0.41 | ) | (0.06 | ) | (0.03 | ) | ||||||||||
Net Asset Value, End of Period | $ | 11.57 | $ | 10.59 | $ | 8.09 | $ | 14.13 | $ | 13.61 | ||||||||||
Total Return(a) | 12.05 | % | 31.83 | % | (40.50 | )% | 4.15 | % | 13.91 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 425,305 | $ | 573,305 | $ | 451,995 | $ | 572,298 | $ | 538,315 | ||||||||||
Net Investment Income/(Loss) | 0.55 | % | 1.72 | % | 0.83 | % | 0.82 | % | 0.61 | % | ||||||||||
Expenses Before Reductions(b) | 1.08 | % | 1.11 | % | 1.12 | % | 1.09 | % | 1.12 | % | ||||||||||
Expenses Net of Reductions | 1.03 | % | 1.06 | % | 1.07 | % | 1.09 | % | 1.12 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.03 | % | 1.06 | % | 1.08 | % | 1.09 | % | 1.12 | % | ||||||||||
Portfolio Turnover Rate | 13.78 | % | 23.29 | % | 25.95 | % | 14.67 | % | 8.49 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Davis NY Venture Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Derivative Instruments
The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. As of December 31, 2010, the Fund did not hold any futures contracts. During the month of April 2010, the Fund entered into 2,553 futures contracts with a total notional value of $156.6 million. There was no other futures activity during the year ended December 31, 2010.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain (Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 81,530 | $ | — | |||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | (2,299,442 | ) | — |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to an amended and restated subadvisory agreement between the Manager and Davis Selected Advisers, L.P. (“Davis”), Davis provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL Davis NY Venture Fund | 0.75% | 1.20% |
* | The Manager voluntarily reduced the management fee to 0.75% on the first $100 million of assets, 0.70% on next $400 million and 0.65% on assets above $500 million. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $14,306 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Beverages | $ | 12,671,428 | $ | 5,124,113 | $ | — | $ | 17,795,541 | ||||||||
Capital Markets | 22,695,355 | 6,359,643 | — | 29,054,998 | ||||||||||||
Food Products | 4,301,871 | 2,372,565 | — | 6,674,436 | ||||||||||||
Household Durables | — | 755,045 | — | 755,045 | ||||||||||||
Marine | — | 4,202,577 | — | 4,202,577 | ||||||||||||
Metals & Mining | — | 4,847,793 | — | 4,847,793 | ||||||||||||
Oil, Gas & Consumable Fuels | 58,646,835 | 2,850,517 | — | 61,497,352 | ||||||||||||
Pharmaceuticals | 29,556,414 | 6,554,787 | — | 36,111,201 | ||||||||||||
Real Estate Management & Development | 1,783,012 | 3,199,469 | — | 4,982,481 | ||||||||||||
Transportation Infrastructure | 451,462 | 4,373,843 | — | 4,825,305 | ||||||||||||
All Other Common Stocks+ | 244,441,751 | — | — | 244,441,751 | ||||||||||||
Convertible Bond | — | 654,530 | — | 654,530 | ||||||||||||
Investment Company | 9,716,886 | — | — | 9,716,886 | ||||||||||||
Total Investment Securities | $ | 384,265,014 | $ | 41,294,882 | $ | — | $ | 425,559,896 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Davis NY Venture Fund | $ | 59,837,664 | $ | 244,251,020 |
6. Restricted Securities
A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933 (the “1933 Act”) or pursuant to the resale limitations provided by Rule 144A under the 1933 Act, or an exemption from the registration requirements of the 1933 Act. Whether a restricted security is illiquid is determined pursuant to guidelines established by the Board of Trustees. Not all restricted securities are
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
considered illiquid. At December 31, 2010, the Fund held restricted securities representing 0.2% of net assets all of which have been deemed illiquid. The restricted illiquid securities held as of December 31, 2010 are identified below:
Acquisition | Acquisition | Principal | Fair | |||||||||||||
Security | Date | Cost | Amount | Value | ||||||||||||
Sino-Forest Corp., 5.00%, 8/1/13 | 7/17/08 | $ | 488,000 | $ | 488,000 | $ | 654,530 |
7. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31,2010, is $296,312,677. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 136,669,256 | ||
Unrealized depreciation | (7,422,037 | ) | ||
Net unrealized appreciation | $ | 129,247,219 | ||
At December 31, 2010, the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | Expires | ||||||||||
12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||
AZL Davis NY Venture Fund | $ | 109,860,629 | $ | 30,736,138 | $ | 44,314,504 |
During the year ended December 31, 2010, the Fund utilized $9,634,746 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $249,131 of deferred post October currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Davis NY Venture Fund | $ | 9,651,159 | $ | — | $ | 9,651,159 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Davis NY Venture Fund
AZL Davis NY Venture Fund
Notes to the Financial Statements, continued
December 31, 2010,
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Davis NY Venture Fund | $ | 3,881,294 | $ | — | $ | 3,881,294 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||
AZL Davis NY Venture Fund | $ | 3,366,831 | $ | (185,160,402 | ) | $ | 129,263,138 | $ | (52,530,433 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
20
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Davis NY Venture Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 65.75% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (”Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
24
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
25
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
26
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
28
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
29
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Dreyfus Equity Growth Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 7
Page 7
Statement of Operations
Page 8
Page 8
Statements of Changes in Net Assets
Page 9
Page 9
Financial Highlights
Page 10
Page 10
Notes to the Financial Statements
Page 11
Page 11
Report of Independent Registered Public Accounting Firm
Page 18
Page 18
Other Federal Income Tax Information
Page 19
Page 19
Other Information
Page 20
Page 20
Approval of Investment Advisory and Subadvisory Agreements
Page 21
Page 21
Information about the Board of Trustees and Officers
Page 25
Page 25
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Dreyfus Equity Growth Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Dreyfus Equity Growth Fund and The Dreyfus Corporation serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Dreyfus Equity Growth Fund returned 22.92%1. That compared to a 16.71% total return for its benchmark, the Russell 1000® Growth Index2.
The financial markets strengthened during the period, despite issues such as sovereign debt concerns in Europe and continued unemployment in the U.S. During the period’s third quarter, strong corporate earnings growth and other positive economic results led investors to gain confidence in the U.S. economic recovery. Growth stocks performed well in that environment, boosting the Fund’s absolute performance.
The Fund’s sub-adviser uses a bottom-up, analyst-driven approach that identifies opportunities for strong earnings growth. The Fund did not hold meaningful overweight or underweight sector positions, so its outperformance of its benchmark was attributable to individual stock selection.
The strongest relative outperformance came from individual holdings in the information technology, consumer staples, industrials and consumer discretionary sectors.*
The technology sector benefited from improving economic conditions and increased business expenditures. The Fund’s technology holdings included shares of software, peripherals and electronic equipment companies. In the consumer staples sector, the Fund benefited in relative terms from food retailers and beverage companies. The Fund also benefited from its holdings in a personal products company that saw gains after expanding into emerging markets and revamping its domestic product line.*
Individual stock selection in the financial sector hurt the Fund’s relative returns, as did certain stocks in the insurance and capital markets segments. The largest detractor from the Fund’s relative performance was its exposure to a mortgage and life insurer, which performed poorly during the period.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Dreyfus Equity Growth Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term growth of capital and income. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in stocks that are included in a widely recognized index of stock market performance.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Growth based investments can perform differently from the market as a whole and can be more volatile than other types of securities.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (11/5/01) | |||||||||||||
AZL® Dreyfus Equity Growth Fund | 22.92 | % | -1.12 | % | 3.50 | % | 2.15 | % | ||||||||
Russell 1000® Growth Index | 16.71 | % | -0.47 | % | 3.75 | % | 3.04 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Dreyfus Equity Growth Fund | 1.12 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager has voluntarily reduced the management fee to 0.70%. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the Russell 1000® Growth Index is calculated from 10/31/01. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 1000® Growth Index, an unmanaged index that measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Dreyfus Equity Growth Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Dreyfus Equity Growth Fund | $ | 1,000.00 | $ | 1,311.00 | $ | 6.00 | 1.03% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Dreyfus Equity Growth Fund | $ | 1,000.00 | $ | 1,020.01 | $ | 5.24 | 1.03% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Dreyfus Equity Growth Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | |||||
Investments | net assets* | ||||
Aerospace & Defense | 2 | .0 | % | ||
Auto Components | 0 | .9 | |||
Automobiles | 0 | .5 | |||
Beverages | 2 | .1 | |||
Biotechnology | 1 | .9 | |||
Capital Markets | 1 | .5 | |||
Chemical | 2 | .4 | |||
Communications Equipment | 3 | .3 | |||
Computers & Peripherals | 6 | .6 | |||
Consumer Finance | 1 | .0 | |||
Containers & Packaging | 0 | .7 | |||
Electrical Equipment | 1 | .3 | |||
Electronic Equipment, Instruments & Components | 2 | .0 | |||
Energy Equipment & Services | 4 | .1 | |||
Food & Staples Retailing | 2 | .0 | |||
Health Care Equipment & Supplies | 1 | .8 | |||
Health Care Providers & Services | 1 | .6 | |||
Health Care Technology | 0 | .6 | |||
Hotels, Restaurants & Leisure | 1 | .4 | |||
Household Durables | 0 | .9 | |||
Household Products | 2 | .3 | |||
Industrial Conglomerates | 1 | .5 | |||
Insurance | 0 | .7 | |||
Internet & Catalog Retail | 3 | .3 | |||
Internet Software & Services | 4 | .2 | |||
IT Services | 5 | .3 | |||
Life Sciences Tools and Services | 0 | .7 | |||
Machinery | 7 | .2 | |||
Media | 2 | .6 | |||
Metals & Mining | 1 | .8 | |||
Multiline Retail | 3 | .5 | |||
Oil, Gas & Consumable Fuels | 6 | .9 | |||
Personal Products | 0 | .7 | |||
Pharmaceuticals | 3 | .8 | |||
Semiconductors & Semiconductor Equipment | 1 | .3 | |||
Software | 6 | .3 | |||
Specialty Retail | 4 | .4 | |||
Tobacco | 2 | .2 | |||
Investment Company | 2 | .7 | |||
100 | .0 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more formation about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (97.3%): | ||||||||
Aerospace & Defense (2.0%): | ||||||||
49,420 | United Technologies Corp. | $ | 3,890,342 | |||||
Auto Components (0.9%): | ||||||||
21,690 | Autoliv, Inc. | 1,712,208 | ||||||
Automobiles (0.5%): | ||||||||
25,580 | General Motors Co.* | 942,087 | ||||||
Beverages (2.1%): | ||||||||
27,155 | Dr Pepper Snapple Group, Inc. | 954,770 | ||||||
48,540 | PepsiCo, Inc. | 3,171,118 | ||||||
4,125,888 | ||||||||
Biotechnology (1.9%): | ||||||||
13,270 | Alexion Pharmaceuticals, Inc.* | 1,068,898 | ||||||
25,920 | Celgene Corp.* | 1,532,909 | ||||||
28,400 | Vertex Pharmaceuticals, Inc.* | 994,852 | ||||||
3,596,659 | ||||||||
Capital Markets (1.5%): | ||||||||
56,890 | Charles Schwab Corp. | 973,388 | ||||||
76,710 | Janus Capital Group, Inc. | 994,929 | ||||||
34,950 | Morgan Stanley | 950,989 | ||||||
2,919,306 | ||||||||
Chemicals (2.4%): | ||||||||
26,660 | Air Products & Chemicals, Inc. | 2,424,727 | ||||||
29,480 | Mosaic Co. (The) | 2,251,093 | ||||||
4,675,820 | ||||||||
Communications Equipment (3.3%): | ||||||||
14,030 | F5 Networks, Inc.* | 1,826,145 | ||||||
91,800 | QUALCOMM, Inc. | 4,543,182 | ||||||
6,369,327 | ||||||||
Computers & Peripherals (6.6%): | ||||||||
33,348 | Apple Computer, Inc.* | 10,756,731 | ||||||
38,170 | NetApp, Inc.* | 2,097,823 | ||||||
12,854,554 | ||||||||
Consumer Finance (1.0%): | ||||||||
46,400 | American Express Co. | 1,991,488 | ||||||
Containers & Packaging (0.7%): | ||||||||
41,251 | Crown Holdings, Inc.* | 1,376,958 | ||||||
Electrical Equipment (1.3%): | ||||||||
44,130 | Cooper Industries plc | 2,572,338 | ||||||
Electronic Equipment, Instruments & Components (2.0%): | ||||||||
37,090 | Amphenol Corp., Class A | 1,957,610 | ||||||
50,210 | Trimble Navigation, Ltd.* | 2,004,885 | ||||||
3,962,495 | ||||||||
Energy Equipment & Services (4.1%): | ||||||||
33,360 | Cameron International Corp.* | 1,692,353 | ||||||
40,260 | Halliburton Co. | 1,643,816 | ||||||
54,310 | Schlumberger, Ltd. | 4,534,885 | ||||||
7,871,054 | ||||||||
Food & Staples Retailing (2.0%): | ||||||||
42,320 | Walgreen Co. | 1,648,787 | ||||||
43,530 | Whole Foods Market, Inc.* | 2,202,183 | ||||||
3,850,970 | ||||||||
Health Care Equipment & Supplies (1.8%): | ||||||||
40,150 | Covidien plc | 1,833,249 | ||||||
37,760 | St. Jude Medical, Inc.* | 1,614,240 | ||||||
3,447,489 | ||||||||
Health Care Providers & Services (1.6%): | ||||||||
29,170 | Express Scripts, Inc.* | 1,576,638 | ||||||
20,870 | McKesson HBOC, Inc. | 1,468,831 | ||||||
3,045,469 | ||||||||
Health Care Technology (0.6%): | ||||||||
61,460 | Allscripts-Misys Healthcare Solutions, Inc.* | 1,184,334 | ||||||
Hotels, Restaurants & Leisure (1.4%): | ||||||||
34,224 | Carnival Corp. | 1,578,069 | ||||||
24,860 | Las Vegas Sands Corp.* | 1,142,317 | ||||||
2,720,386 | ||||||||
Household Durables (0.9%): | ||||||||
95,370 | Newell Rubbermaid, Inc. | 1,733,827 | ||||||
Household Products (2.3%): | ||||||||
5,720 | Clorox Co. (The) | 361,962 | ||||||
19,530 | Energizer Holdings, Inc.* | 1,423,737 | ||||||
42,550 | Procter & Gamble Co. (The) | 2,737,241 | ||||||
4,522,940 | ||||||||
Industrial Conglomerates (1.5%): | ||||||||
152,780 | General Electric Co. | 2,794,346 | ||||||
Insurance (0.7%): | ||||||||
25,260 | AFLAC, Inc. | 1,425,422 | ||||||
Internet & Catalog Retail (3.3%): | ||||||||
27,810 | Amazon.com, Inc.* | 5,005,800 | ||||||
7,450 | Netflix, Inc.* | 1,308,965 | ||||||
6,314,765 | ||||||||
Internet Software & Services (4.2%): | ||||||||
35,600 | Akamai Technologies, Inc.* | 1,674,980 | ||||||
10,877 | Google, Inc., Class A* | 6,460,612 | ||||||
8,135,592 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
IT Services (5.3%): | ||||||||
41,930 | International Business Machines Corp. | $ | 6,153,647 | |||||
63,640 | Paychex, Inc. | 1,967,112 | ||||||
50,256 | Teradata Corp.* | 2,068,537 | ||||||
10,189,296 | ||||||||
Life Sciences Tools and Services (0.7%): | ||||||||
32,290 | Agilent Technologies, Inc.* | 1,337,775 | ||||||
Machinery (7.2%): | ||||||||
57,830 | Caterpillar, Inc. | 5,416,358 | ||||||
25,500 | Cummins, Inc. | 2,805,255 | ||||||
35,822 | Dover Corp. | 2,093,796 | ||||||
75,660 | Ingersoll-Rand plc | 3,562,829 | ||||||
13,878,238 | ||||||||
Media (2.6%): | ||||||||
50,260 | DIRECTV Group, Inc. (The), Class A* | 2,006,882 | ||||||
74,340 | News Corp. | 1,082,390 | ||||||
40,000 | Omnicom Group, Inc. | 1,832,000 | ||||||
4,921,272 | ||||||||
Metals & Mining (1.8%): | ||||||||
29,510 | Freeport-McMoRan Copper & Gold, Inc. | 3,543,856 | ||||||
Multiline Retail (3.5%): | ||||||||
68,120 | Macy’s, Inc. | 1,723,436 | ||||||
43,530 | Nordstrom, Inc. | 1,844,801 | ||||||
51,590 | Target Corp. | 3,102,107 | ||||||
6,670,344 | ||||||||
Oil, Gas & Consumable Fuels (6.9%): | ||||||||
137,850 | Exxon Mobil Corp. | 10,079,592 | ||||||
17,600 | Newfield Exploration Co.* | 1,269,136 | ||||||
19,650 | Occidental Petroleum Corp. | 1,927,665 | ||||||
13,276,393 | ||||||||
Personal Products (0.7%): | ||||||||
15,950 | Estee Lauder Co., Inc. (The), Class A | 1,287,165 | ||||||
Pharmaceuticals (3.8%): | ||||||||
23,880 | Allergan, Inc. | 1,639,839 | ||||||
20,880 | Hospira, Inc.* | 1,162,807 | ||||||
26,400 | Merck & Co., Inc. | 951,456 | ||||||
95,104 | Pfizer, Inc. | 1,665,271 | ||||||
29,890 | Sanofi-Aventis, SP ADR | 963,355 | ||||||
43,750 | Warner Chilcott plc, Class A | 987,000 | ||||||
7,369,728 | ||||||||
Semiconductors & Semiconductor Equipment (1.3%): | ||||||||
36,940 | Cree, Inc.* | 2,433,977 | ||||||
Software (6.3% | ): | |||||||
42,360 | BMC Software, Inc.* | 1,996,851 | ||||||
29,000 | Informatica Corp.* | 1,276,870 | ||||||
180,430 | Oracle Corp. | 5,647,459 | ||||||
10,930 | Salesforce.com, Inc.* | 1,442,760 | ||||||
20,208 | VMware, Inc., Class A* | 1,796,693 | ||||||
12,160,633 | ||||||||
Specialty Retail (4.4%): | ||||||||
22,690 | Abercrombie & Fitch Co., Class A | 1,307,625 | ||||||
34,810 | Dick’s Sporting Goods, Inc.* | 1,305,375 | ||||||
24,860 | Guess?, Inc. | 1,176,375 | ||||||
52,170 | Limited Brands, Inc. | 1,603,184 | ||||||
50,250 | Lowe’s Cos., Inc. | 1,260,270 | ||||||
81,420 | Staples, Inc. | 1,853,934 | ||||||
8,506,763 | ||||||||
Tobacco (2.2%): | ||||||||
72,819 | Philip Morris International, Inc. | 4,262,096 | ||||||
Total Common Stocks (Cost $140,303,390) | 187,874,392 | |||||||
Investment Company (2.7%): | ||||||||
5,287,077 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 5,287,077 | ||||||
Total Investment Company (Cost $5,287,077) | 5,287,077 | |||||||
Total Investment Securities (Cost $145,590,467)(b) — 100.0% | 193,161,469 | |||||||
Net other assets (liabilities) — 0.0% | (35,357 | ) | ||||||
Net Assets — 100.0% | $ | 193,126,112 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
6
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Dreyfus | ||||
Equity | ||||
Growth Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 145,590,467 | ||
Investment securities, at value | $ | 193,161,469 | ||
Dividends receivable | 168,141 | |||
Receivable for capital shares issued | 10,411 | |||
Receivable for expenses paid indirectly | 5,552 | |||
Receivable for investments sold | 1,138,835 | |||
Prepaid expenses | 2,306 | |||
Total Assets | 194,486,714 | |||
Liabilities: | ||||
Payable for investments purchased | 1,168,444 | |||
Manager fees payable | 113,392 | |||
Administration fees payable | 7,404 | |||
Distribution fees payable | 40,497 | |||
Custodian fees payable | 1,339 | |||
Administrative and compliance services fees payable | 1,617 | |||
Trustee fees payable | 323 | |||
Other accrued liabilities | 27,586 | |||
Total Liabilities | 1,360,602 | |||
Net Assets | $ | 193,126,112 | ||
Net Assets Consist of: | ||||
Capital | $ | 182,208,392 | ||
Accumulated net investment income/(loss) | 781,369 | |||
Accumulated net realized gains/(losses) from investment transactions | (37,434,651 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 47,571,002 | |||
Net Assets | $ | 193,126,112 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 20,081,728 | |||
Net Asset Value (offering and redemption price per share) | $ | 9.62 | ||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Dreyfus | ||||
Equity | ||||
Growth Fund | ||||
Investment Income: | ||||
Dividends | $ | 2,363,863 | ||
Total Investment Income | 2,363,863 | |||
Expenses: | ||||
Manager fees | 1,232,114 | |||
Administration fees | 72,593 | |||
Distribution fees | 398,204 | |||
Custodian fees | 7,935 | |||
Administrative and compliance services fees | 5,729 | |||
Trustees’ fees | 11,479 | |||
Professional fees | 18,380 | |||
Shareholder reports | 13,315 | |||
Other expenses | 6,982 | |||
Total expenses before reductions | 1,766,731 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (117,144 | ) | ||
Less expenses paid indirectly | (67,099 | ) | ||
Net expenses | 1,582,488 | |||
Net Investment Income/(Loss) | 781,375 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 17,557,775 | |||
Change in unrealized appreciation/(depreciation) on investments | 15,275,507 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 32,833,282 | |||
Change in Net Assets Resulting From Operations | $ | 33,614,657 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Statements of Changes in Net Assets
AZL Dreyfus Equity Growth Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 781,375 | $ | 665,053 | ||||
Net realized gains/(losses) on investment transactions | 17,557,775 | (24,934,979 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 15,275,507 | 65,113,936 | ||||||
Change in net assets resulting from operations | 33,614,657 | 40,844,010 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (665,056 | ) | (692,926 | ) | ||||
Change in net assets resulting from dividends to shareholders | (665,056 | ) | (692,926 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 36,753,549 | 9,743,541 | ||||||
Proceeds from dividends reinvested | 665,056 | 692,926 | ||||||
Value of shares redeemed | (31,629,694 | ) | (20,801,511 | ) | ||||
Change in net assets resulting from capital transactions | 5,788,911 | (10,365,044 | ) | |||||
Change in net assets | 38,738,512 | 29,786,040 | ||||||
Net Assets: | ||||||||
Beginning of period | 154,387,600 | 124,601,560 | ||||||
End of period | $ | 193,126,112 | $ | 154,387,600 | ||||
Accumulated net investment income/(loss) | $ | 781,369 | $ | 665,050 | ||||
Share Transactions: | ||||||||
Shares issued | 4,341,779 | 1,575,892 | ||||||
Dividends reinvested | 80,711 | 94,791 | ||||||
Shares redeemed | (3,991,009 | ) | (3,279,377 | ) | ||||
Change in shares | 431,481 | (1,608,694 | ) | |||||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.86 | $ | 5.86 | $ | 11.05 | $ | 10.52 | $ | 9.84 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.05 | 0.04 | 0.04 | 0.02 | 0.01 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.75 | 1.99 | (4.40 | ) | 0.89 | 1.22 | ||||||||||||||
Total from Investment Activities | 1.80 | 2.03 | (4.36 | ) | 0.91 | 1.23 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.04 | ) | (0.03 | ) | (0.03 | ) | (0.01 | ) | — | (a) | ||||||||||
Net Realized Gains | — | — | (0.80 | ) | (0.37 | ) | (0.55 | ) | ||||||||||||
Total Dividends | (0.04 | ) | (0.03 | ) | (0.83 | ) | (0.38 | ) | (0.55 | ) | ||||||||||
Net Asset Value, End of Period | $ | 9.62 | $ | 7.86 | $ | 5.86 | $ | 11.05 | $ | 10.52 | ||||||||||
Total Return(b) | 22.92 | % | 34.76 | % | (41.63 | )% | 8.75 | % | 12.93 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 193,126 | $ | 154,388 | $ | 124,602 | $ | 292,684 | $ | 120,849 | ||||||||||
Net Investment Income/(Loss) | 0.49 | % | 0.49 | % | 0.33 | % | 0.34 | % | 0.12 | % | ||||||||||
Expenses Before Reductions(c) | 1.11 | % | 1.12 | % | 1.10 | % | 1.23 | % | 1.19 | % | ||||||||||
Expenses Net of Reductions | 0.99 | % | 0.97 | % | 0.98 | % | 1.17 | % | 1.19 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.04 | % | 1.05 | % | 1.03 | % | 1.20 | % | 1.19 | % | ||||||||||
Portfolio Turnover Rate | 111.52 | % | 164.97 | % | 127.46 | % | 73.29 | % | 117.91 | % |
(a) | Represents less than $0.005. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(d) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Dreyfus Equity Growth Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
11
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a portfolio management agreement between the Manager and The Dreyfus Corporation (“Dreyfus”), Dreyfus provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
The fees payable to the Manager are based on a tiered structure for various net asset levels as follows: the first $10 million at 1.00%, the next $10 million at 0.875% and above $20 million at 0.75%. The Manager voluntarily reduced the management fees to 0.70%. The Manager reserves the right to stop reducing the management fee at any time.
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $4,610 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the year, the Fund paid approximately $15,266 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 187,874,392 | $ | — | $ | — | $ | 187,874,392 | ||||||||
Investment Company | 5,287,077 | — | — | 5,287,077 | ||||||||||||
Total Investment Securities | $ | 193,161,469 | $ | — | $ | — | $ | 193,161,469 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Dreyfus Equity Growth Fund | $ | 175,039,027 | $ | 172,930,178 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $146,103,003. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 47,829,701 | ||
Unrealized depreciation | (771,235 | ) | ||
Net unrealized appreciation | $ | 47,058,466 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Dreyfus Equity Growth Fund
AZL Dreyfus Equity Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Dreyfus Equity Growth Fund | $ | 709,674 | $ | 36,212,441 |
During the year ended December 31, 2010, the Fund utilized $13,947,387 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Dreyfus Equity Growth Fund | $ | 665,056 | $ | — | $ | 665,056 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Dreyfus Equity Growth Fund | $ | 692,926 | $ | — | $ | 692,926 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||
AZL Dreyfus Equity Growth Fund | $ | 781,369 | $ | (36,922,115 | ) | $ | 47,058,466 | $ | 10,917,720 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
17
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Dreyfus Equity Growth Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
21
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
22
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
23
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
25
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
26
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Eaton Vance Large Cap Value Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 20
Page 20
Other Federal Income Tax Information
Page 21
Page 21
Other Information
Page 22
Page 22
Approval of Investment Advisory and Subadvisory Agreements
Page 23
Page 23
Information about the Board of Trustees and Officers
Page 27
Page 27
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Eaton Vance Large Cap Value Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Eaton Vance Large Cap Value and Eaton Vance Management serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Eaton Vance Large Cap Value Fund returned 9.83%, which compared to a 15.51% total return for its benchmark, the Russell 1000® Value Index1.
The U.S. stock market generated positive returns in 2010, despite heightened levels of volatility and concerns about the health of the global economy. The first and fourth quarters were solid, while the middle of the year saw mixed and even negative results. The Fund’s absolute performance benefited in that environment, as nine of the 10 economic sectors represented in the Fund posted positive returns over the 12-month period.
The Fund underperformed its benchmark index during the period under review. Security selection within certain market sectors—including energy, information technology and health care—was the primary factor in the Fund’s relative underperformance. Investments that most detracted from the Fund’s performance included shares of various oil companies, a computer manufacturer and a global pharmaceuticals firm.*
Investments that contributed positively to the Fund’s performance included a global mining company and a coal producer. Our decision to underweight a particular energy company that underperformed during the period also benefited relative performance, as did our decision to not invest in a large conglomerate holding company that is a component of the Fund’s benchmark.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 1000 ® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Eaton Vance Large Cap Value Fund Review
Fund Objective
The Fund’s investment objective is to seek total return. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets in equity securities of large-cap companies.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/1/01) | |||||||||||||
AZL® Eaton Vance Large Cap Value Fund | 9.83 | % | -3.93 | % | 0.08 | % | 1.96 | % | ||||||||
Russell 1000® Value Index | 15.51 | % | -4.42 | % | 1.28 | % | 3.51 | %1 | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio2 | Gross | |||
AZL® Eaton Vance Large Cap Value Fund | 1.11 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.75% on the first $100 million of assets, 0.70% on the next $400 million, and 0.65% on assets above $500 million. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The since inception performance data and hypothetical $10,000 investment for the Russell 1000® Value Index is calculated from 4/30/01. | |
2 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fund Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and Expenses the Fund’s gross ratio would be 1.10%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 1000® Value Index, an unmanaged index that measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Eaton Vance Large Cap Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Eaton Vance Large Cap Value Fund | $ | 1,000.00 | $ | 1,201.10 | $ | 5.77 | 1.04% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Eaton Vance Large Cap Value Fund | $ | 1,000.00 | $ | 1,019.96 | $ | 5.30 | 1.04% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Eaton Vance Large Cap Value Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 3.2 | % | ||
Beverages | 1.0 | |||
Biotechnology | 1.3 | |||
Capital Markets | 2.7 | |||
Chemicals | 0.7 | |||
Commercial Banks | 8.9 | |||
Commercial Services & Supplies | 0.7 | |||
Communications Equipment | 1.5 | |||
Computers & Peripherals | 2.1 | |||
Consumer Finance | 1.0 | |||
Diversified Financial Services | 5.3 | |||
Diversified Telecommunication Services | 2.3 | |||
Electric Utilities | 1.4 | |||
Electronic Equipment, Instruments & Components | 0.7 | |||
Food & Staples Retailing | 3.4 | |||
Food Products | 3.5 | |||
Health Care Equipment & Supplies | 1.0 | |||
Health Care Providers & Services | 1.0 | |||
Hotels, Restaurants & Leisure | 2.6 | |||
Household Products | 0.5 | |||
Industrial Conglomerates | 1.9 | |||
Insurance | 5.5 | |||
IT Services | 1.5 | |||
Life Sciences Tools & Services | 0.6 | |||
Machinery | 1.5 | |||
Media | 1.5 | |||
Metals & Mining | 3.9 | |||
Multi-Utilities | 3.3 | |||
Multiline Retail | 1.1 | |||
Oil, Gas & Consumable Fuels | 13.8 | |||
Pharmaceuticals | 8.3 | |||
Real Estate Investment Trusts (REITs) | 2.4 | |||
Road & Rail | 1.6 | |||
Semiconductors & Semiconductor Equipment | 0.5 | |||
Software | 1.7 | |||
Specialty Retail | 2.4 | |||
Tobacco | 0.6 | |||
Wireless Telecommunication Services | 1.1 | |||
Investment Company | 1.9 | |||
99.9 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (98.0%): | ||||||||
Aerospace & Defense (3.2%): | ||||||||
41,510 | Boeing Co. (The) | $ | 2,708,943 | |||||
90,042 | General Dynamics Corp. | 6,389,380 | ||||||
83,098 | United Technologies Corp. | 6,541,474 | ||||||
15,639,797 | ||||||||
Beverages (1.0%): | ||||||||
76,192 | PepsiCo, Inc. | 4,977,623 | ||||||
Biotechnology (1.3%): | ||||||||
114,978 | Amgen, Inc.* | 6,312,292 | ||||||
Capital Markets (2.7%): | ||||||||
58,188 | Goldman Sachs Group, Inc. | 9,784,894 | ||||||
55,388 | Northern Trust Corp. | 3,069,049 | ||||||
12,853,943 | ||||||||
Chemicals (0.7%): | ||||||||
34,609 | Air Products & Chemicals, Inc. | 3,147,689 | ||||||
Commercial Banks (8.9%): | ||||||||
367,113 | Fifth Third Bancorp | 5,389,219 | ||||||
554,172 | KeyCorp | 4,904,422 | ||||||
173,183 | PNC Financial Services Group, Inc. | 10,515,672 | ||||||
290,867 | U.S. Bancorp | 7,844,683 | ||||||
471,007 | Wells Fargo & Co. | 14,596,507 | ||||||
43,250,503 | ||||||||
Commercial Services & Supplies (0.7%): | ||||||||
96,966 | Waste Management, Inc. | 3,575,136 | ||||||
Communications Equipment (1.5%): | ||||||||
237,828 | Cisco Systems, Inc.* | 4,811,260 | ||||||
207,075 | Telefonaktiebolaget LM Ericsson, SP ADR | 2,387,575 | ||||||
7,198,835 | ||||||||
Computers & Peripherals (2.1%): | ||||||||
124,671 | Hewlett-Packard Co. | 5,248,649 | ||||||
32,219 | International Business Machines Corp. | 4,728,461 | ||||||
9,977,110 | ||||||||
Consumer Finance (1.0%): | ||||||||
110,830 | American Express Co. | 4,756,824 | ||||||
Diversified Financial Services (5.3%): | ||||||||
720,357 | Bank of America Corp. | 9,609,562 | ||||||
701,291 | Citigroup, Inc.* | 3,317,106 | ||||||
300,985 | JPMorgan Chase & Co. | 12,767,784 | ||||||
25,694,452 | ||||||||
Diversified Telecommunication Services (2.3%): | ||||||||
187,040 | AT&T, Inc. | 5,495,235 | ||||||
159,264 | Verizon Communications, Inc. | 5,698,466 | ||||||
11,193,701 | ||||||||
Electric Utilities (1.4%): | ||||||||
193,976 | American Electric Power Co., Inc. | 6,979,256 | ||||||
Electronic Equipment, Instruments & Components (0.7%): | ||||||||
76,222 | Tyco International, Ltd. | 3,158,640 | ||||||
Food & Staples Retailing (3.4%): | ||||||||
159,288 | CVS Caremark Corp. | 5,538,444 | ||||||
201,479 | Wal-Mart Stores, Inc. | 10,865,762 | ||||||
16,404,206 | ||||||||
Food Products (3.5%): | ||||||||
50,382 | Kellogg Co. | 2,573,513 | ||||||
124,680 | Kraft Foods, Inc., Class A | 3,928,667 | ||||||
180,082 | Nestle SA | 10,552,143 | ||||||
17,054,323 | ||||||||
Health Care Equipment & Supplies (1.0%): | ||||||||
110,847 | Covidien plc | 5,061,274 | ||||||
Health Care Providers & Services (1.0%): | ||||||||
133,151 | UnitedHealth Group, Inc. | 4,808,083 | ||||||
Hotels, Restaurants & Leisure (2.6%): | ||||||||
90,050 | Carnival Corp. | 4,152,206 | ||||||
111,965 | McDonald’s Corp. | 8,594,433 | ||||||
12,746,639 | ||||||||
Household Products (0.5%): | ||||||||
42,120 | Kimberly-Clark Corp. | 2,655,245 | ||||||
Industrial Conglomerates (1.9%): | ||||||||
512,569 | General Electric Co. | 9,374,887 | ||||||
Insurance (5.5%): | ||||||||
173,204 | Lincoln National Corp. | 4,816,803 | ||||||
207,773 | MetLife, Inc. | 9,233,432 | ||||||
166,203 | Prudential Financial, Inc. | 9,757,778 | ||||||
48,446 | Travelers Cos., Inc. (The) | 2,698,927 | ||||||
26,506,940 | ||||||||
IT Services (1.5%): | ||||||||
55,437 | Accenture plc, Class A | 2,688,140 | ||||||
19,404 | MasterCard, Inc., Class A | 4,348,631 | ||||||
7,036,771 | ||||||||
Life Sciences Tools & Services (0.6%): | ||||||||
55,411 | Thermo Fisher Scientific, Inc.* | 3,067,553 | ||||||
Machinery (1.5%): | ||||||||
41,511 | Caterpillar, Inc. | 3,887,920 | ||||||
54,907 | PACCAR, Inc. | 3,152,760 | ||||||
�� | 7,040,680 | |||||||
Media (1.5%): | ||||||||
55,451 | Time Warner Cable, Inc. | 3,661,429 | ||||||
97,021 | Walt Disney Co. (The) | 3,639,258 | ||||||
7,300,687 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund, continued
AZL Eaton Vance Large Cap Value Fund, continued
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining (3.9%): | ||||||||
76,240 | BHP Billiton, Ltd., SP ADR | $ | 7,084,221 | |||||
67,591 | Freeport-McMoRan Copper & Gold, Inc. | 8,117,003 | ||||||
62,970 | United States Steel Corp. | 3,678,707 | ||||||
18,879,931 | ||||||||
Multi-Utilities (3.3%): | ||||||||
110,868 | PG&E Corp. | 5,303,925 | ||||||
159,299 | Public Service Enterprise Group, Inc. | 5,067,301 | ||||||
103,903 | Sempra Energy | 5,452,830 | ||||||
15,824,056 | ||||||||
Multiline Retail (1.1%): | ||||||||
90,081 | Target Corp. | 5,416,571 | ||||||
Oil, Gas & Consumable Fuels (13.8%): | ||||||||
97,016 | Apache Corp. | 11,567,218 | ||||||
187,025 | ConocoPhillips | 12,736,402 | ||||||
132,980 | Exxon Mobil Corp. | 9,723,498 | ||||||
131,558 | Hess Corp. | 10,069,449 | ||||||
130,260 | Occidental Petroleum Corp. | 12,778,506 | ||||||
152,410 | Peabody Energy Corp. | 9,751,192 | ||||||
66,626,265 | ||||||||
Pharmaceuticals (8.3%): | ||||||||
180,057 | Abbott Laboratories | 8,626,531 | ||||||
174,942 | Johnson & Johnson Co. | 10,820,163 | ||||||
263,240 | Merck & Co., Inc. | 9,487,169 | ||||||
651,084 | Pfizer, Inc. | 11,400,481 | ||||||
40,334,344 | ||||||||
Real Estate Investment Trusts (REITs) (2.4%): | ||||||||
39,190 | Avalonbay Communities, Inc. | 4,410,835 | ||||||
34,664 | Boston Properties, Inc. | 2,984,570 | ||||||
48,499 | Vornado Realty Trust | 4,041,422 | ||||||
11,436,827 | ||||||||
Road & Rail (1.6%): | ||||||||
83,987 | Union Pacific Corp. | 7,782,235 | ||||||
Semiconductors & Semiconductor Equipment (0.5%): | ||||||||
117,725 | Intel Corp. | 2,475,757 | ||||||
Software (1.7%): | ||||||||
193,917 | Microsoft Corp. | 5,414,163 | ||||||
96,925 | Oracle Corp. | 3,033,752 | ||||||
8,447,915 | ||||||||
Specialty Retail (2.4%): | ||||||||
97,020 | Best Buy Co., Inc. | 3,326,816 | ||||||
126,040 | Staples, Inc. | 2,869,931 | ||||||
118,920 | TJX Cos., Inc. | 5,278,858 | ||||||
11,475,605 | ||||||||
Tobacco (0.6%): | ||||||||
46,309 | Philip Morris International, Inc. | 2,710,466 | ||||||
Wireless Telecommunication Services (1.1%): | ||||||||
152,341 | Rogers Communications, Inc., Class B | 5,275,569 | ||||||
Total Common Stocks (Cost $419,779,522) | 474,458,630 | |||||||
Investment Company (1.9%): | ||||||||
9,414,465 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 9,414,465 | ||||||
Total Investment Company (Cost $9,414,465) | 9,414,465 | |||||||
Total Investment Securities (Cost $429,193,987)(b) — 99.9% | 483,873,095 | |||||||
Net other assets (liabilities) — 0.1% | 460,402 | |||||||
Net Assets — 100.0% | $ | 484,333,497 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund, continued
AZL Eaton Vance Large Cap Value Fund, continued
Schedule of Portfolio Investments
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Australia | 1 | .5% | |||
Canada | 1 | .1 | |||
Ireland (Republic of) | 1 | .6 | |||
Panama | 0 | .9 | |||
Sweden | 0 | .5 | |||
Switzerland | 2 | .8 | |||
United States | 91 | .6 | |||
100 | .0% | ||||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Eaton | ||||
Vance Large Cap | ||||
Value Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 429,193,987 | ||
Investment securities, at value | $ | 483,873,095 | ||
Dividends receivable | 770,627 | |||
Foreign currency, at value (cost $168,490) | 172,798 | |||
Receivable for capital shares issued | 96,089 | |||
Prepaid expenses | 6,093 | |||
Total Assets | 484,918,702 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 99,104 | |||
Manager fees payable | 286,327 | |||
Administration fees payable | 18,248 | |||
Distribution fees payable | 100,743 | |||
Custodian fees payable | 2,839 | |||
Administrative and compliance services fees payable | 4,246 | |||
Trustee fees payable | 849 | |||
Other accrued liabilities | 72,849 | |||
Total Liabilities | 585,205 | |||
Net Assets | $ | 484,333,497 | ||
Net Assets Consist of: | ||||
Capital | $ | 575,912,939 | ||
Accumulated net investment income/(loss) | 4,392,099 | |||
Accumulated net realized gains/(losses) from investment transactions | (150,656,291 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 54,684,750 | |||
Net Assets | $ | 484,333,497 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 58,759,992 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.24 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Eaton | ||||
Vance Large Cap | ||||
Value Fund | ||||
Investment Income: | ||||
Dividends | $ | 8,877,837 | ||
Foreign withholding tax | (88,740 | ) | ||
Total Investment Income | 8,789,097 | |||
Expenses: | ||||
Manager fees | 3,171,362 | |||
Administration fees | 188,584 | |||
Distribution fees | 1,063,398 | |||
Custodian fees | 15,742 | |||
Administrative and compliance services fees | 16,193 | |||
Trustees’ fees | 32,494 | |||
Professional fees | 51,955 | |||
Shareholder reports | 37,687 | |||
Other expenses | 19,193 | |||
Total expenses before reductions | 4,596,608 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (143,841 | ) | ||
Net expenses | 4,452,767 | |||
Net Investment Income/(Loss) | 4,336,330 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | (6,894,987 | ) | ||
Net realized gains/(losses) on forward foreign currency contracts | 21,724 | |||
Change in unrealized appreciation/(depreciation) on investments | 44,297,857 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 37,424,594 | |||
Change in Net Assets Resulting From Operations | $ | 41,760,924 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Statements of Changes in Net Assets
AZL Eaton Vance | ||||||||
Large Cap Value Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 4,336,330 | $ | 4,862,490 | ||||
Net realized gains/(losses) on investment transactions | (6,873,263 | ) | (41,120,631 | ) | ||||
Change in unrealized appreciation/(depreciation) on investments | 44,297,857 | 125,975,556 | ||||||
Change in net assets resulting from operations | 41,760,924 | 89,717,415 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (4,821,879 | ) | (11,096,604 | ) | ||||
Change in net assets resulting from dividends to shareholders | (4,821,879 | ) | (11,096,604 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 86,757,920 | 52,387,278 | ||||||
Proceeds from dividends reinvested | 4,821,879 | 11,096,604 | ||||||
Value of shares redeemed | (52,564,536 | ) | (79,494,253 | ) | ||||
Change in net assets resulting from capital transactions | 39,015,263 | (16,010,371 | ) | |||||
Change in net assets | 75,954,308 | 62,610,440 | ||||||
Net Assets: | ||||||||
Beginning of period | 408,379,189 | 345,768,749 | ||||||
End of period | $ | 484,333,497 | $ | 408,379,189 | ||||
Accumulated net investment income/(loss) | $ | 4,392,099 | $ | 4,858,131 | ||||
Share Transactions: | ||||||||
Shares issued | 11,200,812 | 9,029,352 | ||||||
Dividends reinvested | 648,974 | 1,518,003 | ||||||
Shares redeemed | (6,928,437 | ) | (12,727,212 | ) | ||||
Change in shares | 4,921,349 | (2,179,857 | ) | |||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.59 | $ | 6.17 | $ | 11.21 | $ | 12.00 | $ | 11.15 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.07 | 0.10 | 0.22 | 0.19 | 0.18 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.67 | 1.53 | (3.95 | ) | (0.43 | ) | 1.52 | |||||||||||||
Total from Investment Activities | 0.74 | 1.63 | (3.73 | ) | (0.24 | ) | 1.70 | |||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.09 | ) | (0.21 | ) | (0.20 | ) | (0.20 | ) | (0.13 | ) | ||||||||||
Net Realized Gains | — | — | (1.11 | ) | (0.35 | ) | (0.72 | ) | ||||||||||||
Total Dividends | (0.09 | ) | (0.21 | ) | (1.31 | ) | (0.55 | ) | (0.85 | ) | ||||||||||
Net Asset Value, End of Period | $ | 8.24 | $ | 7.59 | $ | 6.17 | $ | 11.21 | $ | 12.00 | ||||||||||
Total Return(a) | 9.83 | % | 26.53 | % | (36.18 | )% | (2.22 | )% | 15.76 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 484,333 | $ | 408,379 | $ | 345,769 | $ | 754,496 | $ | 705,155 | ||||||||||
Net Investment Income/(Loss) | 1.02 | % | 1.36 | % | 2.00 | % | 1.58 | % | 1.71 | % | ||||||||||
Expenses Before Reductions(b) | 1.08 | % | 1.10 | % | 1.07 | % | 1.08 | % | 1.08 | % | ||||||||||
Expenses Net of Reductions | 1.05 | % | 1.05 | % | 1.01 | % | 1.05 | % | 1.05 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.05 | % | 1.07 | % | 1.03 | % | 1.05 | % | 1.05 | % | ||||||||||
Portfolio Turnover Rate | 34.47 | % | 118.17 | % | 25.81 | % | 22.75 | % | 28.14 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Eaton Vance Large Cap Value Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 21,724 | $ | — |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and Eaton Vance Management (“Eaton Vance”), Eaton Vance provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
The fees payable to the Manager are based on a tiered structure for various net assets levels as follows: the first $100 million at 0.775%, the next $150 million at 0.75%, the next $250 million at 0.725% and above $500 million at 0.675%. The Manager voluntarily reduced the management fees as follows: the first $100 million at 0.75%, from $100 million to $500 million at 0.70% and above $500 million at 0.65%. The Manager reserves the right to stop reducing the manager fee at any time.
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $12,365 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the period ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Food Products | $ | 6,502,180 | $ | 10,552,143 | $ | — | $ | 17,054,323 | ||||||||
All Other Common Stocks+ | 457,404,307 | — | — | 457,404,307 | ||||||||||||
Investment Company | 9,414,465 | — | — | 9,414,465 | ||||||||||||
Total Investment Securities | $ | 473,320,952 | $ | 10,552,143 | $ | — | $ | 483,873,095 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Eaton Vance Large Cap Value Fund | $ | 177,652,198 | $ | 142,370,733 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $437,416,346. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 62,035,318 | ||
Unrealized depreciation | (15,578,569 | ) | ||
Net unrealized appreciation | $ | 46,456,749 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | Expires | ||||||||||
12/31/2016 | 12/31/2017 | 12/31/2018 | ||||||||||
AZL Eaton Vance Large Cap Value Fund | $ | 52,518,858 | $ | 84,345,488 | $ | 5,491,128 |
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Eaton Vance Large Cap Value Fund | $ | 4,821,879 | $ | — | $ | 4,821,879 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Eaton Vance Large Cap Value Fund | $ | 11,096,604 | $ | — | $ | 11,096,604 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Eaton Vance Large Cap Value Fund
AZL Eaton Vance Large Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||
AZL Eaton Vance Large Cap Value Fund | $ | 4,313,641 | $ | (142,355,474 | ) | $ | 46,462,391 | $ | (91,579,442 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
19
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Eaton Vance Large Cap Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
23
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
24
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
25
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
27
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
28
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Enhanced Bond Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 13
Page 13
Statement of Operations
Page 14
Page 14
Statement of Changes in Net Assets
Page 15
Page 15
Financial Highlights
Page 16
Page 16
Notes to the Financial Statements
Page 17
Page 17
Report of Independent Registered Public Accounting Firm
Page 25
Page 25
Other Federal Income Tax Information
Page 26
Page 26
Other Information
Page 27
Page 27
Approval of Investment Advisory and Subadvisory Agreements
Page 28
Page 28
Information about the Board of Trustees and Officers
Page 32
Page 32
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Enhanced Bond Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Enhanced Bond Index Fund and BlackRock Financial Management, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Enhanced Bond Index Fund had a return of 5.62%. That compared to a 6.54% total return for its benchmark, the Barclays Capital U.S. Aggregate Bond Index1.
U.S. corporate fixed-income securities started the year with lackluster performance, as fears of an economic slowdown and concerns about European sovereign debt weighed on performance. However, during the second half of the year fixed-income securities benefitted from investors’ desire for yield, as well as an improving economic picture, particularly in consumer spending and manufacturing.
The Index’s best-performing sectors were commercial mortgage-backed securities (“CMBs”), U.S. corporate issues and U.S. noncorporate bonds. CMBs benefitted from record-low interest rates, which created an environment in which investors aggressively sought higher-yielding bonds. Several factors made CMBs an ideal sector with which to add incremental yield during the period: long spread duration, historically wide spreads to the swap curve, and greater clarity regarding loss expectations for loans originated at the peak of the market.
The Fund’s underperformance was related to three factors: duration management, an underweight to agency mortgage-backed securities, and an overweight allocation to taxable municipal bonds. Agency mortgage-backed bonds finished a strong year by outperforming Treasuries during the fourth quarter, despite headwinds such as the removal of government support, significant spread volatility, and fears of government programs potentially reshaping the market. Conversely, taxable municipal bonds struggled during the fourth quarter: Municipal bond markets saw record-setting levels of issuance, and Congress elected not to extend the Build America Bonds program.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Barclays Capital U.S. Aggregate Bond Index is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Enhanced Bond Index Fund Review
Fund Objective
The Fund’s investment objective is to exceed the total return of the Barclays Capital U.S. Aggregate Bond Index (the “Index”). This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in a combination of corporate and asset-backed securities in an amount that is within 40% of the weightings of the Index, in government securities in an amount that is within 30% of the weightings of the Index, and in mortgage securities in an amount that is within 30% of the weightings of the Index.
Investment Concerns
Bonds offer a relatively stable level of income, although bond prices will fluctuate, providing the potential for principal gain or loss. Intermediate-term, higher quality bonds generally offer less risk than longer-term bonds and a lower rate of return.
Investing in derivatives instruments involves risks that may be different from or greater than the risk associated with investing directly in securities or other traditional instruments.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||
1 | Inception | |||||||
Year | (7/10/09) | |||||||
AZL® Enhanced Bond Index Fund | 5.62 | % | 4.05 | % | ||||
Barclays Capital U.S. Aggregate Bond Index | 6.54 | % | 6.33 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio2 | Gross | |||
AZL® Enhanced Bond Index Fund | 0.78 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.70% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the Barclays Capital U.S. Aggregate Bond Index is calculated from 6/30/09. | |
2 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fund Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and Expenses the Fund’s gross ratio would be 0.70%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Barclays Capital U.S. Aggregate Bond Index, which is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Enhanced Bond Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,008.00 | $ | 3.54 | 0.70% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,021.68 | $ | 3.57 | 0.70% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Enhanced Bond Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Asset Backed Securities | 9.3 | % | ||
Beverages | 0.3 | |||
Capital Markets | 1.1 | |||
Capital Markets | 0.5 | |||
Chemicals | 0.1 | |||
Collateralized Mortgage Obligations | 6.1 | |||
Commercial Banks | 0.8 | |||
Commercial Banks | 0.1 | |||
Diversified Consumer Services | 0.2 | |||
Diversified Financial Services | 5.7 | |||
Diversified Telecommunication Services | 1.1 | |||
Electric Utilities | 0.9 | |||
Electronic Equipment, Instruments & Components | 0.2 | |||
Food Products | 0.3 | |||
Health Care Equipment & Supplies | 0.2 | |||
Health Care Technology | 0.2 | |||
Industrial Conglomerates | 0.6 | |||
Insurance | 1.4 | |||
Media | 1.4 | |||
Metals & Mining | 0.4 | |||
Municipal Bonds | 1.8 | |||
Oil, Gas & Consumable Fuels | 1.6 | |||
Paper & Forest Products | 0.1 | |||
Pharmaceuticals | 0.2 | |||
Road & Rail | 0.1 | |||
Software | 0.1 | |||
Sovereign Bond | 1.5 | |||
Specialty Retail | 0.1 | |||
Thrifts & Mortgage Finance | — | ˆ | ||
U.S. Government Agency | 0.1 | |||
U.S. Government Agency Mortgages | 31.7 | |||
U.S. Treasury Obligations | 47.7 | |||
Investment Company | 4.3 | |||
120.2 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
ˆ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Asset Backed Securities (9.3%): | ||||||||
$ | 869,009 | 321 Henderson Receivables LLC, Series 2010-3A, Class A, 3.82%, 1/15/32(a) | $ | 832,905 | ||||
1,380,000 | Ally Auto Receivables Trust, Series 2010-5, Class A3, 1.11%, 1/15/15 | 1,378,409 | ||||||
1,420,000 | Ally Auto Receivables Trust, Series 2010-5, Class A4, 1.75%, 3/15/16 | 1,404,964 | ||||||
700,000 | AmeriCredit Automobile Receivables Trust, Series 2010-4, Class A3, 1.27%, 4/8/15 | 699,472 | ||||||
517,532 | Bank of America Auto Trust, Series 2009-1A, Class A3, 2.67%, 7/15/13(a) | 523,058 | ||||||
199,030 | Bank of America Auto Trust, Series 2009-2A, Class A3, 2.13%, 9/15/13(a) | 200,713 | ||||||
136,669 | CarMax Auto Owner Trust, Series 2009-1, Class A3, 4.12%, 3/15/13 | 139,052 | ||||||
2,295,000 | Citibank Omni Master Trust, Series 2009-A8, Class A8, 2.36%, 5/16/16(a) (b) | 2,323,442 | ||||||
760,000 | Citibank Omni Master Trust, Series 2009-A12, Class A12, 3.35%, 8/15/16(a) | 777,101 | ||||||
635,000 | Citibank Omni Master Trust, Series 2009-A14A, Class A14, 3.01%, 8/15/18(a) (b) | 664,847 | ||||||
435,000 | Credit Acceptance Auto Loan Trust, Series 2010-1, Class A, 2.06%, 4/16/18(a) | 432,899 | ||||||
250,000 | Ford Credit Auto Owner Trust, Series 2009-A, Class A4, 6.07%, 5/15/14 | 270,046 | ||||||
107,046 | Ford Credit Auto Owner Trust, Series 2009-A, Class A3A, 3.96%, 5/15/13 | 108,899 | ||||||
735,000 | Ford Credit Floorplan Master Owner Trust, Series 2006-4, Class A, 0.51%, 6/15/13(b) | 732,871 | ||||||
1,000,000 | GMAC Mortgage Servicer Advance Funding Co., Ltd., Series 2010-1A, Class A, 4.25%, 5/15/11(a) | 1,005,162 | ||||||
30,269 | GSAA Home Equity Trust, Series 2007-5, Class 1AV1, 0.36%, 5/25/37(b) | 19,046 | ||||||
504,910 | Henderson Receivables LLC, Series 2010-1A, Class A, 5.56%, 7/15/59(a) | 522,079 | ||||||
460,000 | Nelnet Student Loan Trust, Series 2008-2, Class A4, 2.00%, 6/26/34(b) | 478,927 | ||||||
680,000 | Santander Drive Auto Receivables Trust, Series 2010-2, Class A2, 0.95%, 8/15/13 | 680,794 | ||||||
845,000 | Santander Drive Auto Receivables Trust, Series 2010-B, Class A3, 1.31%, 2/17/14(a) | 843,025 | ||||||
915,000 | Santander Drive Auto Receivables Trust, Series 2010-3, Class A3, 1.20%, 6/16/14 | 915,123 | ||||||
750,000 | SLC Student Loan Trust, Series 2008-1, Class A4A, 1.89%, 12/15/32(b) | 776,026 | ||||||
882,702 | SLM Student Loan Trust, Series 2010-1, Class A, 0.66%, 7/25/17(b) | 879,675 | ||||||
1,136,288 | SLM Student Loan Trust, Series 2008-5, Class A2, 1.39%, 10/25/16(b) | 1,150,450 | ||||||
530,000 | SLM Student Loan Trust, Series 2008-4, Class A4, 1.94%, 1/24/17(b) | 552,099 | ||||||
625,000 | SLM Student Loan Trust, Series 2008-5, Class A4, 1.99%, 7/25/23(b) | 650,054 | ||||||
247,804 | Structured Receivables Finance LLC, Series 2010-B, Class A, 0.66%, 2/16/26(a) | 243,468 | ||||||
Total Asset Backed Securities (Cost $19,231,187) | 19,204,606 | |||||||
Collateralized Mortgage Obligations (6.1%): | ||||||||
690,000 | Arkle Master Issuer plc, Series 2010-2A, Class 1A1, 1.68%, 8/17/13(a) (b) | 689,034 | ||||||
590,000 | Arkle Master Issuer plc, Series 2010-1A, Class 2A, 1.43%, 2/17/15(a) (b) | 586,087 | ||||||
350,000 | Banc of America Commercial Mortgage, Inc., Series 2007-3, Class A2, 5.66%, 7/10/12(b) | 363,720 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
$ | 1,510,000 | Banc of America Commercial Mortgage, Inc., Series 2007-4, Class A3, 5.81%, 8/10/14(b) | $ | 1,591,481 | ||||
200,000 | Banc of America Commercial Mortgage, Inc., Series 2006-4, Class AM, 5.68%, 8/10/16 | 201,491 | ||||||
50,000 | Bear Stearns Commercial Mortgage Securities, Inc., Series 2005-PW10, Class AM, 5.45%, 12/15/15(b) | 50,449 | ||||||
100,000 | Credit Suisse Mortgage Capital Certificate, Series 2006-C3, Class AM, 5.83%, 6/15/16(b) | 101,835 | ||||||
945,569 | Credit Suisse Mortgage Capital Certificate, Series 2007-C3, Class A2, 5.72%, 6/15/39(b) | 973,062 | ||||||
711,000 | Credit Suisse Mortgage Capital Certificate, Series 2007-C2, Class A2, 5.45%, 1/15/49(b) | 724,900 | ||||||
127,139 | Fannie Mae, Series 2009-70, Class NT, 4.00%, 8/25/19 | 132,204 | ||||||
94,242 | Freddie Mac, Series 2890, Class KC, 4.50%, 2/15/19 | 98,736 | ||||||
500,000 | Greenwich Capital Commercial Funding Corp., Series 2006-GG7, Class A4, 5.88%, 6/10/16(b) | 545,499 | ||||||
180,000 | Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class A4, 4.80%, 12/10/14(b) | 190,012 | ||||||
650,000 | Holmes Master Issuer plc, Series 2007-2A, Class 3A1, 0.37%, 7/15/21(b) | 645,461 | ||||||
890,000 | Holmes Master Issuer plc, Series 2010-1A, Class A2, 1.67%, 10/15/54(a) (b) | 887,597 | ||||||
1,260,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP8, Class A3B, 5.45%, 5/15/45 | 1,313,040 | ||||||
1,000,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Series 2007-LD11, Class A2, 5.80%, 7/15/12(b) | 1,035,634 | ||||||
170,000 | LB-UBS Commercial Mortgage Trust, Series 2006-C4, Class AM, 5.90%, 6/15/38(b) | 176,605 | ||||||
1,085,000 | LB-UBS Commercial Mortgage Trust, Series 2006-C6, Class A4, 5.37%, 9/15/39 | 1,160,830 | ||||||
190,000 | LB-UBS Commercial Mortgage Trust, Series 2007-C7, Class A3, 5.90%, 9/15/45(b) | 199,923 | ||||||
200,000 | Morgan Stanley Capital I, Series 2007-IQ15, Class A2, 5.84%, 8/11/12(b) | 207,877 | ||||||
620,000 | RBSCF Trust, Series 2010-RR3, Class WBTA, 5.90%, 4/16/17(a) (b) | 657,026 | ||||||
Total Collateralized Mortgage Obligations (Cost $12,097,552) | 12,532,503 | |||||||
Corporate Bonds (11.8%): | ||||||||
Beverages (0.3%): | ||||||||
555,000 | Anheuser-Busch InBev NV Worldwide, Inc., 3.00%, 10/15/12 | 572,656 | ||||||
Capital Markets (1.1%): | ||||||||
235,000 | Goldman Sachs Capital Corp. II(b) (c) | 199,162 | ||||||
575,000 | Goldman Sachs Group, Inc., 5.38%, 3/15/20, MTN | 594,183 | ||||||
310,000 | Morgan Stanley, Series G, 2.79%, 5/14/13, MTN(b) | 321,246 | ||||||
150,000 | Morgan Stanley, 4.00%, 7/24/15 | 150,778 | ||||||
905,000 | Morgan Stanley, Series F, 6.25%, 8/28/17, MTN | 974,835 | ||||||
2,240,204 | ||||||||
Commercial Banks (0.1%): | ||||||||
50,000 | Enterprise Products Operating LP, 6.13%, 2/1/13 | 53,867 | ||||||
50,000 | Enterprise Products Operating LP, Series L, 6.30%, 9/15/17 | 56,419 | ||||||
110,286 | ||||||||
Diversified Consumer Services (0.2%): | ||||||||
471,000 | Yale University, Series B, 2.90%, 10/15/14, MTN | 485,804 | ||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Financial Services (3.2%): | ||||||||
$ | 680,000 | Bank of America Corp., 5.63%, 7/1/20 | $ | 693,255 | ||||
125,000 | BP Capital Markets plc, 1.55%, 8/11/11 | 125,565 | ||||||
330,000 | Citibank Credit Card Issuance Trust, Series 2001-A4, 5.38%, 4/11/11 | 444,156 | ||||||
1,925,000 | Citigroup, Inc., 4.59%, 12/15/15 | 2,006,830 | ||||||
535,000 | Crown Castle Towers LLC, 6.11%, 1/15/20(a) | 558,177 | ||||||
370,000 | General Electric Capital Corp., 4.38%, 9/16/20, MTN | 364,138 | ||||||
140,000 | Goldman Sachs Group, Inc., 6.00%, 6/15/20 | 151,293 | ||||||
860,000 | JPMorgan Chase & Co., 6.30%, 4/23/19 | 978,899 | ||||||
225,000 | JPMorgan Chase & Co., 4.95%, 3/25/20 | 230,978 | ||||||
692,000 | JPMorgan Chase & Co., 4.25%, 10/15/20 | 675,842 | ||||||
340,000 | SteelRiver Transmission Co. LLC, 4.71%, 6/30/17(a) | 334,288 | ||||||
6,563,421 | ||||||||
Diversified Telecommunication Services (0.5%): | ||||||||
400,000 | AT&T, Inc., 6.40%, 5/15/38 | 425,202 | ||||||
450,000 | Verizon Communications, Inc., 6.90%, 4/15/38 | 524,859 | ||||||
950,061 | ||||||||
Electric Utilities (0.9%): | ||||||||
220,000 | Carolina Power & Light Co., 5.70%, 4/1/35 | 227,299 | ||||||
100,000 | Duke Energy Corp., 3.95%, 9/15/14 | 104,792 | ||||||
65,000 | Florida Power & Light Co., 5.95%, 2/1/38 | 72,026 | ||||||
40,000 | MidAmerican Energy Holdings Co., 5.95%, 5/15/37 | 42,193 | ||||||
850,000 | Pacificorp, 5.65%, 7/15/18 | 972,855 | ||||||
350,000 | Progress Energy Carolinas, Inc., 5.30%, 1/15/19 | 388,507 | ||||||
1,807,672 | ||||||||
Electronic Equipment, Instruments & Components (0.2%): | ||||||||
400,000 | SBA Tower Trust, 4.25%, 4/15/15(a) | 413,923 | ||||||
Food Products (0.3%): | ||||||||
515,000 | Kraft Foods, Inc., 6.50%, 2/9/40 | 577,124 | ||||||
Health Care Equipment & Supplies (0.2%): | ||||||||
210,000 | Boston Scientific Corp., 6.25%, 11/15/15 | 222,761 | ||||||
200,000 | CareFusion Corp., 6.38%, 8/1/19 | 225,958 | ||||||
448,719 | ||||||||
Health Care Technology (0.2%): | ||||||||
160,000 | Life Technologies Corp., 6.00%, 3/1/20 | 171,382 | ||||||
300,000 | Life Technologies Corp., 5.00%, 1/15/21, Callable 10/15/20 @ 100 | 297,175 | ||||||
468,557 | ||||||||
Industrial Conglomerates (0.6%): | ||||||||
550,000 | Dow Chemical Co. (The), 4.25%, 11/15/20, Callable 8/15/20 @ 100 | 526,844 | ||||||
555,000 | General Electric Capital Corp., Series G, 6.15%, 8/7/37, MTN | 585,020 | ||||||
175,000 | MDC Holdings, Inc., 5.63%, 2/1/20 | 172,613 | ||||||
1,284,477 | ||||||||
Insurance (1.4%): | ||||||||
100,000 | American International Group, Inc., 6.40%, 12/15/20 | 104,921 | ||||||
960,000 | MetLife Global Funding I, 2.50%, 1/11/13(a) | 980,966 | ||||||
1,125,000 | MetLife, Inc., 6.75%, 6/1/16 | 1,304,958 | ||||||
350,000 | Prudential Financial, Inc., 6.20%, 11/15/40, MTN | 370,248 | ||||||
200,000 | Unitedhealth Group, Inc., 3.88%, 10/15/20, Callable 7/15/20 @ 100 | 190,804 | ||||||
2,951,897 | ||||||||
Media (1.4%): | ||||||||
337,000 | Comcast Corp., 6.40%, 3/1/40 | 361,218 | ||||||
295,000 | Cox Communications, Inc., 8.38%, 3/1/39(a) | 382,294 | ||||||
90,000 | DIRECTV Holdings LLC, 6.00%, 8/15/40 | 90,354 | ||||||
50,000 | Discovery Communications, Inc., 6.35%, 6/1/40 | 54,004 |
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Media, continued | ||||||||
$ | 245,000 | Historic TW, Inc., 6.88%, 6/15/18 | $ | 286,980 | ||||
280,000 | NBC Universal, Inc., 5.15%, 4/30/20(a) | 290,255 | ||||||
650,000 | NBC Universal, Inc., 4.38%, 4/1/21(a) | 630,895 | ||||||
490,000 | News America, Inc., 7.25%, 5/18/18 | 591,197 | ||||||
140,000 | Time Warner Cable, Inc., 5.00%, 2/1/20 | 144,079 | ||||||
80,000 | Time Warner, Inc., 4.70%, 1/15/21 | 81,454 | ||||||
60,000 | Time Warner, Inc., 6.10%, 7/15/40 | 62,957 | ||||||
2,975,687 | ||||||||
Oil, Gas & Consumable Fuels (0.6%): | ||||||||
216,000 | El Paso Pipeline Partners Operating Co. LLC, 6.50%, 4/1/20 | 226,625 | ||||||
30,000 | Petrobras International Finance, Inc., 5.88%, 3/1/18 | 31,945 | ||||||
265,000 | Rockies Express Pipeline LLC, 3.90%, 4/15/15(a) | 262,109 | ||||||
300,000 | Southwestern Energy Co., 7.50%, 2/1/18 | 338,250 | ||||||
300,000 | Valero Energy Corp., 6.63%, 6/15/37 | 304,690 | ||||||
1,163,619 | ||||||||
Paper & Forest Products (0.1%): | ||||||||
145,000 | International Paper Co., 7.30%, 11/15/39 | 165,219 | ||||||
Pharmaceuticals (0.2%): | ||||||||
300,000 | Merck & Co., Inc., 4.00%, 6/30/15 | 321,870 | ||||||
Road & Rail (0.1%): | ||||||||
170,000 | Burlington Northern Santa Fe Corp., 5.75%, 5/1/40, Callable 11/1/39 @ 100 | 175,885 | ||||||
Software (0.1%): | ||||||||
250,000 | Oracle Corp., 5.38%, 7/15/40(a) | 253,153 | ||||||
Specialty Retail (0.1%): | ||||||||
275,000 | Home Depot, Inc., 5.88%, 12/16/36 | 286,041 | ||||||
Thrifts & Mortgage Finance (0.0%): | ||||||||
90,000 | Prudential Financial, Inc., Series D, 4.75%, 9/17/15, MTN | 95,219 | ||||||
Total Corporate Bonds (Cost $23,903,483) | 24,311,494 | |||||||
Yankee Dollars (7.4%): | ||||||||
Capital Markets (0.5%): | ||||||||
760,000 | UBS AG Stamford CT, 2.25%, 8/12/13 | 766,486 | ||||||
250,000 | UBS AG Stamford CT, 4.88%, 8/4/20 | 254,335 | ||||||
1,020,821 | ||||||||
Chemicals (0.1%): | ||||||||
155,000 | Agrium, Inc., 6.13%, 1/15/41, Callable 7/15/40 @ 100 | 164,161 | ||||||
Commercial Banks (0.8%): | ||||||||
100,000 | Achmea Hypotheekbank NV, 3.20%, 11/3/14(a) | 104,042 | ||||||
385,000 | Barclays Bank plc, 6.05%, 12/4/17(a) | 394,934 | ||||||
655,000 | DnB NOR Boligkreditt AS, 2.10%, 10/14/15(a) | 622,903 | ||||||
495,000 | Toronto-Dominion Bank, 2.20%, 7/29/15(a) | 486,921 | ||||||
1,608,800 | ||||||||
Diversified Financial Services (2.5%): | ||||||||
145,000 | BP Capital Markets plc, 3.13%, 3/10/12 | 148,268 | ||||||
500,000 | BP Capital Markets plc, 5.25%, 11/7/13 | 541,507 | ||||||
725,000 | BP Capital Markets plc, 3.13%, 10/1/15 | 724,502 | ||||||
680,000 | CDP Financial, Inc., 3.00%, 11/25/14(a) | 691,224 | ||||||
425,000 | Credit Suisse Group AG, 5.40%, 1/14/20 | 434,041 | ||||||
260,000 | Credit Suisse Guernsey, 5.86%, 12/31/49, Callable 5/15/17 @ 100(b) | 245,700 | ||||||
100,000 | Credit Suisse, NY, 5.50%, 5/1/14 | 109,665 | ||||||
1,985,000 | Dexia Credit Local, 2.75%, 4/29/14(a) | 2,013,650 | ||||||
310,000 | Manulife Financial Corp., 3.40%, 9/17/15 | 303,654 | ||||||
5,212,211 | ||||||||
Diversified Telecommunication Services (0.6%): | ||||||||
485,000 | Telefonica Emisiones SAU, 4.95%, 1/15/15 | 502,307 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Yankee Dollars, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 765,000 | Vodafone Group plc, 4.15%, 6/10/14 | $ | 804,152 | ||||
1,306,459 | ||||||||
Health Care Equipment & Supplies (0.0%): | ||||||||
90,000 | Covidien International Finance SA, 2.80%, 6/15/15 | 90,333 | ||||||
Metals & Mining (0.4%): | ||||||||
75,000 | AngloGold Ashanti Holdings plc, 6.50%, 4/15/40 | 76,670 | ||||||
148,000 | AngloGold Holdings plc, 5.38%, 4/15/20 | 153,920 | ||||||
250,000 | Codelco, Inc., 3.75%, 11/4/20(a) | 236,884 | ||||||
268,000 | Rio Tinto Finance USA, Ltd., 3.50%, 11/2/20 | 254,404 | ||||||
721,878 | ||||||||
Oil, Gas & Consumable Fuels (1.0%): | ||||||||
235,000 | Canadian Natural Resources, Ltd., 6.50%, 2/15/37 | 267,312 | ||||||
260,000 | Cenovus Energy, Inc., 6.75%, 11/15/39 | 302,899 | ||||||
210,000 | Kinder Morgan Energy Partners LP, 5.30%, 9/15/20 | 218,046 | ||||||
275,000 | Nexen, Inc., 5.65%, 5/15/17 | 293,390 | ||||||
225,000 | Nexen, Inc., 6.20%, 7/30/19 | 242,274 | ||||||
645,000 | Petrobras International Finance Co., 5.75%, 1/20/20 | 669,231 | ||||||
1,993,152 | ||||||||
Sovereign Bond (1.5%): | ||||||||
625,000 | Eksportfinans A/S, Series G, 1.88%, 4/2/13, MTN | 632,285 | ||||||
240,000 | Eksportfinans A/S, 3.00%, 11/17/14 | 247,662 | ||||||
955,000 | Eksportfinans A/S, 2.00%, 9/15/15 | 932,672 | ||||||
396,000 | Eksportfinans A/S, 5.50%, 5/25/16, MTN | 445,728 | ||||||
100,000 | Japan Finance Corp., 2.00%, 6/24/11 | 100,752 | ||||||
455,000 | Japan Finance Corp., 1.88%, 9/24/15 | 444,202 | ||||||
196,900 | Russia Foreign Bond, 5.95%, 3/31/30(a)(d) | 227,715 | ||||||
3,031,016 | ||||||||
Total Yankee Dollars (Cost $15,134,374) | 15,148,831 | |||||||
Municipal Bonds (1.8%): | ||||||||
800,000 | California State, Build America Bonds, GO, 6.65%, 3/1/22 | 831,312 | ||||||
140,000 | California State, Build America Bonds, GO, 7.35%, 11/1/39 | 141,800 | ||||||
150,000 | Chicago Illinois O’hare International Airport, Build America Bonds, Revenue, 6.40%, 1/1/40 | 141,560 | ||||||
175,000 | Chicago Illinois Waterworks, Build America Bonds, Revenue, 6.74%, 11/1/40 | 170,678 | ||||||
70,000 | Dallas Area Rapid Transit Sales Tax, Build America Bonds, Revenue, 5.02%, 12/1/48 | 61,900 | ||||||
200,000 | Metropolitan Transportation Authority New York Dedicated Tax Fund, 7.34%, 11/15/39, AMT | 220,616 | ||||||
250,000 | Metropolitan Transportation Authority New York, Revenue, 6.55%, 11/15/31 | 245,167 | ||||||
130,000 | Municipal Electric Authority of Georgia, Build America Bonds, Revenue, Series A, 6.64%, 4/1/57 | 127,075 | ||||||
115,000 | Napa Valley Unified School District, Build America Bonds, GO, Series B, 6.51%, 8/1/43 | 112,609 | ||||||
715,000 | New Jersey State Transportation Trust Fund Authority, Build America Bonds, Revenue, Series B, 6.56%, 12/15/40 | 719,969 | ||||||
175,000 | New York State Dormitory Authority State Personal Income Tax, Build America Bonds, Revenue, 5.39%, 3/15/40 | 163,595 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Municipal Bonds, continued | ||||||||
$ | 180,000 | New York State Dormitory Authority State Personal Income Tax, Revenue, 5.63%, 3/15/39 | $ | 174,325 | ||||
20,000 | Sacramento Municipal Utility District, Build America Bonds, Revenue, 6.16%, 5/15/36 | 18,922 | ||||||
150,000 | San Diego County Regional Airport Authority, Build America Bonds, Revenue, Series C, 6.63%, 7/1/40, Callable 7/1/20 @ 100 | 143,565 | ||||||
125,000 | University of California, Build America Bonds, Revenue, 5.95%, 5/15/45 | 114,184 | ||||||
250,000 | Utah Transit Authority Sales Tax, Build America Bonds, Revenue, 5.71%, 6/15/40 | 222,495 | ||||||
Total Municipal Bonds (Cost $3,741,479) | 3,609,772 | |||||||
U.S. Government Agency (0.1%): | ||||||||
130,000 | Tennessee Valley Authority, 5.25%, 9/15/39 | 137,438 | ||||||
Total U.S. Government Agency (Cost $128,573) | 137,438 | |||||||
U.S. Government Agency Mortgages (31.7%): | ||||||||
Federal Home Loan Mortgage Corporation (2.3%) | ||||||||
1,220,000 | 4.00%, 12/1/40, Pool #A95575(e) | 1,212,393 | ||||||
390,000 | 4.00%, 12/1/40, Pool #A95656(e) | 387,568 | ||||||
565,000 | 4.00%, 12/1/40, Pool #A95856(e) | 561,477 | ||||||
1,500,000 | 4.50%, 1/15/41, TBA(e) | 1,537,032 | ||||||
700,000 | 5.00%, 1/15/41, TBA(e) | 734,125 | ||||||
100,000 | 5.50%, 1/15/41, TBA(e) | 106,563 | ||||||
4,539,158 | ||||||||
Federal National Mortgage Association (29.0%) | ||||||||
1,100,000 | 5.13%, 1/2/14 | 1,206,084 | ||||||
2,200,000 | 4.00%, 1/25/26, TBA(e) | 2,265,657 | ||||||
1,200,000 | 5.50%, 1/25/26, TBA(e) | 1,290,000 | ||||||
1,228,247 | 5.00%, 11/1/33, Pool #725027 | 1,299,057 | ||||||
1,654,285 | 5.00%, 3/1/34, Pool #725205 | 1,749,657 | ||||||
751,690 | 5.00%, 7/1/34, Pool #725589 | 794,086 | ||||||
2,809,200 | 5.50%, 2/1/35, Pool #735989 | 3,024,520 | ||||||
172,249 | 6.00%, 4/1/35, Pool #735504 | 189,750 | ||||||
1,381,632 | 2.84%, 11/1/35, Pool #995604(b) | 1,442,989 | ||||||
835,795 | 5.50%, 2/1/38, Pool #961545 | 894,764 | ||||||
1,565,288 | 5.50%, 5/1/38, Pool #889441 | 1,675,726 | ||||||
2,257,248 | 5.50%, 5/1/38, Pool #889692 | 2,416,860 | ||||||
1,755,277 | 5.50%, 6/1/38, Pool #995018 | 1,882,136 | ||||||
485,860 | 5.50%, 9/1/38, Pool #889995 | 520,216 | ||||||
629,804 | 5.50%, 10/1/39, Pool #AD0362 | 676,503 | ||||||
479,752 | 5.50%, 12/1/39, Pool #AD0571 | 515,324 | ||||||
4,536,933 | 6.00%, 4/1/40, Pool #AE0349 | 4,944,942 | ||||||
15,500,000 | 4.00%, 1/25/41, TBA(e) | 15,417,664 | ||||||
8,400,000 | 4.50%, 1/25/41, TBA(e) | 8,621,810 | ||||||
7,400,000 | 5.00%, 1/25/41, TBA(e) | 7,779,250 | ||||||
1,100,000 | 6.50%, 1/25/41, TBA(e) | 1,222,375 | ||||||
59,829,370 | ||||||||
Government National Mortgage Association (0.4%) | ||||||||
800,000 | 6.50%, 1/15/41, Pool #24184, TBA(e) | 901,250 | ||||||
Total U.S. Government Agency Mortgages (Cost $65,225,881) | 65,269,778 | |||||||
U.S. Treasury Obligations (47.7%): | ||||||||
U.S. Treasury Bills (19.8%) | ||||||||
14,040,000 | 0.14%, 4/14/11(f) | 14,034,609 | ||||||
4,970,000 | 0.15%, 4/21/11(f) | 4,967,987 | ||||||
18,420,000 | 0.16%, 5/12/11(f) | 18,410,421 | ||||||
3,225,000 | 0.15%, 5/26/11(f) | 3,223,078 | ||||||
40,636,095 | ||||||||
U.S. Treasury Bonds (7.6%) | ||||||||
1,270,000 | 8.13%, 5/15/21† | 1,802,804 | ||||||
635,000 | 8.13%, 8/15/21 | 904,279 | ||||||
525,000 | 8.00%, 11/15/21 | 742,547 | ||||||
Principal | Fair | |||||||
Amount | Value | |||||||
680,000 | 7.25%, 8/15/22 | $ | 919,275 | |||||
170,000 | 6.25%, 8/15/23 | 213,669 | ||||||
2,085,000 | 3.50%, 2/15/39 | 1,796,684 | ||||||
485,000 | 4.25%, 5/15/39 | 477,801 | ||||||
920,000 | 4.38%, 5/15/40 | 924,453 | ||||||
4,905,000 | 3.88%, 8/15/40 | 4,517,966 | ||||||
3,405,000 | 4.25%, 11/15/40 | 3,349,669 | ||||||
15,649,147 | ||||||||
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
U.S. Treasury Obligations, continued | ||||||||
U.S. Treasury Inflation Index Notes (1.5%) | ||||||||
$ | 2,423,900 | 0.50%, 4/15/15 | $ | 2,500,526 | ||||
506,100 | 1.88%, 7/15/15 | 616,461 | ||||||
3,116,987 | ||||||||
Shares or | ||||||||
Principal | Fair | |||||||
Amount | Value | |||||||
U.S. Treasury Notes (18.8%) | ||||||||
25,000 | 0.63%, 7/31/12 | $ | 25,068 | |||||
1,765,000 | 0.38%, 10/31/12 | 1,759,622 | ||||||
14,665,000 | 0.50%, 11/30/12 | 14,646,097 | ||||||
1,335,000 | 0.75%, 12/15/13 | 1,325,509 | ||||||
690,000 | 2.50%, 4/30/15 | 713,341 | ||||||
1,800,000 | 1.38%, 11/30/15 | 1,749,235 | ||||||
9,350,000 | 2.13%, 12/31/15 | 9,399,667 | ||||||
80,000 | 2.75%, 5/31/17 | 81,019 | ||||||
75,000 | 2.38%, 7/31/17 | 74,016 | ||||||
3,725,000 | 2.25%, 11/30/17 | 3,622,272 | ||||||
135,000 | 3.50%, 2/15/18 | 142,014 | ||||||
1,685,000 | 3.63%, 8/15/19 | 1,760,299 | ||||||
3,530,000 | 2.63%, 11/15/20 | 3,329,782 | ||||||
38,627,941 | ||||||||
Total U.S. Treasury Obligations (Cost $98,725,692) | 98,030,170 | |||||||
Investment Company (4.3%): | ||||||||
8,800,110 | Dreyfus Treasury Prime Cash Management, 0.00%(f) | 8,800,110 | ||||||
Total Investment Company (Cost $8,800,110) | 8,800,110 | |||||||
Total Investment Securities (Cost $246,988,331)(g) — 120.2% | 247,044,702 | |||||||
Net other assets (liabilities) — (20.2)% | (41,472,887 | ) | ||||||
Net Assets — 100.0% | $ | 205,571,815 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
† | All or a portion of the security has been segregated with the custodian to cover margin requirements. The aggregate fair value of the segregated portion of such securities was $238,185 as of December 31, 2010. |
AMT—Subject to alternative minimum tax
GO—General Obligation
LLC—Limited Liability Company
LP—Limited Partnership
MTN—Medium Term Note
plc—Public Limited Company
TBA—To be Announced.
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investor. The sub-adviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. | |
(b) | Variable rate security. The rate presented represents the rate in effect at December 31, 2010. The date presented represents the final maturity date. | |
(c) | Perpetual bond. This is a bond that has no maturity date, is redeemable and pays a steady stream of interest indefinitely. | |
(d) | Step Bond. Coupon rate is set for an initial period and then increased to a higher coupon rate at a specified date. The rate represents the effective yield at December 31, 2010. | |
(e) | Security purchased on a “when-issued” basis. The cost of securities was $42,154,277. | |
(f) | The rate represents the effective yield at December 31, 2010. | |
(g) | See Federal Tax Information listed in the Notes to the Financial Statements. |
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
As of December 31, 2010, the Fund’s open forward foreign currency contracts were as follows:
Unrealized | ||||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||||
Deliver 339,000 European Euro in exchange for U.S. Dollars | Deutsche Bank | 1/28/11 | $ | 464,149 | $ | 452,914 | $ | 11,235 | ||||||||||||
$ | 11,235 | |||||||||||||||||||
Futures Contracts
Unrealized | ||||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||||
90-Day Eurodollar March Futures | Short | 3/19/12 | (83 | ) | $ | (20,552,875 | ) | $ | (30,431 | ) | ||||||||||
U.S. Treasury 2-Year Note March Futures | Long | 3/31/11 | 50 | 10,945,313 | 3,408 | |||||||||||||||
U.S. Treasury 5-Year Note March Futures | Short | 3/31/11 | (3 | ) | (353,156 | ) | 549 | |||||||||||||
U.S. Treasury 10-Year Note March Futures | Long | 3/22/11 | 31 | 3,733,563 | (985 | ) | ||||||||||||||
U.S. Treasury Long Bond March Futures | Long | 3/22/11 | 1 | 122,125 | (3,683 | ) | ||||||||||||||
U.S. Treasury Ultra Bond March Futures | Short | 3/22/11 | (29 | ) | (3,685,719 | ) | 49,778 | |||||||||||||
Total | $ | 18,636 | ||||||||||||||||||
Securities Sold Short (−1.35)%
Unrealized | ||||||||||||||||||||||||
Coupon | Expiration | Par | Proceeds | Fair | Appreciation/ | |||||||||||||||||||
Security Description | Rate | Date | Amount | Received | Value | (Depreciation) | ||||||||||||||||||
Federal National Mortgage Association — February TBA | 5.50% | 2/25/41 | $ | (2,600,000 | ) | $ | (2,754,375 | ) | $ | (2,776,719 | ) | $ | (22,344 | ) | ||||||||||
$ | (2,754,375 | ) | $ | (2,776,719 | ) | $ | (22,344 | ) | ||||||||||||||||
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Australia | 0.1 | % | ||
Canada | 1.0 | |||
Cayman Islands | — | ˆ | ||
Chile | 0.1 | |||
France | 0.8 | |||
Isle of Man | — | ˆ | ||
Japan | 0.2 | |||
Luxembourg | — | ˆ | ||
Norway | 1.2 | |||
Russian Federation | 0.1 | |||
Switzerland | 0.4 | |||
United Kingdom | 0.4 | |||
United States | 95.7 | |||
100.0 | % | |||
ˆ | Represents less than 0.05%. |
12
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Enhanced | ||||
Bond Index | ||||
Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 246,988,331 | ||
Investment securities, at value | $ | 247,044,702 | ||
Cash | 420 | |||
Interest receivable | 994,134 | |||
Foreign currency, at value (cost $283) | 280 | |||
Receivable for capital shares issued | 718,505 | |||
Receivable for investments sold | 10,772,106 | |||
Unrealized appreciation on forward foreign currency contracts | 11,235 | |||
Receivable for variation margin on futures contracts | 28,453 | |||
Prepaid expenses | 2,858 | |||
Total Assets | 259,572,693 | |||
Liabilities: | ||||
Payable for investments purchased | 51,013,405 | |||
Securities sold short (Proceeds received $2,754,375) | 2,776,719 | |||
Payable for variation margin on futures contracts | 66,213 | |||
Manager fees payable | 65,539 | |||
Administration fees payable | 9,103 | |||
Distribution fees payable | 41,324 | |||
Custodian fees payable | 2,516 | |||
Administrative and compliance services fees payable | 1,431 | |||
Trustee fees payable | 450 | |||
Other accrued liabilities | 24,178 | |||
Total Liabilities | 54,000,878 | |||
Net Assets | $ | 205,571,815 | ||
Net Assets Consist of: | ||||
Capital | $ | 199,891,474 | ||
Accumulated net investment income/(loss) | 3,401,971 | |||
Accumulated net realized gains/(losses) from investment transactions | 2,214,104 | |||
Net unrealized appreciation/(depreciation) on investments | 64,266 | |||
Net Assets | $ | 205,571,815 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 19,562,375 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.51 | ||
See accompanying notes to the financial statements.
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
Enhanced | ||||
Bond Index | ||||
Fund | ||||
Investment Income: | ||||
Interest | $ | 4,052,113 | ||
Dividends | 227 | |||
Total Investment Income | 4,052,340 | |||
Expenses: | ||||
Manager fees | 522,842 | |||
Administration fees | 89,765 | |||
Distribution fees | 373,460 | |||
Custodian fees | 16,219 | |||
Administrative and compliance services fees | 5,566 | |||
Trustees’ fees | 11,329 | |||
Professional fees | 16,397 | |||
Shareholder reports | 13,278 | |||
Other expenses | 4,422 | |||
Total expenses before reductions | 1,053,278 | |||
Less expenses contractually waived/reimbursed by the Manager | (7,593 | ) | ||
Net expenses | 1,045,685 | |||
Net Investment Income/(Loss) | 3,006,655 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 3,913,501 | |||
Net realized gains/(losses) on forward foreign currency contracts | 52,226 | |||
Net realized gains/(losses) on futures transactions | (921,907 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 933,946 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 3,977,766 | |||
Change in Net Assets Resulting From Operations | $ | 6,984,421 | ||
See accompanying notes to the financial statements.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Statements of Changes in Net Assets
AZL Enhanced Bond Index Fund | ||||||||
For the | ||||||||
Year Ended | July 10, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 3,006,655 | $ | 406,986 | ||||
Net realized gains/(losses) on investment transactions | 3,043,820 | 501,903 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 933,946 | (869,680 | ) | |||||
Change in net assets resulting from operations | 6,984,421 | 39,209 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (430,815 | ) | — | |||||
From net realized gains on investments | (914,557 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (1,345,372 | ) | — | |||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 95,546,102 | 160,810,137 | ||||||
Proceeds from dividends reinvested | 1,345,372 | — | ||||||
Value of shares redeemed | (24,792,002 | ) | (33,016,052 | ) | ||||
Change in net assets resulting from capital transactions | 72,099,472 | 127,794,085 | ||||||
Change in net assets | 77,738,521 | 127,833,294 | ||||||
Net Assets: | ||||||||
Beginning of period | 127,833,294 | — | ||||||
End of period | $ | 205,571,815 | $ | 127,833,294 | ||||
Accumulated net investment income/(loss) | $ | 3,401,971 | $ | 408,932 | ||||
Share Transactions: | ||||||||
Shares issued | 9,091,981 | 16,009,707 | ||||||
Dividends reinvested | 126,802 | — | ||||||
Shares redeemed | (2,390,529 | ) | (3,275,586 | ) | ||||
Change in shares | 6,828,254 | 12,734,121 | ||||||
(a) | Period from commencement of operations. |
See accompanying notes to the financial statements.
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended | July 10, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Net Asset Value, Beginning of Period | $ | 10.04 | $ | 10.00 | ||||
Investment Activities: | ||||||||
Net Investment Income/(Loss) | 0.15 | 0.03 | ||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.41 | 0.01 | (b) | |||||
Total from Investment Activities | 0.56 | 0.04 | ||||||
Dividends to Shareholders From: | ||||||||
Net Investment Income | (0.03 | ) | — | |||||
Net Realized Gains | (0.06 | ) | — | |||||
Total Dividends | (0.09 | ) | — | |||||
Net Asset Value, End of Period | $ | 10.51 | $ | 10.04 | ||||
Total Return(c) (d) | 5.62 | % | 0.40 | % | ||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||
Net Assets, End of Period ($000’s) | $ | 205,572 | $ | 127,833 | ||||
Net Investment Income/(Loss)(e) | 2.01 | % | 1.34 | % | ||||
Expenses Before Reductions(e) (f) | 0.71 | % | 0.76 | % | ||||
Expenses Net of Reductions(e) | 0.70 | % | 0.70 | % | ||||
Portfolio Turnover Rate(d) | 699.83 | % | 365.51 | % |
(a) | Period from commencement of operations. | |
(b) | The amount shown for a share outstanding throughout the period does not accord with the change in aggregate gains and losses in the portfolio of securities during the period because of the timing of sales and purchases of Fund shares in relation to fluctuating fair values during the period. | |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(d) | Not annualized for periods less than one year. | |
(e) | Annualized for periods less than one year. | |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Enhanced Bond Index Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Securities Purchased on a When-Issued Basis
The Fund may purchase securities on a when-issued basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield and thereby involve risk that the yield obtained in the transaction will be less than that available in the market when the delivery takes place. A Fund will not pay for such securities or start earning interest on them until they are received. When a Fund agrees to purchase securities on a when-issued basis, the Fund will segregate or designate cash or assets determined to be liquid equal to the amount of the commitment. Securities purchased on a when-issued basis are recorded as an asset and are subject to changes in the value based upon changes in the general level of interest rates. A Fund may sell when-issued securities before they are delivered, which may result in a capital gain or loss.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Mortgage Dollar Roll Transactions
The Fund may engage in dollar roll transactions with respect to mortgage securities issued by the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. In a dollar roll transaction, a Fund sells a mortgage-backed security and simultaneously agrees to repurchase a similar security on a specified future date at an agreed upon price. During the roll period, the Fund will not be entitled to receive any interest or principal paid on the securities sold. The Fund is compensated for the lost interest on the securities sold by the difference between the sales price and the lower price for the future repurchase as well as by the interest earned on the reinvestment of the sales proceeds. The Fund may also be compensated by receipt of a commitment fee.
Short Sales
The Fund may engage in short sales against the box (i.e., where the fund owns or has an unconditional right to acquire at no additional cost a security substantially similar to the security sold short)for hedging purposes to limit exposure to a possible market decline in the value of its portfolio securities. In a short sale, the Fund sells a borrowed security and has a corresponding obligation to the lender to return the identical security. The Fund may also incur an interest expense if a security that has been sold short has an interest payment. When a Fund engages in a short sale, the Fund records a liability for securities sold short and records an asset equal to the proceeds received. The amount of the liability is subsequently marked to market to reflect the market value of the securities sold short. To borrow the security, a Fund also may be required to pay a premium, which would increase the cost of the security sold.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. The contract amount of foreign currency exchange contracts outstanding was $0.5 million as of December 31, 2010. The monthly average amount for these contracts was $0.5 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide market exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $39.4 million as of December 31, 2010. The monthly average notional amount for these contracts was $32.9 million for the year ended December 31, 2010.
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Foreign Exchange Contracts | Unrealized appreciation on forward foreign currency contracts | $ | 11,235 | Unrealized depreciation on forward foreign currency contracts | $ | — | ||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 53,735 | Payable for variation margin on futures contracts | (35,099 | ) |
* | Total Fair Value is presented by Primary Risk Exposure. For forward foreign currency contracts, such amounts represent the unrealized gain/appreciation (for asset derivatives) or loss/(depreciation) (for liability derivatives). For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 52,226 | $ | (10,645 | ) | ||||
Interest Rate Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/ (depreciation) on investments | (921,907 | ) | (128,948 | ) |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and BlackRock Financial Management, Inc. (“BlackRock Financial”), BlackRock Financial provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.70%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Enhanced Bond Index Fund | 0.35% | 0.70% |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | |||||||
12/31/2012 | 12/31/2013 | |||||||
AZL Enhanced Bond Index Fund | $ | 17,058 | $ | 7,593 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $4,210 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 securities for which unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities+: | ||||||||||||||||
Asset Backed Securities | $ | — | $ | 19,204,606 | $ | — | $ | 19,204,606 | ||||||||
Collateralized Mortgage Obligations | — | 12,532,503 | — | 12,532,503 | ||||||||||||
Corporate Bonds | — | 24,311,494 | — | 24,311,494 | ||||||||||||
Municipal Bonds | — | 3,609,772 | — | 3,609,772 | ||||||||||||
U.S. Government Agency | — | 137,438 | — | 137,438 | ||||||||||||
U.S. Government Agency Mortgages | — | 65,269,778 | — | 65,269,778 | ||||||||||||
U.S. Treasury Obligations | — | 98,030,170 | — | 98,030,170 | ||||||||||||
Yankee Dollars | — | 15,148,831 | — | 15,148,831 | ||||||||||||
Investment Company | 8,800,110 | — | — | 8,800,110 | ||||||||||||
Total Investment Securities | 8,800,110 | 238,244,592 | — | 247,044,702 | ||||||||||||
Securities Sold Short | — | (2,776,719 | ) | — | (2,776,719 | ) | ||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 18,636 | — | — | 18,636 | ||||||||||||
Forward Foreign Currency Contracts | — | 11,235 | — | 11,235 | ||||||||||||
Total Investments | $ | 8,818,746 | $ | 235,479,108 | $ | — | $ | 247,074,573 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. | |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Enhanced Bond Index Fund
AZL Enhanced Bond Index Fund
Notes to the Financial Statements, continued
December 31, 2010
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Enhanced Bond Index Fund | $ | 862,750,601 | $ | 816,450,009 |
For the year ended December 31, 2010, purchases and sales on long-term U.S. Government Securities were as follows:
Purchases | Sales | |||||||
AZL Enhanced Bond Index Fund | $ | 788,585,244 | $ | 768,921,411 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $244,431,774. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 1,874,191 | ||
Unrealized depreciation | (2,037,982 | ) | ||
Net unrealized depreciation | $ | (163,791 | ) | |
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $913,798 of deferred post October capital losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Enhanced Bond Index Fund | $ | 1,300,911 | $ | 44,461 | $ | 1,345,372 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||||||
Income | Other Losses | Depreciation(a) | Earnings (Deficit) | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 6,776,106 | $ | (913,798 | ) | $ | (181,967 | ) | $ | 5,680,341 |
24
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Enhanced Bond Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2010, the Fund declared net long-term capital gain distributions of $44,461.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $870,095.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
28
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
29
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
30
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
31
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
32
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
33
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Franklin Small Cap Value Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 19
Page 19
Other Federal Income Tax Information
Page 20
Page 20
Other Information
Page 21
Page 21
Approval of Investment Advisory and Subadvisory Agreements
Page 22
Page 22
Information about the Board of Trustees and Officers
Page 26
Page 26
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Franklin Small Cap Value Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Franklin Small Cap Value Fund and Franklin Advisory Services, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010 the AZL® Franklin Small Cap Value Fund returned 27.11%1. That compared to a 24.50% total return for its benchmark, the Russell 2000® Value Index2.
The Fund’s sub-adviser, Franklin Advisory Services, LLC, employs a bottom-up stock selection process and constructs the portfolio without regard to the benchmark. As a result, the portfolio frequently contains sector and security allocations that are significantly different than those of the index.*
Overall, stocks performed well during the 12-month period, despite a handful of setbacks caused by such issues as weakening economic indicators and the European sovereign debt crisis. Investors during the period sought out equities with high return potential, helping to fuel strong returns among small-cap stocks. Growth stocks outperformed value stocks during the period. The Fund benefited in that environment, posting strong absolute returns during the 12-month period.
The Fund’s absolute returns were driven primarily by individual holdings in the auto components, insurance, energy equipment and services, and chemicals industries.
Stock selection in the consumer staples and health care sectors, as well as the Fund’s underweight position in the financial sector, helped performance relative to the benchmark. An overweight position in the consumer discretionary sector also boosted the Fund’s performance relative to its benchmark.
The Fund’s relative performance was hurt by stock selection in the information technology sector, particularly among manufacturers of electronic equipment and instruments. Exposure to certain companies in the materials and industrials sectors also dragged on relative performance, as did the Fund’s cash position during the period.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Franklin Small Cap Value Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term total return. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in investments of small capitalization companies.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Smaller companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/1/03) | |||||||||||||
AZL® Franklin Small Cap Value Fund | 27.11 | % | 3.23 | % | 3.96 | % | 9.84 | % | ||||||||
Russell 2000® Value Index | 24.50 | % | 2.19 | % | 3.52 | % | 10.42 | %1 | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Franklin Small Cap Value Fund | 1.12 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.35% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The since inception performance data and the hypothetical $10,000 investment for the Russell 2000® Value Index is calculated from 4/30/03. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 2000® Value Index, an unmanaged index that measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Franklin Small Cap Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Franklin Small Cap Value Fund | $ | 1,000.00 | $ | 1,321.90 | $ | 6.32 | 1.08% |
* | Expenses are equal to the average account value times the Fund’s annualized expenses ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Franklin Small Cap Value Fund | $ | 1,000.00 | $ | 1,019.76 | $ | 5.50 | $ | 1.08 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Franklin Small Cap Value Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 0.7 | % | ||
Airlines | 1.2 | |||
Auto Components | 3.7 | |||
Automobiles | 2.5 | |||
Building Products | 4.7 | |||
Chemicals | 3.8 | |||
Commercial Banks | 0.7 | |||
Commercial Services & Supplies | 2.0 | |||
Construction & Engineering | 1.5 | |||
Containers & Packaging | 0.7 | |||
Diversified Consumer Services | 1.5 | |||
Electric Utilities | 1.9 | |||
Electrical Equipment | 3.2 | |||
Electronic Equipment, Instruments & Components | 2.6 | |||
Energy Equipment & Services | 10.0 | |||
Food & Staples Retailing | — | ˆ | ||
Food Products | 1.0 | |||
Gas Utilities | 0.8 | |||
Health Care Equipment & Supplies | 2.8 | |||
Household Durables | 2.8 | |||
Industrial Conglomerates | 1.0 | |||
Insurance | 12.7 | |||
Leisure Equipment & Products | 0.7 | |||
Life Sciences Tools & Services | 2.2 | |||
Machinery | 12.6 | |||
Metals & Mining | 2.8 | |||
Multiline Retail | 2.7 | |||
Oil, Gas & Consumable Fuels | 1.5 | |||
Paper & Forest Products | 0.3 | |||
Professional Services | 0.7 | |||
Road & Rail | 1.3 | |||
Semiconductors & Semiconductor Equipment | 0.9 | |||
Specialty Retail | 5.2 | |||
Textiles, Apparel & Luxury Goods | 0.8 | |||
Thrifts & Mortgage Finance | 0.8 | |||
Trading Companies & Distributors | 0.5 | |||
Investment Company | 5.1 | |||
99.9 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
ˆ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (94.8%): | ||||||||
Aerospace & Defense (0.7%): | ||||||||
53,000 | Ceradyne, Inc.* | $ | 1,671,090 | |||||
Airlines (1.2%): | ||||||||
184,900 | SkyWest, Inc. | 2,888,138 | ||||||
Auto Components (3.7%): | ||||||||
58,000 | Autoliv, Inc. | 4,578,520 | ||||||
16,300 | Drew Industries, Inc. | 370,336 | ||||||
128,000 | Gentex Corp. | 3,783,680 | ||||||
8,732,536 | ||||||||
Automobiles (2.5%): | ||||||||
138,200 | Thor Industries, Inc. | 4,693,272 | ||||||
75,000 | Winnebago Industries, Inc.* | 1,140,000 | ||||||
5,833,272 | ||||||||
Building Products (4.7%): | ||||||||
69,500 | American Woodmark Corp. | 1,705,530 | ||||||
126,900 | Apogee Enterprises, Inc. | 1,709,343 | ||||||
144,000 | Gibraltar Industries, Inc.* | 1,954,080 | ||||||
80,000 | Simpson Manufacturing Co., Inc. | 2,472,800 | ||||||
81,800 | Universal Forest Products, Inc. | 3,182,020 | ||||||
11,023,773 | ||||||||
Chemicals (3.8%): | ||||||||
57,400 | Cabot Corp. | 2,161,110 | ||||||
127,300 | RPM International, Inc. | 2,813,330 | ||||||
5,400 | Schulman, Inc. | 123,606 | ||||||
41,000 | Sensient Technologies Corp. | 1,505,930 | ||||||
54,100 | Westlake Chemical Corp. | 2,351,727 | ||||||
8,955,703 | ||||||||
Commercial Banks (0.7%): | ||||||||
63,700 | Chemical Financial Corp. | 1,410,955 | ||||||
11,400 | Peoples Bancorp, Inc. | 178,410 | ||||||
1,589,365 | ||||||||
Commercial Services & Supplies (2.0%): | ||||||||
107,800 | ABM Industries, Inc. | 2,835,140 | ||||||
59,600 | Mine Safety Appliances Co. | 1,855,348 | ||||||
4,690,488 | ||||||||
Construction & Engineering (1.5%): | ||||||||
42,000 | Emcor Group, Inc.* | 1,217,160 | ||||||
86,000 | Granite Construction, Inc. | 2,358,980 | ||||||
3,576,140 | ||||||||
Containers & Packaging (0.7%): | ||||||||
34,400 | AptarGroup, Inc. | 1,636,408 | ||||||
Diversified Consumer Services (1.5%): | ||||||||
49,511 | Hillenbrand, Inc. | 1,030,324 | ||||||
141,700 | Regis Corp. | 2,352,220 | ||||||
3,382,544 | ||||||||
Electric Utilities (1.9%): | ||||||||
201,800 | NV Energy, Inc. | 2,835,290 | ||||||
130,000 | PNM Resources, Inc. | 1,692,600 | ||||||
4,527,890 | ||||||||
Electrical Equipment (3.2%): | ||||||||
21,750 | A.O. Smith Corp. | 828,240 | ||||||
67,800 | Brady Corp., Class A | 2,210,958 | ||||||
34,400 | Franklin Electric Co., Inc. | 1,338,848 | ||||||
24,000 | Powell Industries, Inc.* | 789,120 | ||||||
30,200 | Roper Industries, Inc. | 2,308,186 | ||||||
7,475,352 | ||||||||
Electronic Equipment, Instruments & Components (2.6%): | ||||||||
183,000 | Benchmark Electronics, Inc.* | 3,323,280 | ||||||
80,000 | Rofin-Sinar Technologies, Inc.* | 2,835,200 | ||||||
6,158,480 | ||||||||
Energy Equipment & Services (10.0%): | ||||||||
78,000 | Atwood Oceanics, Inc.* | 2,914,860 | ||||||
86,600 | Bristow Group, Inc.* | 4,100,510 | ||||||
274,000 | Global Industries, Ltd.* | 1,898,820 | ||||||
143,100 | Helix Energy Solutions Group, Inc.* | 1,737,234 | ||||||
46,000 | Oil States International, Inc.* | 2,948,140 | ||||||
110,000 | Rowan Cos., Inc.* | 3,840,100 | ||||||
70,500 | Tidewater, Inc. | 3,795,720 | ||||||
48,700 | Unit Corp.* | 2,263,576 | ||||||
23,498,960 | ||||||||
Food & Staples Retailing (0.0%): | ||||||||
500 | Casey’s General Stores, Inc. | 21,255 | ||||||
Food Products (1.0%): | ||||||||
41,000 | Lancaster Colony Corp. | 2,345,200 | ||||||
Gas Utilities (0.8%): | ||||||||
38,600 | Energen Corp. | 1,862,836 | ||||||
Health Care Equipment & Supplies (2.8%): | ||||||||
85,100 | STERIS Corp. | 3,102,746 | ||||||
43,000 | Teleflex, Inc. | 2,313,830 | ||||||
27,100 | West Pharmaceutical Services, Inc. | 1,116,520 | ||||||
6,533,096 | ||||||||
Household Durables (2.8%): | ||||||||
500 | Bassett Furniture Industries, Inc.* | 2,100 | ||||||
73,400 | D. R. Horton, Inc. | 875,662 | ||||||
29,000 | Ethan Allen Interiors, Inc. | 580,290 | ||||||
81,600 | Hooker Furniture Corp. | 1,153,008 | ||||||
189,900 | La-Z-Boy, Inc.* | 1,712,898 | ||||||
36,500 | M.D.C. Holdings, Inc. | 1,050,105 | ||||||
77,300 | M/I Homes, Inc.* | 1,188,874 | ||||||
6,562,937 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates (1.0%): | ||||||||
61,000 | Carlisle Cos., Inc. | $ | 2,424,140 | |||||
Insurance (12.7%): | ||||||||
12,500 | American National Insurance Co. | 1,070,250 | ||||||
41,500 | Arthur J. Gallagher & Co. | 1,206,820 | ||||||
82,200 | Aspen Insurance Holdings, Ltd. | 2,352,564 | ||||||
19,700 | Erie Indemnity Co., Class A | 1,289,759 | ||||||
28,700 | Hanover Insurance Group, Inc. (The) | 1,340,864 | ||||||
36,000 | HCC Insurance Holdings, Inc. | 1,041,840 | ||||||
101,600 | Montpelier Re Holdings, Ltd. | 2,025,904 | ||||||
267,000 | Old Republic International Corp. | 3,639,210 | ||||||
195,000 | Protective Life Corp. | 5,194,800 | ||||||
22,000 | RLI Corp. | 1,156,540 | ||||||
48,300 | StanCorp Financial Group, Inc. | 2,180,262 | ||||||
129,300 | Tower Group, Inc. | 3,307,494 | ||||||
30,000 | Transatlantic Holdings, Inc. | 1,548,600 | ||||||
75,000 | Validus Holdings, Ltd. | 2,295,750 | ||||||
29,650,657 | ||||||||
Leisure Equipment & Products (0.7%): | ||||||||
83,500 | Brunswick Corp. | 1,564,790 | ||||||
Life Sciences Tools & Services (2.2%): | ||||||||
20,300 | Mettler-Toledo International, Inc.* | 3,069,563 | ||||||
79,000 | Pharmaceutical Product Development, Inc. | 2,144,060 | ||||||
5,213,623 | ||||||||
Machinery (12.6%): | ||||||||
57,000 | Astec Industries, Inc.* | 1,847,370 | ||||||
82,000 | Briggs & Stratton Corp. | 1,614,580 | ||||||
23,600 | CIRCOR International, Inc. | 997,808 | ||||||
10,700 | CNH Global NV, NYS* | 510,818 | ||||||
43,100 | Gardner Denver, Inc. | 2,966,142 | ||||||
67,600 | Graco, Inc. | 2,666,820 | ||||||
67,271 | Kennametal, Inc. | 2,654,513 | ||||||
30,000 | Lincoln Electric Holdings, Inc. | 1,958,100 | ||||||
95,000 | Mueller Industries, Inc. | 3,106,500 | ||||||
33,200 | Nordson Corp. | 3,050,416 | ||||||
17,200 | Timken Co. | 820,956 | ||||||
132,000 | Trinity Industries, Inc. | 3,512,520 | ||||||
176,000 | Wabash National Corp.* | 2,085,600 | ||||||
44,100 | Watts Water Technologies, Inc., Class A | 1,613,619 | ||||||
29,405,762 | ||||||||
Metals & Mining (2.8%): | ||||||||
65,700 | Reliance Steel & Aluminum Co. | 3,357,270 | ||||||
157,000 | Steel Dynamics, Inc. | 2,873,100 | ||||||
6,500 | United States Steel Corp. | 379,730 | ||||||
6,610,100 | ||||||||
Multiline Retail (2.7%): | ||||||||
143,100 | Fred’s, Inc. | 1,969,056 | ||||||
89,000 | J.C. Penney Co., Inc. | 2,875,590 | ||||||
93,700 | Saks, Inc.* | 1,002,590 | ||||||
82,900 | Tuesday Morning Corp.* | 437,712 | ||||||
6,284,948 | ||||||||
Oil, Gas & Consumable Fuels (1.5%): | ||||||||
19,200 | Arch Coal, Inc. | 673,152 | ||||||
45,000 | Overseas Shipholding Group, Inc. | 1,593,900 | ||||||
40,000 | Teekay Shipping Corp. | 1,323,200 | ||||||
3,590,252 | ||||||||
Paper & Forest Products (0.3%): | ||||||||
64,892 | Glatfelter | 796,225 | ||||||
Professional Services (0.7%): | ||||||||
54,100 | Administaff, Inc. | 1,585,130 | ||||||
Road & Rail (1.3%): | ||||||||
55,000 | Genesee & Wyoming, Inc., Class A* | 2,912,250 | ||||||
Semiconductors & Semiconductor Equipment (0.9%): | ||||||||
130,700 | Cohu, Inc. | 2,167,006 | ||||||
Specialty Retail (5.2%): | ||||||||
122,000 | Brown Shoe Co., Inc. | 1,699,460 | ||||||
12,200 | Cato Corp. | 334,402 | ||||||
204,600 | Christopher & Banks Corp. | 1,258,290 | ||||||
97,109 | Group 1 Automotive, Inc. | 4,055,272 | ||||||
93,600 | Men’s Wearhouse, Inc. (The) | 2,338,128 | ||||||
116,900 | Pier 1 Imports, Inc.* | 1,227,450 | ||||||
110,200 | West Marine, Inc.* | 1,165,916 | ||||||
12,078,918 | ||||||||
Textiles, Apparel & Luxury Goods (0.8%): | ||||||||
34,000 | Warnaco Group, Inc. (The)* | 1,872,380 | ||||||
Thrifts & Mortgage Finance (0.8%): | ||||||||
307,517 | TrustCo Bank Corp. | 1,949,658 | ||||||
Trading Companies & Distributors (0.5%): | ||||||||
32,100 | Applied Industrial Technologies, Inc. | 1,042,608 | ||||||
Total Common Stocks (Cost $166,294,718) | 222,113,910 | |||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Investment Company (5.1%): | ||||||||
11,880,258 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | $ | 11,880,258 | |||||
Total Investment Company (Cost $11,880,258) | 11,880,258 | |||||||
Total Investment Securities (Cost $178,174,976)(b) — 99.9% | 233,994,168 | |||||||
Net other assets (liabilities) — 0.1% | 311,080 | |||||||
Net Assets — 100.0% | $ | 234,305,248 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
NYS—New York Shares
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Bermuda | 1.9 | % | ||
Greece | 0.6 | |||
Netherlands | 0.2 | |||
United States | 97.3 | |||
100.0 | % | |||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Franklin | ||||
Small Cap | ||||
Value Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 178,174,976 | ||
Investment securities, at value | $ | 233,994,168 | ||
Dividends receivable | 137,220 | |||
Receivable for capital shares issued | 330,338 | |||
Receivable for investments sold | 83,541 | |||
Prepaid expenses | 2,723 | |||
Total Assets | 234,547,990 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 1,261 | |||
Manager fees payable | 146,356 | |||
Administration fees payable | 9,142 | |||
Distribution fees payable | 48,785 | |||
Custodian fees payable | 1,361 | |||
Administrative and compliance services fees payable | 1,957 | |||
Trustee fees payable | 391 | |||
Other accrued liabilities | 33,489 | |||
Total Liabilities | 242,742 | |||
Net Assets | $ | 234,305,248 | ||
Net Assets Consist of: | ||||
Capital | $ | 239,783,124 | ||
Accumulated net investment income/(loss) | 1,199,889 | |||
Accumulated net realized gains/(losses) from investment transactions | (62,496,957 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 55,819,192 | |||
Net Assets | $ | 234,305,248 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 14,011,588 | |||
Net Asset Value (offering and redemption price per share) | $ | 16.72 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Franklin | ||||
Small Cap | ||||
Value Fund | ||||
Investment Income: | ||||
Dividends | $ | 3,402,579 | ||
Total Investment Income | 3,402,579 | |||
Expenses: | ||||
Manager fees | 1,524,718 | |||
Administration fees | 92,151 | |||
Distribution fees | 508,239 | |||
Custodian fees | 7,543 | |||
Administrative and compliance services fees | 7,492 | |||
Trustees’ fees | 14,772 | |||
Professional fees | 21,685 | |||
Shareholder reports | 17,283 | |||
Other expenses | 8,802 | |||
Total expenses | 2,202,685 | |||
Net Investment Income/(Loss) | 1,199,894 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 2,055,827 | |||
Change in unrealized appreciation/(depreciation) on investments | 44,395,283 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 46,451,110 | |||
Change in Net Assets Resulting From Operations | $ | 47,651,004 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Statements of Changes in Net Assets
AZL Franklin | ||||||||
Small Cap Value Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 1,199,894 | $ | 1,651,751 | ||||
Net realized gains/(losses) on investment transactions | 2,055,827 | (42,299,301 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 44,395,283 | 88,293,472 | ||||||
Change in net assets resulting from operations | 47,651,004 | 47,645,922 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (1,652,724 | ) | (2,835,324 | ) | ||||
Change in net assets resulting from dividends to shareholders | (1,652,724 | ) | (2,835,324 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 50,881,817 | 33,109,656 | ||||||
Proceeds from dividends reinvested | 1,652,724 | 2,835,324 | ||||||
Value of shares redeemed | (51,702,992 | ) | (75,221,104 | ) | ||||
Change in net assets resulting from capital transactions | 831,549 | (39,276,124 | ) | |||||
Change in net assets | 46,829,829 | 5,534,474 | ||||||
Net Assets: | ||||||||
Beginning of period | 187,475,419 | 181,940,945 | ||||||
End of period | $ | 234,305,248 | $ | 187,475,419 | ||||
Accumulated net investment income/(loss) | $ | 1,199,889 | $ | 1,652,719 | ||||
Share Transactions: | ||||||||
Shares issued | 3,464,541 | 3,358,771 | ||||||
Dividends reinvested | 121,167 | 214,635 | ||||||
Shares redeemed | (3,702,743 | ) | (7,090,731 | ) | ||||
Change in shares | (117,035 | ) | (3,517,325 | ) | ||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.27 | $ | 10.31 | $ | 16.47 | $ | 17.96 | $ | 16.54 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.09 | 0.15 | 0.18 | 0.14 | 0.17 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.48 | 3.01 | (5.47 | ) | (0.88 | ) | 2.29 | |||||||||||||
Total from Investment Activities | 3.57 | 3.16 | (5.29 | ) | (0.74 | ) | 2.46 | |||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.12 | ) | (0.20 | ) | (0.17 | ) | (0.10 | ) | (0.05 | ) | ||||||||||
Net Realized Gains | — | — | (0.70 | ) | (0.65 | ) | (0.99 | ) | ||||||||||||
Total Dividends | (0.12 | ) | (0.20 | ) | (0.87 | ) | (0.75 | ) | (1.04 | ) | ||||||||||
Net Asset Value, End of Period | $ | 16.72 | $ | 13.27 | $ | 10.31 | $ | 16.47 | $ | 17.96 | ||||||||||
Total Return(a) | 27.11 | % | 30.61 | % | (33.73 | )% | (4.37 | )% | 15.41 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 234,305 | $ | 187,475 | $ | 181,941 | $ | 361,804 | $ | 394,073 | ||||||||||
Net Investment Income/(Loss) | 0.59 | % | 0.96 | % | 1.00 | % | 0.75 | % | 0.62 | % | ||||||||||
Expenses Before Reductions(b) | 1.08 | % | 1.12 | % | 1.12 | % | 1.11 | % | 1.09 | % | ||||||||||
Expenses Net of Reductions | 1.08 | % | 1.12 | % | 1.12 | % | 1.11 | % | 1.09 | % | ||||||||||
Portfolio Turnover Rate | 23.48 | % | 9.98 | % | 19.61 | % | 23.76 | % | 14.71 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Franklin Small Cap Value Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a portfolio management agreement between the Manager, Franklin Advisory Services, LLC (“Franklin”), and the Trust, Franklin provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense ( e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.35%.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Franklin Small Cap Value Fund | 0.75% | 1.35% |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $5,845 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 222,113,910 | $ | — | $ | — | $ | 222,113,910 | ||||||||
Investment Company | 11,880,258 | — | — | 11,880,258 | ||||||||||||
Total Investment Securities | $ | 233,994,168 | $ | — | $ | — | $ | 233,994,168 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Franklin Small Cap Value Fund | $ | 45,463,533 | $ | 50,955,212 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $179,480,132. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 63,145,740 | ||
Unrealized depreciation | (8,631,704 | ) | ||
Net unrealized appreciation | $ | 54,514,036 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | Expires | ||||||||||
12/31/2016 | 12/31/2017 | 12/31/2018 | ||||||||||
AZL Franklin Small Cap Value Fund | $ | 16,136,615 | $ | 44,269,348 | $ | 785,838 |
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Small Cap Value Fund
AZL Franklin Small Cap Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Franklin Small Cap Value Fund | $ | 1,652,724 | $ | — | $ | 1,652,724 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Franklin Small Cap Value Fund | $ | 2,835,324 | $ | — | $ | 2,835,324 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Franklin Small Cap Value Fund | $ | 1,199,889 | $ | (61,191,801 | ) | $ | 54,514,036 | $ | (5,477,876 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
18
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Franklin Small Cap Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
22
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The ��factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
23
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
24
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
26
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
27
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Franklin Templeton
Founding Strategy Plus Fund
Annual Report
December 31, 2010
Founding Strategy Plus Fund
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 26
Page 26
Statement of Operations
Page 27
Page 27
Statement of Changes in Net Assets
Page 28
Page 28
Financial Highlights
Page 29
Page 29
Notes to the Financial Statements
Page 30
Page 30
Report of Independent Registered Public Accounting Firm
Page 40
Page 40
Other Federal Income Tax Information
Page 41
Page 41
Other Information
Page 42
Page 42
Approval of Investment Advisory and Subadvisory Agreements
Page 43
Page 43
Information about the Board of Trustees and Officers
Page 47
Page 47
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Franklin Templeton Founding Strategy Plus Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Franklin Templeton Founding Strategy Plus Fund. Franklin Mutual Advisers, LLC serves as Subadviser to the Mutual Shares Strategy, Templeton Global Advisors Limited serves as Subadviser to the Templeton Growth Strategy, and Franklin Advisers, Inc. serves as Subadviser to the Franklin Income Securities Strategy and the Templeton Global Bond Strategy.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
The Fund gained 10.02%. That compared to a 12.13% return for its benchmark, a composite index comprised of a 60% weighting in the S&P 500 Index1 and a 40% weighting in the Barclays Capital U.S. Aggregate Bond Index2.
The Fund invests in a combination of subportfolios, or strategies, each of which is managed by a Franklin Templeton asset manager. Two of the strategies invest primarily in U.S. and foreign equity securities, one portfolio invests in U.S. stocks and bonds, and the fourth portfolio invests in foreign fixed-income securities. The Fund generally makes equal allocations— approximately 25% —to each of the following four strategies:
• | Mutual Shares Strategy | |
• | Templeton Growth Strategy | |
• | Franklin Income Securities Strategy | |
• | Templeton Global Bond Strategy |
Financial markets performed well during the 12 months through December 2010. The global economic recovery continued to strengthen, despite setbacks such as a softening U.S. job market and growing sovereign debt problems in several European countries. Many developed countries experienced moderate economic growth. Emerging markets enjoyed solid growth, as they were less exposed to many of the causes of the recent financial crisis, particularly an overreliance on debt. Both domestic and international stocks performed well in that environment, helping fuel strong absolute returns for the Fund.
In the fixed-income markets, U.S. Treasury yields bottomed out late in the period before rising meaningfully near period-end. That late upward movement of yields pushed down prices of Treasuries, creating problems for many traditional fixed-income investors. During the period as a whole, the Templeton Global Bond Strategy benefited from very defensive duration positioning and from its currency exposure. The Strategy maintained a negative view of the Japanese yen, which was the only major detractor from performance during the period. The Fund’s performance relative to its benchmark was hurt by overweight positions and individual stock selection in the health care sector. Regulatory changes in Europe and debate among U.S. politicians over sweeping health care reforms led to relatively weak performance among such stocks.
Individual stock holdings, including shares of a Swiss-incorporated deepwater drilling contractor, a German utility conglomerate and a large U.S.-based banking conglomerate, also dragged on the Fund’s relative performance during the period. These holdings were negatively impacted by such issues as the Gulf Coast oil spill, volatile energy prices in Germany and tighter regulations in the U.S. banking market.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Standard & Poor’s 500 Index (“S&P 500 Index”) is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. | |
2 | The Barclays Capital U.S. Aggregate Bond Index is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Franklin Templeton Founding Strategy Plus Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term capital appreciation, with income as a secondary goal. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in a combination of subportfolios or strategies.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Small- to mid-sized companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
Investing in derivatives instruments involves risks that may be different from or greater than the risk associated with investing directly in securities or other traditional instruments.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Bonds offer a relatively stable level of income, although bond prices will fluctuate, providing the potential for principal gain or loss. Intermediate-term, higher quality bonds generally offer less risk than longer-term bonds and a lower rate of return.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||
1 | Inception | |||||||
Year | (10/23/09) | |||||||
AZL® Franklin Templeton Founding Strategy Plus Fund | 10.02 | % | 10.57 | % | ||||
S&P 500 Index | 15.06 | % | 14.83 | % | ||||
Barclays Capital U.S. Aggregate Bond Index | 6.54 | % | 5.53 | % | ||||
Balanced Composite Index | 12.13 | % | 12.30 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio1 | Gross | |||
AZL® Franklin Templeton Founding Strategy Plus Fund | 1.25 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fund Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and Expenses the Fund’s gross ratio would be 1.20%. | |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted. | ||
The Fund’s performance is measured against a composite index (the “Balanced Composite Index”) which consists of 60% of the Standard & Poor’s 500 Index (“S&P 500 Index”) and 40% of the Barclays Capital U.S. Aggregate Bond Index. The S&P 500 Index is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. The Barclays Capital U.S. Aggregate Bond Index is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. These indices are unmanaged and do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index. |
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Franklin Templeton Founding Strategy Plus Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 1,000.00 | $ | 1,140.50 | $ | 6.47 | 1.20% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 1,000.00 | $ | 1,019.16 | $ | 6.11 | 1.20% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Franklin Templeton Founding Strategy Plus Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 0.2 | % | ||
Air Freight & Logistics | 0.6 | |||
Auto Components | 0.4 | |||
Automobiles | 0.9 | |||
Beverages | 1.4 | |||
Biotechnology | 1.1 | |||
Building Products | 0.2 | |||
Capital Markets | 0.5 | |||
Chemicals | 0.5 | |||
Collateralized Mortgage Obligations | 0.3 | |||
Commercial Banks | 3.5 | |||
Commercial Services & Supplies | 0.6 | |||
Communications Equipment | 0.8 | |||
Computers & Peripherals | 0.9 | |||
Construction & Engineering | 0.2 | |||
Construction Materials | 0.3 | |||
Consumer Finance | 0.5 | |||
Containers & Packaging | — | ˆ | ||
Diversified Financial Services | 3.7 | |||
Diversified Telecommunication Services | 2.4 | |||
Electric Utilities | 3.2 | |||
Electrical Equipment | 0.3 | |||
Electronic Equipment, Instruments & Components | 0.9 | |||
Energy Equipment & Services | 1.4 | |||
Food & Staples Retailing | 1.9 | |||
Food Products | 1.7 | |||
Gas Utilities | — | ˆ | ||
Health Care Equipment & Supplies | 1.2 | |||
Health Care Providers and Services | 2.5 | |||
Hotels, Restaurants & Leisure | 0.8 | |||
Independent Power Producers & Energy Traders | 0.8 | |||
Industrial Conglomerates | 1.3 | |||
Insurance | 2.0 | |||
Internet & Catalog Retail | 0.1 | |||
Internet Software & Services | 0.8 | |||
IT Services | 0.4 | |||
Leisure Equipment & Products | 0.2 | |||
Life Sciences Tools & Services | 0.1 | |||
Machinery | 0.6 | |||
Marine | 0.3 | |||
Media | 3.6 | |||
Metals & Mining | 1.1 | |||
Multi-Utilities | 1.2 | |||
Multiline Retail | 0.1 | |||
Office Electronics | 0.7 | |||
Oil, Gas & Consumable Fuels | 7.3 | |||
Paper & Forest Products | 0.9 | |||
Pharmaceuticals | 4.5 | |||
Professional Services | 0.5 | |||
Real Estate Investment Trusts (REITs) | 0.5 | |||
Real Estate Management & Development | 0.5 | |||
Road & Rail | 0.1 | |||
Semiconductors & Semiconductor Equipment | 2.1 | |||
Software | 2.5 | |||
Sovereign Bond | 18.1 | |||
Specialty Retail | 0.5 | |||
Tobacco | 2.3 | |||
Trading Companies & Distributors | 0.1 | |||
Wireless Telecommunication Services | 1.5 | |||
Municipal Bonds | 0.4 | |||
U.S. Government Agency | 5.3 | |||
Investment Company | 12.3 | |||
105.6 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
ˆ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2010
Shares or | ||||||||
Principal | Fair | |||||||
Amount | Value | |||||||
Convertible Preferred Stocks (0.9%): | ||||||||
Automobiles (0.1%): | ||||||||
3,000 | General Motors Co., Series B | $ | 162,330 | |||||
Diversified Financial Services (0.3%): | ||||||||
300 | Bank of America Corp., Series L | 287,091 | ||||||
1,500 | Citigroup, Inc. | 205,035 | ||||||
492,126 | ||||||||
Metals & Mining (0.1%): | ||||||||
2,000 | AngloGold Ashanti, Ltd. | 110,960 | ||||||
Oil, Gas & Consumable Fuels (0.4%): | ||||||||
5,000 | SandRidge Energy, Inc.(a) | 596,250 | ||||||
Total Convertible Preferred Stocks (Cost $1,157,637) | 1,361,666 | |||||||
Collateralized Mortgage Obligation (0.3%): | ||||||||
$ | 498,546 | Banc of America Large Loan, Inc., Series 2010, Class HLTN, 2.01%, 11/15/13(a) (b) | 444,475 | |||||
Total Collateralized Mortgage Obligation (Cost $435,892) | 444,475 | |||||||
Common Stocks (53.3%): | ||||||||
Aerospace & Defense (0.2%): | ||||||||
49,410 | BAE Systems plc | 254,237 | ||||||
2,520 | Embraer SA, ADR | 74,088 | ||||||
2,362 | Gencorp, Inc.* | 12,211 | ||||||
340,536 | ||||||||
Air Freight & Logistics (0.6%): | ||||||||
7,660 | Deutsche Post AG | 129,285 | ||||||
2,270 | FedEx Corp. | 211,133 | ||||||
6,025 | TNT NV | 159,245 | ||||||
5,390 | United Parcel Service, Inc., Class B | 391,206 | ||||||
890,869 | ||||||||
Auto Components (0.1%): | ||||||||
3,040 | Compagnie Generale DES Establissements Michelin SCA, Class B | 218,623 | ||||||
Fair | ||||||||
Shares | Value | |||||||
Automobiles (0.7%): | ||||||||
2,690 | Bayerische Motoren Werke AG (BMW) | $ | 210,869 | |||||
3,859 | Daimler AG, Registered Shares* | 262,447 | ||||||
2,079 | Hyundai Motor Co.* | 317,615 | ||||||
8,700 | Toyota Motor Corp. | 342,684 | ||||||
1,133,615 | ||||||||
Beverages (1.4%): | ||||||||
2,064 | Brown-Forman Corp., Class B | 143,696 | ||||||
1,189 | Carlsberg A/S, Class B | 119,013 | ||||||
8,196 | Coca-Cola Enterprises, Inc. | 205,146 | ||||||
10,000 | Diageo plc | 185,192 | ||||||
10,701 | Dr Pepper Snapple Group, Inc. | 376,247 | ||||||
7,959 | PepsiCo, Inc. | 519,962 | ||||||
6,049 | Pernod Ricard SA | 569,263 | ||||||
2,118,519 | ||||||||
Biotechnology (1.1%): | ||||||||
18,017 | Amgen, Inc.* | 989,133 | ||||||
2,740 | Biogen, Inc.* | 183,717 | ||||||
6,847 | Genzyme Corp.* | 487,507 | ||||||
1,660,357 | ||||||||
Building Products (0.2%): | ||||||||
10,224 | Owens Corning, Inc.* | 318,478 | ||||||
Capital Markets (0.5%): | ||||||||
10,350 | Bank of New York Mellon Corp. | 312,570 | ||||||
17,357 | Morgan Stanley | 472,284 | ||||||
784,854 | ||||||||
Chemicals (0.3%): | ||||||||
3,511 | Linde AG | 535,426 | ||||||
Commercial Banks (2.9%): | ||||||||
10,000 | Banco Santander SA | 106,237 | ||||||
103,467 | Barclays plc | 425,613 | ||||||
29,000 | DBS Group Holdings, Ltd. | 323,638 | ||||||
8,540 | HSBC Holdings plc | 87,013 | ||||||
34,000 | HSBC Holdings plc | 347,980 | ||||||
4,620 | ICICI Bank, Ltd., SP ADR | 233,957 | ||||||
125,066 | Intesa Sanpaolo | 339,115 | ||||||
7,738 | KB Financial Group, Inc.* | 407,787 | ||||||
2,500 | M&T Bank Corp. | 217,625 | ||||||
8,181 | PNC Financial Services Group, Inc. | 496,750 | ||||||
7,200 | Svenska Cellulosa AB, B Shares | 113,683 | ||||||
145,158 | UniCredit SpA | 300,157 | ||||||
35,740 | Wells Fargo & Co. | 1,107,583 | ||||||
4,507,138 | ||||||||
Commercial Services & Supplies (0.1%): | ||||||||
10,624 | Brambles, Ltd. | 77,304 | ||||||
61,610 | Rentokil Initial plc* | 93,082 | ||||||
170,386 | ||||||||
Communications Equipment (0.8%): | ||||||||
47,350 | Brocade Communications Systems, Inc.* | 250,482 | ||||||
22,850 | Cisco Systems, Inc.* | 462,256 | ||||||
39,319 | Motorola, Inc.* | 356,623 | ||||||
16,740 | Telefonaktiebolaget LM Ericsson, B Shares | 193,981 | ||||||
1,263,342 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Computers & Peripherals (0.6%): | ||||||||
20,320 | Dell, Inc.* | $ | 275,336 | |||||
12,469 | Hewlett-Packard Co. | 524,945 | ||||||
12,370 | Seagate Technology plc* | 185,921 | ||||||
986,202 | ||||||||
Construction Materials (0.3%): | ||||||||
21,021 | CRH plc | 435,863 | ||||||
Consumer Finance (0.3%): | ||||||||
9,650 | American Express Co. | 414,178 | ||||||
Diversified Financial Services (1.7%): | ||||||||
71,069 | Bank of America Corp. | 948,060 | ||||||
1,210 | Bond Street Holdings LLC, Class A*(c) | 24,200 | ||||||
13,131 | Canary Wharf Group plc(c) | 56,886 | ||||||
2,500 | CIT Group, Inc.* | 117,750 | ||||||
15,450 | Citigroup, Inc.* | 73,079 | ||||||
3,452 | Deutsche Boerse AG | 239,674 | ||||||
36,702 | ING Groep NV* | 358,107 | ||||||
12,500 | JPMorgan Chase & Co. | 530,250 | ||||||
19,349 | UBS AG, Registered Shares* | 317,663 | ||||||
2,665,669 | ||||||||
Diversified Telecommunication Services (2.1%): | ||||||||
12,430 | AT&T, Inc. | 365,193 | ||||||
4,000 | CenturyTel, Inc. | 184,680 | ||||||
4,560 | China Telecom Corp., Ltd., SP ADR | 238,397 | ||||||
25,800 | France Telecom SA | 538,544 | ||||||
6,473 | Frontier Communications Corp. | 62,982 | ||||||
245,000 | Singapore Telecommunications, Ltd. | 582,323 | ||||||
40,152 | Telefonica SA | 911,753 | ||||||
25,000 | Telstra Corp., Ltd. | 71,302 | ||||||
8,000 | Verizon Communications, Inc. | 286,240 | ||||||
3,241,414 | ||||||||
Electric Utilities (2.2%): | ||||||||
4,930 | American Electric Power Co., Inc. | 177,381 | ||||||
22,590 | Duke Energy Corp. | 402,328 | ||||||
14,494 | E.ON AG | 443,110 | ||||||
6,622 | Entergy Corp. | 469,036 | ||||||
8,910 | Exelon Corp. | 371,012 | ||||||
3,000 | FirstEnergy Corp. | 111,060 | ||||||
7,532 | GDF Suez | 270,815 | ||||||
4,250 | NextEra Energy, Inc. | 220,958 | ||||||
3,800 | PPL Corp. | 100,016 | ||||||
2,333 | Prime ATET&D Holdings No. 1 Pty. Limited*(c) | — | ||||||
9,722 | Prime Infrastructure Group(c) | 53,349 | ||||||
6,770 | Progress Energy, Inc. | 294,360 | ||||||
12,820 | Southern Co. | 490,109 | ||||||
3,403,534 | ||||||||
Electrical Equipment (0.3%): | ||||||||
10,619 | Alstom SA | 508,194 | ||||||
Electronic Equipment, Instruments & Components (0.9%): | ||||||||
34,700 | Flextronics International, Ltd.* | 272,395 | ||||||
3,900 | Fujifilm Holdings Corp. | 140,923 | ||||||
15,941 | Tyco Electronics, Ltd. | 564,311 | ||||||
9,380 | Tyco International, Ltd. | 388,707 | ||||||
1,366,336 | ||||||||
Energy Equipment & Services (1.4%): | ||||||||
12,184 | Baker Hughes, Inc. | 696,559 | ||||||
11,030 | Halliburton Co. | 450,355 | ||||||
4,440 | Noble Corp. | 158,819 | ||||||
5,729 | Pride International, Inc.* | 189,057 | ||||||
1,500 | Schlumberger, Ltd. | 125,250 | ||||||
8,024 | Transocean, Ltd.* | 557,748 | ||||||
2,177,788 | ||||||||
Food & Staples Retailing (1.9%): | ||||||||
3,964 | Carrefour SA | 163,510 | ||||||
50,381 | CVS Caremark Corp. | 1,751,747 | ||||||
23,355 | Kroger Co. (The) | 522,218 | ||||||
46,750 | Tesco plc | 309,952 | ||||||
4,488 | Wal-Mart Stores, Inc. | 242,038 | ||||||
2,989,465 | ||||||||
Food Products (1.5%): | ||||||||
62,652 | Cable & Wireless Communications plc | 47,379 | ||||||
62,652 | Cable & Wireless Worldwide | 64,223 | ||||||
9,374 | General Mills, Inc. | 333,621 | ||||||
29,723 | Kraft Foods, Inc., Class A | 936,572 | ||||||
16,851 | Nestle SA | 987,406 | ||||||
2,369,201 | ||||||||
Gas Utilities (0.0%): | ||||||||
1,870 | AGL Resources, Inc. | 67,039 | ||||||
Health Care Equipment & Supplies (1.2%): | ||||||||
1,953 | Alcon, Inc. | 319,120 | ||||||
35,399 | Boston Scientific Corp.* | 267,970 | ||||||
10,480 | Covidien plc | 478,517 | ||||||
19,031 | Medtronic, Inc. | 705,860 | ||||||
2,826 | Zimmer Holdings, Inc.* | 151,700 | ||||||
1,923,167 | ||||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services (0.9%): | ||||||||
5,536 | Community Health Systems, Inc.* | $ | 206,880 | |||||
500 | Coventry Health Care, Inc.* | 13,200 | ||||||
4,540 | Quest Diagnostics, Inc. | 245,024 | ||||||
29,117 | Tenet Healthcare Corp.* | 194,793 | ||||||
22,205 | UnitedHealth Group, Inc. | 801,822 | ||||||
1,461,719 | ||||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
17,900 | Compass Group plc | 162,252 | ||||||
12,868 | Thomas Cook Group plc | 38,105 | ||||||
200,357 | ||||||||
Independent Power Producers & Energy Traders (0.2%): | ||||||||
15,217 | NRG Energy, Inc.* | 297,340 | ||||||
Industrial Conglomerates (1.3%): | ||||||||
43,980 | General Electric Co. | 804,394 | ||||||
9,760 | Koninklijke Philips Electronics NV | 298,789 | ||||||
38,958 | Orkla ASA | 379,042 | ||||||
4,070 | Siemens AG | 506,362 | ||||||
1,988,587 | ||||||||
Insurance (2.0%): | ||||||||
10,435 | ACE, Ltd. | 649,579 | ||||||
73,200 | AIA Group, Ltd.* | 205,777 | ||||||
170 | Alleghany Corp.* | 52,083 | ||||||
16,066 | AXA SA | 268,060 | ||||||
570 | Berkshire Hathaway, Inc., Class B* | 45,663 | ||||||
3,604 | CNO Financial Group, Inc.* | 24,435 | ||||||
1,860 | Muenchener Rueckversicherungs-Gesellschaft AG, Registered Shares | 281,929 | ||||||
12,278 | Old Republic International Corp. | 167,349 | ||||||
15,660 | Progressive Corp. (The) | 311,164 | ||||||
2,940 | RenaissanceRe Holdings, Ltd. | 187,249 | ||||||
4,140 | Swiss RE, Registered Shares | 225,552 | ||||||
1,430 | Torchmark Corp. | 85,428 | ||||||
980 | White Mountains Insurance Group, Ltd. | 328,888 | ||||||
951 | Zurich Financial Services AG | 246,390 | ||||||
3,079,546 | ||||||||
Internet & Catalog Retail (0.1%): | ||||||||
3,680 | Expedia, Inc. | 92,331 | ||||||
IT Services (0.4%): | ||||||||
14,230 | Accenture plc, Class A | 690,013 | ||||||
Leisure Equipment & Products (0.2%): | ||||||||
11,572 | Mattel, Inc. | 294,276 | ||||||
Life Sciences Tools & Services (0.1%): | ||||||||
2,110 | Lonza Group AG, Registered Shares | 169,318 | ||||||
Machinery (0.2%): | ||||||||
3,788 | Federal Signal Corp. | 25,986 | ||||||
3,562 | Stanley Black & Decker, Inc. | 238,191 | ||||||
264,177 | ||||||||
Marine (0.3%): | ||||||||
58 | A.P. Moller — Maersk A/S, Class B | 525,458 | ||||||
Media (3.2%): | ||||||||
25,332 | British Sky Broadcasting Group plc | 290,766 | ||||||
43,221 | Comcast Corp., Class A | 899,429 | ||||||
3,910 | Comcast Corp., Class A | 85,903 | ||||||
51,824 | News Corp.† | 754,557 | ||||||
17,230 | Pearson plc | 272,166 | ||||||
15,150 | Reed Elsevier NV | 187,573 | ||||||
13,438 | Time Warner Cable, Inc. | 887,311 | ||||||
19,897 | Time Warner, Inc. | 640,086 | ||||||
8,680 | Viacom, Inc., Class B | 343,815 | ||||||
17,200 | Vivendi | 465,023 | ||||||
6,700 | Walt Disney Co. (The) | 251,317 | ||||||
5,077,946 | ||||||||
Metals & Mining (0.5%): | ||||||||
7,860 | Alcoa, Inc. | 120,965 | ||||||
71,180 | Aviva plc | 437,847 | ||||||
2,000 | Barrick Gold Corp. | 106,360 | ||||||
2,000 | Newmont Mining Corp. | 122,860 | ||||||
1,000 | Nucor Corp. | 43,820 | ||||||
175 | ThyssenKrupp AG | 7,274 | ||||||
839,126 | ||||||||
Multi-Utilities (1.2%): | ||||||||
5,000 | Centerpoint Energy, Inc. | 78,600 | ||||||
2,520 | Consolidated Edison, Inc. | 124,916 | ||||||
7,270 | Dominion Resources, Inc. | 310,574 | ||||||
6,020 | PG&E Corp. | 287,997 | ||||||
12,060 | Public Service Enterprise Group, Inc. | 383,629 | ||||||
6,070 | Sempra Energy | 318,554 | ||||||
3,650 | TECO Energy, Inc. | 64,970 | ||||||
12,390 | Xcel Energy, Inc. | 291,784 | ||||||
1,861,024 | ||||||||
Multiline Retail (0.1%): | ||||||||
3,370 | Target Corp. | 202,638 | ||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Office Electronics (0.7%): | ||||||||
23,500 | Konica Minolta Holdings, Inc. | $ | 243,993 | |||||
69,506 | Xerox Corp. | 800,709 | ||||||
1,044,702 | ||||||||
Oil, Gas & Consumable Fuels (4.3%): | ||||||||
7,010 | BG Group plc | 141,818 | ||||||
67,285 | BP plc | 492,942 | ||||||
5,000 | BP plc, SP ADR | 220,850 | ||||||
11,000 | Canadian Oil Sands Trust | 294,034 | ||||||
6,110 | Chesapeake Energy Corp. | 158,310 | ||||||
4,480 | Chevron Corp. | 408,800 | ||||||
5,030 | ConocoPhillips | 342,543 | ||||||
9,639 | Eni SpA | 210,590 | ||||||
10,000 | Exxon Mobil Corp. | 731,200 | ||||||
18,730 | Marathon Oil Corp. | 693,572 | ||||||
1,554 | Noble Energy, Inc. | 133,768 | ||||||
6,830 | OAO Gazprom, SP ADR | 173,755 | ||||||
4,170 | Petroleo Brasileiro SA, SP ADR, Class A | 142,489 | ||||||
17,103 | Royal Dutch Shell plc, A Shares | 565,111 | ||||||
19,898 | Royal Dutch Shell plc, B Shares | 658,252 | ||||||
3,300 | Spectra Energy Corp. | 82,467 | ||||||
10,920 | StatoilHydro ASA | 259,706 | ||||||
11,100 | Talisman Energy, Inc. | 247,014 | ||||||
13,848 | Total SA | 735,258 | ||||||
6,692,479 | ||||||||
Paper & Forest Products (0.9%): | ||||||||
2,297 | Domtar Corp. | 174,388 | ||||||
20,737 | International Paper Co. | 564,876 | ||||||
4,589 | MeadWestvaco Corp. | 120,048 | ||||||
26,444 | Weyerhaeuser Co. | 500,585 | ||||||
1,359,897 | ||||||||
Pharmaceuticals (4.5%): | ||||||||
3,090 | Abbott Laboratories | 148,042 | ||||||
2,700 | Bristol-Myers Squibb Co. | 71,496 | ||||||
19,436 | Eli Lilly & Co. | 681,037 | ||||||
31,890 | GlaxoSmithKline plc | 619,368 | ||||||
6,000 | Johnson & Johnson Co. | 371,100 | ||||||
32,010 | Merck & Co., Inc. | 1,153,640 | ||||||
1,970 | Merck KGaA | 158,725 | ||||||
7,260 | Novartis AG, Registered Shares | 427,349 | ||||||
99,708 | Pfizer, Inc. | 1,745,887 | ||||||
6,750 | Roche Holding AG | 989,817 | ||||||
10,630 | Sanofi-Aventis | 682,493 | ||||||
7,048,954 | ||||||||
Professional Services (0.3%): | ||||||||
3,040 | Adecco SA, Registered Shares | 198,959 | ||||||
24,750 | Hays plc | 49,794 | ||||||
4,200 | Randstad Holding NV* | 221,736 | ||||||
470,489 | ||||||||
Real Estate Investment Trusts (REITs) (0.2%): | ||||||||
376 | Alexander’s, Inc. | 155,017 | ||||||
39,375 | Link REIT (The) | 122,320 | ||||||
28,600 | Westfield Retail Trust* | 75,163 | ||||||
352,500 | ||||||||
Real Estate Management & Development (0.4%): | ||||||||
17,000 | Cheung Kong Holdings, Ltd. | 261,663 | ||||||
3,931 | Forestar Group, Inc.* | 75,868 | ||||||
3,481 | St. Joe Co. (The)* | 76,060 | ||||||
15,000 | Swire Pacific, Ltd., Class A | 246,178 | ||||||
659,769 | ||||||||
Semiconductors & Semiconductor Equipment (1.3%): | ||||||||
15,000 | Intel Corp. | 315,450 | ||||||
60,918 | LSI Logic Corp.* | 364,899 | ||||||
13,577 | Maxim Integrated Products, Inc. | 320,689 | ||||||
721 | Samsung Electronics Co., Ltd. | 602,622 | ||||||
166,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 404,706 | ||||||
2,500 | Xilinx, Inc. | 72,450 | ||||||
2,080,816 | ||||||||
Software (2.5%): | ||||||||
2,010 | Check Point Software Technologies, Ltd.* | 92,983 | ||||||
4,470 | McAfee, Inc.* | 207,006 | ||||||
61,381 | Microsoft Corp. | 1,713,757 | ||||||
1,727 | Nintendo Co., Ltd. | 506,797 | ||||||
24,440 | Oracle Corp. | 764,972 | ||||||
7,590 | SAP AG | 384,650 | ||||||
13,852 | Symantec Corp.* | 231,882 | ||||||
3,902,047 | ||||||||
Shares or | ||||||||
Principal | Fair | |||||||
Amount | Value | |||||||
Specialty Retail (0.5%): | ||||||||
7,890 | Home Depot, Inc. | $ | 276,623 | |||||
1,603 | Industria de Diseno Textil SA | 120,110 | ||||||
90,510 | Kingfisher plc | 372,091 | ||||||
670 | USS Co., Ltd. | 54,783 | ||||||
823,607 | ||||||||
Tobacco (2.3%): | ||||||||
29,246 | Altria Group, Inc.† | 720,036 | ||||||
26,088 | British American Tobacco plc | 1,004,223 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Shares or | ||||||||
Principal | Fair | |||||||
Amount | Value | |||||||
Common Stocks, continued | ||||||||
Tobacco, continued | ||||||||
23,228 | Imperial Tobacco Group plc | $ | 712,441 | |||||
71 | Japan Tobacco, Inc. | 262,482 | ||||||
1,870 | Lorillard, Inc. | 153,452 | ||||||
5,121 | Philip Morris International, Inc. | 299,732 | ||||||
11,392 | Reynolds American, Inc. | 371,607 | ||||||
3,523,973 | ||||||||
Trading Companies & Distributors (0.1%): | ||||||||
6,270 | Wolseley plc* | 200,070 | ||||||
Wireless Telecommunication Services (1.2%): | ||||||||
67,290 | Sprint Nextel Corp.* | 284,637 | ||||||
9,520 | Turkcell Iletisim Hizmetleri AS, SP ADR | 163,077 | ||||||
571,657 | Vodafone Group plc | 1,488,234 | ||||||
1,935,948 | ||||||||
Total Common Stocks (Cost $77,637,404) | 83,629,300 | |||||||
Convertible Bonds (0.1%): | ||||||||
Diversified Financial Services (0.0%): | ||||||||
$ | 50,000 | CapitalSource, Inc., 7.96%, 7/15/34, Callable 7/15/11 @ 100(d) | 49,688 | |||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
54,000 | Advanced Micro Devices, Inc., 6.00%, 5/1/15 | 54,405 | ||||||
Total Convertible Bonds (Cost $97,751) | 104,093 | |||||||
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds (11.4%): | ||||||||
Auto Components (0.3%): | ||||||||
300,000 | Goodyear Tire & Rubber Co., 8.25%, 8/15/20, Callable 8/15/15 @ 104.13 | 310,500 | ||||||
100,000 | United Rentals (North America), Inc., 8.38%, 9/15/20, Callable 9/15/15 @ 104.19 | 101,750 | ||||||
412,250 | ||||||||
Automobiles (0.1%): | ||||||||
100,000 | Ford Motor Credit Co. LLC, 7.00%, 4/15/15 | 107,461 | ||||||
Chemicals (0.2%): | ||||||||
100,000 | Hexion US Finance Corp. / Hexion Nova Scotia Finance ULC, 8.88%, 2/1/18, Callable 2/1/14 @ 104.44 | 106,875 | ||||||
100,000 | Huntsman International LLC, 8.63%, 3/15/21, Callable 9/15/15 @ 104.31(a) | 108,000 | ||||||
100,000 | Kerling plc, 10.63%, 1/28/17, Callable 2/1/14 @ 105.31(a) | 144,298 | ||||||
359,173 | ||||||||
Commercial Services & Supplies (0.5%): | ||||||||
100,000 | Interactive Data Corp., 10.25%, 8/1/18, Callable 8/1/14 @ 105.13(a) | 108,500 | ||||||
200,000 | International Lease Finance Corp., 8.63%, 9/15/15(a) | 215,000 | ||||||
200,000 | International Lease Finance Corp., 7.13%, 9/1/18(a) | 212,500 | ||||||
200,000 | Visant Corp., 10.00%, 10/1/17, Callable 10/1/13 @ 107.50(a) | 212,500 | ||||||
748,500 | ||||||||
Consumer Finance (0.1%): | ||||||||
100,000 | Antero Resources Finance Corp., 9.38%, 12/1/17, Callable 12/1/13 @ 104.69 | 104,625 | ||||||
Containers & Packaging (0.0%): | ||||||||
50,000 | Berry Plastics Corp., 9.75%, 1/15/21, Callable 1/15/16 @ 104.88(a) | 49,500 | ||||||
Diversified Financial Services (1.5%): | ||||||||
391,473 | CIT Group, Inc., 7.00%, 5/1/15, Callable 2/23/11 @ 102 | 392,452 | ||||||
968,991 | CIT Group, Inc., 7.00%, 5/1/16, Callable 2/23/11 @ 102 | 972,625 | ||||||
632,496 | CIT Group, Inc., 7.00%, 5/1/17, Callable 2/23/11 @ 102 | 634,077 | ||||||
250,000 | JPMorgan Chase & Co., Series 1, 7.90%, 4/29/49, Callable 4/30/18 @ 100(b) | 265,747 | ||||||
100,000 | Pinafore LLC / Pinafore, Inc., 9.00%, 10/1/18, Callable 10/1/14 @ 104.50(a) | 108,000 | ||||||
2,372,901 | ||||||||
Diversified Telecommunication Services (0.3%): | ||||||||
50,000 | Cequel Communications Holdings I LLC, 8.63%, 11/15/17, Callable 11/15/12 @ 106.47(a) | 52,250 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 250,000 | Clearwire Corp., 12.00%, 12/1/15, Callable 12/1/12 @ 106(a) | $ | 269,375 | ||||
100,000 | Frontier Communications Corp., 8.25%, 4/15/17 | 109,750 | ||||||
100,000 | Frontier Communications Corp., 8.50%, 4/15/20 | 109,250 | ||||||
540,625 | ||||||||
Electric Utilities (0.4%): | ||||||||
11,250 | Texas Competitive Electric Holdings Co., LLC, PIK, 10.50%, 11/1/16, Callable 11/1/12 @ 105.25 | 5,625 | ||||||
918,000 | Texas Competitive Electric Holdings Co., LLC, Series A, 10.25%, 11/1/15, Callable 11/1/11 @ 105.13 | 518,670 | ||||||
134,000 | Texas Competitive Electric Holdings Co., LLC, Series B, 15.00%, 4/1/21, Callable 10/1/15 @ 107.50(a) | 117,250 | ||||||
641,545 | ||||||||
Food Products (0.2%): | ||||||||
300,000 | Dean Foods Co., 9.75%, 12/15/18, Callable 12/15/14 @ 104.88(a) | 302,250 | ||||||
Health Care Providers & Services (1.6%): | ||||||||
467,000 | Community Health Systems, Inc., 8.88%, 7/15/15, Callable 7/15/11 @ 104.44 | 490,350 | ||||||
500,000 | HCA Holdings, Inc., 7.75%, 5/15/21, Callable 11/15/15 @ 103.88(a) | 500,000 | ||||||
399,000 | HCA, Inc., 6.50%, 2/15/16 | 390,022 | ||||||
50,000 | HCA, Inc., 7.88%, 2/15/20, Callable 8/15/14 @ 103.94 | 53,500 | ||||||
500,000 | Mylan, Inc., 6.00%, 11/15/18, Callable 11/15/14 @ 103(a) | 491,250 | ||||||
500,000 | Tenet Healthcare Corp., 9.25%, 2/1/15 | 532,500 | ||||||
50,000 | Vanguard Health Holding LLC / Vanguard Health Holding, Inc., 8.00%, 2/1/18, Callable 2/1/14 @ 104 | 51,250 | ||||||
2,508,872 | ||||||||
Hotels, Restaurants & Leisure (0.7%): | ||||||||
50,000 | CKE Restaurants, Inc., 11.38%, 7/15/18, Callable 7/15/14 @ 105.69 | 55,375 | ||||||
500,000 | ClubCorp Club Operations, Inc., 10.00%, 12/1/18, Callable 12/1/14 @ 105(a) | 475,000 | ||||||
500,000 | MGM Resorts International, 10.00%, 11/1/16(a) | 513,750 | ||||||
1,044,125 | ||||||||
Independent Power Producers & Energy Traders (0.6%): | ||||||||
200,000 | Calpine Corp., 7.88%, 7/31/20, Callable 7/31/15 @ 103.94(a) | 202,500 | ||||||
250,000 | Calpine Corp., 7.50%, 2/15/21, Callable 11/1/15 @ 103.75(a) | 246,250 | ||||||
410,000 | Dynegy Holdings, Inc., 7.50%, 6/1/15 | 309,550 | ||||||
34,000 | Dynegy Roseton / Danskammer Pass Through Trust, Series B, 7.67%, 11/8/16 | 31,960 | ||||||
115,000 | RRI Energy, Inc., 7.88%, 6/15/17 | 111,550 | ||||||
901,810 | ||||||||
Internet Software & Services (0.8%): | ||||||||
275,000 | CDW LLC / CDW Finance Corp., 11.00%, 10/12/15, Callable 10/15/11 @ 105.50 | 285,312 | ||||||
250,000 | CDW LLC / CDW Finance Corp., 12.54%, 10/12/17, Callable 10/15/12 @ 106.27 | 247,500 | ||||||
14,000 | First Data Corp., 9.88%, 9/24/15, Callable 9/30/11 @ 104.94 | 13,335 | ||||||
6,000 | First Data Corp., PIK, 9.88%, 9/24/15, Callable 9/30/11 @ 104.94 | 5,685 |
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Internet Software & Services, continued | ||||||||
$ | 14,000 | First Data Corp., 10.55%, 9/24/15, Callable 9/30/11 @ 105.28 | $ | 13,265 | ||||
47,000 | First Data Corp., 11.25%, 3/31/16, Callable 9/30/11 @ 105.62 | 41,125 | ||||||
139,000 | First Data Corp., 8.25%, 1/15/21, Callable 1/15/16 @ 104.13(a) | 133,440 | ||||||
283,000 | First Data Corp., 12.63%, 1/15/21, Callable 1/15/16 @ 112.62(a) | 270,265 | ||||||
141,000 | First Data Corp., 8.75%, 1/15/22, Callable 1/15/16 @ 104.38(a) | 136,418 | ||||||
150,000 | SunGard Data Systems, Inc., 7.63%, 11/15/20, Callable 11/15/15 @ 103.81(a) | 151,875 | ||||||
1,298,220 | ||||||||
Machinery (0.4%): | ||||||||
100,000 | Case New Holland, Inc., 7.88%, 12/1/17(a) | 109,250 | ||||||
400,000 | Manitowoc Co., Inc., 9.50%, 2/15/18, Callable 2/15/14 @ 104.75 | 438,000 | ||||||
100,000 | RBS Global & Rexnord Corp., 8.50%, 5/1/18, Callable 5/1/14 @ 104.25 | 106,250 | ||||||
653,500 | ||||||||
Media (0.4%): | ||||||||
325,000 | Cablevision Systems Corp., 8.63%, 9/15/17 | 353,844 | ||||||
100,000 | Cablevision Systems Corp., 7.75%, 4/15/18 | 104,750 | ||||||
100,000 | Cablevision Systems Corp., 8.00%, 4/15/20 | 107,000 | ||||||
565,594 | ||||||||
Oil, Gas & Consumable Fuels (1.8%): | ||||||||
100,000 | ATP Oil & Gas Corp., 11.88%, 5/1/15, Callable 5/1/13 @ 111.88(a) | 94,500 | ||||||
345,000 | Chesapeake Energy Corp., 6.50%, 8/15/17 | 346,725 | ||||||
200,000 | Chesapeake Energy Corp., 6.88%, 8/15/18, Callable 8/15/13 @ 105.16 | 203,000 | ||||||
200,000 | Chesapeake Energy Corp., 7.25%, 12/15/18 | 207,000 | ||||||
198,000 | Denbury Resources, Inc., 8.25%, 2/15/20, Callable 2/15/15 @ 104.13 | 214,830 | ||||||
300,000 | Energy Transfer Equity LP, 7.50%, 10/15/20 | 309,000 | ||||||
500,000 | Energy XXI Gulf Coast, Inc., 9.25%, 12/15/17, Callable 12/15/14 @ 104.63(a) | 520,000 | ||||||
400,000 | Exco Resources, Inc., 7.50%, 9/15/18, Callable 9/15/14 @ 103.75 | 392,000 | ||||||
100,000 | Linn Energy LLC / Linn Energy Finance Corp., 8.63%, 4/15/20, Callable 4/15/15 @ 104.31(a) | 107,750 | ||||||
135,000 | SandRidge Energy, Inc., 3.92%, 4/1/14, Callable 2/7/11 @ 102(b) | 125,672 | ||||||
65,000 | SandRidge Energy, Inc., 8.00%, 6/1/18, Callable 6/1/13 @ 104(a) | 65,975 | ||||||
100,000 | SandRidge Energy, Inc., 8.75%, 1/15/20, Callable 1/15/15 @ 104.38 | 102,750 | ||||||
155,000 | W & T Offshore, Inc., 8.25%, 6/15/14, Callable 6/15/11 @ 104.13(a) | 150,738 | ||||||
2,839,940 | ||||||||
Paper & Forest Products (0.0%): | ||||||||
50,000 | Newpage Corp., 11.38%, 12/31/14, Callable 3/31/12 @ 105 | 47,000 | ||||||
Professional Services (0.2%): | ||||||||
300,000 | Quintiles Transnational Corp., 9.50%, 12/30/14, Callable 2/7/11 @ 102.50(a) | 307,500 | ||||||
Real Estate Investment Trusts (REITs) (0.2%): | ||||||||
200,000 | FelCor Lodging LP, 10.00%, 10/1/14 | 224,000 | ||||||
55,000 | iStar Financial, Inc., 8.63%, 6/1/13 | 51,150 | ||||||
100,000 | iStar Financial, Inc., 10.00%, 6/15/14, Callable 1/6/11 @ 100 | 99,750 | ||||||
374,900 | ||||||||
Road & Rail (0.1%): | ||||||||
225,000 | Hertz Corp. (The), 8.88%, 1/1/14, Callable 2/7/11 @ 102.22 | 230,063 | ||||||
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Semiconductors & Semiconductor Equipment (0.7%): | ||||||||
$ | 100,000 | Advanced Micro Devices, Inc., 8.13%, 12/15/17, Callable 12/15/13 @ 104.06 | $ | 106,000 | ||||
271,000 | Freescale Semiconductor, Inc., 9.25%, 4/15/18, Callable 4/15/14 @ 104.63(a) | 298,100 | ||||||
590,000 | Freescale Semiconductor, Inc., 10.75%, 8/1/20, Callable 8/1/15 @ 105.38(a) | 643,100 | ||||||
1,047,200 | ||||||||
Wireless Telecommunication Services (0.3%): | ||||||||
500,000 | Cricket Communications, Inc., 7.75%, 10/15/20, Callable 10/15/15 @ 103.88(a) | 476,250 | ||||||
Total Corporate Bonds (Cost $17,495,807) | 17,933,804 | |||||||
Floating Rate Loans (0.7%): | ||||||||
Communications Equipment (0.0%): | ||||||||
4,763 | Avaya, Inc. Term B, 3.03%, 10/26/14(b) | 4,514 | ||||||
Containers & Packaging (0.0%): | ||||||||
26,865 | Smurfit-Stone Container Enterprises, Inc. Term B, 6.75%, 2/22/16(b) | 27,258 | ||||||
Electric Utilities (0.6%): | ||||||||
498,715 | Texas Competitive Electric Holdings Co., LLC Term B-3, 3.76%, 10/10/14(b) | 384,579 | ||||||
500,000 | Texas Competitive Electric Holdings Co., LLC Term B-1, 3.76%, 10/10/14(b) | 386,250 | ||||||
126,894 | Texas Competitive Electric Holdings Co., LLC 3.76%, 10/10/14(b) | 97,735 | ||||||
868,564 | ||||||||
Internet Software & Services (0.0%): | ||||||||
24,083 | First Data Corp. Term B-2, 3.01%, 9/24/14(b) | 22,247 | ||||||
7,837 | First Data Corp. Term B-3, 3.01%, 9/24/14(b) | 7,239 | ||||||
19,497 | First Data Corp. Term B-1, 3.01%, 9/24/14(b) | 18,010 | ||||||
47,496 | ||||||||
Real Estate Management & Development (0.1%): | ||||||||
15,608 | Realogy Corp. Term B, 3.29% 10/10/13(b) | 14,650 | ||||||
97,894 | Realogy Corp. 3.28%, 10/10/13(b) | 91,882 | ||||||
140,143 | Realogy Corp. 3.26%, 10/10/13(b) | 131,536 | ||||||
238,068 | ||||||||
Total Floating Rate Loans (Cost $1,193,127) | 1,185,900 | |||||||
Foreign Bonds (16.7%): | ||||||||
Commercial Banks (0.5%): | ||||||||
130,000 | Bank Negara Monetary Notes, Series 3510, 2.71%, 1/20/11+(e) | 42,126 | ||||||
1,840,000 | Bank Negara Monetary Notes, Series 4910, 2.76%, 3/15/11+(e) | 593,713 | ||||||
110,000 | Bank Negara Monetary Notes, Series 7210, 2.71%, 6/2/11+(e) | 35,267 | ||||||
60,000 | Bank Negara Monetary Notes, Series 7010, 2.71%, 6/30/11+(e) | 19,193 | ||||||
60,000 | Bank Negara Monetary Notes, Series 4310, 2.81%, 7/19/11+(e) | 19,134 | ||||||
35,000 | Bank Negara Monetary Notes, Series 6010, 2.71%, 10/13/11+(e) | 11,098 | ||||||
110,000 | Bank Negara Monetary Notes, Series 7810, 2.71%, 10/25/11+(e) | 34,842 | ||||||
95,000 | Bank Negara Monetary Notes, Series 7410, 2.71%, 12/15/11+(e) | 29,959 | ||||||
785,332 | ||||||||
Sovereign Bonds (16.2%): | ||||||||
340,000 | Australian Government, Series 123, 5.75%, 4/15/12+ | 351,088 | ||||||
25,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 5/15/13+(e)(f) | 29,850 | ||||||
365,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 5/15/15+(e)(f) | 435,867 | ||||||
1,200,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 10.00%, 1/1/17+(e)(f) | 662,816 | ||||||
140,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 5/15/45+(e)(f) | 180,794 |
12
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Foreign Bonds, continued | ||||||||
Sovereign Bonds, continued | ||||||||
$ | 650,000 | Egypt Treasury Bill, Series 273, 10.35%, 1/4/11+(e) | $ | 111,935 | ||||
25,000 | Egypt Treasury Bill, Series 364, 10.48%, 1/11/11+(e) | 4,299 | ||||||
50,000 | Egypt Treasury Bill, Series 273, 10.33%, 1/25/11+(e) | 8,565 | ||||||
1,250,000 | Egypt Treasury Bill, Series 364, 10.82%, 2/8/11+(e) | 213,473 | ||||||
150,000 | Egypt Treasury Bill, Series 273, 10.12%, 3/1/11+(e) | 25,483 | ||||||
50,000 | Egypt Treasury Bill, Series 364, 10.45%, 3/8/11+(e) | 8,480 | ||||||
100,000 | Egypt Treasury Bill, Series 273, 10.05%, 3/22/11+(e) | 16,900 | ||||||
700,000 | Egypt Treasury Bill, 10.01%, 3/29/11+(e) | 118,094 | ||||||
425,000 | Egypt Treasury Bill, 10.09%, 4/5/11+(e) | 71,573 | ||||||
1,075,000 | Egypt Treasury Bill, 10.31%, 4/12/11+(e) | 180,696 | ||||||
100,000 | Egypt Treasury Bill, Series 273, 10.04%, 5/3/11+(e) | 16,669 | ||||||
275,000 | Egypt Treasury Bill, Series 364, 10.11%, 5/10/11+(e) | 45,864 | ||||||
1,775,000 | Egypt Treasury Bill, 9.91%, 5/31/11+(e) | 294,224 | ||||||
150,000 | Egypt Treasury Bill, Series 364, 10.08%, 6/7/11+(e) | 24,812 | ||||||
200,000 | Egypt Treasury Bill, Series 364, 10.30%, 6/21/11+(e) | 32,943 | ||||||
425,000 | Egypt Treasury Bill, 10.33%, 7/12/11+(e) | 69,560 | ||||||
350,000 | Egypt Treasury Bill, Series 364, 10.05%, 8/9/11+(e) | 56,824 | ||||||
25,000 | Egypt Treasury Bill, 10.26%, 9/20/11+(e) | 4,009 | ||||||
950,000 | Egypt Treasury Bill, Series 364, 10.33%, 11/8/11+(e) | 150,250 | ||||||
575,000 | Egypt Treasury Bill, Series 364, 10.33%, 12/6/11+(e) | 90,244 | ||||||
5,300,000,000 | Indonesia Government, Series FR34, 12.80%, 6/15/21+ | 789,934 | ||||||
3,200,000,000 | Indonesia Government, Series FR44, 10.00%, 9/15/24+ | 389,932 | ||||||
3,300,000,000 | Indonesia Government, Series FR47, 10.00%, 2/15/28+ | 391,659 | ||||||
420,000 | Israel Government Bond, Series 2680, 7.00%, 4/29/11+(e) | 125,822 | ||||||
90,000 | Israel Treasury Bill, Series 0111, 1.94%, 1/5/11+(e) | 25,378 | ||||||
125,000 | Israel Treasury Bill, Series 211, 2.05%, 2/2/11+(e) | 35,180 | ||||||
55,000 | Israel Treasury Bill, Series 311, 2.09%, 3/2/11+(e) | 15,456 | ||||||
830,000 | Israel Treasury Bill, Series 411, 2.09%, 4/6/11+(e) | 232,728 | ||||||
40,000 | Israel Treasury Bill, Series 0611, 2.11%, 6/1/11+(e) | 11,142 | ||||||
75,000 | Israel Treasury Bill, Series 0711, 2.11%, 7/6/11+(e) | 20,831 | ||||||
3,015,000 | Israel Treasury Bill, Series 0911, 2.29%, 9/7/11+(e) | 833,050 | ||||||
725,000 | Israel Treasury Bill, Series 1011, 2.30%, 10/5/11+(e) | 199,850 | ||||||
1,420,000,000 | Korea Treasury Bond, Series 1112, 4.75%, 12/10/11+ | 1,272,287 | ||||||
1,430,000,000 | Korea Treasury Bond, Series 1206, 4.00%, 6/10/12+ | 1,275,181 | ||||||
1,771,000,000 | Korea Treasury Bond, Series 1212, 4.25%, 12/10/12+ | 1,586,048 | ||||||
104,000,000 | Korea Treasury Bond, Series 1303, 5.25%, 3/10/13+ | 95,167 | ||||||
1,324,000,000 | Korea Treasury Bond, Series 1306, 3.75%, 6/10/13+ | 1,175,889 | ||||||
10,000 | Malaysia Treasury Bill, Series 364, 2.81%, 7/1/11+(e) | 3,202 |
13
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Foreign Bonds, continued | ||||||||
Sovereign Bonds, continued | ||||||||
$ | 50,000 | Malaysian Government, Series 4, 3.76%, 4/28/11+ | $ | 16,292 | ||||
5,040,000 | Malaysian Government, Series 1, 3.83%, 9/28/11+ | 1,649,020 | ||||||
1,259,000 | Malaysian Government, Series 0309, 2.71%, 2/14/12+ | 407,853 | ||||||
1,100,000 | Malaysian Government, Series 0109, 2.51%, 8/27/12+ | 354,278 | ||||||
6,390,000 | Mexico Bonos Desarr, Series M, 9.00%, 6/20/13+(g) | 559,441 | ||||||
5,000,000 | Mexico Bonos Desarr, Series M 20, 8.00%, 12/7/23+(g) | 433,536 | ||||||
5,020,000 | Mexico Bonos Desarr, Series M 20, 7.50%, 6/3/27+(g) | 406,567 | ||||||
3,290,000 | Mexico Bonos Desarr, Series M 30, 10.00%, 11/20/36+ | 330,111 | ||||||
330,000 | Mexico Bonos Desarr, Series MI 10, 8.00%, 12/19/13+(b)(g) | 28,400 | ||||||
640,000 | New South Wales Treasury Corp., Series 12, 6.00%, 5/1/12+ | 660,995 | ||||||
12,800,000 | Norwegian Government, 6.00%, 5/16/11+ | 2,224,185 | ||||||
6,420,000 | Philippine Government International Bond, Series 5-65, 5.75%, 2/21/12+ | 151,462 | ||||||
3,890,000 | Philippine Government International Bond, Series 7-43, 8.75%, 3/3/13+ | 98,056 | ||||||
1,890,000 | Philippine Treasury Bill, 1.93%, 11/16/11+(e) | 42,334 | ||||||
1,470,000 | Philippine Treasury Bill, 1.89%, 11/29/11+(e) | 32,899 | ||||||
2,650,000 | Poland Government Bond, Series 0412, 4.75%, 4/25/12+ | 898,800 | ||||||
400,000 | Poland Government Bond, Series 0712, 4.59%, 7/25/12+(e) | 126,446 | ||||||
435,000 | Poland Government Bond, Series 1012, 4.65%, 10/25/12+(e) | 135,797 | ||||||
430,000 | Poland Government Bond, Series 0113, 4.67%, 1/25/13+(e) | 132,472 | ||||||
290,000 | Poland Government Bond, Series 0413, 5.25%, 4/25/13+ | 99,293 | ||||||
750,000 | Poland Government Bond, Series 0414, 5.75%, 4/25/14+ | 258,462 | ||||||
720,000 | Poland Government Bond, Series 1015, 6.25%, 10/24/15+ | 252,111 | ||||||
490,000 | Queensland Treasury Corp., Series 11, 6.00%, 6/14/11+ | 503,429 | ||||||
780,000 | Queensland Treasury Corp., Series 13, 6.00%, 8/14/13+ | 810,198 | ||||||
45,000 | Queensland Treasury Corp., 7.13%, 9/18/17+(a) | 37,447 | ||||||
200,000 | Republic of Hungary, 5.75%, 6/11/18+ | 248,123 | ||||||
80,000 | Republic of South Africa, Series E, 4.50%, 4/5/16, MTN+ | 110,522 | ||||||
9,500,000 | Swedish Government, Series 1045, 5.25%, 3/15/11+ | 1,423,961 | ||||||
1,285,000 | Western Australian Treasury Corp., Series 12, 5.50%, 7/17/12+ | 1,318,429 | ||||||
25,434,967 | ||||||||
Total Foreign Bonds (Cost $25,016,466) | 26,220,299 | |||||||
Preferred Stocks (0.3%): | ||||||||
Metals & Mining (0.1%): | ||||||||
6,760 | Vale SA, SP ADR, Preferred Shares | 204,287 | ||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
100 | Chesapeake Energy Corp., Series A(a) | 129,412 | ||||||
Real Estate Investment Trusts (REITs) (0.1%): | ||||||||
2,500 | FelCor Lodging Trust, Inc., Series A | 61,641 | ||||||
116 | Wells Fargo & Co., Series L, Class A | 116,064 | ||||||
177,705 | ||||||||
Total Preferred Stocks (Cost $431,473) | 511,404 | |||||||
14
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Municipal Bonds (0.4%): | ||||||||
California (0.2%): | ||||||||
$ | 15,000 | California State, Build America Bonds, GO, 6.65%, 3/1/22 | $ | 15,587 | ||||
40,000 | California State, Build America Bonds, GO, 7.50%, 4/1/34 | 41,390 | ||||||
100,000 | California State, Build America Bonds, GO, 7.95%, 3/1/36, Callable 3/1/20 @ 100 | 102,561 | ||||||
10,000 | California State, Build America Bonds, GO, 7.30%, 10/1/39 | 10,071 | ||||||
125,000 | California State, Build America Bonds, GO, 7.63%, 3/1/40 | 130,426 | ||||||
20,000 | California State, GO, 6.20%, 3/1/19 | 20,246 | ||||||
30,000 | California State, GO, 5.25%, 3/1/30, Callable 3/1/20 @ 100 | 29,013 | ||||||
25,000 | California State, GO, 5.50%, 3/1/40, Callable 3/1/20 @ 100 | 24,257 | ||||||
373,551 | ||||||||
Illinois (0.1%): | ||||||||
60,000 | Illinois State, GO, 4.42%, 1/1/15 | 60,089 | ||||||
Michigan (0.0%): | ||||||||
5,000 | Detroit Michigan, GO, 4.50%, 11/1/23, Callable 11/1/20 @ 100 | 4,635 | ||||||
New York (0.1%): | ||||||||
135,000 | New York State Dormitory Authority State Personal Income Tax, Build America Bonds, Revenue, 5.50%, 3/15/30 | 133,138 | ||||||
35,000 | New York State Dormitory Authority State Personal Income Tax, Build America Bonds, Revenue, 5.60%, 3/15/40 | 34,409 | ||||||
167,547 | ||||||||
Total Municipal Bonds (Cost $606,060) | 605,822 | |||||||
Yankee Dollars (3.9%): | ||||||||
Commercial Banks (0.1%): | ||||||||
100,000 | Export-Import Bank of Korea, 8.13%, 1/21/14+ | 114,392 | ||||||
110,000 | Korea Development Bank, 8.00%, 1/23/14+ | 125,565 | ||||||
239,957 | ||||||||
Computers & Peripherals (0.3%): | ||||||||
500,000 | Seagate HDD Cayman, 7.75%, 12/15/18+(a) | 506,250 | ||||||
Construction & Engineering (0.2%): | ||||||||
400,000 | Abengoa Finance SAU, 8.88%, 11/1/17+(a) | 370,000 | ||||||
Consumer Finance (0.1%): | ||||||||
100,000 | NXP BV / NXP Funding LLC, 9.75%, 8/1/18+(a) | 112,500 | ||||||
Diversified Financial Services (0.2%): | ||||||||
200,000 | CEVA Group plc, 8.38%, 12/1/17+(a) | 202,000 | ||||||
100,000 | CEVA Group plc, 11.50%, 4/1/18+(a) | 108,000 | ||||||
310,000 | ||||||||
Metals & Mining (0.4%): | ||||||||
100,000 | FMG Resources Pty, Ltd., 7.00%, 11/1/15+(a) | 102,500 | ||||||
500,000 | FMG Resources Pty, Ltd., 6.88%, 2/1/18+(a) | 497,500 | ||||||
600,000 | ||||||||
Oil, Gas & Consumable Fuels (0.7%): | ||||||||
100,000 | Expro Finance Luxembourg, 8.50%, 12/15/16+(a) | 95,500 | ||||||
790,000 | Petroleos de Venezuela SA, 12.93%, 7/10/11, Series 2011+(e) | 754,450 | ||||||
190,000 | Petroplus Finance, Ltd., 6.75%, 5/1/14+(a) | 174,800 | ||||||
85,000 | Petroplus Finance, Ltd., 7.00%, 5/1/17+(a) | 75,225 | ||||||
1,099,975 | ||||||||
Sovereign Bonds (1.9%): | ||||||||
170,000 | Emirate of Abu Dhabi, 6.75%, 4/8/19+(a) | 197,232 | ||||||
175,000 | Indonesia Government International Bond, 11.63%, 3/4/19+(a) | 259,438 | ||||||
1,120,000 | Republic of Argentina, 0.68%, 8/3/12+(b) | 267,120 | ||||||
173,000 | Republic of Hungary, 6.25%, 1/29/20+ | 167,387 | ||||||
320,000 | Republic of Iraq, 5.80%, 1/15/28+(a) | 291,200 | ||||||
100,000 | Republic of Lithuania, 7.38%, 2/11/20+(a) | 110,750 | ||||||
230,000 | Republic of Lithuania, 7.38%, 2/11/20+(a) | 254,067 | ||||||
45,000 | Republic of Venezuela, 1.29%, 4/20/11+(a)(b) | 43,650 | ||||||
662,300 | Russia Foreign Bond, 7.50%, 3/31/30+(a)(d) | 764,956 |
15
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Yankee Dollars, continued | ||||||||
Sovereign Bonds, continued | ||||||||
$ | 100,000 | Socialist Republic of Vietnam, 6.75%, 1/29/20+(a) | $ | 101,500 | ||||
240,000 | South Africa Government International Bond, 6.88%, 5/27/19+ | 281,100 | ||||||
170,000 | State of Qatar, 6.55%, 4/9/19+(a) | 194,650 | ||||||
2,933,050 | ||||||||
Total Yankee Dollars (Cost $6,313,320) | 6,171,732 | |||||||
U.S. Government Agencies (5.3%): | ||||||||
Federal Farm Credit Bank (0.7%) | ||||||||
1,035,000 | 0.01%, 1/3/11(e) | 1,035,000 | ||||||
Federal Home Loan Bank (4.6%) | ||||||||
7,240,000 | 0.00%, 1/3/11(e) | 7,240,000 | ||||||
Total U.S. Government Agencies (Cost $8,275,000) | 8,275,000 | |||||||
Investment Company (12.3%): | ||||||||
19,263,308 | Dreyfus Treasury Prime Cash Management, 0.00%(e) | $ | 19,263,308 | |||||
Total Investment Company (Cost $19,263,308) | 19,263,308 | |||||||
Total Investment Securities (Cost $157,923,245)(h) — 105.6% | 165,706,803 | |||||||
Net other assets (liabilities) — (5.6)% | (8,726,951 | ) | ||||||
Net Assets — 100.0% | $ | 156,979,852 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
† | Investment securities are segregated as collateral for forward foreign currency contracts and securities purchased on a “when-issued” basis, the aggregate fair value of these securities is $1,474,593. | |
+ | The principal amount is disclosed in local currency and the fair value is disclosed in U.S. Dollars. | |
* | Non-income producing security | |
Security purchased on a “when issued” basis. The cost of securities was $1,034,116. |
GO—General Obligation
LLC—Limited Liability Company
LP—Limited Partnership
MTN—Medium Term Note
PIK—Payment-in-Kind
plc — Public Limited Company
SP ADR—Sponsored American Depositary Receipt
ULC—Unlimited Liability Co.
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investor. The sub-adviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. | |
(b) | Variable rate security. The rate presented represents the rate in effect at December 31, 2010. The date presented represents the final maturity date. | |
(c) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2010. The total of all such securities represent 0.09% of the net assets of the Fund. | |
(d) | Step Bond: Coupon rate is set for an initial period and then increased to a higher coupon rate at a specified date. The rate represents the effective yield at December 31, 2010. | |
(e) | The rate represents the effective yield at December 31, 2010. | |
(f) | Principal amount is stated in 1,000 Brazilian Real Units. | |
(g) | Principal amount is stated in 100 Mexican Peso Units. | |
(h) | See Federal Tax Information listed in the Notes to the Financial Statements. |
16
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
As of December 31, 2010, the Fund’s open forward foreign currency contracts were as follows:
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Long Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Receive 43,216 Australian Dollar in exchange for U.S. Dollar | UBS Warburg | 2/8/11 | $ | 36,000 | $ | 43,965 | $ | 7,965 | ||||||||||
Receive 43,228 Australian Dollar in exchange for U.S. Dollar | Morgan Stanley | 2/8/11 | 36,000 | 43,977 | 7,977 | |||||||||||||
Receive 435,000 Brazilian Real in exchange for U.S. Dollar | Deutsche Bank | 10/31/11 | 235,772 | 245,191 | 9,419 | |||||||||||||
Receive 52,523 British Pound in exchange for U.S. Dollar | BFX Capital, Inc. | 1/5/11 | 80,937 | 81,874 | 937 | |||||||||||||
Receive 53,175 British Pound in exchange for U.S. Dollar | State Street Bank | 1/4/11 | 83,181 | 82,891 | (290 | ) | ||||||||||||
Receive 1,400,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 3/2/11 | 2,679 | 2,979 | 300 | |||||||||||||
Receive 2,200,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 2/18/11 | 4,207 | 4,686 | 479 | |||||||||||||
Receive 2,200,000 Chilean Peso in exchange for U.S. Dollar | Merrill Lynch | 3/1/11 | 4,196 | 4,682 | 486 | |||||||||||||
Receive 2,500,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 3/15/11 | 4,829 | 5,316 | 487 | |||||||||||||
Receive 3,900,000 Chilean Peso in exchange for U.S. Dollar | JPMorgan Chase | 2/28/11 | 7,414 | 8,301 | 887 | |||||||||||||
Receive 4,300,000 Chilean Peso in exchange for U.S. Dollar | JPMorgan Chase | 2/18/11 | 8,206 | 9,159 | 953 | |||||||||||||
Receive 4,300,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 2/22/11 | 8,230 | 9,156 | 926 | |||||||||||||
Receive 4,300,000 Chilean Peso in exchange for U.S. Dollar | Merrill Lynch | 2/23/11 | 8,152 | 9,156 | 1,004 | |||||||||||||
Receive 4,300,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 2/24/11 | 8,211 | 9,155 | 944 | |||||||||||||
Receive 4,300,000 Chilean Peso in exchange for U.S. Dollar | JPMorgan Chase | 3/21/11 | 8,332 | 9,139 | 807 | |||||||||||||
Receive 4,400,000 Chilean Peso in exchange for U.S. Dollar | Bank of America | 2/10/11 | 8,190 | 9,377 | 1,187 | |||||||||||||
Receive 4,400,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 2/10/11 | 8,190 | 9,377 | 1,187 | |||||||||||||
Receive 4,400,000 Chilean Peso in exchange for U.S. Dollar | Barclays Bank | 2/11/11 | 8,205 | 9,377 | 1,172 | |||||||||||||
Receive 4,400,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 2/14/11 | 8,294 | 9,375 | 1,081 | |||||||||||||
Receive 4,500,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 5/10/11 | 8,475 | 9,521 | 1,046 | |||||||||||||
Receive 5,600,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 3/1/11 | 10,677 | 11,919 | 1,242 | |||||||||||||
Receive 6,500,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 2/25/11 | 12,433 | 13,838 | 1,405 | |||||||||||||
Receive 7,300,000 Chilean Peso in exchange for U.S. Dollar | JPMorgan Chase | 2/22/11 | 13,954 | 15,545 | 1,591 | |||||||||||||
Receive 8,700,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 2/16/11 | 16,448 | 18,534 | 2,086 | |||||||||||||
Receive 9,210,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 2/25/11 | 17,615 | 19,608 | 1,993 | |||||||||||||
Receive 9,500,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 2/22/11 | 18,198 | 20,229 | 2,031 |
17
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Long Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Receive 13,000,000 Chilean Peso in exchange for U.S. Dollar | Morgan Stanley | 2/22/11 | $ | 24,689 | $ | 27,682 | $ | 2,993 | ||||||||||
Receive 153,759,000 Chilean Peso in exchange for U.S. Dollar | Barclays Bank | 10/28/11 | 303,572 | 320,199 | 16,627 | |||||||||||||
Receive 162,750,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 7/11/11 | 300,000 | 342,361 | 42,361 | |||||||||||||
Receive 307,366,000 Chilean Peso in exchange for U.S. Dollar | Deutsche Bank | 10/28/11 | 607,143 | 640,081 | 32,938 | |||||||||||||
Receive 14,500 Danish Krone in exchange for U.S. Dollar | State Street Bank | 1/24/11 | 2,695 | 2,600 | (95 | ) | ||||||||||||
Receive 26,600 Danish Krone in exchange for U.S. Dollar | State Street Bank | 1/24/11 | 4,865 | 4,769 | (96 | ) | ||||||||||||
Receive 31,100 Danish Krone in exchange for U.S. Dollar | State Street Bank | 1/24/11 | 5,442 | 5,576 | 134 | |||||||||||||
Receive 37,000 Danish Krone in exchange for U.S. Dollar | Deutsche Bank | 1/24/11 | 6,401 | 6,634 | 233 | |||||||||||||
Receive 47,000 Danish Krone in exchange for U.S. Dollar | State Street Bank | 1/24/11 | 8,404 | 8,427 | 23 | |||||||||||||
Receive 53,000 Danish Krone in exchange for U.S. Dollar | Banc of America | 1/24/11 | 9,714 | 9,503 | (211 | ) | ||||||||||||
Receive 56,000 Danish Krone in exchange for U.S. Dollar | State Street Bank | 1/24/11 | 10,518 | 10,041 | (477 | ) | ||||||||||||
Receive 153,577 Danish Krone in exchange for U.S. Dollar | Handelsbanken Markets | 1/4/11 | 27,567 | 27,537 | (30 | ) | ||||||||||||
Receive 10,000 European Euro in exchange for U.S. Dollar | Banc of America | 1/18/11 | 13,537 | 13,361 | (176 | ) | ||||||||||||
Receive 10,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 1/18/11 | 13,002 | 13,361 | 359 | |||||||||||||
Receive 15,000 European Euro in exchange for U.S. Dollar | Barclays Bank | 1/18/11 | 20,195 | 20,041 | (154 | ) | ||||||||||||
Receive 16,500 European Euro in exchange for U.S. Dollar | Banc of America | 1/18/11 | 21,450 | 22,045 | 595 | |||||||||||||
Receive 20,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 1/18/11 | 27,119 | 26,721 | (398 | ) | ||||||||||||
Receive 100,000 European Euro in exchange for U.S. Dollar | Banc of America | 1/18/11 | 135,665 | 133,605 | (2,060 | ) | ||||||||||||
Receive 100,000 European Euro in exchange for U.S. Dollar | Banc of America | 1/18/11 | 135,765 | 133,605 | (2,160 | ) | ||||||||||||
Receive 116,752 European Euro in exchange for U.S. Dollar | BFX Capital, Inc. | 1/5/11 | 155,152 | 155,991 | 839 | |||||||||||||
Receive 125,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 168,955 | 167,006 | (1,949 | ) | ||||||||||||
Receive 150,469 European Euro in exchange for U.S. Dollar | BKF Capital Group, Inc. | 1/4/11 | 199,704 | 201,040 | 1,336 | |||||||||||||
Receive 200,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 1/18/11 | 271,580 | 267,210 | (4,370 | ) | ||||||||||||
Receive 308,226 Hong Kong Dollar in exchange for U.S. Dollar | Barclays Bank | 1/4/11 | 39,607 | 39,657 | 50 | |||||||||||||
Receive 14,490,000 Indian Rupee in exchange for U.S. Dollar | JPMorgan Chase | 7/12/11 | 300,000 | 313,149 | 13,149 | |||||||||||||
Receive 41,781,250 Indian Rupee in exchange for U.S. Dollar | JPMorgan Chase | 10/31/11 | 891,428 | 890,123 | (1,305 | ) | ||||||||||||
Receive 39,869 Israeli New Sheqel in exchange for U.S. Dollar | Morgan Stanley | 3/31/11 | 10,634 | 11,235 | 601 |
18
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Long Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Receive 65,639 Israeli New Sheqel in exchange for U.S. Dollar | Morgan Stanley | 3/29/11 | $ | 17,481 | $ | 18,497 | $ | 1,016 | ||||||||||
Receive 467,900 Israeli New Sheqel in exchange for U.S. Dollar | Deutsche Bank | 1/7/11 | 125,355 | 131,976 | 6,621 | |||||||||||||
Receive 1,374,360 Malaysian Ringgit in exchange for U.S. Dollar | JPMorgan Chase | 1/4/11 | 400,000 | 445,800 | 45,800 | |||||||||||||
Receive 22,704 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 3,861 | 3,885 | 24 | |||||||||||||
Receive 30,000 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 4,704 | 5,133 | 429 | |||||||||||||
Receive 100,000 Norwegian Krone in exchange for U.S. Dollar | Deutsche Bank | 2/16/11 | 16,044 | 17,109 | 1,065 | |||||||||||||
Receive 130,000 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 21,460 | 22,242 | 782 | |||||||||||||
Receive 170,000 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 29,000 | 29,086 | 86 | |||||||||||||
Receive 237,352 Norwegian Krone in exchange for U.S. Dollar | BFX Capital, Inc. | 1/5/11 | 40,345 | 40,691 | 346 | |||||||||||||
Receive 1,400,000 Philippine Peso in exchange for U.S. Dollar | Deutsche Bank | 11/4/11 | 32,542 | 31,901 | (641 | ) | ||||||||||||
Receive 1,420,000 Philippine Peso in exchange for U.S. Dollar | HSBC | 10/28/11 | 32,346 | 32,361 | 15 | |||||||||||||
Receive 2,140,000 Philippine Peso in exchange for U.S. Dollar | HSBC | 10/27/11 | 48,736 | 48,769 | 33 | |||||||||||||
Receive 2,600,000 Philippine Peso in exchange for U.S. Dollar | HSBC | 10/3/11 | 57,538 | 59,274 | 1,736 | |||||||||||||
Receive 2,780,000 Philippine Peso in exchange for U.S. Dollar | HSBC | 10/31/11 | 63,225 | 63,351 | 126 | |||||||||||||
Receive 3,000,000 Philippine Peso in exchange for U.S. Dollar | Deutsche Bank | 11/14/11 | 69,683 | 68,350 | (1,333 | ) | ||||||||||||
Receive 3,200,000 Philippine Peso in exchange for U.S. Dollar | HSBC | 9/30/11 | 70,820 | 72,956 | 2,136 | |||||||||||||
Receive 4,270,000 Philippine Peso in exchange for U.S. Dollar | Deutsche Bank | 10/28/11 | 97,244 | 97,310 | 66 | |||||||||||||
Receive 9,520,000 Philippine Peso in exchange for U.S. Dollar | JPMorgan Chase | 7/11/11 | 200,000 | 217,312 | 17,312 | |||||||||||||
Receive 35,820,000 Philippine Peso in exchange for U.S. Dollar | Deutsche Bank | 10/28/11 | 815,351 | 816,306 | 955 | |||||||||||||
Receive 107,840 Singapore Dollar in exchange for U.S. Dollar | Barclays Bank | 1/4/11 | 83,707 | 84,054 | 347 | |||||||||||||
Receive 37,638 Swiss Franc in exchange for U.S. Dollar | Barclays Bank | 1/4/11 | 40,160 | 40,270 | 110 | |||||||||||||
$ | 225,090 | |||||||||||||||||
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Deliver 5,000 British Pound in exchange for U.S. Dollar | Deutsche Bank | 2/14/11 | $ | 8,068 | $ | 7,792 | $ | 276 | ||||||||||
Deliver 70,000 British Pound in exchange for U.S. Dollar | State Street Bank | 2/14/11 | 113,941 | 109,082 | 4,859 | |||||||||||||
Deliver 150,000 British Pound in exchange for U.S. Dollar | State Street Bank | 2/14/11 | 230,532 | 233,747 | (3,215 | ) |
19
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Deliver 170,000 British Pound in exchange for U.S. Dollar | State Street Bank | 2/14/11 | $ | 267,871 | $ | 264,913 | $ | 2,958 | ||||||||||
Deliver 1,437,396 British Pound in exchange for U.S. Dollar | State Street Bank | 2/14/11 | 2,320,331 | 2,239,912 | 80,419 | |||||||||||||
Deliver 95,900 Danish Krone in exchange for U.S. Dollar | Deutsche Bank | 1/24/11 | 16,967 | 17,195 | (228 | ) | ||||||||||||
Deliver 100,000 Danish Krone in exchange for U.S. Dollar | State Street Bank | 1/24/11 | 17,005 | 17,930 | (925 | ) | ||||||||||||
Deliver 657,600 Danish Krone in exchange for U.S. Dollar | Bank of America | 1/24/11 | 113,188 | 117,909 | (4,721 | ) | ||||||||||||
Deliver 13,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 3/17/11 | 17,747 | 17,364 | 383 | |||||||||||||
Deliver 15,000 European Euro in exchange for U.S. Dollar | UBS Warburg | 2/16/11 | 20,399 | 20,038 | 361 | |||||||||||||
Deliver 15,000 European Euro in exchange for U.S. Dollar | JPMorgan Chase | 2/16/11 | 20,409 | 20,038 | 371 | |||||||||||||
Deliver 15,000 European Euro in exchange for U.S. Dollar | HSBC | 3/8/11 | 20,526 | 20,036 | 490 | |||||||||||||
Deliver 17,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 2/18/11 | 23,357 | 22,710 | 647 | |||||||||||||
Deliver 17,000 European Euro in exchange for U.S. Dollar | UBS Warburg | 2/18/11 | 23,355 | 22,710 | 645 | |||||||||||||
Deliver 37,000 European Euro in exchange for U.S. Dollar | UBS Warburg | 4/7/11 | 49,983 | 49,414 | 569 | |||||||||||||
Deliver 43,000 European Euro in exchange for U.S. Dollar | Bank of America | 3/7/11 | 58,835 | 57,436 | 1,399 | |||||||||||||
Deliver 57,000 European Euro in exchange for U.S. Dollar | UBS Warburg | 3/7/11 | 78,076 | 76,136 | 1,940 | |||||||||||||
Deliver 60,000 European Euro in exchange for U.S. Dollar | HSBC | 4/14/11 | 81,908 | 80,129 | 1,779 | |||||||||||||
Deliver 61,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 4/7/11 | 82,431 | 81,467 | 964 | |||||||||||||
Deliver 73,000 European Euro in exchange for U.S. Dollar | HSBC | 4/7/11 | 98,654 | 97,494 | 1,160 | |||||||||||||
Deliver 78,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 103,830 | 104,212 | (382 | ) | ||||||||||||
Deliver 83,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 107,154 | 110,892 | (3,738 | ) | ||||||||||||
Deliver 86,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 3/22/11 | 117,412 | 114,864 | 2,548 | |||||||||||||
Deliver 87,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 3/21/11 | 119,505 | 116,200 | 3,305 | |||||||||||||
Deliver 97,000 European Euro in exchange for U.S. Dollar | Barclays Bank | 12/12/11 | 128,176 | 129,367 | (1,191 | ) | ||||||||||||
Deliver 99,000 European Euro in exchange for U.S. Dollar | UBS Warburg | 4/13/11 | 133,363 | 132,214 | 1,149 | |||||||||||||
Deliver 100,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 12/2/11 | 130,125 | 133,376 | (3,251 | ) | ||||||||||||
Deliver 115,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 1/4/11 | 164,390 | 153,650 | 10,740 | |||||||||||||
Deliver 121,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 3/16/11 | 166,275 | 161,615 | 4,660 | |||||||||||||
Deliver 125,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 170,278 | 167,006 | 3,272 |
20
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Deliver 125,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 1/18/11 | $ | 174,650 | $ | 167,006 | $ | 7,644 | ||||||||||
Deliver 150,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 200,739 | 200,408 | 331 | |||||||||||||
Deliver 165,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 218,851 | 220,449 | (1,598 | ) | ||||||||||||
Deliver 185,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 240,702 | 247,170 | (6,468 | ) | ||||||||||||
Deliver 190,000 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 242,208 | 253,850 | (11,642 | ) | ||||||||||||
Deliver 320,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 10/18/11 | 448,480 | 426,920 | 21,560 | |||||||||||||
Deliver 840,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 9/30/11 | 1,134,924 | 1,120,787 | 14,137 | |||||||||||||
Deliver 1,030,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 7/11/11 | 1,295,266 | 1,374,975 | (79,709 | ) | ||||||||||||
Deliver 1,644,000 European Euro in exchange for U.S. Dollar | Deutsche Bank | 10/31/11 | 2,253,595 | 2,193,126 | 60,469 | |||||||||||||
Deliver 1,853,810 European Euro in exchange for U.S. Dollar | State Street Bank | 1/18/11 | 2,356,563 | 2,476,786 | (120,223 | ) | ||||||||||||
Deliver 1,820 Hong Kong Dollar in exchange for U.S. Dollar | State Street Bank | 1/3/11 | 234 | 234 | — | |||||||||||||
Deliver 110,811 Hong Kong Dollar in exchange for U.S. Dollar | HSBC | 1/4/11 | 14,256 | 14,257 | (1 | ) | ||||||||||||
Deliver 288,627 Japanese Yen in exchange for U.S. Dollar | Banc of America | 4/20/11 | 3,500 | 3,560 | (60 | ) | ||||||||||||
Deliver 609,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 4/20/11 | 7,540 | 7,513 | 27 | |||||||||||||
Deliver 1,439,670 Japanese Yen in exchange for U.S. Dollar | State Street Bank | 4/20/11 | 17,743 | 17,760 | (17 | ) | ||||||||||||
Deliver 1,491,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 11/17/11 | 18,127 | 18,469 | (342 | ) | ||||||||||||
Deliver 1,520,000 Japanese Yen in exchange for U.S. Dollar | Citibank | 1/7/11 | 16,681 | 18,728 | (2,047 | ) | ||||||||||||
Deliver 1,520,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 1/7/11 | 16,684 | 18,728 | (2,044 | ) | ||||||||||||
Deliver 1,520,000 Japanese Yen in exchange for U.S. Dollar | HSBC | 1/11/11 | 16,612 | 18,729 | (2,117 | ) | ||||||||||||
Deliver 1,520,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 1/11/11 | 16,630 | 18,729 | (2,099 | ) | ||||||||||||
Deliver 1,616,000 Japanese Yen in exchange for U.S. Dollar | HSBC | 11/17/11 | 19,550 | 20,017 | (467 | ) | ||||||||||||
Deliver 1,757,460 Japanese Yen in exchange for U.S. Dollar | State Street | 4/20/11 | 21,135 | 21,680 | (545 | ) | ||||||||||||
Deliver 2,170,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 1/26/11 | 24,227 | 26,743 | (2,516 | ) | ||||||||||||
Deliver 2,251,755 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 12/28/11 | 27,133 | 27,919 | (786 | ) | ||||||||||||
Deliver 2,255,332 Japanese Yen in exchange for U.S. Dollar | JPMorgan Chase | 12/28/11 | 27,356 | 27,963 | (607 | ) | ||||||||||||
Deliver 2,260,084 Japanese Yen in exchange for U.S. Dollar | Citibank | 12/28/11 | 27,220 | 28,022 | (802 | ) | ||||||||||||
Deliver 2,416,000 Japanese Yen in exchange for U.S. Dollar | Citibank | 11/29/11 | 29,193 | 29,935 | (742 | ) |
21
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Deliver 2,471,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 11/17/11 | $ | 30,010 | $ | 30,608 | $ | (598 | ) | |||||||||
Deliver 2,600,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 4/20/11 | 31,378 | 32,073 | (695 | ) | ||||||||||||
Deliver 3,000,000 Japanese Yen in exchange for U.S. Dollar | Morgan Stanley | 3/18/11 | 33,296 | 36,991 | (3,695 | ) | ||||||||||||
Deliver 3,030,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 1/7/11 | 33,256 | 37,332 | (4,076 | ) | ||||||||||||
Deliver 3,093,000 Japanese Yen in exchange for U.S. Dollar | JPMorgan Chase | 11/16/11 | 37,798 | 38,312 | (514 | ) | ||||||||||||
Deliver 3,250,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 1/14/11 | 35,909 | 40,046 | (4,137 | ) | ||||||||||||
Deliver 3,500,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 4/20/11 | 38,167 | 43,175 | (5,008 | ) | ||||||||||||
Deliver 3,500,000 Japanese Yen in exchange for U.S. Dollar | Citibank | 4/20/11 | 38,187 | 43,175 | (4,988 | ) | ||||||||||||
Deliver 3,771,000 Japanese Yen in exchange for U.S. Dollar | Morgan Stanley | 2/10/11 | 42,389 | 46,480 | (4,091 | ) | ||||||||||||
Deliver 4,000,000 Japanese Yen in exchange for U.S. Dollar | JPMorgan Chase | 2/22/11 | 44,454 | 49,308 | (4,854 | ) | ||||||||||||
Deliver 4,020,000 Japanese Yen in exchange for U.S. Dollar | HSBC | 2/22/11 | 44,710 | 49,555 | (4,845 | ) | ||||||||||||
Deliver 4,060,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 3/18/11 | 45,146 | 50,061 | (4,915 | ) | ||||||||||||
Deliver 4,090,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 1/14/11 | 44,932 | 50,397 | (5,465 | ) | ||||||||||||
Deliver 4,120,000 Japanese Yen in exchange for U.S. Dollar | HSBC | 1/13/11 | 44,921 | 50,766 | (5,845 | ) | ||||||||||||
Deliver 4,542,830 Japanese Yen in exchange for U.S. Dollar | Bank of America | 3/22/11 | 50,484 | 56,017 | (5,533 | ) | ||||||||||||
Deliver 4,600,000 Japanese Yen in exchange for U.S. Dollar | HSBC | 3/1/11 | 51,513 | 56,708 | (5,195 | ) | ||||||||||||
Deliver 4,600,000 Japanese Yen in exchange for U.S. Dollar | JPMorgan Chase | 3/1/11 | 51,484 | 56,708 | (5,224 | ) | ||||||||||||
Deliver 5,012,000 Japanese Yen in exchange for U.S. Dollar | Citibank | 3/18/11 | 55,647 | 61,800 | (6,153 | ) | ||||||||||||
Deliver 5,100,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 3/1/11 | 57,330 | 62,872 | (5,542 | ) | ||||||||||||
Deliver 5,989,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 12/1/11 | 71,562 | 74,209 | (2,647 | ) | ||||||||||||
Deliver 6,176,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 11/17/11 | 75,085 | 76,502 | (1,417 | ) | ||||||||||||
Deliver 6,194,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 11/16/11 | 75,667 | 76,724 | (1,057 | ) | ||||||||||||
Deliver 6,679,000 Japanese Yen in exchange for U.S. Dollar | Bank of America | 11/28/11 | 80,664 | 82,753 | (2,089 | ) | ||||||||||||
Deliver 7,475,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 5/10/11 | 83,679 | 92,239 | (8,560 | ) | ||||||||||||
Deliver 7,484,000 Japanese Yen in exchange for U.S. Dollar | HSBC | 1/27/11 | 83,329 | 92,233 | (8,904 | ) | ||||||||||||
Deliver 7,610,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 1/26/11 | 84,742 | 93,784 | (9,042 | ) | ||||||||||||
Deliver 8,613,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 11/21/11 | 103,871 | 106,699 | (2,828 | ) |
22
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Unrealized | ||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||
Deliver 8,700,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 1/26/11 | $ | 96,869 | $ | 107,217 | $ | (10,348 | ) | |||||||||
Deliver 9,732,000 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 11/29/11 | 117,522 | 120,582 | (3,060 | ) | ||||||||||||
Deliver 11,175,000 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 5/10/11 | 125,519 | 137,895 | (12,376 | ) | ||||||||||||
Deliver 11,180,000 Japanese Yen in exchange for U.S. Dollar | Citibank | 5/10/11 | 125,514 | 137,957 | (12,443 | ) | ||||||||||||
Deliver 11,795,280 Japanese Yen in exchange for U.S. Dollar | Barclays Bank | 4/20/11 | 145,520 | 145,505 | 15 | |||||||||||||
Deliver 20,662,500 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 10/31/11 | 254,464 | 255,852 | (1,388 | ) | ||||||||||||
Deliver 22,800,000 Japanese Yen in exchange for U.S. Dollar | JPMorgan Chase | 8/30/11 | 270,431 | 281,938 | (11,507 | ) | ||||||||||||
Deliver 26,073,000 Japanese Yen in exchange for U.S. Dollar | Deutsche Bank | 7/11/11 | 300,000 | 322,059 | (22,059 | ) | ||||||||||||
Deliver 41,392,500 Japanese Yen in exchange for U.S. Dollar | Morgan Stanley | 12/16/11 | 500,000 | 513,054 | (13,054 | ) | ||||||||||||
Deliver 91,650,000 Japanese Yen in exchange for U.S. Dollar | JPMorgan Chase | 10/31/11 | 1,129,494 | 1,134,850 | (5,356 | ) | ||||||||||||
Deliver 121,466,500 Japanese Yen in exchange for U.S. Dollar | UBS Warburg | 9/29/11 | 1,450,000 | 1,503,002 | (53,002 | ) | ||||||||||||
Deliver 114 Norwegian Krone in exchange for U.S. Dollar | Handelsbanken Markets | 1/3/11 | 19 | 20 | (1 | ) | ||||||||||||
Deliver 1,882 Norwegian Krone in exchange for U.S. Dollar | Handelsbanken Markets | 1/4/11 | 323 | 323 | — | |||||||||||||
Deliver 74,800 Norwegian Krone in exchange for U.S. Dollar | Deutsche Bank | 2/16/11 | 11,989 | 12,798 | (809 | ) | ||||||||||||
Deliver 85,000 Norwegian Krone in exchange for U.S. Dollar | Deutsche Bank | 2/16/11 | 14,371 | 14,543 | (172 | ) | ||||||||||||
Deliver 113,000 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 19,184 | 19,334 | (150 | ) | ||||||||||||
Deliver 136,500 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 23,195 | 23,354 | (159 | ) | ||||||||||||
Deliver 190,000 Norwegian Krone in exchange for U.S. Dollar | Banc of America | 2/16/11 | 32,424 | 32,508 | (84 | ) | ||||||||||||
Deliver 360,000 Norwegian Krone in exchange for U.S. Dollar | State Street Bank | 2/16/11 | 60,001 | 61,594 | (1,593 | ) | ||||||||||||
Deliver 1,428,772 Norwegian Krone in exchange for U.S. Dollar | Deutsche Bank | 2/16/11 | 228,902 | 244,455 | (15,553 | ) | ||||||||||||
Deliver 11,783 Swiss Franc in exchange for U.S. Dollar | Banc of America | 1/4/11 | 12,649 | 12,606 | 43 | |||||||||||||
Deliver 12,765 Swiss Franc in exchange for U.S. Dollar | Deutsche Bank | 1/3/11 | 13,590 | 13,657 | (67 | ) | ||||||||||||
Deliver 45,000 Swiss Franc in exchange for U.S. Dollar | State Street | 5/10/11 | 45,412 | 48,233 | (2,821 | ) | ||||||||||||
Deliver 234,110 Swiss Franc in exchange for U.S. Dollar | State Street Bank | 5/10/11 | 242,752 | 250,929 | (8,177 | ) | ||||||||||||
Deliver 374,166 Swiss Franc in exchange for U.S. Dollar | Deutsche Bank | 5/10/11 | 388,099 | 401,047 | (12,948 | ) | ||||||||||||
$ | (328,407 | ) | ||||||||||||||||
23
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
As of December 31, 2010, the Fund’s open forward cross currency contracts were as follows:
Net Unrealized | ||||||||||||||||||||||||||||||
Amount | Amount | Contract | Fair | Appreciation/ | ||||||||||||||||||||||||||
Purchase/Sale | Counterparty | Purchased | Sold | Value | Value | (Depreciation) | ||||||||||||||||||||||||
Australian Dollar/Japanese Yen | Citibank | AUD | 27,000 | JPY | 1,998,351 | $ | 22,465 | $ | 27,464 | $ | 2,834 | |||||||||||||||||||
Australian Dollar/Japanese Yen | Deutsche Bank | AUD | 27,000 | JPY | 2,002,428 | 22,465 | 27,464 | 2,783 | ||||||||||||||||||||||
Australian Dollar/Japanese Yen | Barclays Bank | AUD | 27,000 | JPY | 1,993,410 | 22,465 | 27,464 | 2,895 | ||||||||||||||||||||||
Brazilian Real/Japanese Yen | Deutsche Bank | BRL | 103,000 | JPY | 4,690,486 | 52,273 | 61,696 | 3,891 | ||||||||||||||||||||||
Brazilian Real/Japanese Yen | HSBC | BRL | 38,000 | JPY | 1,736,134 | 19,291 | 22,756 | 1,360 | ||||||||||||||||||||||
South Korean Won/Japanese Yen | HSBC | KRW | 45,000,000 | JPY | 3,385,495 | 38,874 | 39,700 | (2,028 | ) | |||||||||||||||||||||
South Korean Won/Japanese Yen | JP Morgan Chase | KRW | 15,000,000 | JPY | 1,136,363 | 13,053 | 13,237 | (770 | ) | |||||||||||||||||||||
South Korean Won/Japanese Yen | Deutsche Bank | KRW | 13,000,000 | JPY | 987,691 | 11,312 | 11,472 | (703 | ) | |||||||||||||||||||||
South Korean Won/Japanese Yen | JP Morgan Chase | KRW | 9,000,000 | JPY | 688,968 | 7,854 | 7,943 | (550 | ) | |||||||||||||||||||||
Norwegian Krone/European Euro | UBS Warburg | NOK | 389,900 | EUR | 46,788 | 64,151 | 66,735 | 4,228 | ||||||||||||||||||||||
Norwegian Krone/European Euro | Deutsche Bank | NOK | 779,000 | EUR | 93,622 | 127,594 | 133,326 | 8,253 | ||||||||||||||||||||||
Norwegian Krone/European Euro | UBS Warburg | NOK | 545,000 | EUR | 65,509 | 89,267 | 93,277 | 5,761 | ||||||||||||||||||||||
Norwegian Krone/European Euro | Deutsche Bank | NOK | 2,110,000 | EUR | 255,953 | 350,575 | 356,267 | 14,821 | ||||||||||||||||||||||
Norwegian Krone/European Euro | UBS Warburg | NOK | 275,700 | EUR | 33,213 | 46,743 | 46,534 | 2,229 | ||||||||||||||||||||||
Norwegian Krone/European Euro | Morgan Stanley | NOK | 158,780 | EUR | 19,133 | 25,959 | 26,775 | 1,255 | ||||||||||||||||||||||
Norwegian Krone/European Euro | UBS Warburg | NOK | 50,000 | EUR | 6,010 | 8,045 | 8,430 | 414 | ||||||||||||||||||||||
Norwegian Krone/European Euro | Morgan Stanley | NOK | 240,000 | EUR | 28,866 | 38,615 | 40,465 | 1,964 | ||||||||||||||||||||||
Norwegian Krone/European Euro | UBS Warburg | NOK | 550,000 | EUR | 66,630 | 88,706 | 92,732 | 3,862 | ||||||||||||||||||||||
Norwegian Krone/European Euro | UBS Warburg | NOK | 180,000 | EUR | 21,818 | 28,677 | 30,344 | 1,244 | ||||||||||||||||||||||
Polish Zloty/European Euro | Deutsche Bank | PLN | 233,000 | EUR | 55,922 | 75,849 | 78,551 | 3,843 | ||||||||||||||||||||||
Polish Zloty/European Euro | Barclays Bank | PLN | 233,000 | EUR | 55,611 | 75,580 | 78,547 | 4,255 | ||||||||||||||||||||||
Polish Zloty/European Euro | Deutsche Bank | PLN | 233,000 | EUR | 56,103 | 76,831 | 78,529 | 3,582 | ||||||||||||||||||||||
Polish Zloty/European Euro | Morgan Stanley | PLN | 91,000 | EUR | 21,423 | 26,914 | 30,469 | 1,863 | ||||||||||||||||||||||
Polish Zloty/European Euro | Deutsche Bank | PLN | 700,000 | EUR | 172,393 | 236,220 | 231,833 | 1,858 | ||||||||||||||||||||||
Swedish Krona/European Euro | Deutsche Bank | SEK | 5,900,000 | EUR | 636,805 | 863,245 | 867,582 | 17,912 | ||||||||||||||||||||||
Swedish Krona/European Euro | Deutsche Bank | SEK | 4,380,000 | EUR | 465,018 | 636,226 | 643,048 | 22,705 | ||||||||||||||||||||||
$ | 109,761 | |||||||||||||||||||||||||||||
Securities Sold Short (−0.08)%
Proceeds | Fair | |||||||||||
Security Description | Received | Shares | Value | |||||||||
Motorola Mobility Holdings, Inc.^ | $ | (116,135 | ) | (4,349 | ) | $ | (126,556 | ) | ||||
$ | (116,135 | ) | (4,349 | ) | $ | (126,556 | ) | |||||
24
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments, continued
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Argentina | 0.2 | % | ||
Australia | 2.9 | |||
Bermuda | 0.3 | |||
Brazil | 1.1 | |||
Canada | 0.4 | |||
Cayman Islands | 0.3 | |||
Chile | — | ˆ | ||
China | 0.2 | |||
Denmark | 0.4 | |||
Egypt | 1.0 | |||
France | 2.8 | |||
Germany | 2.0 | |||
Hong Kong | 0.5 | |||
Hungary | 0.3 | |||
India | 0.1 | |||
Indonesia | 1.2 | |||
Iraq | 0.2 | |||
Ireland (Republic of) | 1.1 | |||
Isle of Man | 0.1 | |||
Israel | 1.0 | |||
Italy | 0.5 | |||
Japan | 1.0 | |||
Jersey | 0.1 | |||
Lithuania | 0.2 | |||
Luxembourg | 0.1 | |||
Malaysia | 2.0 | |||
Mexico | 1.1 | |||
Netherlands | 0.9 | |||
New Zealand | — | ˆ | ||
Norway | 1.8 | |||
Philippines | 0.2 | |||
Poland | 1.2 | |||
Qatar | 0.1 | |||
Republic of Korea (South) | 4.4 | |||
Russian Federation | 0.6 | |||
Singapore | 0.7 | |||
South Africa | 0.2 | |||
Spain | 1.0 | |||
Sweden | 1.1 | |||
Switzerland | 3.9 | |||
Taiwan | 0.3 | |||
Turkey | 0.1 | |||
United Arab Emirates | 0.1 | |||
United Kingdom | 6.3 | |||
United States | 55.9 | |||
Venezuela | — | ˆ | ||
Vietnam | 0.1 | |||
100.0 | % | |||
ˆ | Represents less than 0.05%. |
25
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Franklin | ||||
Templeton | ||||
Founding | ||||
Strategy | ||||
Plus Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 157,923,245 | ||
Investment securities, at value | $ | 165,706,803 | ||
Interest and dividends receivable | 889,152 | |||
Foreign currency, at value (cost $542,931) | 551,386 | |||
Receivable for capital shares issued | 179,021 | |||
Receivable for expenses paid indirectly | 10 | |||
Receivable for investments sold | 169,681 | |||
Unrealized appreciation on forward foreign currency contracts | 606,025 | |||
Reclaims receivable | 36,881 | |||
Prepaid expenses | 2,224 | |||
Total Assets | 168,141,183 | |||
Liabilities: | ||||
Cash overdraft | 8,274,999 | |||
Unrealized depreciation on forward foreign currency contracts | 599,581 | |||
Payable for investments purchased | 1,991,091 | |||
Securities sold short, at value (Proceeds received $116,135) | 126,556 | |||
Manager fees payable | 84,718 | |||
Administration fees payable | 7,476 | |||
Distribution fees payable | 31,186 | |||
Custodian fees payable | 26,399 | |||
Administrative and compliance services fees payable | 1,075 | |||
Trustee fees payable | 383 | |||
Other accrued liabilities | 17,867 | |||
Total Liabilities | 11,161,331 | |||
Net Assets | $ | 156,979,852 | ||
Net Assets Consist of: | ||||
Capital | $ | 148,195,232 | ||
Accumulated net investment income/(loss) | 723,478 | |||
Accumulated net realized gains/(losses) from investment transactions | 267,917 | |||
Net unrealized appreciation/(depreciation) on investments | 7,793,225 | |||
Net Assets | $ | 156,979,852 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 14,288,279 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.99 | ||
26
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Franklin | ||||
Templeton | ||||
Founding | ||||
Strategy | ||||
Plus Fund | ||||
Investment Income: | ||||
Interest | $ | 2,260,066 | ||
Dividends | 1,652,006 | |||
Foreign withholding tax | (72,672 | ) | ||
Total Investment Income | 3,839,400 | |||
Expenses: | ||||
Manager fees | 622,039 | |||
Administration fees | 87,719 | |||
Distribution fees | 222,156 | |||
Custodian fees | 150,235 | |||
Administrative and compliance services fees | 3,438 | |||
Trustees’ fees | 7,252 | |||
Professional fees | 9,888 | |||
Shareholder reports | 8,519 | |||
Other expenses | 2,453 | |||
Total expenses before reductions | 1,113,699 | |||
Less expenses contractually waived/reimbursed by the Manager | (53,256 | ) | ||
Less expenses paid indirectly | (198 | ) | ||
Net expenses | 1,060,245 | |||
Net Investment Income/(Loss) | 2,779,155 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 908,884 | |||
Net realized gains/(losses) on forward foreign currency contracts | 430,427 | |||
Change in unrealized appreciation/(depreciation) on investments | 6,730,645 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 8,069,956 | |||
Change in Net Assets Resulting From Operations | $ | 10,849,111 | ||
27
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Statements of Changes in Net Assets
AZL Franklin Templeton | ||||||||
Founding Strategy Plus Fund | ||||||||
For the | October 23, | |||||||
Year Ended | 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 2,779,155 | $ | 209,770 | ||||
Net realized gains/(losses) on investment transactions | 1,339,311 | 9,926 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 6,730,645 | 1,062,580 | ||||||
Change in net assets resulting from operations | 10,849,111 | 1,282,276 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (2,445,181 | ) | (243,500 | ) | ||||
From net realized gains on investments | (682,907 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (3,128,088 | ) | (243,500 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 96,087,006 | 53,698,799 | ||||||
Proceeds from dividends reinvested | 3,128,088 | 243,500 | ||||||
Value of shares redeemed | (4,908,478 | ) | (28,862 | ) | ||||
Change in net assets resulting from capital transactions | 94,306,616 | 53,913,437 | ||||||
Change in net assets | 102,027,639 | 54,952,213 | ||||||
Net Assets: | ||||||||
Beginning of period | 54,952,213 | — | ||||||
End of period | $ | 156,979,852 | $ | 54,952,213 | ||||
Accumulated net investment income/(loss) | $ | 723,478 | $ | (19,530 | ) | |||
Share Transactions: | ||||||||
Shares issued | 9,082,863 | 5,366,756 | ||||||
Dividends reinvested | 285,688 | 23,803 | ||||||
Shares redeemed | (467,930 | ) | (2,901 | ) | ||||
Change in shares | 8,900,621 | 5,387,658 | ||||||
(a) | Period from commencement of operations. |
28
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
October 23, | ||||||||||||
Year Ended | 2009 to | |||||||||||
December 31, | December 31, | |||||||||||
2010 | 2009(a) | |||||||||||
Net Asset Value, Beginning of Period | $ | 10.20 | $ | 10.00 | ||||||||
Investment Activities: | ||||||||||||
Net Investment Income/(Loss) | 0.20 | 0.04 | ||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.82 | 0.21 | ||||||||||
Total from Investment Activities | 1.02 | 0.25 | ||||||||||
Dividends to Shareholders From: | ||||||||||||
Net Investment Income | (0.18 | ) | (0.05 | ) | ||||||||
Net Realized Gains | (0.05 | ) | — | |||||||||
Total Dividends | (0.23 | ) | (0.05 | ) | ||||||||
Net Asset Value, End of Period | $ | 10.99 | $ | 10.20 | ||||||||
Total Return(b) (c) | 10.02 | % | 2.45 | % | ||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||
Net Assets, End of Period ($000’s) | $ | 156,980 | $ | 54,952 | ||||||||
Net Investment Income/(Loss)(d) | 3.13 | % | 2.11 | % | ||||||||
Expenses Before Reductions(d) (e) | 1.25 | % | 1.20 | % | ||||||||
Expenses Net of Reductions(d) | 1.19 | % | 1.20 | % | ||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) (f) | 1.19 | % | N/A | |||||||||
Portfolio Turnover Rate(c) | 17.09 | % | 1.99 | % |
(a) | Period from commencement of operations. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(f) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
29
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Franklin Templeton Founding Strategy Plus Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
30
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Mortgage Dollar Roll Transactions
The Fund may engage in dollar roll transactions with respect to mortgage securities issued by the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. In a dollar roll transaction, a Fund sells a mortgage-backed security and simultaneously agrees to repurchase a similar security on a specified future date at an agreed upon price. During the roll period, the Fund will not be entitled to receive any interest or principal paid on the securities sold. The Fund is compensated for the lost interest on the securities sold by the difference between the sales price and the lower price for the future repurchase as well as by the interest earned on the reinvestment of the sales proceeds. The Fund may also be compensated by receipt of a commitment fee.
Floating Rate Loans
The Fund may invest in floating rate loans, which usually take the form of loan participations and assignments. These loans are made by banks and other large financial institutions to various companies and are typically senior in the borrowing companies’ capital structure. Coupon rates are floating, not fixed and are tied to a benchmark lending rate. Loans involve a risk of loss in case of default or insolvency of the financial intermediaries who are parties to the transactions. A Fund records an investment when the borrower withdraws money and records the interest as earned.
Securities Purchased on a When-Issued Basis
The Fund may purchase securities on a when-issued basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield and thereby involve risk that the yield obtained in the transaction will be less than that available in the market when the delivery takes place. A Fund will not pay for such securities or start earning interest on them until they are received. When a Fund agrees to purchase securities on a when-issued basis, the Fund will segregate or designate cash or assets determined to be liquid equal to the amount of the commitment. Securities purchased on a when-issued basis are recorded as an asset and are subject to changes in the value based upon changes in the general level of interest rates. A Fund may sell when-issued securities before they are delivered, which may result in a capital gain or loss.
31
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
Short Sales
The Fund may engage in short sales against the box (i.e., where the fund owns or has an unconditional right to acquire at no additional cost a security substantially similar to the security sold short)for hedging purposes to limit exposure to a possible market decline in the value of its portfolio securities. In a short sale, the Fund sells a borrowed security and has a corresponding obligation to the lender to return the identical security. The Fund may also incur an interest expense if a security that has been sold short has an interest payment. When a Fund engages in a short sale, the Fund records a liability for securities sold short and records an asset equal to the proceeds received. The amount of the liability is subsequently marked to market to reflect the market value of the securities sold short. To borrow the security, a Fund also may be required to pay a premium, which would increase the cost of the security sold.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
32
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. The contract amount of foreign currency exchange contracts outstanding was $30.7 million as of December 31, 2010. The monthly average amount for these contracts was $23.9 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Foreign Exchange Contracts | Unrealized appreciation on forward foreign currency contracts | $ | 606,025 | Unrealized depreciation on forward foreign currency contracts | $ | 599,581 |
* | Total Fair Value is presented by Primary Risk Exposure. For forward foreign currency contracts, such amounts represent the unrealized gain/appreciation (for asset derivatives) or loss/(depreciation) (for liability derivatives). |
33
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 430,427 | $ | (251,826 | ) | ||||
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained three independent money management organizations (the “Subadviser”), Franklin Advisers, Inc. (“Advisors”), Franklin Mutual Advisers, LLC (“Franklin Mutual”) and Templeton Global Advisors Limited (“Global Advisors”) to make investment decisions on behalf of the Fund. Pursuant to subadvisory agreements between the Manager and Advisors, the Manager and Franklin Mutual, and the Manager and Global Advisors, and the Trust, Advisors, Franklin Mutual and Global Advisors provide investment advisory services as Subadvisers for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Franklin Templeton Founding Strategy Plus Fund | 0.70% | 1.20% |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | |||||||
12/31/2012 | 12/31/2013 | |||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 509 | $ | 53,256 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
34
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $2,326 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets - | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
35
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized Level 2 in the fair valve hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||
Oil, Gas & Consumable Fuels | $ | — | $ | 596,250 | $ | — | $ | 596,250 | ||||||||
All Other Convertible Preferred Stocks+ | 765,416 | — | — | 765,416 | ||||||||||||
Collateralized Mortgage Obligation | — | 444,475 | — | 444,475 | ||||||||||||
Common Stocks: | ||||||||||||||||
Aerospace & Defense | 86,299 | 254,237 | — | 340,536 | ||||||||||||
Air Freight & Logistics | 602,339 | 288,530 | — | 890,869 | ||||||||||||
Auto Components | — | 218,623 | — | 218,623 | ||||||||||||
Automobiles | — | 1,133,615 | — | 1,133,615 | ||||||||||||
Beverages | 1,245,051 | 873,468 | — | 2,118,519 | ||||||||||||
Chemicals | — | 535,426 | — | 535,426 | ||||||||||||
Commercial Banks | 2,055,915 | 2,451,223 | — | 4,507,138 | ||||||||||||
Commercial Services & Supplies | — | 170,386 | — | 170,386 | ||||||||||||
Communications Equipment | 1,069,361 | 193,981 | — | 1,263,342 | ||||||||||||
Construction Materials | — | 435,863 | — | 435,863 | ||||||||||||
Diversified Financial Services | 1,669,139 | 915,444 | 81,086 | 2,665,669 | ||||||||||||
Diversified Telecommunication Services | 1,137,492 | 2,103,922 | — | 3,241,414 | ||||||||||||
Electric Utilities | 2,636,260 | 713,925 | 53,349 | 3,403,534 | ||||||||||||
Electrical Equipment | — | 508,194 | — | 508,194 | ||||||||||||
Electronic Equipment, Instruments & Components | 1,225,413 | 140,923 | — | 1,366,336 | ||||||||||||
Food & Staples Retailing | 2,516,003 | 473,462 | — | 2,989,465 |
36
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Food Products | $ | 1,270,193 | $ | 1,099,008 | $ | — | $ | 2,369,201 | ||||||||
Hotels, Restaurants and Leisure | — | 200,357 | — | 200,357 | ||||||||||||
Industrial Conglomerates | 804,394 | 1,184,193 | — | 1,988,587 | ||||||||||||
Insurance | 2,057,615 | 1,021,931 | — | 3,079,546 | ||||||||||||
Life Science Tools & Services | — | 169,318 | — | 169,318 | ||||||||||||
Marine | — | 525,458 | — | 525,458 | ||||||||||||
Media | 3,862,418 | 1,215,528 | — | 5,077,946 | ||||||||||||
Metals & Mining | 394,005 | 445,121 | — | 839,126 | ||||||||||||
Office Electronics | 800,709 | 243,993 | — | 1,044,702 | ||||||||||||
Oil, Gas & Consumable Fuels | 4,193,913 | 2,498,566 | — | 6,692,479 | ||||||||||||
Pharmaceuticals | 4,171,202 | 2,877,752 | — | 7,048,954 | ||||||||||||
Professional Services | — | 470,489 | — | 470,489 | ||||||||||||
Real Estate Investment Trusts (REITs) | 230,180 | 122,320 | — | 352,500 | ||||||||||||
Real Estate Management & Development | 151,928 | 507,841 | — | 659,769 | ||||||||||||
Semiconductors & Semiconductor Equipment | 1,073,488 | 1,007,328 | — | 2,080,816 | ||||||||||||
Software | 3,010,600 | 891,447 | — | 3,902,047 | ||||||||||||
Specialty Retail | 276,623 | 546,984 | — | 823,607 | ||||||||||||
Tobacco | 1,544,827 | 1,979,146 | — | 3,523,973 | ||||||||||||
Trading Companies & Distributors | — | 200,070 | — | 200,070 | ||||||||||||
Wireless Telecommunication Service | 447,714 | 1,488,234 | — | 1,935,948 | ||||||||||||
All Other Common Stocks+ | 14,855,478 | — | — | 14,855,478 | ||||||||||||
Convertible Bonds | — | 104,093 | — | 104,093 | ||||||||||||
Corporate Bonds | — | 17,933,804 | — | 17,933,804 | ||||||||||||
Floating Rate Loans | — | 1,185,900 | — | 1,185,900 | ||||||||||||
Foreign Bonds | — | 26,220,299 | — | 26,220,299 | ||||||||||||
Preferred Stocks: | ||||||||||||||||
Metals & Mining | 204,287 | — | — | 204,287 | ||||||||||||
Oil, Gas & Consumable Fuels | — | 129,412 | — | 129,412 | ||||||||||||
Real Estate Investment Trusts (REITs) | 116,064 | 61,641 | — | 177,705 | ||||||||||||
Municipal Bonds | — | 605,822 | — | 605,822 | ||||||||||||
Yankee Dollars | — | 6,171,732 | — | 6,171,732 | ||||||||||||
U.S. Government Agencies | — | 8,275,000 | — | 8,275,000 | ||||||||||||
Investment Company | 19,263,308 | — | — | 19,263,308 | ||||||||||||
Total Investment Securities | 73,737,634 | 91,834,734 | 134,435 | 165,706,803 | ||||||||||||
Securities Sold Short | (126,556 | ) | — | — | (126,556 | ) | ||||||||||
Other Financial Instruments:* | ||||||||||||||||
Forward Foreign Currency Contracts | — | 6,444 | — | 6,444 | ||||||||||||
Total Investments | $ | 73,611,078 | $ | 91,841,178 | $ | 134,435 | $ | 165,586,691 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. | |
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
As of December 31, 2010, the Fund held securities that were valued in good faith pursuant to procedures approved by the Board of Trustees and represented 0.09% of the net assets of the Fund. The inputs used to value the Canary Wharf Group plc common stock included a discount applied to the closing price of a similar security that held the majority of the Company’s shares. The Prime Infrastructure Group common stock was valued based on the terms of the merger transaction. The Prime ATET&D Holdings No. 1 Pty Limited common stock was valued at $0. The Bond Street Holdings LLC common stock was valued at original cost.
37
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a reconciliation of Level 3 investments based on the inputs used to determine fair value:
Change in | ||||||||||||||||||||||||
Balance as of | Net Realized | unrealized | Transfers | Balance as of | ||||||||||||||||||||
December 31, | gains/ | appreciation/ | Net | in/(out) of | December 31, | |||||||||||||||||||
2009 | (losses) | (depreciation) | purchases/(sales) | Level 3 | 2010 | |||||||||||||||||||
Investment Securities: | ||||||||||||||||||||||||
Common Stocks: | ||||||||||||||||||||||||
Diversified Financial Services | $ | 16,000 | $ | — | $ | (7,298 | ) | $ | 72,384 | $ | — | $ | 81,086 | |||||||||||
Electric Utilities | — | — | 12,369 | — | 40,980 | 53,349 | ||||||||||||||||||
Total Investment Securities | $ | 16,000 | $ | — | $ | (5,071 | ) | $ | 72,384 | $ | 40,980 | $ | 134,435 | |||||||||||
The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments held at December 31, 2010 is $5,071.
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 88,692,246 | $ | 13,261,738 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $158,039,625. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 9,912,295 | ||
Unrealized depreciation | (2,245,117 | ) | ||
Net unrealized appreciation | $ | 7,667,178 | ||
38
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Franklin Templeton Founding Strategy Plus Fund
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements, continued
December 31, 2010
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 3,104,374 | $ | 23,714 | $ | 3,128,088 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 243,500 | $ | — | $ | 243,500 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Undistributed | Accumulated | Total | |||||||||||||||||
Ordinary | Long-Term | Capital and | Unrealized | Accumulated | ||||||||||||||||
Income | Capital Gains | Other Losses | Appreciation(a) | Earnings (Deficit) | ||||||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 792,617 | $ | 131,016 | $ | — | $ | 7,860,987 | $ | 8,784,620 | ||||||||||
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
39
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Franklin Templeton Founding Strategy Plus Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
40
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 25.31% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
During the year ended December 31, 2010, the Fund declared net long-term capital gain distributions of $23,714.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $659,193.
41
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
42
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
43
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
44
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
45
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
46
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
47
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
48
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Gateway Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 10
Page 10
Statement of Operations
Page 11
Page 11
Statements of Changes in Net Assets
Page 12
Page 12
Financial Highlights
Page 13
Page 13
Notes to the Financial Statements
Page 14
Page 14
Report of Independent Registered Public Accounting Firm
Page 22
Page 22
Other Federal Income Tax Information
Page 23
Page 23
Other Information
Page 24
Page 24
Approval of Investment Advisory Agreement
Page 25
Page 25
Information about the Board of Trustees and Officers
Page 29
Page 29
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Gateway Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Gateway Fund, and Gateway Investment Advisers, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance from its inception on April 30, 2010, to the period ended December 31, 2010?
From its inception on April 30, 2010 to the period ended December 31, 2010, the AZL® Gateway Fund returned 1.98%. That compared to a 7.49% total return for its benchmark, the S&P 500 Index1.
The S&P Index has a considerably higher risk level than the Fund, which uses S&P 500 Index options to lower risk in comparison to an unhedged equity portfolio.
The Fund’s objective is to capture the majority of the returns associated with equity market investments while exposing investors to less risk than other equity investments. The Fund implements its strategy by holding a broadly diversified portfolio of common stocks, while also selling index call options and purchasing index put options. The use of index call options reduces the Fund’s volatility and provides steady cash flow that comprises an important source of the Fund’s return. However, index call options reduce the Fund’s ability to profit from increases in the value of its equity portfolio. The Fund also purchases index put options, which we believe help protect against significant short-term market declines.*
Volatility is an important driver of options pricing the greater the volatility in the marketplace, the higher the premium on index call options. The Chicago Board Options Exchange Market Volatility Index2 is one of the main indicators of market volatility. From the Fund’s inception through the end of the period, the Chicago Board Options Exchange Market Volatility Index reached as high as 45.79% and fell as low as 15.45%. Its long-term historical average is approximately 20.00%.
Two primary factors drive the Fund’s return in a flat-to-rising stock market environment. The first is earnings from net options premiums, which are largely a function of volatility. The second is returns generated by the underlying stock portfolio.
The stock market’s performance between April 29 and December 31, 2010 can be broken down into two smaller periods. After falling 14.92% between April 29 and July 2, the S&P 500 Index gained 24.24% from July 2 through year-end. During the first period, while volatility was relatively high, the Fund generated above-average levels of cash flow from selling index call options. In addition, the May 6, 2010 “flash crash” afforded the Fund the opportunity to sell a portion of its index put options during the worst of the intraday sell-off. This move helped to cushion the Fund’s return from stocks’ large declines on that day. During the second period volatility fell to more normal levels, and the S&P 500 Index moved sharply higher. The Index outperformed the Fund in this second phase of the period under review—a typical result in an environment of declining volatility and climbing stock prices.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Standard & Poor’s 500 Index (“S&P 500 Index”) is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. Investors cannot invest directly in an index. | |
2 | Chicago Board Options Exchange Market volatility Index is a measure of the implied volatility of S&P 500 Index options. It represents one measure of the market’s expectations of stock market volatility over the next 30 days. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Gateway Fund Review
Fund Objective
The Fund’s investment objective is to seek to capture the majority of the returns associated with equity market investments, while exposing investors to less risk than other equity investments. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in a broadly diversified portfolio of common stocks, while also selling index call options and buying index put options.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Investing in derivatives instruments involves risks that may be different from or greater than the risk associated with investing directly in securities or other traditional instruments.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark and represents the reinvestment of dividends and capital gains in the Fund.
Aggregate Total Returns as of December 31, 2010
Since | ||||||||
6 | Inception | |||||||
Month | (4/30/10) | |||||||
AZL® Gateway Fund | 8.72 | % | 1.98 | % | ||||
S&P 500 Index | 23.27 | % | 7.49 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com. |
Expense Ratio | Gross | |||
AZL® Gateway Fund | 1.25 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.25% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Standard & Poor’s 500 Index (“S&P 500 Index”), an unmanaged index that is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, which is a measure of the U.S. Stock market as a whole. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Gateway Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,087.20 | $ | 6.58 | 1.25 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,018.90 | $ | 6.36 | 1.25 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Gateway Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 2.6 | % | ||
Air Freight & Logistics | 1.0 | |||
Airlines | — | ˆ | ||
Auto Components | 0.1 | |||
Automobiles | 0.3 | |||
Beverages | 2.3 | |||
Biotechnology | 0.9 | |||
Capital Markets | 2.5 | |||
Chemicals | 2.6 | |||
Commercial Banks | 2.9 | |||
Commercial Services & Supplies | 0.7 | |||
Communications Equipment | 2.1 | |||
Computers & Peripherals | 3.6 | |||
Consumer Finance | 0.4 | |||
Containers & Packaging | 0.1 | |||
Distributors | 0.3 | |||
Diversified Financial Services | 4.4 | |||
Diversified Telecommunication Services | 3.9 | |||
Electric Utilities | 1.6 | |||
Electrical Equipment | 0.8 | |||
Electronic Equipment, Instruments & Components | 0.6 | |||
Energy Equipment & Services | 2.7 | |||
Food & Staples Retailing | 1.6 | |||
Food Products | 1.3 | |||
Gas Utilities | 0.7 | |||
Health Care Equipment & Supplies | 1.2 | |||
Health Care Providers & Services | 1.7 | |||
Health Care Technology | — | ˆ | ||
Hotels, Restaurants & Leisure | 1.4 | |||
Household Durables | 1.4 | |||
Household Products | 1.8 | % | ||
Industrial Conglomerates | 2.6 | |||
Insurance | 2.5 | |||
Internet & Catalog Retail | 0.8 | |||
Internet Software & Services | 2.2 | |||
IT Services | 3.7 | |||
Leisure Equipment & Products | 0.4 | |||
Machinery | 3.3 | |||
Media | 2.5 | |||
Metals & Mining | 1.2 | |||
Multi-Utilities | 1.8 | |||
Multiline Retail | 1.0 | |||
Oil, Gas & Consumable Fuels | 9.3 | |||
Paper & Forest Products | 0.4 | |||
Personal Products | 0.3 | |||
Pharmaceuticals | 6.3 | |||
Professional Services | 0.1 | |||
Real Estate Investment Trusts (REITs) | 1.8 | |||
Road & Rail | 0.6 | |||
Semiconductors & Semiconductor Equipment | 2.7 | |||
Software | 4.4 | |||
Specialty Retail | 2.8 | |||
Thrifts & Mortgage Finance | 0.4 | |||
Tobacco | 1.9 | |||
Trading Companies & Distributors | 0.1 | |||
Wireless Telecommunication Services | 0.1 | |||
Put Options | 0.4 | |||
Investment Company | 2.2 | |||
103.3 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
ˆ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks+ (100.7%): | ||||||||
Aerospace & Defense (2.6%): | ||||||||
1,500 | Boeing Co. (The) | $ | 97,890 | |||||
500 | Goodrich Corp. | 44,035 | ||||||
1,425 | Honeywell International, Inc. | 75,753 | ||||||
1,295 | Raytheon Co. | 60,010 | ||||||
1,895 | United Technologies Corp. | 149,175 | ||||||
426,863 | ||||||||
Air Freight & Logistics (1.0%): | ||||||||
2,310 | United Parcel Service, Inc., Class B | 167,660 | ||||||
Airlines (0.0%): | ||||||||
200 | AMR Corp.* | 1,558 | ||||||
Auto Components (0.1%): | ||||||||
460 | Cooper Tire & Rubber Co. | 10,847 | ||||||
Automobiles (0.3%): | ||||||||
2,580 | Ford Motor Co.* | 43,318 | ||||||
Beverages (2.3%): | ||||||||
3,270 | Coca-Cola Co. (The) | 215,068 | ||||||
2,545 | PepsiCo, Inc. | 166,265 | ||||||
381,333 | ||||||||
Biotechnology (0.9%): | ||||||||
1,445 | Amgen, Inc.* | 79,330 | ||||||
390 | Biogen Idec, Inc.* | 26,150 | ||||||
90 | Cephalon, Inc.* | 5,555 | ||||||
830 | Gilead Sciences, Inc.* | 30,079 | ||||||
160 | Human Genome Sciences, Inc.* | 3,822 | ||||||
700 | PDL BioPharma, Inc. | 4,361 | ||||||
149,297 | ||||||||
Capital Markets (2.5%): | ||||||||
2,730 | Charles Schwab Corp. | 46,710 | ||||||
1,185 | Eaton Vance Corp. | 35,823 | ||||||
780 | Goldman Sachs Group, Inc. | 131,165 | ||||||
2,115 | Legg Mason, Inc. | 76,711 | ||||||
3,230 | Morgan Stanley | 87,888 | ||||||
150 | TD Ameritrade Holding Corp. | 2,848 | ||||||
595 | Waddell & Reed Financial, Inc., Class A | 20,998 | ||||||
402,143 | ||||||||
Chemicals (2.6%): | ||||||||
3,450 | Dow Chemical Co. (The) | 117,783 | ||||||
2,910 | E.I. du Pont de Nemours & Co. | 145,151 | ||||||
755 | Eastman Chemical Co. | 63,480 | ||||||
280 | Lubrizol Corp. | 29,926 | ||||||
140 | Monsanto Co. | 9,750 | ||||||
1,310 | Olin Corp. | 26,881 | ||||||
1,080 | RPM International, Inc. | 23,868 | ||||||
416,839 | ||||||||
Commercial Banks (2.9%): | ||||||||
490 | Associated Banc-Corp. | 7,423 | ||||||
410 | FirstMerit Corp. | 8,114 | ||||||
430 | Old National Bancorp | 5,113 | ||||||
20 | Toronto-Dominion Bank | 1,486 | ||||||
4,365 | U.S. Bancorp | 117,724 | ||||||
10,445 | Wells Fargo & Co. | 323,691 | ||||||
463,551 | ||||||||
Commercial Services & Supplies (0.7%): | ||||||||
995 | Avery Dennison Corp. | 42,128 | ||||||
210 | Deluxe Corp. | 4,834 | ||||||
710 | R.R. Donnelley & Sons Co. | 12,404 | ||||||
1,455 | Waste Management, Inc. | 53,646 | ||||||
113,012 | ||||||||
Communications Equipment (2.1%): | ||||||||
7,110 | Cisco Systems, Inc.* | 143,835 | ||||||
4,825 | Motorola, Inc.* | 43,763 | ||||||
70 | Plantronics, Inc. | 2,605 | ||||||
3,050 | QUALCOMM, Inc. | 150,945 | ||||||
341,148 | ||||||||
Computers & Peripherals (3.6%): | ||||||||
1,325 | Apple Computer, Inc.* | 427,392 | ||||||
1,340 | Dell, Inc.* | 18,157 | ||||||
3,575 | Hewlett-Packard Co. | 150,507 | ||||||
596,056 | ||||||||
Consumer Finance (0.4%): | ||||||||
700 | American Express Co. | 30,044 | ||||||
1,840 | Discover Financial Services | 34,095 | ||||||
64,139 | ||||||||
Containers & Packaging (0.1%): | ||||||||
360 | Sonoco Products Co. | 12,121 | ||||||
Distributors (0.3%): | ||||||||
935 | Genuine Parts Co. | 48,003 | ||||||
Diversified Financial Services (4.4%): | ||||||||
10,825 | Bank of America Corp. | 144,406 | ||||||
26,480 | Citigroup, Inc.* | 125,250 | ||||||
265 | CME Group, Inc. | 85,264 | ||||||
8,010 | JPMorgan Chase & Co. | 339,784 | ||||||
545 | NYSE Euronext | 16,339 | ||||||
711,043 | ||||||||
Diversified Telecommunication Services (3.9%): | ||||||||
12,055 | AT&T, Inc. | 354,176 | ||||||
4,254 | Frontier Communications Corp. | 41,391 | ||||||
6,385 | Verizon Communications, Inc. | 228,455 | ||||||
624,022 | ||||||||
Electric Utilities (1.6%): | ||||||||
6,375 | Duke Energy Corp. | 113,539 | ||||||
270 | Hawaiian Electric Industries, Inc. | 6,153 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
3,255 | Pepco Holdings, Inc. | $ | 59,404 | |||||
1,840 | Progress Energy, Inc. | 80,003 | ||||||
259,099 | ||||||||
Electrical Equipment (0.8%): | ||||||||
1,840 | Emerson Electric Co. | 105,193 | ||||||
300 | Hubbell, Inc., Class B | 18,039 | ||||||
123,232 | ||||||||
Electronic Equipment, Instruments & Components (0.6%): | ||||||||
3,530 | Corning, Inc. | 68,200 | ||||||
870 | Tyco Electronics, Ltd. | 30,798 | ||||||
98,998 | ||||||||
Energy Equipment & Services (2.7%): | ||||||||
670 | Baker Hughes, Inc. | 38,304 | ||||||
175 | CARBO Ceramics, Inc. | 18,120 | ||||||
90 | Diamond Offshore Drilling, Inc. | 6,018 | ||||||
2,410 | Halliburton Co. | 98,400 | ||||||
1,595 | Patterson-UTI Energy, Inc. | 34,372 | ||||||
2,661 | Schlumberger, Ltd. | 222,194 | ||||||
380 | Tidewater, Inc. | 20,459 | ||||||
437,867 | ||||||||
Food & Staples Retailing (1.6%): | ||||||||
2,585 | CVS Caremark Corp. | 89,881 | ||||||
940 | Supervalu, Inc. | 9,052 | ||||||
3,000 | Wal-Mart Stores, Inc. | 161,790 | ||||||
260,723 | ||||||||
Food Products (1.3%): | ||||||||
2,540 | ConAgra Foods, Inc. | 57,353 | ||||||
3,700 | Kraft Foods, Inc., Class A | 116,587 | ||||||
2,295 | Sara Lee Corp. | 40,186 | ||||||
214,126 | ||||||||
Gas Utilities (0.7%): | ||||||||
620 | National Fuel Gas Co. | 40,684 | ||||||
300 | NICOR, Inc. | 14,976 | ||||||
800 | ONEOK, Inc. | 44,376 | ||||||
440 | WGL Holdings, Inc. | 15,739 | ||||||
115,775 | ||||||||
Health Care Equipment & Supplies (1.2%): | ||||||||
1,280 | Baxter International, Inc. | 64,794 | ||||||
1,450 | Boston Scientific Corp.* | 10,976 | ||||||
240 | Covidien plc | 10,958 | ||||||
140 | Intuitive Surgical, Inc.* | 36,085 | ||||||
1,775 | Medtronic, Inc. | 65,835 | ||||||
188,648 | ||||||||
Health Care Providers & Services (1.7%): | ||||||||
1,595 | Aetna, Inc. | 48,663 | ||||||
595 | Coventry Health Care, Inc.* | 15,708 | ||||||
990 | Medco Health Solutions, Inc.* | 60,657 | ||||||
2,570 | UnitedHealth Group, Inc. | 92,803 | ||||||
330 | Universal Health Services, Inc., Class B | 14,329 | ||||||
820 | WellPoint, Inc.* | 46,625 | ||||||
278,785 | ||||||||
Health Care Technology (0.0%): | ||||||||
100 | Quality Systems, Inc. | 6,982 | ||||||
Hotels, Restaurants & Leisure (1.4%): | ||||||||
2,270 | International Game Technology | 40,156 | ||||||
2,275 | McDonald’s Corp. | 174,629 | ||||||
170 | Tim Hortons, Inc. | 7,009 | ||||||
640 | Wendy’s/Arby’s Group, Inc., Class A | 2,957 | ||||||
40 | Wynn Resorts, Ltd. | 4,154 | ||||||
228,950 | ||||||||
Household Durables (1.4%): | ||||||||
1,820 | Leggett & Platt, Inc. | 41,423 | ||||||
1,835 | Newell Rubbermaid, Inc. | 33,360 | ||||||
1,430 | Stanley Black & Decker, Inc. | 95,624 | ||||||
685 | Tupperware Brands Corp. | 32,654 | ||||||
320 | Whirlpool Corp. | 28,426 | ||||||
231,487 | ||||||||
Household Products (1.8%): | ||||||||
620 | Colgate-Palmolive Co. | 49,829 | ||||||
605 | Kimberly-Clark Corp. | 38,139 | ||||||
3,145 | Procter & Gamble Co. (The) | 202,318 | ||||||
290,286 | ||||||||
Industrial Conglomerates (2.6%): | ||||||||
1,155 | 3M Co. | 99,677 | ||||||
16,335 | General Electric Co. | 298,767 | ||||||
430 | Tyco International, Ltd. | 17,819 | ||||||
416,263 | ||||||||
Insurance (2.5%): | ||||||||
240 | AEGON NV, NYS Registered Shares, Sponsored ADR* | 1,471 | ||||||
460 | AFLAC, Inc. | 25,958 | ||||||
2,070 | Allstate Corp. (The) | 65,992 | ||||||
520 | American International Group, Inc.* | 29,962 | ||||||
250 | Aon Corp. | 11,503 | ||||||
960 | Arthur J. Gallagher & Co. | 27,917 | ||||||
50 | Berkshire Hathaway, Inc., Class B* | 4,006 | ||||||
1,405 | Fidelity National Financial, Inc., Class A | 19,220 | ||||||
1,440 | Lincoln National Corp. | 40,046 | ||||||
1,175 | Marsh & McLennan Cos., Inc. | 32,125 | ||||||
320 | Mercury General Corp. | 13,763 | ||||||
1,640 | Old Republic International Corp. | 22,353 | ||||||
450 | Principal Financial Group, Inc. | 14,652 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
760 | Travelers Cos., Inc. (The) | $ | 42,340 | |||||
110 | Unitrin, Inc. | 2,699 | ||||||
2,305 | XL Group plc | 50,295 | ||||||
404,302 | ||||||||
Internet & Catalog Retail (0.8%): | ||||||||
695 | Amazon.com, Inc.* | 125,100 | ||||||
Internet Software & Services (2.2%): | ||||||||
800 | Akamai Technologies, Inc.* | 37,640 | ||||||
160 | AOL, Inc.* | 3,794 | ||||||
100 | Baidu, Inc., Sponsored ADR* | 9,653 | ||||||
2,390 | eBay, Inc.* | 66,514 | ||||||
385 | Google, Inc., Class A* | 228,678 | ||||||
640 | VeriSign, Inc. | 20,909 | ||||||
367,188 | ||||||||
IT Services (3.7%): | ||||||||
2,090 | Automatic Data Processing, Inc. | 96,725 | ||||||
500 | Broadridge Financial Solutions, Inc. | 10,965 | ||||||
1,100 | Cognizant Technology Solutions Corp., Class A* | 80,619 | ||||||
810 | Fidelity National Information Services, Inc. | 22,186 | ||||||
1,675 | International Business Machines Corp. | 245,823 | ||||||
70 | Lender Processing Services, Inc. | 2,066 | ||||||
2,405 | Paychex, Inc. | 74,338 | ||||||
320 | Visa, Inc., Class A | 22,522 | ||||||
2,615 | Western Union Co. | 48,561 | ||||||
603,805 | ||||||||
Leisure Equipment & Products (0.4%): | ||||||||
1,250 | Eastman Kodak Co.* | 6,700 | ||||||
2,400 | Mattel, Inc. | 61,032 | ||||||
67,732 | ||||||||
Machinery (3.3%): | ||||||||
670 | Caterpillar, Inc. | 62,752 | ||||||
1,140 | Cummins, Inc. | 125,411 | ||||||
1,150 | Deere & Co. | 95,508 | ||||||
910 | Eaton Corp. | 92,374 | ||||||
665 | Parker Hannifin Corp. | 57,390 | ||||||
320 | Pentair, Inc. | 11,683 | ||||||
315 | Snap-On, Inc. | 17,823 | ||||||
535 | SPX Corp. | 38,247 | ||||||
630 | Timken Co. | 30,070 | ||||||
531.258 | ||||||||
Media (2.5%): | ||||||||
2,225 | News Corp., Class B | 36,534 | ||||||
1,115 | Omnicom Group, Inc. | 51,067 | ||||||
710 | Time Warner Cable, Inc. | 46,881 | ||||||
2,440 | Time Warner, Inc. | 78,495 | ||||||
200 | Virgin Media, Inc. | 5,448 | ||||||
4,970 | Walt Disney Co. (The) | 186,425 | ||||||
404,850 | ||||||||
Metals & Mining (1.2%): | ||||||||
4,515 | Alcoa, Inc. | 69,486 | ||||||
280 | Companhia Siderurgica Nacional SA, Sponsored ADR | 4,667 | ||||||
235 | Freeport-McMoRan Copper & Gold, Inc. | 28,221 | ||||||
1,225 | Gerdau SA, Sponsored ADR | 17,138 | ||||||
860 | Nucor Corp. | 37,685 | ||||||
550 | Southern Copper Corp. | 26,807 | ||||||
150 | Steel Dynamics, Inc. | 2,745 | ||||||
300 | Worthington Industries, Inc. | 5,520 | ||||||
192,269 | ||||||||
Multi-Utilities (1.8%): | ||||||||
2,090 | Ameren Corp. | 58,917 | ||||||
650 | CenterPoint Energy, Inc. | 10,218 | ||||||
1,745 | Consolidated Edison, Inc. | 86,500 | ||||||
955 | Integrys Energy Group, Inc. | 46,327 | ||||||
425 | OGE Energy Corp. | 19,355 | ||||||
2,450 | Public Service Enterprise Group, Inc. | 77,934 | ||||||
299,251 | ||||||||
Multiline Retail (1.0%): | ||||||||
1,385 | J.C. Penney Co., Inc. | 44,749 | ||||||
2,420 | Macy’s, Inc. | 61,226 | ||||||
1,270 | Nordstrom, Inc. | 53,823 | ||||||
10 | Sears Holdings Corp.* | 737 | ||||||
160,535 | ||||||||
Oil, Gas & Consumable Fuels (9.3%): | ||||||||
200 | Acergy SA, Sponsored ADR | 4,868 | ||||||
2,565 | Chesapeake Energy Corp. | 66,459 | ||||||
3,870 | Chevron Corp. | 353,138 | ||||||
190 | CNOOC, Ltd., Sponsored ADR | 45,290 | ||||||
3,100 | ConocoPhillips | 211,110 | ||||||
650 | Consol Energy, Inc. | 31,681 | ||||||
7,280 | Exxon Mobil Corp. | 532,314 | ||||||
2,070 | Occidental Petroleum Corp. | 203,067 | ||||||
1,315 | Southwestern Energy Co.* | 49,220 | ||||||
370 | Statoil ASA, Sponsored ADR | 8,795 | ||||||
130 | Total SA, Sponsored ADR | 6,952 | ||||||
1,512,894 | ||||||||
Paper & Forest Products (0.4%): | ||||||||
2,270 | MeadWestvaco Corp. | 59,383 | ||||||
Personal Products (0.3%): | ||||||||
1,500 | Avon Products, Inc. | 43,590 | ||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals (6.3%): | ||||||||
3,220 | Abbott Laboratories | $ | 154,270 | |||||
450 | Bristol-Myers Squibb Co. | 11,916 | ||||||
800 | Eli Lilly & Co. | 28,032 | ||||||
660 | GlaxoSmithKline plc, Sponsored ADR | 25,885 | ||||||
4,230 | Johnson & Johnson Co. | 261,626 | ||||||
6,450 | Merck & Co., Inc. | 232,458 | ||||||
17,165 | Pfizer, Inc. | 300,559 | ||||||
30 | Teva Pharmaceutical Industries, Ltd., Sponsored ADR | 1,564 | ||||||
1,016,310 | ||||||||
Professional Services (0.1%): | ||||||||
180 | Dun & Bradstreet Corp. | 14,776 | ||||||
Real Estate Investment Trusts (REITs) (1.8%): | ||||||||
1,590 | Annaly Capital Management, Inc. | 28,493 | ||||||
3,420 | Duke Realty Corp. | 42,613 | ||||||
370 | Healthcare Realty Trust, Inc. | 7,833 | ||||||
2,260 | Liberty Property Trust | 72,139 | ||||||
1,405 | Mack-Cali Realty Corp. | 46,450 | ||||||
1,650 | Nationwide Health Properties, Inc. | 60,027 | ||||||
1,445 | Senior Housing Properties Trust | 31,703 | ||||||
289,258 | ||||||||
Road & Rail (0.6%): | ||||||||
1,465 | CSX Corp. | 94,654 | ||||||
Semiconductors & Semiconductor Equipment (2.7%): | ||||||||
2,320 | Advanced Micro Devices, Inc.* | 18,977 | ||||||
160 | Altera Corp. | 5,693 | ||||||
940 | Analog Devices, Inc. | 35,410 | ||||||
360 | Applied Materials, Inc. | 5,058 | ||||||
8,735 | Intel Corp. | 183,697 | ||||||
20 | First Solar, Inc.* | 2,603 | ||||||
875 | Linear Technology Corp. | 30,266 | ||||||
150 | Maxim Integrated Products, Inc. | 3,543 | ||||||
1,115 | Microchip Technology, Inc. | 38,144 | ||||||
1,600 | National Semiconductor Corp. | 22,016 | ||||||
1,225 | NVIDIA Corp.* | 18,865 | ||||||
1,770 | Texas Instruments, Inc. | 57,525 | ||||||
610 | Xilinx, Inc. | 17,678 | ||||||
439,475 | ||||||||
Software (4.4%): | ||||||||
1,800 | Activision Blizzard, Inc. | 22,392 | ||||||
1,115 | Adobe Systems, Inc.* | 34,320 | ||||||
830 | Autodesk, Inc.* | 31,706 | ||||||
13,835 | Microsoft Corp. | 386,273 | ||||||
7,205 | Oracle Corp. | 225,517 | ||||||
1,130 | Symantec Corp.* | 18,916 | ||||||
719,124 | ||||||||
Specialty Retail (2.8%): | ||||||||
630 | Abercrombie & Fitch Co., Class A | 36,307 | ||||||
1,190 | American Eagle Outfitters, Inc. | 17,410 | ||||||
725 | Best Buy Co., Inc. | 24,860 | ||||||
550 | Foot Locker, Inc. | 10,791 | ||||||
755 | Gap, Inc. (The) | 16,716 | ||||||
4,085 | Home Depot, Inc. | 143,220 | ||||||
1,660 | Limited Brands, Inc. | 51,012 | ||||||
2,620 | Lowe’s Cos., Inc. | 65,709 | ||||||
1,430 | RadioShack Corp. | 26,441 | ||||||
980 | Tiffany & Co. | 61,025 | ||||||
170 | TJX Cos., Inc. | 7,546 | ||||||
461,037 | ||||||||
Thrifts & Mortgage Finance (0.4%): | ||||||||
Shares or | ||||||||
Principal | Fair | |||||||
Amount | Value | |||||||
444 | Capitol Federal Financial, Inc. | $ | 5,291 | |||||
2,975 | New York Community Bancorp, Inc. | 56,079 | ||||||
61,370 | ||||||||
Tobacco (1.9%): | ||||||||
4,400 | Altria Group, Inc. | 108,328 | ||||||
2,735 | Philip Morris International, Inc. | 160,080 | ||||||
1,120 | Reynolds American, Inc. | 36,534 | ||||||
559 | Vector Group, Ltd. | 9,682 | ||||||
314,624 | ||||||||
Trading Companies & Distributors (0.1%): | ||||||||
415 | GATX Corp. | 14,641 | ||||||
Wireless Telecommunication Services (0.1%): | ||||||||
450 | Clearwire Corp., Class A* | 2,318 | ||||||
820 | Vodafone Group plc, Sponsored ADR | 21,673 | ||||||
23,991 | ||||||||
Total Common Stocks (Cost $15,497,707) | 16,345,546 | |||||||
Put Options (0.4%): | ||||||||
18 | On S&P 500 Index, Strike @ 1075 Exp. 1/22/11 | 990 | ||||||
16 | On S&P 500 Index, Strike @ 1125 Exp. 1/22/11 | 1,840 | ||||||
16 | On S&P 500 Index, Strike @ 1075 Exp. 2/19/11 | 4,560 | ||||||
21 | On S&P 500 Index, Strike @ 1000 Exp. 2/19/11 | 8,190 | ||||||
17 | On S&P 500 Index, Strike @ 1125 Exp. 2/19/11 | 9,010 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Shares or | Fair | |||||||
Contracts | Value | |||||||
Options, continued | ||||||||
28 | On S&P 500 Index, Strike @ 1000 Exp. 3/19/11 | $ | 23,240 | |||||
12 | On S&P 500 Index, Strike @ 1125 Exp. 3/19/11 | 12,840 | ||||||
Total Put Options (Cost $143,344) | 60,670 | |||||||
Investment Company (2.2%): | ||||||||
360,038 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 360,038 | ||||||
Total Investment Company (Cost $360,038) | 360,038 | |||||||
Total Investment Securities (Cost $16,001,089)(b) — 103.3% | 16,766,254 | |||||||
Net other assets (liabilities) — (3.3)% | (549,039 | ) | ||||||
Net Assets — 100.0% | $ | 16,217,215 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
+ | The $16,345,546 aggregate value of common stocks covers outstanding call options written. | |
* | Non-income producing security |
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Call Options Written (−3.69%)
Contract Size | Fair Value | |||||
Written Options (−3.69%) | ||||||
(32) | On S&P 500 Index, Strike @ 1200 Exp. 1/22/11 | $ | (196,640 | ) | ||
(31) | On S&P 500 Index, Strike @ 1225 Exp. 1/22/11 | (124,155 | ) | |||
(17) | On S&P 500 Index, Strike @ 1250 Exp. 1/22/11 | (37,145 | ) | |||
(15) | On S&P 500 Index, Strike @ 1200 Exp. 2/19/11 | (103,725 | ) | |||
(16) | On S&P 500 Index, Strike @ 1225 Exp. 2/19/11 | (80,080 | ) | |||
(17) | On S&P 500 Index, Strike @ 1250 Exp. 2/19/11 | (56,695 | ) | |||
Total Written Options (Premiums received $(478,370)) | $ | (598,440 | ) | |||
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Brazil | 0.1 | % | ||
Canada | — | ˆ | ||
Cayman Islands | 0.1 | |||
China | 0.3 | |||
France | — | ˆ | ||
Ireland (Republic of) | 0.4 | |||
Israel | — | ˆ | ||
Luxembourg | — | ˆ | ||
Netherlands | 1.3 | |||
Norway | 0.1 | |||
Switzerland | 0.3 | |||
United Kingdom | 0.3 | |||
United States | 97.1 | |||
100.0 | % | |||
ˆ | Represents less than 0.05%. |
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Gateway Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 16,001,089 | ||
Investment securities, at value | $ | 16,766,254 | ||
Dividends receivable | 22,167 | |||
Receivable for capital shares issued | 19,615 | |||
Reclaims receivable | 39 | |||
Receivable from Manager | 14,989 | |||
Prepaid expenses | 188 | |||
Total Assets | 16,823,252 | |||
Liabilities: | ||||
Written options (Premiums received $478,370) | 598,440 | |||
Payable for capital shares redeemed | 33 | |||
Administration fees payable | 1,032 | |||
Distribution fees payable | 3,128 | |||
Custodian fees payable | 1,662 | |||
Administrative and compliance services fees payable | 98 | |||
Trustee fees payable | 20 | |||
Other accrued liabilities | 1,624 | |||
Total Liabilities | 606,037 | |||
Net Assets | $ | 16,217,215 | ||
Net Assets Consist of: | ||||
Capital | $ | 16,054,234 | ||
Accumulated net investment income/(loss) | 2,324 | |||
Accumulated net realized gains/(losses) from investment transactions | (484,438 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 645,095 | |||
Net Assets | $ | 16,217,215 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 1,600,817 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.13 | ||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Statement of Operations
For the Period Ended December 31, 2010
AZL | ||||
Gateway Fund(a) | ||||
Investment Income: | ||||
Dividends | $ | 193,993 | ||
Foreign withholding tax | (7 | ) | ||
Total Investment Income | 193,986 | |||
Expenses: | ||||
Manager fees | 59,061 | |||
Administration fees | 8,124 | |||
Distribution fees | 18,456 | |||
Custodian fees | 6,828 | |||
Administrative and compliance services fees | 251 | |||
Trustees’ fees | 21,202 | |||
Professional fees | 881 | |||
Shareholder reports | 977 | |||
Other expenses | 1,514 | |||
Total expenses before reductions | 117,294 | |||
Less expenses contractually waived/reimbursed by the Manager | (25,000 | ) | ||
Net expenses | 92,294 | |||
Net Investment Income/(Loss) | 101,692 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | (233,425 | ) | ||
Net realized gains/(losses) on options transactions | (251,013 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 645,095 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 160,657 | |||
Change in Net Assets Resulting From Operations | $ | 262,349 | ||
(a) | For the period April 30, 2010 (commencement of operations) to December 31, 2010. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Statement of Changes in Net Assets
AZL Gateway Fund | ||||
April 30, 2010 to | ||||
December 31, | ||||
2010(a) | ||||
Change in Net Assets: | ||||
Operations: | ||||
Net investment income/(loss) | $ | 101,692 | ||
Net realized gains/(losses) on investment transactions | (484,438 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 645,095 | |||
Change in net assets resulting from operations | 262,349 | |||
Dividends to Shareholders: | ||||
From net investment income | (107,605 | ) | ||
Change in net assets resulting from dividends to shareholders | (107,605 | ) | ||
Capital Transactions: | ||||
Proceeds from shares issued | 20,729,615 | |||
Proceeds from dividends reinvested | 107,605 | |||
Value of shares redeemed | (4,774,749 | ) | ||
Change in net assets resulting from capital transactions | 16,062,471 | |||
Change in net assets | 16,217,215 | |||
Net Assets: | ||||
Beginning of period | — | |||
End of period | $ | 16,217,215 | ||
Accumulated net investment income/(loss) | $ | 2,324 | ||
Share Transactions: | ||||
Shares issued | 2,076,896 | |||
Dividends reinvested | 10,622 | |||
Shares redeemed | (486,701 | ) | ||
Change in shares | 1,600,817 | |||
(a) | Period from commencement of operations. |
12
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the period indicated)
April 30, 2010 to | ||||
December 31, | ||||
2010 (a) | ||||
Net Asset Value, Beginning of Period | $ | 10.00 | ||
Investment Activities: | ||||
Net Investment Income/(Loss) | 0.07 | |||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.13 | |||
Total from Investment Activities | 0.20 | |||
Dividends to Shareholders From: | ||||
Net Investment Income | (0.07 | ) | ||
Total Dividends | (0.07 | ) | ||
Net Asset Value, End of Period | $ | 10.13 | ||
Total Return(b) (c) | 1.98 | % | ||
Ratios to Average Net Assets/Supplemental Data: | ||||
Net Assets, End of Period ($000’s) | $ | 16,217 | ||
Net Investment Income/(Loss)(d) | 1.38 | % | ||
Expenses Before Reductions(d) (e) | 1.59 | % | ||
Expenses Net of Reductions(d) | 1.25 | % | ||
Portfolio Turnover Rate(c) | 27.90 | % |
(a) | Period from commencement of operations. | |
(b) | The return includes reinvested dividends and fund level expenses, but excludes insurance contract charges. If these charges were included, the return would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Gateway Fund (the “Fund”), which commenced operations on April 30, 2010. The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the period ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the period ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the period ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
Options Contracts
The Fund seeks to capture the majority of the returns associated with equity market investments, while exposing investors to less risk than other equity investments. To meet this investment goal, the Fund invests in a broadly diversified portfolio of common stocks, while also selling index call options and purchasing index put options. Writing index call options reduces the Fund’s volatility, provides a steady cash flow and is an important source of the Fund’s return, although it reduces the Fund’s ability to profit from increases in the value of its equity portfolio. The Fund also buys index put options, which can protect the Fund from a significant market decline that may occur over a short period of time. The value of an index put option generally increases as the prices of stocks constituting the index decrease and decreases as those stocks increase in price. The combination of the diversified stock portfolio, the steady cash flow from the sale of index call options and the downside protection from index put options is intended to provide the Fund with the majority of the returns associated with equity market investments while exposing investors to less risk than other equity investments. During the period ended December 31, 2010, written index call options and purchased index put options were used in accordance with this objective.
A stock index fluctuates with changes in the market values of the stocks included in the index, and therefore options on stock indexes involve elements of equity price risk.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
Purchased Options Contracts — The Fund pays a premium which is included in “Investment securities, at value” on the Statement of Assets and Liabilities and marked to market to reflect the current value of the option. Premiums paid for purchasing put options which expire are treated as realized losses. When a put option is exercised or closed, premiums paid for purchasing put options are offset against proceeds to determine the realized gain/loss on the transaction.
Written Options Contracts — The Fund receives a premium which is recorded as a liability and is subsequently adjusted to the current value of the options written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options, which are either exercised or closed, are offset against the proceeds received or the amount paid on the transaction to determine realized gains or losses.
Realized gains and losses are reported as “Net realized gains/(losses) on options transactions” on the Statement of Operations.
The Fund had the following transactions in purchased call and put options during the period ended December 31, 2010:
Number of | ||||||||
Contracts | Cost | |||||||
Options outstanding at April 30, 2010 | — | $ | — | |||||
Options purchased | 558 | 845,140 | ||||||
Options expired | (54 | ) | (116,485 | ) | ||||
Options closed | (376 | ) | (585,311 | ) | ||||
Options outstanding at December 31, 2010 | 128 | $ | 143,344 | |||||
The Fund had the following transactions in written call and put options during the period ended December 31, 2010:
Number of | Premiums | |||||||
Contracts | Received | |||||||
Options outstanding at April 30, 2010 | — | $ | — | |||||
Options written | (650 | ) | (2,600,905 | ) | ||||
Options expired | 9 | 45,968 | ||||||
Options closed | 513 | 2,076,567 | ||||||
Options outstanding at December 31, 2010 | (128 | ) | $ | (478,370 | ) | |||
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Investment securities, at value (purchased options) | $ | 60,670 | Written options | $ | 598,440 |
* | Total Fair Value is presented by Primary Risk Exposure. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the period ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on options transactions/change in unrealized appreciation/(depreciation) on investments | $ | (251,013 | ) | $ | (202,744 | ) |
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an affiliated money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and Gateway Investment Advisers, LLC (“Gateway”), Gateway provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.25%.
For the period ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Gateway Fund | 0.80 | % | 1.25 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | ||||
12/31/2013 | ||||
AZL Gateway Fund | $ | 25,000 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the period ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the period ended December 31, 2010, $157 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the period ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
The Fund generally values index options at the average of the closing bid and ask quotations on the principal exchange on which the option is traded and are typically categorized as Level 1 in the fair value hierarchy. For options where market quotations are not readily available, fair value procedures as described below may be applied.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the period ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 16,345,546 | $ | — | $ | — | $ | 16,345,546 | ||||||||
Options | 60,670 | — | — | 60,670 | ||||||||||||
Investment Company | 360,038 | — | — | 360,038 | ||||||||||||
Total Investment Securities | 16,766,254 | — | — | 16,766,254 | ||||||||||||
Written Options | (598,440 | ) | — | — | (598,440 | ) | ||||||||||
Total Investments | $ | 16,167,814 | $ | — | $ | — | $ | 16,167,814 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the period April 30, 2010 through December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Gateway Fund | $ | 18,744,474 | $ | 3,013,343 |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Gateway Fund
AZL Gateway Fund
Notes to the Financial Statements, continued
December 31, 2010
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $15,444,421. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 1,111,401 | ||
Unrealized depreciation | (388,008 | ) | ||
Net unrealized appreciation | $ | 723,393 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | ||||
12/31/2018 | ||||
AZL Gateway Fund | $ | 10,238 |
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $550,174 of deferred post October capital losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the period ended December 31, 2010 were as follows:
Net | ||||||||||||||||
Ordinary | Return of | Long-Term | Total | |||||||||||||
Income | Capital | Capital Gains | Distributions(a) | |||||||||||||
AZL Gateway Fund | $ | 105,722 | $ | 1,883 | $ | — | $ | 107,605 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Gateway Fund | $ | — | $ | (560,412 | ) | $ | 723,393 | $ | 162,981 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
21
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Gateway Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statements of operations and changes in net assets, and the financial highlights for the period April 30, 2010 to December 31, 2010. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 the Fund as of December 31, 2010, the results of its operations, the changes in its net assets, and the financial highlights for the period April 30, 2010 to December 31, 2010, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the period ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
25
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
26
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
27
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
29
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
30
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® International Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 19
Page 19
Statement of Operations
Page 20
Page 20
Statement of Changes in Net Assets
Page 21
Page 21
Financial Highlights
Page 22
Page 22
Notes to the Financial Statements
Page 23
Page 23
Report of Independent Registered Public Accounting Firm
Page 32
Page 32
Other Federal Income Tax Information
Page 33
Page 33
Other Information
Page 34
Page 34
Approval of Investment Advisory and Subadvisory Agreements
Page 35
Page 35
Information about the Board of Trustees and Officers
Page 39
Page 39
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® International Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® International Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® International Index Fund returned 7.12%. That compared to a 8.21% total return for its benchmark, the MSCI EAFE Index1. The Fund attempts to replicate the performance of the MSCI EAFE index of international developed market stocks. The global equity markets generally performed well during the 12-month period. Many developed economies experienced solid growth, which contributed to relatively strong stock market performance. However, some European markets suffered steep losses due to fallout from the region’s sovereign debt crisis.
Among developed markets, Sweden (up 33.8%), Denmark (30.7%) and Hong Kong (23.2%) were the top performers for the 12-month period. The worst-performing markets were Greece (-44.9%), Spain (-22%) and Ireland (-18.1%). Each of these countries was significantly affected by sovereign debt problems.
Sectors in which growth benefited from the global economic expansion outperformed more-defensive sectors during the period. The strongest-performing sectors included industrials, consumer discretionary and materials. The utilities, health care and financial sectors were among the period’s weakest performers.* The underperformance of the Fund against its benchmark was primarily the result of Fund expenses that are not reflected in the Index.
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® International Index Fund Review
Fund Objective
The Fund’s investment objective is to seek to match the performance of the Morgan Stanley Capital International Europe, Australasia and Far East Index (“MSCI EAFE® Index”) as closely as possible. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets in a statistically selected sampling of equity securities of companies included in the MSCI EAFE Index and in derivative instruments linked to the MSCI EAFE Index, primarily futures contracts.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||
1 | Inception | |||||||
Year | (5/1/09) | |||||||
AZL® International Index Fund | 7.12 | % | 23.30 | % | ||||
MSCI EAFE Index (gross of withholding taxes) | 8.21 | % | 26.16 | % | ||||
MSCI EAFE Index (net of withholding taxes) | 7.75 | % | 25.63 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® International Index Fund | 0.91 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contact limiting operating expenses, excluding certain expenses (such as interest expense), to 0.70% through April 30, 2011 and 0.77% effective May 1, 2011 through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index, which is an unmanaged free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The index noted as “gross of withholding taxes” does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The index noted as “net of withholding taxes” reflects the reinvestment of dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL International Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL International Index Fund | $ | 1,000.00 | $ | 1,247.40 | $ | 3.97 | 0.70 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL International Index Fund | $ | 1,000.00 | $ | 1,021.68 | $ | 3.57 | 0.70 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL International Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 0.6 | % | ||
Air Freight & Logistics | 0.3 | |||
Airlines | 0.3 | |||
Auto Components | 0.7 | |||
Automobiles | 3.4 | |||
Beverages | 1.8 | |||
Biotechnology | 0.2 | |||
Building Products | 0.6 | |||
Capital Markets | 1.4 | |||
Chemicals | 3.4 | |||
Commercial Banks | 12.2 | |||
Commercial Services & Supplies | 0.5 | |||
Communications Equipment | 0.7 | |||
Computers & Peripherals | 0.4 | |||
Construction & Engineering | 0.7 | |||
Construction Materials | 0.6 | |||
Consumer Finance | 0.1 | |||
Containers & Packaging | 0.1 | |||
Distributors | 0.2 | |||
Diversified Consumer Services | 0.1 | |||
Diversified Financial Services | 2.0 | |||
Diversified Telecommunication Services | 3.2 | |||
Electric Utilities | 3.2 | |||
Electrical Equipment | 1.4 | |||
Electronic Equipment, Instruments & Components | 1.3 | |||
Energy Equipment & Services | 0.7 | |||
Food & Staples Retailing | 2.2 | |||
Food Products | 3.4 | |||
Gas Utilities | 0.4 | |||
Health Care Equipment & Supplies | 0.7 | |||
Health Care Providers & Services | 0.2 | |||
Hotels, Restaurants & Leisure | 0.9 | |||
Household Durables | 0.9 | |||
Household Products | 0.6 | |||
Independent Power Producers & Energy Traders | 0.2 | |||
Industrial Conglomerates | 1.7 | |||
Insurance | 3.9 | |||
Internet & Catalog Retail | 0.1 | |||
Internet Software & Services | 0.1 | |||
IT Services | 0.2 | |||
Leisure Equipment & Products | 0.2 | |||
Life Sciences Tools & Services | 0.1 | |||
Machinery | 2.8 | |||
Marine | 0.6 | |||
Media | 1.5 | |||
Metals & Mining | 6.7 | |||
Multi-Utilities | 1.0 | |||
Multiline Retail | 0.4 | |||
Office Electronics | 0.7 | |||
Oil, Gas & Consumable Fuels | 6.7 | |||
Paper & Forest Products | 0.2 | |||
Personal Products | 0.3 | |||
Pharmaceuticals | 6.6 | |||
Professional Services | 0.4 | |||
Real Estate Investment Trusts (REITs) | 1.3 | |||
Real Estate Management & Development | 1.9 | |||
Road & Rail | 0.9 | |||
Semiconductors & Semiconductor Equipment | 0.6 | |||
Software | 0.9 | |||
Specialty Retail | 0.8 | |||
Textiles, Apparel & Luxury Goods | 1.2 | |||
Tobacco | 1.1 | |||
Trading Companies & Distributors | 1.2 | |||
Transportation Infrastructure | 0.3 | |||
Water Utilities | — | ^ | ||
Wireless Telecommunication Services | 2.0 | |||
Investment Companies | 1.4 | |||
97.4 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
^ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (96.0%): | ||||||||
Aerospace & Defense (0.6%): | ||||||||
101,591 | BAE Systems plc | $ | 522,731 | |||||
32,708 | Cobham plc | 103,839 | ||||||
694 | Elbit Systems, Ltd. | 37,063 | ||||||
11,933 | European Aeronautic Defence & Space Co. NV* | 278,313 | ||||||
11,924 | Finmeccanica SpA | 135,557 | ||||||
3,357,184 | Rolls-Royce Group plc, Class C*+ | — | ||||||
54,879 | Rolls-Royce Group plc | 533,080 | ||||||
4,988 | Safran SA | 176,638 | ||||||
51,000 | Singapore Technologies Engineering, Ltd. | 135,926 | ||||||
2,631 | Thales SA | 92,150 | ||||||
2,015,297 | ||||||||
Air Freight & Logistics (0.3%): | ||||||||
25,070 | Deutsche Post AG | 423,129 | ||||||
45,000 | Global Logistic Properties, Ltd.* | 75,744 | ||||||
11,190 | TNT NV | 295,760 | ||||||
19,790 | Toll Holdings, Ltd. | 115,886 | ||||||
11,900 | YAMATO HOLDINGS Co., Ltd. | 169,305 | ||||||
1,079,824 | ||||||||
Airlines (0.3%): | ||||||||
4,092 | Air France-KLM* | 74,661 | ||||||
25,000 | All Nippon Airways Co., Ltd.* | 93,277 | ||||||
17,294 | British Airways plc* | 73,547 | ||||||
36,000 | Cathay Pacific Airways, Ltd. | 99,199 | ||||||
6,923 | Deutsche Lufthansa AG, Registered Shares* | 152,157 | ||||||
13,051 | Iberia Lineas Aereas de Espana SA* | 55,716 | ||||||
32,870 | Qantas Airways, Ltd.* | 85,324 | ||||||
1,400 | Ryanair Holdings plc, SP ADR | 43,064 | ||||||
16,000 | Singapore Airlines, Ltd. | 190,765 | ||||||
867,710 | ||||||||
Auto Components (0.7%): | ||||||||
5,700 | AISIN SEIKI Co., Ltd. | 201,581 | ||||||
19,500 | Bridgestone Corp. | 376,600 | ||||||
5,194 | Compagnie Generale DES Establissements Michelin SCA, Class B | 373,529 | ||||||
1,433 | Continental AG* | 111,630 | ||||||
14,400 | DENSO Corp. | 496,661 | ||||||
3,000 | Koito Manufacturing Co., Ltd. | 46,927 | ||||||
5,000 | NGK Spark Plugs Co., Ltd. | 76,669 | ||||||
4,000 | NHK SPRING Co., Ltd. | 43,474 | ||||||
3,000 | NOK Corp. | 62,471 | ||||||
3,151 | Nokian Renkaat OYJ | 115,645 | ||||||
6,770 | Pirelli & C. SpA | 54,749 | ||||||
4,400 | Stanley Electric Co., Ltd. | 82,124 | ||||||
5,100 | Sumitomo Rubber Industries, Ltd. | 53,272 | ||||||
1,900 | Toyoda Gosei Co., Ltd. | 44,595 | ||||||
2,100 | Toyota Boshoku Corp. | 37,067 | ||||||
5,200 | TOYOTA Industries Corp. | 161,352 | ||||||
2,338,346 | ||||||||
Automobiles (3.4%): | ||||||||
9,800 | Bayerische Motoren Werke AG (BMW) | 768,222 | ||||||
1,539 | Bayerische Motoren Werke AG (BMW), Preferred Shares | 79,314 | ||||||
6,000 | Daihatsu Motor Co., Ltd. | 92,016 | ||||||
26,701 | Daimler AG, Registered Shares* | 1,815,913 | ||||||
22,693 | Fiat SpA | 467,192 | ||||||
17,000 | Fuji Heavy Industries, Ltd. | 131,819 | ||||||
48,200 | Honda Motor Co. | 1,905,509 | ||||||
35,000 | Isuzu Motors, Ltd. | 158,948 | ||||||
47,000 | Mazda Motor Corp. | 134,768 | ||||||
118,000 | Mitsubishi Motors Corp.* | 171,450 | ||||||
73,600 | Nissan Motor Co., Ltd. | 700,168 | ||||||
2,542 | Porsche Automobil Holding SE, Preferred Shares | 202,307 | ||||||
4,595 | PSA Peugeot Citroen SA* | 174,298 | ||||||
5,774 | Renault SA* | 336,164 | ||||||
9,900 | Suzuki Motor Corp. | 243,666 | ||||||
81,600 | Toyota Motor Corp. | 3,214,136 | ||||||
853 | Volkswagen AG | 120,209 | ||||||
5,040 | Volkswagen AG, Preferred Shares | 819,349 | ||||||
7,900 | Yamaha Motor Co., Ltd.* | 128,656 | ||||||
11,664,104 | ||||||||
Beverages (1.8%): | ||||||||
21,373 | Anheuser-Busch InBev NV | 1,220,889 | ||||||
11,300 | Asahi Breweries, Ltd. | 218,811 | ||||||
3,170 | Carlsberg A/S, Class B | 317,301 | ||||||
16,418 | Coca-Cola Amatil, Ltd. | 182,245 | ||||||
5,303 | Coca-Cola Hellenic Bottling Co. SA | 137,270 | ||||||
1,600 | Coca-Cola West Co., Ltd. | 28,985 | ||||||
74,151 | Diageo plc | 1,373,220 | ||||||
57,631 | Foster’s Group, Ltd. | 334,879 | ||||||
3,306 | Heineken Holding NV | 143,872 | ||||||
7,772 | Heineken NV | 380,859 | ||||||
1,900 | ITO EN, Ltd. | 31,588 | ||||||
25,000 | Kirin Holdings Co., Ltd. | 350,560 | ||||||
5,866 | Pernod Ricard SA | 552,042 | ||||||
28,125 | SABMiller plc | 988,895 | ||||||
7,000 | Sapporo Holdings, Ltd. | 31,723 | ||||||
6,293,139 | ||||||||
Biotechnology (0.2%): | ||||||||
3,022 | Actelion, Ltd., Registered Shares* | 166,307 | ||||||
16,219 | CSL, Ltd. | 600,893 | ||||||
4,117 | Grifols SA | 56,152 | ||||||
823,352 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Building Products (0.6%): | ||||||||
30,000 | Asahi Glass Co., Ltd. | $ | 350,335 | |||||
9,404 | Assa Abloy AB, Class B | 265,352 | ||||||
11,783 | Compagnie de Saint-Gobain | 607,542 | ||||||
6,900 | Daikin Industries, Ltd. | 244,561 | ||||||
1,165 | Geberit AG, Registered Shares | 269,472 | ||||||
7,600 | JS Group Corp. | 167,236 | ||||||
25,000 | Nippon Sheet Glass Co., Ltd. | 67,435 | ||||||
8,000 | TOTO, Ltd. | 57,994 | ||||||
2,029,927 | ||||||||
Capital Markets (1.4%): | ||||||||
29,693 | 3i Group plc | 152,201 | ||||||
49,300 | Daiwa Securities Group, Inc. | 253,577 | ||||||
27,562 | Deutsche Bank AG, Registered Shares | 1,438,187 | ||||||
6,094 | GAM Holding, Ltd.* | 100,712 | ||||||
16,157 | ICAP plc | 134,887 | ||||||
13,723 | Investec plc | 112,853 | ||||||
13,481 | Investor AB, B Shares | 288,606 | ||||||
6,126 | Julius Baer Group, Ltd. | 287,006 | ||||||
10,116 | Macquarie Group, Ltd. | 382,617 | ||||||
52,471 | Man Group plc | 242,493 | ||||||
13,405 | MAp Group | 40,967 | ||||||
4,200 | Matsui Securities Co., Ltd. | 29,871 | ||||||
13,565 | Mediobanca SpA | 120,813 | ||||||
19,000 | Mizuho Securities Co., Ltd. | 54,478 | ||||||
104,600 | Nomura Holdings, Inc. | 663,047 | ||||||
3,088 | Ratos AB, B Shares | 114,447 | ||||||
605 | SBI Holdings, Inc. | 91,730 | ||||||
3,453 | Schroders plc | 99,935 | ||||||
4,608,427 | ||||||||
Chemicals (3.4%): | ||||||||
8,374 | Air Liquide SA | 1,059,036 | ||||||
4,000 | Air Water, Inc. | 51,061 | ||||||
6,892 | Akzo Nobel NV | 428,904 | ||||||
38,000 | ASAHI KASEI Corp. | 247,930 | ||||||
27,182 | BASF SE | 2,179,387 | ||||||
825 | Brenntag AG* | 83,834 | ||||||
8,000 | Daciel Chemical Industries, Ltd. | 58,401 | ||||||
15,000 | DENKI KAGAKU KOGYO KABUSHIKI KAISHA | 71,250 | ||||||
250 | Givaudan SA, Registered Shares | 270,022 | ||||||
2,900 | Hitachi Chemical Co., Ltd. | 60,003 | ||||||
47,151 | Incitec Pivot, Ltd. | 190,412 | ||||||
12,810 | Israel Chemicals, Ltd. | 219,902 | ||||||
6,454 | Johnson Matthey plc | 205,280 | ||||||
5,500 | JSR Corp. | 102,528 | ||||||
4,289 | K+S AG | 324,634 | ||||||
10,000 | Kaneka Corp. | 69,306 | ||||||
6,000 | Kansai Paint Co., Ltd. | 58,066 | ||||||
4,587 | Koninklijke DSM NV | 261,468 | ||||||
10,500 | Kuraray Co., Ltd. | 150,433 | ||||||
2,421 | Lanxess AG | 190,013 | ||||||
5,021 | Linde AG | 765,700 | ||||||
7,236 | Makhteshim-Agan Industries, Ltd.* | 37,135 | ||||||
38,000 | Mitsubishi Chemical Holdings Corp. | 257,767 | ||||||
11,000 | Mitsubishi Gas Chemical Co., Inc. | 78,128 | ||||||
25,000 | Mitsui Chemicals, Inc. | 89,538 | ||||||
4,000 | Nissan Chemical Industries, Ltd. | 51,826 | ||||||
4,900 | Nitto Denko Corp. | 230,628 | ||||||
1,393 | Novozymes A/S, B Shares | 194,143 | ||||||
10,660 | Orica, Ltd. | 271,294 | ||||||
12,100 | Shin-Etsu Chemical Co., Ltd. | 655,219 | ||||||
41,000 | Showa Denko K.K | 92,326 | ||||||
59 | Sika AG-BEARER | 129,526 | ||||||
1,785 | Solvay SA | 190,324 | ||||||
46,000 | SUMITOMO CHEMICAL Co., Ltd. | 226,481 | ||||||
2,800 | Syngenta AG | 820,408 | ||||||
8,000 | Taiyo Nippon Sanso Corp. | 70,604 | ||||||
28,000 | Teijin, Ltd. | 119,603 | ||||||
10,000 | Tokuyama Corp. | 51,698 | ||||||
44,000 | Toray Industries, Inc. | 262,728 | ||||||
17,000 | TOSOH Corp. | 55,225 | ||||||
29,000 | Ube Industries, Ltd. | 87,077 | ||||||
3,286 | Umicore | 171,179 | ||||||
490 | Wacker Chemie AG | 86,091 | ||||||
5,554 | Yara International ASA | 321,474 | ||||||
11,597,992 | ||||||||
Commercial Banks (12.2%): | ||||||||
11,000 | 77th Bank, Ltd. (The) | 58,380 | ||||||
15,262 | Alpha Bank AE* | 77,683 | ||||||
16,000 | Aozora Bank, Ltd. | 33,107 | ||||||
75,745 | Australia & New Zealand Banking Group, Ltd. | 1,807,442 | ||||||
15,489 | Banca Carige SpA | 32,468 | ||||||
69,185 | Banca Monte dei Paschi di Siena SpA* | 78,652 | ||||||
126,449 | Banco Bilbao Vizcaya Argentaria SA | 1,278,989 | ||||||
82,940 | Banco Comercial Portugues SA | 64,588 | ||||||
30,115 | Banco de Sabadell SA | 118,762 | ||||||
7,507 | Banco de Valencia SA | 32,923 | ||||||
14,770 | Banco Espirito Santo SA | 56,886 | ||||||
18,511 | Banco Popolare Societa Cooperativa | 83,907 | ||||||
26,449 | Banco Popular Espanol SA | 135,673 | ||||||
243,523 | Banco Santander SA | 2,587,110 | ||||||
28,379 | Bank Hapoalim BM* | 147,877 | ||||||
34,863 | Bank Leumi Le-Israel | 178,716 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Commercial Banks, continued | ||||||||
26,405 | Bank of Cyprus Public Co., Ltd. | $ | 91,160 | |||||
44,600 | Bank of East Asia, Ltd. (The) | 186,728 | ||||||
9,000 | Bank of Kyoto, Ltd. (The) | 85,326 | ||||||
37,000 | Bank of Yokohama, Ltd. (The) | 191,760 | ||||||
8,052 | Bankinter SA | 44,705 | ||||||
338,675 | Barclays plc | 1,393,143 | ||||||
10,860 | Bendigo and Adelaide Bank, Ltd. | 110,452 | ||||||
28,367 | BNP Paribas, Inc. | 1,810,677 | ||||||
110,000 | BOC Hong Kong Holdings, Ltd. | 373,639 | ||||||
22,000 | Chiba Bank, Ltd. (The) | 142,985 | ||||||
5,000 | Chugoku Bank, Ltd. (The) | 60,522 | ||||||
30,000 | Chuo Mitsui Trust Holdings, Inc. | 124,482 | ||||||
20,876 | Commerzbank AG* | 155,618 | ||||||
45,837 | Commonwealth Bank of Australia | 2,378,316 | ||||||
28,689 | Credit Agricole SA | 364,969 | ||||||
13,597 | Danske Bank A/S* | 348,604 | ||||||
51,000 | DBS Group Holdings, Ltd. | 569,156 | ||||||
15,274 | Dexia SA* | 53,158 | ||||||
29,149 | DnB NOR ASA | 409,326 | ||||||
8,952 | EFG Eurobank Ergasias* | 45,008 | ||||||
5,489 | Erste Group Bank AG | 257,915 | ||||||
24,000 | Fukuoka Financial Group, Inc. | 104,283 | ||||||
96,164 | Governor & Co. of the Bank of Ireland (The)* | 51,529 | ||||||
11,000 | Gunma Bank, Ltd. (The) | 60,410 | ||||||
13,000 | Hachijuni Bank, Ltd. (The) | 72,678 | ||||||
22,800 | Hang Seng Bank, Ltd. | 374,455 | ||||||
14,000 | Hiroshima Bank, Ltd. (The) | 58,959 | ||||||
37,000 | Hokuhoku Financial Group, Inc. | 75,171 | ||||||
521,091 | HSBC Holdings plc | 5,309,323 | ||||||
227,955 | Intesa Sanpaolo | 618,097 | ||||||
26,988 | Intesa Sanpaolo | 64,351 | ||||||
22,506 | Israel Discount Bank* | 51,400 | ||||||
7,000 | Iyo Bank, Ltd. (The) | 56,030 | ||||||
20,000 | Joyo Bank, Ltd. (The) | 87,910 | ||||||
4,850 | KBC Groep NV* | 165,645 | ||||||
1,208,784 | Lloyds Banking Group plc* | 1,239,480 | ||||||
376,900 | Mitsubishi UFJ Financial Group, Inc. | 2,036,953 | ||||||
3,851 | Mizrahi Tefahot Bank, Ltd. | 42,356 | ||||||
605,019 | Mizuho Financial Group, Inc. | 1,139,515 | ||||||
46,000 | Mizuho Trust & Banking Co., Ltd.* | 47,573 | ||||||
63,133 | National Australia Bank, Ltd. | 1,528,951 | ||||||
27,972 | National Bank of Greece SA* | 226,450 | ||||||
25,742 | Natixis* | 120,559 | ||||||
20,000 | NISHI-NIPPON CITY BANK, Ltd. (The) | 60,817 | ||||||
95,712 | Nordea Bank AB | 1,041,586 | ||||||
73,000 | Oversea-Chinese Banking Corp., Ltd. | 562,043 | ||||||
1,466 | Raiffeisen International Bank-Holding AG | 80,289 | ||||||
17,187 | Resona Holdings, Inc. | 103,115 | ||||||
521,668 | Royal Bank of Scotland Group plc* | 319,562 | ||||||
10,441 | Sapporo Hokuyo Holdings, Inc. | 48,848 | ||||||
19,904 | Senshu Ikeda Holdings, Inc. | 28,442 | ||||||
21 | Seven Bank, Ltd. | 44,470 | ||||||
30,000 | Shinsei Bank, Ltd. | 39,139 | ||||||
18,000 | Shizuoka Bank, Ltd. (The) | 166,079 | ||||||
42,080 | Skandinaviska Enskilda Banken AB, Class A | 351,172 | ||||||
18,778 | Societe Generale | 1,011,043 | ||||||
69,032 | Standard Chartered plc | 1,858,378 | ||||||
39,769 | Sumitomo Mitsui Financial Group, Inc. | 1,415,926 | ||||||
43,000 | Sumitomo Trust & Banking Co., Ltd. (The) | 271,062 | ||||||
6,000 | Suruga Bank, Ltd. | 55,851 | ||||||
16,766 | Svenska Cellulosa AB, B Shares | 264,725 | ||||||
14,485 | Svenska Handelsbanken AB, A Shares | 463,106 | ||||||
21,257 | Swedbank AB, A Shares* | 296,617 | ||||||
17,836 | UBI Banca — Unione di Banche Italiane Scpa | 156,218 | ||||||
399,285 | UniCredit SpA | 825,640 | ||||||
36,000 | United Overseas Bank, Ltd. | 510,610 | ||||||
88,463 | Westpac Banking Corp. | 2,007,796 | ||||||
5,000 | Wing Hang Bank, Ltd. | 69,072 | ||||||
6,000 | Yamaguchi Financial Group, Inc. | 60,751 | ||||||
41,615,247 | ||||||||
Commercial Services & Supplies (0.5%): | ||||||||
7,861 | Aggreko plc | 181,742 | ||||||
10,107 | Babcock International Group plc | 90,019 | ||||||
42,267 | Brambles, Ltd. | 307,549 | ||||||
17,000 | Dai Nippon Printing Co., Ltd. | 231,401 | ||||||
40,884 | G4S plc | 162,403 | ||||||
901 | Neopost SA*+ | — | ||||||
6,200 | SECOM Co., Ltd. | 293,472 | ||||||
8,950 | Securitas AB, B Shares | 104,692 | ||||||
15,061 | Serco Group plc | 130,475 | ||||||
835 | Societe BIC SA | 71,745 | ||||||
16,000 | TOPPAN PRINTING Co., Ltd. | 146,122 | ||||||
1,719,620 | ||||||||
Communications Equipment (0.7%): | ||||||||
69,839 | Alcatel-Lucent* | 204,127 | ||||||
110,832 | Nokia OYJ | 1,147,033 | ||||||
89,130 | Telefonaktiebolaget LM Ericsson, B Shares | 1,032,829 | ||||||
2,383,989 | ||||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Computers & Peripherals (0.4%): | ||||||||
56,000 | Fujitsu, Ltd. | $ | 389,487 | |||||
5,152 | Logitech International SA, Registered Shares* | 98,156 | ||||||
76,000 | NEC Corp. | 228,259 | ||||||
4,000 | Seiko Epson Corp. | 72,840 | ||||||
120,000 | Toshiba Corp. | 653,340 | ||||||
1,442,082 | ||||||||
Construction & Engineering (0.7%): | ||||||||
4,097 | ACS, Actividades de Construccion y Servicios SA | 192,089 | ||||||
20,594 | Balfour Beatty plc | 100,487 | ||||||
6,941 | Bouygues SA | 299,683 | ||||||
5,000 | Chiyoda Corp. | 49,718 | ||||||
1,172 | Eiffage SA | 51,751 | ||||||
1,484 | Fomento de Construcciones y Contratas SA | 39,012 | ||||||
1,400 | Hochtief AG | 118,348 | ||||||
6,000 | JGC Corp. | 130,301 | ||||||
26,000 | Kajima Corp. | 69,175 | ||||||
4,000 | Kinden Corp. | 36,943 | ||||||
2,087 | Koninklijke Boskalis Westminster NV | 99,732 | ||||||
4,056 | Leighton Holdings, Ltd. | 127,579 | ||||||
19,000 | Obayashi Corp. | 87,474 | ||||||
17,000 | Shimizu Corp. | 72,621 | ||||||
11,796 | Skanska AB, B Shares | 234,080 | ||||||
29,000 | TAISEI Corp. | 67,833 | ||||||
13,019 | Vinci SA | 708,971 | ||||||
2,485,797 | ||||||||
Construction Materials (0.6%): | ||||||||
20,722 | Boral, Ltd. | 102,278 | ||||||
5,708 | CIMPOR-Cimentos de Portugal SGPS SA | 38,672 | ||||||
21,190 | CRH plc | 439,367 | ||||||
18,314 | Fletcher Building, Ltd. | 109,227 | ||||||
4,090 | HeidelbergCement AG | 255,687 | ||||||
7,261 | Holcim, Ltd., Registered Shares | 548,910 | ||||||
1,181 | Imerys SA | 78,842 | ||||||
12,151 | James Hardie Industries SE* | 84,139 | ||||||
5,994 | Lafarge SA | 376,543 | ||||||
2,033,665 | ||||||||
Consumer Finance (0.1%): | ||||||||
2,700 | Aeon Credit Service Co., Ltd. | 38,164 | ||||||
4,300 | Credit Saison Co., Ltd. | 70,703 | ||||||
3,090 | ORIX Corp. | 303,869 | ||||||
412,736 | ||||||||
Containers & Packaging (0.1%): | ||||||||
36,851 | Amcor, Ltd. | 254,222 | ||||||
25,146 | Rexam plc | 130,460 | ||||||
4,700 | Toyo Seikan Kaisha, Ltd. | 89,365 | ||||||
474,047 | ||||||||
Distributors (0.2%): | ||||||||
2,100 | Canon Marketing Japan, Inc. | 29,894 | ||||||
3,000 | Jardine Cycle & Carriage, Ltd. | 85,563 | ||||||
68,000 | Li & Fung, Ltd. | 394,212 | ||||||
509,669 | ||||||||
Diversified Consumer Services (0.1%): | ||||||||
2,100 | Benesse Holdings, Inc. | 96,731 | ||||||
71,300 | Sands China, Ltd.* | 156,317 | ||||||
253,048 | ||||||||
Diversified Financial Services (2.0%): | ||||||||
5,062 | ASX, Ltd. | 194,952 | ||||||
74,028 | BGP Holdings plc*+ | — | ||||||
799 | Compagnie Nationale a Portefeuille | 39,121 | ||||||
33,337 | Credit Suisse Group AG | 1,345,525 | ||||||
24,049 | Criteria Caixacorp SA | 128,024 | ||||||
5,735 | Deutsche Boerse AG | 398,184 | ||||||
857 | Eurazeo | 63,612 | ||||||
1,831 | EXOR SpA | 61,055 | ||||||
2,340 | Groupe Bruxelles Lambert SA | 196,954 | ||||||
30,300 | Hong Kong Exchanges & Clearing, Ltd. | 685,521 | ||||||
3,429 | Industrivarden AB, C Shares | 60,233 | ||||||
113,367 | ING Groep NV* | 1,106,138 | ||||||
6,301 | Kinnevik Investment AB, Class B | 128,506 | ||||||
4,633 | London Stock Exchange Group plc | 60,583 | ||||||
1,810 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 71,754 | ||||||
795 | Pargesa Holding SA | 67,520 | ||||||
4,083 | Pohjola Bank plc | 48,926 | ||||||
43,795 | Resolution, Ltd. | 159,886 | ||||||
25,000 | Singapore Exchange, Ltd. | 164,050 | ||||||
107,702 | UBS AG, Registered Shares* | 1,768,202 | ||||||
6,748,746 | ||||||||
Diversified Telecommunication Services (3.2%): | ||||||||
4,371 | Belgacom SA | 146,900 | ||||||
49,829 | Bezeq The Israeli Telecommunication Corp., Ltd. | 152,107 | ||||||
229,657 | BT Group plc | 648,156 | ||||||
83,898 | Deutsche Telekom AG | 1,079,735 | ||||||
4,156 | Elisa OYJ | 90,660 | ||||||
54,873 | France Telecom SA | 1,145,407 | ||||||
6,975 | Hellenic Telecommunications Organization SA | 57,163 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
465 | Iliad SA | $ | 50,598 | |||||
12,955 | Inmarsat plc | 136,138 | ||||||
46,544 | Koninklijke KPN NV | 679,638 | ||||||
15,376 | Nippon Telegraph and Telephone Corp. | 703,629 | ||||||
122,000 | PCCW, Ltd. | 53,942 | ||||||
17,094 | Portugal Telecom SGPS SA, Registered Shares | 192,744 | ||||||
236,000 | Singapore Telecommunications, Ltd. | 560,932 | ||||||
692 | Swisscom AG, Registered Shares | 304,505 | ||||||
9,399 | Tele2 AB, B Shares | 196,510 | ||||||
59,329 | Telecom Corp. of New Zealand, Ltd. | 100,257 | ||||||
279,644 | Telecom Italia SpA | 361,478 | ||||||
181,087 | Telecom Italia SpA | 196,572 | ||||||
121,560 | Telefonica SA | 2,760,328 | ||||||
9,634 | Telekom Austria AG | 135,467 | ||||||
24,697 | Telenor ASA | 401,786 | ||||||
66,453 | TeliaSonera AB | 527,231 | ||||||
130,631 | Telstra Corp., Ltd. | 372,569 | ||||||
11,054,452 | ||||||||
Electric Utilities (3.2%): | ||||||||
717 | Acciona SA | 50,809 | ||||||
14,000 | Cheung Kong Infrastructure Holdings, Ltd. | 64,041 | ||||||
19,200 | Chubu Electric Power Co., Inc. | 472,053 | ||||||
9,000 | Chugoku Electric Power Co., Inc. (The) | 182,942 | ||||||
57,000 | CLP Holdings, Ltd. | 462,497 | ||||||
8,563 | Contact Energy, Ltd. | 41,548 | ||||||
53,297 | E.ON AG | 1,629,395 | ||||||
55,529 | EDP — Energias de Portugal SA | 184,796 | ||||||
6,778 | EDP Renovaveis SA* | 39,316 | ||||||
7,550 | Electricite de France | 310,074 | ||||||
194,808 | Enel SpA | 972,971 | ||||||
13,276 | Fortum OYJ | 402,701 | ||||||
36,612 | GDF Suez | 1,316,392 | ||||||
5,200 | Hokkaido Electric Power Co., Inc. | 106,341 | ||||||
5,300 | Hokuriku Electric Power Co. | 130,248 | ||||||
40,500 | Hongkong Electric Holdings, Ltd. | 255,311 | ||||||
119,460 | Iberdrola SA | 920,207 | ||||||
22,300 | Kansai Electric Power Co., Inc. (The) | 550,536 | ||||||
11,400 | Kyushu Electric Power Co., Inc. | 255,564 | ||||||
2,111 | Oesterreichische Elektrizitaetswirtschafts AG, Class A | 78,657 | ||||||
3,335 | Public Power Corp. SA | 47,912 | ||||||
3,268 | Red Electrica Corporacion SA | 153,629 | ||||||
27,323 | Scottish & Southern Energy plc | 522,017 | ||||||
5,200 | Shikoku Electric Power Co., Inc. | 152,975 | ||||||
41,614 | SP AusNet | 36,977 | ||||||
38,033 | Terna — Rete Elettrica Nationale SpA | 160,629 | ||||||
12,800 | Tohoku Electric Power Co., Inc. | 285,410 | ||||||
42,100 | Tokyo Electric Power Co., Inc. (The) | 1,028,409 | ||||||
10,814,357 | ||||||||
Electrical Equipment (1.4%): | ||||||||
64,852 | ABB, Ltd. | 1,448,834 | ||||||
6,032 | Alstom SA | 288,674 | ||||||
1,132 | Bekaert SA | 130,101 | ||||||
18,000 | Fuji Electric Holdings Co., Ltd. | 56,046 | ||||||
19,000 | Furukawa Electric Co., Ltd. (The) | 85,344 | ||||||
11,000 | GS Yuasa Corp. | 76,074 | ||||||
4,594 | Legrand SA | 187,214 | ||||||
57,000 | Mitsubishi Electric Corp. | 597,773 | ||||||
5,337 | Prysmian SpA | 90,874 | ||||||
14,999 | Renewable Energy Corp. A/S* | 45,837 | ||||||
7,195 | Schneider Electric SA | 1,077,035 | ||||||
22,300 | Sumitomo Electric Industries, Ltd. | 309,580 | ||||||
3,400 | Ushio, Inc. | 64,784 | ||||||
6,087 | Vestas Wind Systems A/S* | 192,266 | ||||||
4,650,436 | ||||||||
Electronic Equipment, Instruments & Components (1.3%): | ||||||||
6,600 | Citizen Holdings Co., Ltd. | 45,483 | ||||||
66,144 | Foxconn International Holdings, Ltd.* | 46,195 | ||||||
13,700 | Fujifilm Holdings Corp. | 495,036 | ||||||
2,100 | Hamamatsu Photonics K.K | 76,733 | ||||||
1,000 | HIROSE ELECTRIC Co., Ltd. | 112,708 | ||||||
2,100 | Hitachi High-Technologies Corp. | 48,895 | ||||||
134,100 | Hitachi, Ltd. | 715,688 | ||||||
13,000 | HOYA Corp. | 315,526 | ||||||
3,900 | IBIDEN Co., Ltd. | 122,929 | ||||||
1,200 | Keyence Corp. | 347,015 | ||||||
4,800 | KYOCERA Corp. | 489,666 | ||||||
700 | MABUCHI MOTOR Co., Ltd. | 36,061 | ||||||
2,500 | Mitsumi Electric Co., Ltd. | 45,946 | ||||||
6,000 | Murata Manufacturing Co., Ltd. | 420,237 | ||||||
3,200 | Nidec Corp. | 322,751 | ||||||
10,000 | Nippon Electric Glass Co., Ltd. | 144,197 | ||||||
6,100 | Omron Corp. | 161,621 | ||||||
7,000 | Shimadzu Corp. | 54,370 | ||||||
3,700 | TDK Corp. | 257,210 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
7,000 | Yaskawa Electric Corp. | $ | 66,153 | |||||
6,700 | Yokogawa Electric Corp. | 53,250 | ||||||
4,377,670 | ||||||||
Energy Equipment & Services (0.7%): | ||||||||
4,628 | Aker Solutions ASA | 78,864 | ||||||
10,044 | AMEC plc | 180,232 | ||||||
4,327 | Compagnie Generale de Geophysique-Veritas* | 132,071 | ||||||
43,354 | Enel Green Power SpA* | 91,579 | ||||||
1,979 | Fugro NV | 162,868 | ||||||
7,569 | Petrofac, Ltd. | 187,495 | ||||||
7,930 | Saipem SpA | 390,644 | ||||||
4,911 | SBM Offshore NV | 110,178 | ||||||
8,320 | Seadrill, Ltd. | 281,607 | ||||||
2,870 | Technip-Coflexip SA | 265,476 | ||||||
13,793 | Tenaris SA | 337,920 | ||||||
5,610 | WorleyParsons, Ltd. | 153,275 | ||||||
2,372,209 | ||||||||
Food & Staples Retailing (2.2%): | ||||||||
17,600 | AEON Co., Ltd. | 220,153 | ||||||
17,763 | Carrefour SA | 732,701 | ||||||
1,633 | Casino Guichard-Perrachon SA | 159,256 | ||||||
2,175 | Colruyt SA | 110,678 | ||||||
2,938 | Delhaize Group | 216,617 | ||||||
1,900 | FamilyMart Co., Ltd. | 71,598 | ||||||
36,042 | J Sainsbury plc | 211,618 | �� | |||||
6,480 | Jeronimo Martins SGPS SA | 98,835 | ||||||
1,887 | Kesko OYJ, B Shares | 88,115 | ||||||
35,278 | Koninklijke Ahold NV | 465,829 | ||||||
1,800 | LAWSON, Inc. | 89,029 | ||||||
23,823 | Metcash, Ltd. | 99,946 | ||||||
3,805 | Metro AG | 274,011 | ||||||
34,000 | Olam International, Ltd. | 83,189 | ||||||
22,300 | Seven & I Holdings Co., Ltd. | 595,765 | ||||||
237,533 | Tesco plc | 1,574,841 | ||||||
5,100 | UNY Co., Ltd. | 51,537 | ||||||
29,749 | Wesfarmers, Ltd. | 972,873 | ||||||
4,400 | Wesfarmers, Ltd., Price Protected Shares | 145,262 | ||||||
62,366 | William Morrison Supermarkets plc | 260,310 | ||||||
36,439 | Woolworths, Ltd. | 1,004,704 | ||||||
7,526,867 | ||||||||
Food Products (3.4%): | ||||||||
20,000 | Ajinomoto Co., Inc. | 208,357 | ||||||
2,392 | Aryzta AG* | 110,539 | ||||||
10,381 | Associated British Foods plc | 191,076 | ||||||
74,200 | Cable & Wireless Worldwide | 76,061 | ||||||
17,258 | Danone SA | 1,083,841 | ||||||
202,382 | Golden Agri-Resources, Ltd. | 126,141 | ||||||
37,236 | Goodman Fielder, Ltd. | 51,186 | ||||||
5,000 | Kikkoman Corp. | 55,955 | ||||||
25 | Lindt & Spruengli AG | 75,611 | ||||||
3 | Lindt & Spruengli AG, Registered Shares | 96,629 | ||||||
2,026 | Meiji Holdings Co., Ltd. | 91,556 | ||||||
102,542 | Nestle SA | 6,008,584 | ||||||
6,000 | Nippon Meat Packers, Inc. | 78,372 | ||||||
6,000 | Nisshin Seifun Group, Inc. | 76,151 | ||||||
1,900 | Nissin Foods Holdings Co., Ltd. | 68,095 | ||||||
52,040 | Parmalat SpA | 142,474 | ||||||
1,826 | Suedzucker AG | 48,351 | ||||||
3,000 | Toyo Suisan Kaisha, Ltd. | 66,739 | ||||||
48,210 | Unilever NV | 1,499,663 | ||||||
37,985 | Unilever plc | 1,161,432 | ||||||
57,000 | Wilmar International, Ltd. | 250,080 | ||||||
2,900 | Yakult Honsha Co., Ltd. | 83,521 | ||||||
4,000 | Yamazaki Baking Co., Ltd. | 48,223 | ||||||
11,698,637 | ||||||||
Gas Utilities (0.4%): | ||||||||
5,375 | Enagas | 107,063 | ||||||
9,388 | Gas Natural SDG SA | 145,489 | ||||||
127,400 | Hong Kong & China Gas Co., Ltd. | 300,166 | ||||||
57,000 | Osaka Gas Co., Ltd. | 221,159 | ||||||
42,976 | Snam Rete Gas SpA | 213,676 | ||||||
13,000 | Toho Gas Co., Ltd. | 65,007 | ||||||
75,000 | Tokyo Gas Co., Ltd. | 332,538 | ||||||
1,385,098 | ||||||||
Health Care Equipment & Supplies (0.7%): | ||||||||
321 | bioMerieux SA | 31,687 | ||||||
1,666 | Cochlear, Ltd. | 136,749 | ||||||
711 | Coloplast A/S, Class B | 96,653 | ||||||
5,989 | Essilor International SA Cie Generale d’Optique | 385,394 | ||||||
808 | Fresenius SE | 68,327 | ||||||
2,351 | Fresenius SE, Preferred Shares | 200,620 | ||||||
6,088 | Getinge AB, B Shares | 127,519 | ||||||
6,500 | Olympus Co., Ltd. | 196,600 | ||||||
26,191 | Smith & Nephew plc | 275,192 | ||||||
1,397 | Sonova Holding AG, Registered Shares | 180,989 | ||||||
232 | Straumann Holding AG, Registered Shares | 53,075 | ||||||
1,778 | Synthes, Inc. | 241,627 | ||||||
1,100 | Sysmex Corp. | 76,254 | ||||||
5,000 | Terumo Corp. | 281,216 | ||||||
685 | William Demant Holding A/S* | 50,611 | ||||||
2,402,513 | ||||||||
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services (0.2%): | ||||||||
1,200 | Alfresa Holdings Corp. | $ | 53,262 | |||||
2,376 | Celesio AG | 58,663 | ||||||
5,614 | Fresenius Medical Care AG & Co. KGaA | 327,013 | ||||||
4,300 | Medipal Holdings Corp. | 47,390 | ||||||
3,825 | Ramsay Health Care, Ltd. | 69,599 | ||||||
10,732 | Sonic Healthcare, Ltd. | 127,247 | ||||||
2,000 | Suzuken Co., Ltd. | 61,077 | ||||||
744,251 | ||||||||
Hotels, Restaurants & Leisure (0.9%): | ||||||||
4,298 | Accor SA | 191,548 | ||||||
3,376 | Autogrill SpA* | 47,715 | ||||||
5,226 | Carnival plc | 243,150 | ||||||
55,779 | Compass Group plc | 505,602 | ||||||
12,831 | Crown, Ltd. | 108,173 | ||||||
4,709 | Edenred* | 111,526 | ||||||
179,757 | Genting Singapore plc* | 306,730 | ||||||
8,519 | InterContinental Hotels Group plc | 165,239 | ||||||
2,129 | McDonald’s Holdings Co., Ltd. | 53,399 | ||||||
6,626 | OPAP SA | 114,630 | ||||||
1,500 | Oriental Land Co., Ltd. | 138,936 | ||||||
40,000 | Shangri-La Asia, Ltd. | 108,425 | ||||||
46,000 | SJM Holdings, Ltd. | 73,010 | ||||||
18,397 | Sky City Entertainment Group, Ltd. | 46,426 | ||||||
2,826 | Sodexo | 194,844 | ||||||
19,637 | Tabcorp Holdings, Ltd. | 142,710 | ||||||
38,596 | Tatts Group, Ltd. | 101,778 | ||||||
23,844 | Thomas Cook Group plc | 70,606 | ||||||
4,058 | TUI AG* | 56,578 | ||||||
15,941 | Tui Travel plc | 61,204 | ||||||
5,316 | Whitbread plc | 148,446 | ||||||
46,400 | Wynn Macau, Ltd. | 103,833 | ||||||
3,094,508 | ||||||||
Household Durables (0.9%): | ||||||||
7,400 | Casio Computer Co., Ltd. | 59,656 | ||||||
7,240 | Electrolux AB, Series B | 205,664 | ||||||
12,816 | Husqvarna AB, B Shares | 107,032 | ||||||
3,300 | Makita Corp. | 134,949 | ||||||
58,100 | Panasonic Corp. | 820,351 | ||||||
1,100 | Rinnai Corp. | 67,196 | ||||||
13,000 | Sekisui Chemical Co., Ltd. | 93,286 | ||||||
17,000 | Sekisui House, Ltd. | 171,597 | ||||||
30,000 | Sharp Corp. | 309,037 | ||||||
29,700 | Sony Corp. | 1,069,877 | ||||||
3,038,645 | ||||||||
Household Products (0.6%): | ||||||||
3,850 | Henkel AG & Co. KGaA | 201,425 | ||||||
5,230 | Henkel AG & Co. KGaA | 326,718 | ||||||
15,800 | Kao Corp. | 425,610 | ||||||
18,246 | Reckitt Benckiser Group plc | 1,003,345 | ||||||
3,600 | Unicharm Corp. | 143,039 | ||||||
2,100,137 | ||||||||
Independent Power Producers & Energy Traders (0.2%): | ||||||||
3,500 | Electric Power Development Co., Ltd. | 109,816 | ||||||
25,520 | Iberdrola Renovables SA | 90,610 | ||||||
45,587 | International Power plc | 311,193 | ||||||
511,619 | ||||||||
Industrial Conglomerates (1.7%): | ||||||||
44,603 | CSR, Ltd. | 76,596 | ||||||
28,000 | Fraser and Neave, Ltd. | 139,866 | ||||||
34,000 | Hankyu Hanshin Holdings, Inc. | 157,841 | ||||||
63,000 | Hutchison Whampoa, Ltd. | 648,207 | ||||||
38,000 | Keppel Corp., Ltd. | 335,203 | ||||||
29,187 | Koninklijke Philips Electronics NV | 893,521 | ||||||
37,500 | NWS Holdings, Ltd. | 56,921 | ||||||
22,305 | Orkla ASA | 217,016 | ||||||
30,000 | SembCorp Industries, Ltd. | 120,164 | ||||||
24,350 | Siemens AG | 3,029,465 | ||||||
11,531 | Smiths Group plc | 223,977 | ||||||
5,898,777 | ||||||||
Insurance (3.9%): | ||||||||
5,812 | Admiral Group plc | 137,383 | ||||||
45,738 | AEGON NV* | 280,259 | ||||||
231,600 | AIA Group, Ltd.* | 651,064 | ||||||
12,343 | Allianz SE, Registered Shares | 1,466,985 | ||||||
61,865 | AMP, Ltd. | 334,520 | ||||||
34,559 | Assicurazioni Generali SpA | 656,778 | ||||||
30,608 | AXA Asia Pacific Holdings, Ltd. | 197,483 | ||||||
50,883 | AXA SA | 848,979 | ||||||
1,463 | Baloise Holding AG, Registered Shares | 142,417 | ||||||
4,506 | CNP Assurances | 81,413 | ||||||
240 | Dai-ichi Life Insurance Co., Ltd. (The) | 389,613 | ||||||
2,212 | Delta Lloyd NV | 44,640 | ||||||
65,800 | Fortis | 150,658 | ||||||
1,859 | Hannover Rueckversicherung AG, Registered Shares | 99,176 | ||||||
61,718 | Insurance Australia Group, Ltd. | 244,744 | ||||||
174,646 | Legal & General Group plc | 263,730 | ||||||
24,002 | Mapfre SA | 66,712 | ||||||
16,011 | MS&AD Insurance Group Holdings, Inc. | 401,134 | ||||||
5,584 | Muenchener Rueckversicherungs-Gesellschaft AG, Registered Shares | 846,394 |
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
41,900 | NKSJ Holdings, Inc.* | $ | 308,351 | |||||
163,576 | Old Mutual plc | 314,264 | ||||||
75,151 | Prudential plc | 783,656 | ||||||
30,636 | QBE Insurance Group, Ltd. | 568,311 | ||||||
100,365 | RSA Insurance Group plc | 196,035 | ||||||
12,617 | Sampo OYJ, A Shares | 338,179 | ||||||
4,887 | SCOR SE | 124,147 | ||||||
27 | Sony Financial Holdings, Inc. | 109,191 | ||||||
66,606 | Standard Life plc | 224,515 | ||||||
37,929 | Suncorp Group, Ltd. | 333,777 | ||||||
885 | Swiss Life Holding AG, Registered Shares | 127,991 | ||||||
10,424 | Swiss RE, Registered Shares | 567,913 | ||||||
8,168 | T&D Holdings, Inc. | 206,970 | ||||||
21,400 | Tokio Marine Holdings, Inc. | 639,343 | ||||||
668 | Tryg A/S | 30,849 | ||||||
1,204 | Vienna Insurance Group Weiner Staeditische Versicherung AG | 62,558 | ||||||
4,311 | Zurich Financial Services AG | 1,116,916 | ||||||
13,357,048 | ||||||||
Internet & Catalog Retail (0.1%): | ||||||||
1,460 | CDON Group AB* | 6,756 | ||||||
2,400 | DeNA Co., Ltd. | 86,073 | ||||||
24,832 | Home Retail Group plc | 73,054 | ||||||
217 | Rakuten, Inc. | 181,775 | ||||||
347,658 | ||||||||
Internet Software & Services (0.1%): | ||||||||
2,700 | Gree, Inc. | 34,334 | ||||||
3,362 | United Internet AG, Registered Shares | 53,891 | ||||||
430 | Yahoo! Japan Corp. | 166,787 | ||||||
255,012 | ||||||||
IT Services (0.2%): | ||||||||
1,369 | Atos Origin SA* | 72,944 | ||||||
4,472 | Cap Gemini SA | 209,064 | ||||||
13,208 | Computershare, Ltd. | 145,501 | ||||||
2,477 | Indra Sistemas SA | 42,331 | ||||||
1,000 | ITOCHU Techno-Solutions Corp. | 37,493 | ||||||
3,200 | Nomura Research Institute, Ltd. | 71,057 | ||||||
38 | NTT Data Corp. | 131,469 | ||||||
190 | Obic Co., Ltd. | 39,132 | ||||||
400 | Otsuka Corp. | 27,235 | ||||||
776,226 | ||||||||
Leisure Equipment & Products (0.2%): | ||||||||
5,100 | Namco Bandai Holdings, Inc. | 54,782 | ||||||
9,600 | Nikon Corp. | 194,219 | ||||||
1,600 | Sankyo Co., Ltd. | 90,335 | ||||||
5,800 | Sega Sammy Holdings, Inc. | 110,380 | ||||||
1,900 | Shimano, Inc. | 96,620 | ||||||
4,900 | Yamaha Corp. | 60,839 | ||||||
607,175 | ||||||||
Life Sciences Tools & Services (0.1%): | ||||||||
1,387 | Lonza Group AG, Registered Shares | 111,300 | ||||||
6,843 | QIAGEN NV* | 134,923 | ||||||
246,223 | ||||||||
Machinery (2.8%): | ||||||||
9,899 | Alfa Laval AB | 208,872 | ||||||
11,000 | AMADA Co., Ltd. | 89,478 | ||||||
19,876 | Atlas Copco AB, A Shares | 502,275 | ||||||
11,619 | Atlas Copco AB, B Shares | 262,802 | ||||||
27,000 | Cosco Corp., Ltd. | 44,917 | ||||||
5,700 | Fanuc, Ltd. | 874,631 | ||||||
4,718 | GEA Group AG | 136,117 | ||||||
7,594 | Hexagon AB, B Shares | 162,986 | ||||||
8,000 | Hino Motors, Ltd. | 43,314 | ||||||
2,900 | Hitachi Construction Machinery Co., Ltd. | 69,459 | ||||||
37,000 | IHI Corp. | 82,434 | ||||||
24,061 | Invensys plc | 132,975 | ||||||
9,000 | Japan Steel Works, Ltd. (The) | 93,862 | ||||||
6,500 | JTEKT Corp. | 76,611 | ||||||
41,000 | Kawasaki Heavy Industries, Ltd. | 137,777 | ||||||
28,100 | Komatsu, Ltd. | 849,645 | ||||||
4,583 | Kone OYJ, B Shares | 254,581 | ||||||
34,000 | Kubota Corp. | 321,786 | ||||||
3,400 | Kurita Water Industries, Ltd. | 107,001 | ||||||
3,161 | MAN AG | 378,686 | ||||||
3,778 | Metso Corp. OYJ | 210,883 | ||||||
11,000 | Minebea Co., Ltd. | 69,299 | ||||||
91,000 | Mitsubishi Heavy Industries, Ltd. | 341,706 | ||||||
21,000 | Mitsui Engineering & Shipbuilding Co., Ltd. | 55,588 | ||||||
2,800 | Nabtesco Corp. | 59,694 | ||||||
8,000 | NGK INSULATORS, Ltd. | 130,444 | ||||||
13,000 | NSK, Ltd. | 117,408 | ||||||
15,000 | NTN Corp. | 79,555 | ||||||
29,844 | Sandvik AB | 581,565 | ||||||
9,272 | Scania AB, B Shares | 213,546 | ||||||
1,461 | Schindler Holding AG | 172,700 | ||||||
632 | Schindler Holding AG, Registered Shares | 75,688 | ||||||
25,000 | SembCorp Marine, Ltd. | 104,605 | ||||||
11,432 | SKF AB, B Shares | 329,537 | ||||||
1,600 | SMC Corp. | 273,956 | ||||||
16,000 | Sumitomo Heavy Industries, Ltd. | 102,762 | ||||||
3,400 | THK Co., Ltd. | 78,101 |
12
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
3,248 | Vallourec SA | $ | 341,214 | |||||
40,792 | Volvo AB, B Shares* | 727,541 | ||||||
2,276 | Wartsila Corp. OYJ | 173,705 | ||||||
6,133 | Weir Group plc (The) | 170,218 | ||||||
46,250 | Yangzijiang Shipbuilding Holdings, Ltd. | 68,834 | ||||||
3,905 | Zardoya Otis SA | 55,026 | ||||||
9,363,784 | ||||||||
Marine (0.6%): | ||||||||
39 | A.P. Moller — Maersk A/S, Class B | 353,325 | ||||||
17 | A.P. Moller — Maersk A/S, Class A | 149,834 | ||||||
21,000 | Kawasaki Kisen Kaisha, Ltd. | 92,266 | ||||||
1,611 | Kuehne & Nagel International AG, Registered Shares | 223,887 | ||||||
34,000 | Mitsui O.S.K. Lines, Ltd. | 231,823 | ||||||
27,500 | Neptune Orient Lines, Ltd.* | 46,715 | ||||||
46,000 | Nippon Yusen Kabushiki Kaisha | 203,859 | ||||||
6,000 | Orient Overseas International, Ltd. | 58,187 | ||||||
9,469 | Transocean, Ltd.* | 649,734 | ||||||
2,009,630 | ||||||||
Media (1.5%): | ||||||||
433 | Axel Springer AG | 70,726 | ||||||
33,955 | British Sky Broadcasting Group plc | 389,743 | ||||||
4,777 | Dentsu, Inc. | 148,209 | ||||||
2,888 | Eutelsat Communications | 105,732 | ||||||
63,175 | Fairfax Media, Ltd. | 90,382 | ||||||
12 | Fuji Media Holdings, Inc. | 18,973 | ||||||
4,960 | Gestevision Telecinco SA | 54,555 | ||||||
780 | Hakuhodo DY Holdings, Inc. | 44,698 | ||||||
108,326 | ITV plc* | 118,407 | ||||||
2,057 | JC Decaux SA* | 63,376 | ||||||
77 | Jupiter Telecommunications Co., Ltd. | 81,012 | ||||||
1,572 | Kabel Deutschland Holding AG* | 73,350 | ||||||
3,386 | Lagardere S.C.A. | 139,514 | ||||||
2,040 | M6 Metropole Television | 49,385 | ||||||
20,804 | Mediaset SpA | 125,921 | ||||||
1,460 | Modern Times Group MTG AB, B Shares | 96,743 | ||||||
4,266 | PagesJaunes Groupe SA | 38,797 | ||||||
24,228 | Pearson plc | 382,706 | ||||||
2,230 | ProSiebenSat.1 Media AG | 67,273 | ||||||
3,758 | Publicis Groupe | 196,052 | ||||||
20,216 | Reed Elsevier NV | 250,295 | ||||||
36,391 | Reed Elsevier plc | 307,372 | ||||||
2,608 | Sanoma OYJ | 56,524 | ||||||
9,021 | SES | 214,957 | ||||||
39,000 | Singapore Press Holdings, Ltd. | 120,980 | ||||||
3,634 | Societe Television Francaise 1 | 63,196 | ||||||
3,200 | Toho Co., Ltd. | 51,377 | ||||||
36,595 | Vivendi | 989,391 | ||||||
8,822 | Wolters Kluwer NV | 193,371 | ||||||
37,191 | WPP plc | 459,495 | ||||||
5,062,512 | ||||||||
Metals & Mining (6.7%): | ||||||||
2,671 | Acerinox SA | 46,869 | ||||||
71,456 | Alumina, Ltd. | 181,026 | ||||||
39,043 | Anglo American plc | 2,034,264 | ||||||
11,730 | Antofagasta plc | 295,516 | ||||||
25,408 | ArcelorMittal | 966,529 | ||||||
83,040 | Aviva plc | 510,800 | ||||||
65,315 | BHP Billiton plc | 2,603,679 | ||||||
99,386 | BHP Billiton, Ltd. | 4,619,045 | ||||||
55,960 | BlueScope Steel, Ltd. | 128,641 | ||||||
7,889 | Boliden AB | 160,658 | ||||||
9,000 | Daido Steel Co., Ltd. | 52,845 | ||||||
8,000 | Dowa Holdings Co., Ltd. | 52,462 | ||||||
162 | Eramet | 55,596 | ||||||
7,655 | Eurasian Natural Resource Corp. | 125,285 | ||||||
36,271 | Fortescue Metals Group, Ltd.* | 242,323 | ||||||
5,304 | Fresnillo plc | 138,196 | ||||||
5,000 | Hitachi Metals, Ltd. | 60,018 | ||||||
13,700 | JFE Holdings, Inc. | 476,809 | ||||||
6,475 | Kazakhmys plc | 163,344 | ||||||
73,000 | Kobe Steel, Ltd. | 185,070 | ||||||
4,677 | Lonmin plc* | 143,585 | ||||||
1,400 | Maruichi Steel Tube, Ltd. | 29,737 | ||||||
32,000 | Mitsubishi Materials Corp.* | 101,988 | ||||||
18,000 | Mitsui Mining & Smelting Co., Ltd. | 59,364 | ||||||
22,626 | Newcrest Mining, Ltd. | 935,116 | ||||||
151,000 | Nippon Steel Corp. | 542,710 | ||||||
22,000 | Nisshin Steel Co., Ltd. | 48,997 | ||||||
26,749 | Norsk Hydro ASA | 195,724 | ||||||
39,949 | OneSteel, Ltd. | 105,711 | ||||||
3,532 | Outokumpu OYJ | 65,574 | ||||||
91,088 | OZ Minerals, Ltd. | 159,674 | ||||||
2,683 | Randgold Resources, Ltd. | 220,664 | ||||||
2,378 | Rautaruukki OYJ | 55,691 | ||||||
42,902 | Rio Tinto plc | 3,008,393 | ||||||
12,897 | Rio Tinto, Ltd. | 1,126,110 | ||||||
1,242 | Salzgitter AG | 94,477 | ||||||
4,763 | Sims Metal Management, Ltd. | 104,967 | ||||||
5,102 | SSAB AB, A Shares | 85,790 | ||||||
16,000 | Sumitomo Metal & Mining Co., Ltd. | 279,315 | ||||||
98,000 | Sumitomo Metal Industries, Ltd. | 241,242 | ||||||
9,912 | ThyssenKrupp AG | 411,981 |
13
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
2,700 | Tokyo Steel Manufacturing Co., Ltd. | $ | 29,451 | |||||
3,574 | Vedanta Resources plc | 140,515 | ||||||
3,265 | Voestalpine AG | 155,668 | ||||||
60,886 | Xstrata plc | 1,433,172 | ||||||
1,200 | YAMATO KOGYO Co., Ltd. | 36,252 | ||||||
22,910,843 | ||||||||
Multi-Utilities (1.0%): | ||||||||
32,718 | A2A SpA | 45,008 | ||||||
13,637 | AGL Energy, Ltd. | 212,297 | ||||||
152,700 | Centrica plc | 789,981 | ||||||
103,459 | National Grid plc | 901,914 | ||||||
12,393 | RWE AG | 828,662 | ||||||
8,185 | Suez Environnement SA | 169,190 | ||||||
20,469 | United Utilities Group plc | 189,076 | ||||||
10,477 | Veolia Environnement | 306,711 | ||||||
3,442,839 | ||||||||
Multiline Retail (0.4%): | ||||||||
17,331 | Harvey Norman Holdings, Ltd. | 52,078 | ||||||
11,100 | Isetan Mitsukoshi Holdings, Ltd. | 128,980 | ||||||
14,000 | J. FRONT RETAILING Co., Ltd. | 76,511 | ||||||
17,366 | Lifestyle International Holdings, Ltd. | 42,676 | ||||||
46,322 | Marks & Spencer plc | 266,652 | ||||||
6,200 | MARUI GROUP Co., Ltd. | 50,554 | ||||||
5,333 | Next plc | 164,336 | ||||||
2,240 | Pinault Printemps Redoute | 356,329 | ||||||
8,000 | Takashimaya Co., Ltd. | 68,535 | ||||||
1,206,651 | ||||||||
Office Electronics (0.7%): | ||||||||
6,900 | Brother Industries, Ltd. | 102,261 | ||||||
33,600 | Canon, Inc. | 1,722,918 | ||||||
14,000 | Konica Minolta Holdings, Inc. | 145,357 | ||||||
901 | Neopost SA | 78,568 | ||||||
20,000 | Ricoh Co., Ltd. | 292,852 | ||||||
2,341,956 | ||||||||
Oil, Gas & Consumable Fuels (6.7%): | ||||||||
100,089 | BG Group plc | 2,024,880 | ||||||
556,090 | BP plc | 4,074,015 | ||||||
42,167 | Cairn Energy plc* | 276,475 | ||||||
4,141 | Caltex Australia, Ltd. | 60,804 | ||||||
19,000 | Cosmo Oil Co., Ltd. | 62,209 | ||||||
123 | Delek Group, Ltd. | 31,696 | ||||||
77,049 | Eni SpA | 1,683,342 | ||||||
9,486 | Essar Energy, Ltd.* | 85,837 | ||||||
6,654 | Galp Energia SGPS SA, B Shares | 127,641 | ||||||
600 | Idemitsu Kosan Co., Ltd. | 63,676 | ||||||
63 | INPEX Corp. | 368,601 | ||||||
65 | Israel Corp., Ltd. (The)* | 78,951 | ||||||
800 | Japan Petroleum Exploration Co., Ltd. | 30,426 | ||||||
65,770 | JX Holdings, Inc. | 445,511 | ||||||
4,967 | Macarthur Coal, Ltd. | 64,977 | ||||||
78,794 | Mongolia Energy Corp., Ltd.* | 23,509 | ||||||
3,689 | Neste Oil OYJ | 58,931 | ||||||
4,520 | OMV AG | 187,940 | ||||||
26,155 | Origin Energy, Ltd. | 445,323 | ||||||
2,957 | Orion OYJ, Class B | 64,637 | ||||||
21,681 | Repsol YPF SA | 604,615 | ||||||
104,930 | Royal Dutch Shell plc, A Shares | 3,502,054 | ||||||
79,780 | Royal Dutch Shell plc, B Shares | 2,639,227 | ||||||
24,913 | Santos, Ltd. | 334,784 | ||||||
6,100 | Showa Shell Sekiyu K.K | 55,863 | ||||||
33,031 | Statoil ASA | 785,562 | ||||||
8,000 | TonenGeneral Sekiyu K.K | 87,492 | ||||||
62,549 | Total SA | 3,321,031 | ||||||
26,265 | Tullow Oil plc | 516,895 | ||||||
18,472 | Woodside Petroleum, Ltd. | 803,405 | ||||||
22,910,309 | ||||||||
Paper & Forest Products (0.2%): | ||||||||
1,409 | Holmen AB, B Shares | 46,444 | ||||||
3,067 | Nippon Paper Group, Inc. | 80,444 | ||||||
25,000 | Oji Paper Co., Ltd. | 120,994 | ||||||
17,137 | Stora Enso OYJ, R Shares | 176,133 | ||||||
15,251 | UPM-Kymmene OYJ | 269,584 | ||||||
693,599 | ||||||||
Personal Products (0.3%): | ||||||||
2,908 | Beiersdorf AG | 162,010 | ||||||
7,094 | L’Oreal SA | 788,503 | ||||||
9,900 | Shiseido Co., Ltd. | 216,209 | ||||||
1,166,722 | ||||||||
Pharmaceuticals (6.6%): | ||||||||
13,200 | Astellas Pharma, Inc. | 502,965 | ||||||
42,415 | AstraZeneca plc | 1,941,242 | ||||||
24,473 | Bayer AG | 1,800,035 | ||||||
6,500 | Chugai Pharmaceutical Co., Ltd. | 119,241 | ||||||
20,100 | Daiichi Sankyo Co., Ltd. | 439,843 | ||||||
5,100 | Dainippon Sumitomo Pharma Co., Ltd. | 46,256 | ||||||
7,400 | Eisai Co., Ltd. | 267,892 | ||||||
14,635 | Elan Corp. plc* | 82,872 | ||||||
153,675 | GlaxoSmithKline plc | 2,984,676 | ||||||
2,000 | Hisamitsu Pharmaceutical Co., Inc. | 84,238 | ||||||
8,000 | Kyowa Hakko Kogyo Co., Ltd. | 82,335 | ||||||
1,878 | Merck KGaA | 151,313 | ||||||
1,600 | Miraca Holdings, Inc. | 64,433 | ||||||
7,000 | Mitsubishi Tanabe Pharma Corp. | 118,226 | ||||||
62,446 | Novartis AG, Registered Shares | 3,675,788 |
14
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
12,390 | Novo Nordisk A/S, B Shares | $ | 1,394,818 | |||||
2,500 | Ono Pharmaceutical Co., Ltd. | 116,701 | ||||||
7,400 | Otsuka Holdings Co., Ltd.* | 182,333 | ||||||
20,792 | Roche Holding AG | 3,048,929 | ||||||
31,035 | Sanofi-Aventis | 1,992,584 | ||||||
2,200 | Santen Pharmaceutical Co., Ltd. | 76,428 | ||||||
9,000 | Shionogi & Co., Ltd. | 177,246 | ||||||
16,748 | Shire plc | 403,176 | ||||||
4,000 | Taisho Pharmacuetical Co., Ltd. | 87,539 | ||||||
22,200 | Takeda Pharmacuetical Co., Ltd. | 1,092,116 | ||||||
27,697 | Teva Pharmaceutical Industries, Ltd. | 1,437,020 | ||||||
1,800 | Tsumura & Co. | 58,278 | ||||||
2,915 | UCB SA | 100,071 | ||||||
22,528,594 | ||||||||
Professional Services (0.4%): | ||||||||
3,661 | Adecco SA, Registered Shares | 239,602 | ||||||
1,434 | Bureau Veritas SA | 108,806 | ||||||
18,558 | Capita Group plc | 201,595 | ||||||
29,835 | Experian plc | 371,367 | ||||||
4,726 | Intertek Group plc | 130,847 | ||||||
3,191 | Randstad Holding NV* | 168,467 | ||||||
161 | SGS SA, Registered Shares | 270,032 | ||||||
1,490,716 | ||||||||
Real Estate Investment Trusts (REITs) (1.3%): | ||||||||
43,000 | Ascendas Real Estate Investment Trust | 69,364 | ||||||
26,287 | British Land Co. plc | 215,157 | ||||||
64,000 | CapitaMall Trust | 97,261 | ||||||
38,606 | CapitaMalls Asia, Ltd. | 58,364 | ||||||
65,425 | CFS Retail Property Trust | 117,720 | ||||||
1,732 | Corio NV | 111,251 | ||||||
149,876 | Dexus Property Group | 121,786 | ||||||
824 | Fonciere des Regions SA | 79,782 | ||||||
521 | Gecina SA | 57,347 | ||||||
182,584 | Goodman Group | 121,284 | ||||||
52,511 | GPT Group | 157,717 | ||||||
20,376 | Hammerson plc | 132,635 | ||||||
679 | Icade | 69,309 | ||||||
22 | Japan Prime Realty Investment Corp. | 67,754 | ||||||
15 | Japan Real Estate Investment Corp. | 155,589 | ||||||
47 | Japan Retail Fund Investment Corp. | 90,150 | ||||||
2,712 | Klepierre | 97,929 | ||||||
22,298 | Land Securities Group plc | 234,527 | ||||||
15,377 | Liberty International plc | 100,195 | ||||||
66,000 | Link REIT (The) | 205,030 | ||||||
100,277 | Mirvac Group | 125,541 | ||||||
16 | Nippon Building Fund, Inc. | 164,127 | ||||||
9 | Nomura Real Estate Office Fund, Inc. | 64,953 | ||||||
22,447 | SEGRO plc | 100,311 | ||||||
70,783 | Stockland | 260,341 | ||||||
2,707 | Unibail-Rodamco | 536,175 | ||||||
64,886 | Westfield Group | 635,390 | ||||||
85,419 | Westfield Retail Trust* | 224,488 | ||||||
4,471,477 | ||||||||
Real Estate Management & Development (1.9%): | ||||||||
2,300 | AEON Mall Co., Ltd. | 61,730 | ||||||
74,000 | Capitaland, Ltd. | 214,808 | ||||||
41,000 | Cheung Kong Holdings, Ltd. | 631,068 | ||||||
16,000 | City Developments, Ltd. | 156,596 | ||||||
2,300 | Daito Trust Construction Co., Ltd. | 157,454 | ||||||
14,000 | Daiwa House Industry Co., Ltd. | 171,616 | ||||||
25,000 | Hang Lung Group, Ltd. | 164,311 | ||||||
73,000 | Hang Lung Properties, Ltd. | 341,360 | ||||||
32,000 | Henderson Land Development Co., Ltd. | 217,894 | ||||||
15,500 | Hopewell Holdings, Ltd. | 48,627 | ||||||
19,000 | Hysan Development Co., Ltd. | 89,440 | ||||||
7,136 | Immoeast AG*+ | — | ||||||
28,967 | Immofinanz Immobilien Anlagen AG* | 123,496 | ||||||
23,000 | Keppel Land, Ltd. | 86,035 | ||||||
4,096 | Kerry Group plc, Class A | 136,683 | ||||||
21,000 | Kerry Properties, Ltd. | 109,232 | ||||||
15,627 | Lend Lease Group | 137,816 | ||||||
35,000 | Mitsubishi Estate Co., Ltd. | 648,838 | ||||||
25,000 | Mitsui Fudosan Co., Ltd. | 498,118 | ||||||
76,000 | New World Development Co., Ltd. | 142,437 | ||||||
2,700 | Nomura Real Estate Holdings, Inc. | 49,138 | ||||||
38 | NTT Urban Development Corp. | 37,422 | ||||||
78,000 | Sino Land Co., Ltd. | 145,608 | ||||||
11,000 | Sumitomo Realty & Development Co., Ltd. | 262,498 | ||||||
42,000 | Sun Hung Kai Properties, Ltd. | 696,216 | ||||||
22,500 | Swire Pacific, Ltd., Class A | 369,267 | ||||||
12,000 | Tokyo Tatemono Co., Ltd. | 55,532 | ||||||
14,000 | Tokyu Land Corp. | 70,297 | ||||||
13,000 | UOL Group, Ltd. | 48,126 | ||||||
41,000 | Wharf Holdings, Ltd. (The) | 315,057 | ||||||
28,000 | Wheelock & Co., Ltd. | 113,128 | ||||||
6,299,848 | ||||||||
Road & Rail (0.9%): | ||||||||
88,740 | Asciano Group* | 144,349 | ||||||
44 | Central Japan Railway Co. | 368,471 | ||||||
54,000 | ComfortDelGro Corp., Ltd. | 65,230 |
15
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
6,227 | DSV A/S | $ | 137,574 | |||||
10,013 | East Japan Railway Co. | 651,073 | ||||||
13,599 | FirstGroup plc | 84,499 | ||||||
14,000 | Keihin Electric Express Railway Co., Ltd. | 123,634 | ||||||
17,000 | Keio Corp. | 116,032 | ||||||
8,000 | Keisei Electric Railway Co., Ltd. | 53,388 | ||||||
49,000 | Kintetsu Corp. | 153,272 | ||||||
42,500 | MTR Corp., Ltd. | 154,541 | ||||||
25,000 | Nippon Express Co., Ltd. | 112,624 | ||||||
19,000 | Odakyu Electric Railway Co., Ltd. | 176,889 | ||||||
49,701 | QR National, Ltd.* | 139,767 | ||||||
25,000 | Tobu Railway Co., Ltd. | 140,376 | ||||||
34,000 | Tokyu Corp. | 155,753 | ||||||
49 | West Japan Railway Co. | 183,211 | ||||||
2,960,683 | ||||||||
Semiconductors & Semiconductor Equipment (0.6%): | ||||||||
4,800 | Advantest Corp. | 108,484 | ||||||
38,867 | ARM Holdings plc | 264,577 | ||||||
5,500 | ASM Pacific Technology, Ltd. | 69,507 | ||||||
12,624 | ASML Holding NV | 488,956 | ||||||
5,100 | Elpida Memory, Inc.* | 59,292 | ||||||
32,360 | Infineon Technologies AG* | 302,753 | ||||||
2,900 | ROHM Co., Ltd. | 189,328 | ||||||
1,900 | SHINKO ELECTRIC INDUSTRIES Co., Ltd. | 21,295 | ||||||
19,317 | STMicroelectronics NV | 200,186 | ||||||
3,300 | SUMCO Corp.* | 47,114 | ||||||
5,100 | Tokyo Electron, Ltd. | 322,504 | ||||||
2,073,996 | ||||||||
Software (0.9%): | ||||||||
5,862 | Amadeus IT Holding SA, A Shares* | 123,637 | ||||||
6,448 | Autonomy Corp. plc* | 151,431 | ||||||
1,810 | Dassault Systemes SA | 136,300 | ||||||
2,900 | Konami Corp. | 61,537 | ||||||
2,900 | Nintendo Co., Ltd. | 851,021 | ||||||
1,100 | Oracle Corp. | 54,065 | ||||||
38,758 | Sage Group plc (The) | 165,335 | ||||||
25,400 | SAP AG | 1,287,234 | ||||||
2,100 | Square Enix Holdings Co., Ltd. | 37,243 | ||||||
2,900 | Trend Micro, Inc. | 95,661 | ||||||
2,963,464 | ||||||||
Specialty Retail (0.8%): | ||||||||
700 | ABC-Mart, Inc. | 24,992 | ||||||
34,272 | Esprit Holdings, Ltd. | 163,093 | ||||||
1,600 | Fast Retailing Co., Ltd. | 254,586 | ||||||
30,261 | Hennes & Mauritz AB, B Shares | 1,008,986 | ||||||
6,458 | Industria de Diseno Textil SA | 483,886 | ||||||
70,202 | Kingfisher plc | 288,604 | ||||||
1,050 | Nitori Co., Ltd. | 91,839 | ||||||
700 | Shimamura Co., Ltd. | 64,909 | ||||||
610 | USS Co., Ltd. | 49,877 | ||||||
2,370 | Yamada Denki Co., Ltd. | 161,650 | ||||||
2,592,422 | ||||||||
Textiles, Apparel & Luxury Goods (1.2%): | ||||||||
6,221 | Adidas AG | 409,603 | ||||||
5,000 | ASICS Corp. | 64,248 | ||||||
5,902 | Billabong International, Ltd. | 49,161 | ||||||
12,630 | Burberry Group plc | 221,478 | ||||||
1,871 | Christian Dior SA | 267,165 | ||||||
15,453 | Cie Financiere Richemont, Class A | 909,409 | ||||||
347 | Hermes International | 72,852 | ||||||
3,483 | Luxottica Group SpA | 105,994 | ||||||
7,248 | LVMH Moet Hennessy Louis Vuitton SA | 1,191,659 | ||||||
4,000 | Nisshinbo Holdings, Inc. | 43,813 | ||||||
150 | Puma AG | 49,482 | ||||||
920 | Swatch Group AG (The) | 410,278 | ||||||
1,347 | Swatch Group AG (The), Registered Shares | 108,663 | ||||||
22,000 | Yue Yuen Industrial Holdings, Ltd. | 79,014 | ||||||
3,982,819 | ||||||||
Tobacco (1.1%): | ||||||||
59,093 | British American Tobacco plc | 2,274,706 | ||||||
30,135 | Imperial Tobacco Group plc | 924,290 | ||||||
133 | Japan Tobacco, Inc. | 491,692 | ||||||
6,807 | Swedish Match AB, Class B | 197,285 | ||||||
3,887,973 | ||||||||
Trading Companies & Distributors (1.2%): | ||||||||
9,617 | Bunzl plc | 107,807 | ||||||
45,000 | Itochu Corp. | 455,210 | ||||||
49,000 | Marubeni Corp. | 344,339 | ||||||
40,200 | Mitsubishi Corp. | 1,087,381 | ||||||
51,400 | Mitsui & Co., Ltd. | 848,257 | ||||||
86,090 | Noble Group, Ltd. | 145,565 | ||||||
19,472 | Paladin Energy, Ltd.* | 98,064 | ||||||
37,500 | Sojitz Corp. | 82,155 | ||||||
33,500 | Sumitomo Corp. | 473,702 | ||||||
6,200 | Toyota Tsusho Corp. | 109,124 | ||||||
8,392 | Wolseley plc* | 267,781 | ||||||
4,019,385 | ||||||||
Transportation Infrastructure (0.3%): | ||||||||
8,667 | Abertis Infraestructuras SA | 155,888 | ||||||
848 | Aeroports de Paris | 66,929 | ||||||
6,937 | Atlantia SpA | 141,614 |
16
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Transportation Infrastructure, continued | ||||||||
29,358 | Auckland International Airport, Ltd. | $ | 49,809 | |||||
5,758 | Brisa Auto-Estradas de Portugal SA | 40,194 | ||||||
12,755 | Ferrovial SA | 126,828 | ||||||
1,014 | Fraport AG | 63,750 | ||||||
13,754 | Groupe Eurotunnel SA | 121,059 | ||||||
7,000 | Kamigumi Co., Ltd. | 58,772 | ||||||
2,024 | Koninklijke Vopak NV | 95,722 | ||||||
4,000 | Mitsubishi Logistics Corp. | 53,261 | ||||||
37,482 | Transurban Group | 196,145 | ||||||
1,169,971 | ||||||||
Water Utilities (0.0%): | ||||||||
6,887 | Severn Trent plc | 158,800 | ||||||
Wireless Telecommunication Services (2.0%): | ||||||||
1,446 | Cellcom Israel, Ltd. | 47,104 | ||||||
86 | KDDI Corp. | 496,605 | ||||||
2,293 | Millicom International Cellular SA, SDR | 220,131 | ||||||
730 | Mobistar SA | 47,357 | ||||||
1,753 | NICE Systems, Ltd.* | 60,888 | ||||||
454 | NTT DoCoMo, Inc. | 792,898 | ||||||
2,492 | Partner Communications Co., Ltd. | 50,491 | ||||||
24,000 | SOFTBANK Corp. | 830,573 | ||||||
20,202 | StarHub, Ltd. | 41,401 | ||||||
1,560,991 | Vodafone Group plc | 4,063,835 | ||||||
6,651,283 | ||||||||
Total Common Stocks (Cost $285,090,842) | 327,016,558 | |||||||
Preferred Stock (0.0%): | ||||||||
Multi-Utilities (0.0%): | ||||||||
1,098 | RWE AG | 69,688 | ||||||
Total Preferred Stock (Cost $81,181) | 69,688 | |||||||
Investment Company (1.4%): | ||||||||
4,888,946 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 4,888,946 | ||||||
Total Investment Company (Cost $4,888,946) | 4,888,946 | |||||||
Total Investment Securities (Cost $290,060,969)(b) — 97.4% | 331,975,192 | |||||||
Net other assets (liabilities) — 2.6% | 8,805,377 | |||||||
Net Assets — 100.0% | $ | 340,780,569 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
+ | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2010. The total of such securities represent 0.00% of the net assets of the Fund. | |
* | Non-income producing security |
plc—Public Limited Company
SDR—Swedish Depositary Receipt
SP ADR—Sponsored American Depositary Receipt
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $1,120,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2010:
Unrealized | ||||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||||
SPI 200 Index March Futures (Australia Dollar) | Long | 3/17/11 | 8 | $ | 967,379 | $ | (9,777 | ) | ||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Long | 3/18/11 | 73 | 2,725,125 | (55,273 | ) | ||||||||||||||
FTSE 100 Index March Futures (British Pounds) | Long | 3/18/11 | 26 | 2,388,508 | 671 | |||||||||||||||
TOPIX Index March Futures (Japanese Yen) | Long | 3/10/11 | 19 | 2,097,327 | 1,179 | |||||||||||||||
MSCI EAFE Index E-Mini March Futures(U.S. Dollar) | Long | 3/18/11 | 59 | 4,899,950 | 63,815 | |||||||||||||||
Total | $ | 615 | ||||||||||||||||||
17
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Australia | 8 | .6% | |||
Austria | 0 | .3 | |||
Belgium | 0 | .9 | |||
Bermuda | 0 | .1 | |||
Cayman Islands | 0 | .0 | |||
Cyprus | 0 | .0 | |||
Denmark | 1 | .0 | |||
Finland | 1 | .1 | |||
France | 8 | .9 | |||
Germany | 8 | .0 | |||
Greece | 0 | .2 | |||
Guernsey | 0 | .0 | |||
Hong Kong | 2 | .9 | |||
Ireland (Republic of) | 0 | .4 | |||
Israel | 0 | .8 | |||
Italy | 2 | .4 | |||
Japan | 22 | .1 | |||
Jersey | 0 | .1 | |||
Kazakhstan | 0 | .0 | |||
Luxembourg | 0 | .2 | |||
Netherlands | 2 | .9 | |||
New Zealand | 0 | .1 | |||
Norway | 0 | .7 | |||
Portugal | 0 | .3 | |||
Singapore | 1 | .5 | |||
Spain | 3 | .2 | |||
Sweden | 3 | .1 | |||
Switzerland | 7 | .9 | |||
United Kingdom | 20 | .8 | |||
United States | 1 | .5 | |||
100 | .0% | ||||
18
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
International | ||||
Index Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 290,060,969 | ||
Investment securities, at value | $ | 331,975,192 | ||
Segregated cash for collateral | 1,120,000 | |||
Dividends receivable | 322,963 | |||
Foreign currency, at value (cost $7,136,550) | 7,266,691 | |||
Receivable for capital shares issued | 486,219 | |||
Reclaims receivable | 318,563 | |||
Receivable for variation margin on futures contracts | 35,990 | |||
Prepaid expenses | 4,865 | |||
Total Assets | 341,530,483 | |||
Liabilities: | ||||
Payable for investments purchased | 188,033 | |||
Payable for capital shares redeemed | 269,877 | |||
Payable for variation margin on futures contracts | 32,174 | |||
Manager fees payable | 77,021 | |||
Administration fees payable | 21,831 | |||
Distribution fees payable | 69,944 | |||
Custodian fees payable | 41,831 | |||
Administrative and compliance services fees payable | 2,737 | |||
Trustee fees payable | 484 | |||
Other accrued liabilities | 45,982 | |||
Total Liabilities | 749,914 | |||
Net Assets | $ | 340,780,569 | ||
Net Assets Consist of: | ||||
Capital | $ | 396,289,346 | ||
Accumulated net investment income/(loss) | 4,283,192 | |||
Accumulated net realized gains/(losses) from investment transactions | (101,864,895 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 42,072,926 | |||
Net Assets | $ | 340,780,569 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 24,363,491 | |||
Net Asset Value (offering and redemption price per share) | $ | 13.99 | ||
19
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
International | ||||
Index Fund | ||||
Investment Income: | ||||
Interest | $ | 192 | ||
Dividends | 7,218,270 | |||
Foreign withholding tax | (547,430 | ) | ||
Total Investment Income | 6,671,032 | |||
Expenses: | ||||
Manager fees | 843,772 | |||
Administration fees | 219,344 | |||
Distribution fees | 602,696 | |||
Custodian fees | 246,929 | |||
Administrative and compliance services fees | 9,061 | |||
Trustees’ fees | 18,757 | |||
Professional fees | 26,289 | |||
Shareholder reports | 22,253 | |||
Other expenses | 8,236 | |||
Total expenses before reductions | 1,997,337 | |||
Less expenses contractually waived/reimbursed by the Manager | (309,793 | ) | ||
Net expenses | 1,687,544 | |||
Net Investment Income/(Loss) | 4,983,488 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 1,172,419 | |||
Net realized gains/(losses) on forward foreign currency contracts | (1,329,858 | ) | ||
Net realized gains/(losses) on futures transactions | (125,882 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 20,027,931 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 19,744,610 | |||
Change in Net Assets Resulting From Operations | $ | 24,728,098 | ||
20
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Statements of Changes in Net Assets
AZL International Index Fund | ||||||||
For the | ||||||||
Year Ended | May 1, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 4,983,488 | $ | 1,196,291 | ||||
Net realized gains/(losses) on investment transactions | (283,321 | ) | 5,596,731 | |||||
Change in unrealized appreciation/(depreciation) on investments | 20,027,931 | 15,529,592 | ||||||
Change in net assets resulting from operations | 24,728,098 | 22,322,614 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (1,545,801 | ) | — | |||||
From net realized gains on investments | (3,740,521 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (5,286,322 | ) | — | |||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 190,528,504 | 122,945,589 | ||||||
Proceeds from shares issued in merger | — | 43,570,084 | ||||||
Proceeds from dividends reinvested | 5,286,322 | — | ||||||
Value of shares redeemed | (35,659,803 | ) | (27,654,517 | ) | ||||
Change in net assets resulting from capital transactions | 160,155,023 | 138,861,156 | ||||||
Change in net assets | 179,596,799 | 161,183,770 | ||||||
Net Assets: | ||||||||
Beginning of period | 161,183,770 | — | ||||||
End of period | $ | 340,780,569 | $ | 161,183,770 | ||||
Accumulated net investment income/(loss) | $ | 4,283,192 | $ | 1,315,050 | ||||
Share Transactions: | ||||||||
Shares issued | 14,612,678 | 11,000,309 | ||||||
Shares issued in merger | — | 3,259,540 | ||||||
Dividends reinvested | 408,842 | — | ||||||
Shares redeemed | (2,771,126 | ) | (2,146,752 | ) | ||||
Change in shares | 12,250,394 | 12,113,097 | ||||||
(a) | Period from commencement of operations. |
21
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended | May 1, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Net Asset Value, Beginning of Period | $ | 13.31 | $ | 10.00 | ||||
Investment Activities: | ||||||||
Net Investment Income/(Loss) | 0.15 | 0.10 | ||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.77 | 3.21 | ||||||
Total from Investment Activities | 0.92 | 3.31 | ||||||
Dividends to Shareholders From: | ||||||||
Net Investment Income | (0.07 | ) | — | |||||
Net Realized Gains | (0.17 | ) | — | |||||
Total Dividends | (0.24 | ) | — | |||||
Net Asset Value, End of Period | $ | 13.99 | $ | 13.31 | ||||
Total Return(b) (c) | 7.12 | % | 33.10 | % | ||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||
Net Assets, End of Period ($000’s) | $ | 340,781 | $ | 161,184 | ||||
Net Investment Income/(Loss)(d) | 2.07 | % | 1.79 | % | ||||
Expenses Before Reductions(d) (e) | 0.83 | % | 0.91 | % | ||||
Expenses Net of Reductions(d) | 0.70 | % | 0.70 | % | ||||
Portfolio Turnover Rate(c)(f) | 2.94 | % | 22.90 | %(g) |
(a) | Period from commencement of operations. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(f) | The portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. | |
(g) | Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after a fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 41.93%. |
22
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL International Index Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. The monthly average amount for these contracts was $0.7 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $13.0 million as of December 31, 2010. The monthly average notional amount for these contracts was $9.1 million for the year ended December 31, 2010.
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 65,665 | Payable for variation margin on futures contracts | $ | (65,050 | ) |
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | (1,329,858 | ) | $ | 8,608 | ||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | (125,882 | ) | (44,955 | ) |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and BlackRock Investment Management, LLC (“BlackRock Investment”), BlackRock Investment provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.70% through April 30, 2011 and 0.77% effective May 1, 2011 through April 30, 2012.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL International Index Fund | 0.35 | % | 0.70 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | |||||||
12/31/2012 | 12/31/2013 | |||||||
AZL International Index Fund | $ | 138,328 | $ | 309,793 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $6,482 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Airlines | $ | 43,064 | $ | 824,646 | $ | — | $ | 867,710 | ||||||||
Energy Equipment & Services | 91,579 | 2,280,630 | — | 2,372,209 | ||||||||||||
Insurance | 651,064 | 12,705,984 | — | 13,357,048 | ||||||||||||
Internet & Catalog Retail | 6,756 | 340,902 | — | 347,658 | ||||||||||||
Pharmaceuticals | 182,333 | 22,346,261 | — | 22,528,594 | ||||||||||||
Real Estate Investment Trusts (REITS) | 224,488 | 4,246,989 | — | 4,471,477 | ||||||||||||
Road & Rail | 139,767 | 2,820,916 | — | 2,960,683 | ||||||||||||
All Other Common Stocks+ | — | 280,111,179 | — | 280,111,179 | ||||||||||||
Preferred Stock | — | 69,688 | — | 69,688 | ||||||||||||
Investment Company | 4,888,946 | — | — | 4,888,946 | ||||||||||||
Total Investment Securities | 6,227,997 | 325,747,195 | — | 331,975,192 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 615 | — | — | 615 | ||||||||||||
Total Investments | $ | 6,228,612 | $ | 325,747,195 | $ | — | $ | 331,975,807 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. | |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The following is a reconciliation of Level 3 investments based on the inputs used to determine fair value:
Change in | ||||||||||||||||||||||||
Balance as of | Net Realized | unrealized | Net | Transfers | Balance as of | |||||||||||||||||||
December 31, | gains/ | appreciation/ | purchases/ | in/(out) of | December 31, | |||||||||||||||||||
2009 | (losses) | (depreciation) | (sales) | Level 3 | 2010 | |||||||||||||||||||
Investment Securities: | ||||||||||||||||||||||||
Rights: | ||||||||||||||||||||||||
Oil, Gas & Consumable Fuels | $ | 2,995 | $ | — | $ | (2,995 | ) | $ | — | $ | — | $ | — | |||||||||||
Total Investment Securities | $ | 2,995 | $ | — | $ | (2,995 | ) | $ | — | $ | — | $ | — | |||||||||||
There is no net change in unrealized appreciation/(depreciation) attributable to Level 3 investments held at December 31, 2010.
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
29
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL International Index Fund | $ | 156,648,030 | $ | 6,663,087 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $291,819,744. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 48,857,024 | ||
Unrealized depreciation | (8,701,576 | ) | ||
Net unrealized appreciation | $ | 40,155,448 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | Expires | ||||||||||
12/31/2014 | 12/31/2015 | 12/31/2016 | ||||||||||
AZL International Index Fund | $ | 1,327,470 | $ | 43,305,012 | $ | 55,890,176 |
During the year ended December 31, 2010, the Fund utilized $400,161 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $71,300 of deferred post October capital and currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL International Index Fund | $ | 5,286,322 | $ | — | $ | 5,286,322 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
30
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL International Index Fund
AZL International Index Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||||||
Ordinary | Accumulated | Capital and | Unrealized | Accumulated | ||||||||||||||||
Income | Earnings | Other Losses | Appreciation(a) | Earnings (Deficit) | ||||||||||||||||
AZL International Index Fund | $ | 4,835,517 | $ | 4,835,517 | $ | (100,593,958 | ) | $ | 40,249,663 | $ | (55,508,778 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
7. Acquisitions of Funds
On October 23, 2009, the Fund acquired all of the net assets of the AZL NACM International Fund and AZL Schroder International Small Cap Fund (the “Acquired Funds”), open-end investment companies, pursuant to a plan of reorganization approved by the Acquired Funds shareholders on October��21, 2009. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 3,259,540 shares of the Fund, valued at $43,570,084, for 2,566,743 shares of the AZL NACM International Fund and 4,218,702 shares of the AZL Schroder International Small Cap Fund outstanding on October 23, 2009.
31
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL International Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
32
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $3,740,515.
33
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
34
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
35
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
36
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
37
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
38
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
39
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
40
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Invesco International Equity Fund
(formerly AZL® AIM International Fund)
(formerly AZL® AIM International Fund)
Annual Report
December 31, 2010
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 5
Statement of Assets and Liabilities
Page 8
Statement of Operations
Page 9
Statements of Changes in Net Assets
Page 10
Financial Highlights
Page 11
Notes to the Financial Statements
Page 12
Report of Independent Registered Public Accounting Firm
Page 20
Other Federal Income Tax Information
Page 21
Other Information
Page 22
Approval of Investment Advisory and Subadvisory Agreements
Page 23
Information about the Board of Trustees and Officers
Page 27
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Invesco International Equity Fund (formerly AZL® AIM International Equity Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Invesco International Equity Fund and Invesco Advisers, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Invesco International Equity Fund returned 12.52%, compared to a 8.21% return for its benchmark, the MSCI EAFE Index1.
Global equity markets faced headwinds in early 2010, as several southern European economies confronted solvency concerns amid massive fiscal deficits. But equity markets shrugged off some of the macroeconomic burdens that pulled them into double-digit losses in the first half of 2010, ending the year with strong positive gains, which benefited the Fund’s absolute return.
An underweight position in the financials sector, driven by the portfolio’s lack of exposure to large commercial banking and capital market stocks, contributed positively to the Fund’s relative return. In the healthcare sector, stock selection in the pharmaceuticals industry led to outperformance versus the benchmark. In the consumer discretionary sector, particular strength was seen in the media, specialty retail and automobile industries.*
While the materials sector delivered double-digit gains, the Fund’s underweight exposure dragged on performance relative to the benchmark index. Stock selection in Sweden and the Netherlands also weighed on relative performance. An underweight position in Japan detracted from relative performance as well.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Invesco International Equity Fund Review
Fund Objective
The Fund’s investment objective is to seek to provide long-term growth of capital. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in a diversified portfolio of international equity securities whose issuers are considered by the Fund’s subadviser to have strong earnings growth.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
The value of convertible securities may be affected by interest rates, default by the issuer on principal or interest payments, and the value of underlying stock into which the securities may be converted.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/1/02) | |||||||||||||
AZL® Invesco International Equity Fund | 12.52 | % | -4.02 | % | 5.18 | % | 7.67 | % | ||||||||
MSCI EAFE Index (gross of withholding taxes) | 8.21 | % | -6.55 | % | 2.94 | % | 7.26 | % | ||||||||
MSCI EAFE Index (net of withholding taxes) | 7.75 | % | -7.02 | % | 2.46 | % | 6.79 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio2 | Gross | |||
AZL® Invesco International Equity Fund | 1.34 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.80% on the first $200 million of assets and 0.75% on assets above $200 million. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 0.85% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.45% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the MSCI EAFE Index is calculated from 4/30/02. | |
2 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and expenses the Fund’s gross ratio would be 1.32%. | |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted. | ||
The Fund’s performance is measured against the Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index, which is an unmanaged free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The index noted as “gross of withholding taxes” does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The index noted as “net of withholding taxes” reflects the reinvestment of dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index. |
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Invesco International Equity Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Invesco International Equity Fund | $ | 1,000.00 | $ | 1,234.00 | $ | 6.48 | 1.15 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Invesco International Equity Fund | $ | 1,000.00 | $ | 1,019.41 | $ | 5.85 | 1.15 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Invesco International Equity Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Air Freight & Logistics | 0.9 | % | ||
Auto Components | 2.9 | |||
Automobiles | 2.3 | |||
Beverages | 2.2 | |||
Biotechnology | 1.0 | |||
Capital Markets | 0.9 | |||
Chemicals | 1.0 | |||
Commercial Banks | 5.9 | |||
Communications Equipment | 0.5 | |||
Distributors | 0.6 | |||
Diversified Financial Services | 0.5 | |||
Diversified Telecommunication Services | 1.4 | |||
Electrical Equipment | 0.5 | |||
Electronic Equipment, Instruments & Components | 4.0 | |||
Energy Equipment & Services | 1.4 | |||
Food & Staples Retailing | 3.0 | |||
Food Products | 3.9 | |||
Health Care Equipment & Supplies | 1.7 | |||
Health Care Providers & Services | 0.9 | |||
Hotels, Restaurants & Leisure | 1.8 | |||
Household Products | 0.9 | |||
Independent Power Producers & Energy Traders | 1.7 | |||
Industrial Conglomerates | 2.7 | |||
Insurance | 2.0 | |||
Internet Software & Services | 0.8 | |||
IT Services | 1.5 | |||
Life Sciences Tools & Services | — | ^ | ||
Machinery | 3.2 | |||
Media | 4.9 | |||
Metals & Mining | 2.0 | |||
Multi-Utilities | 1.3 | |||
Multiline Retail | 0.9 | |||
Office Electronics | 0.9 | |||
Oil, Gas & Consumable Fuels | 8.9 | |||
Pharmaceuticals | 10.0 | |||
Road & Rail | 0.5 | |||
Semiconductors & Semiconductor Equipment | 1.4 | |||
Software | 0.9 | |||
Specialty Retail | 2.0 | |||
Textiles, Apparel & Luxury Goods | 2.2 | |||
Tobacco | 3.0 | |||
Wireless Telecommunication Services | 4.3 | |||
Investment Company | 6.5 | |||
99.8 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
^ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (93.3%): | ||||||||
Air Freight & Logistics (0.9%): | ||||||||
197,350 | TNT NV | $ | 5,216,103 | |||||
Auto Components (2.9%): | ||||||||
35,456 | Compagnie Generale DES Establissements Michelin SCA, Class B | 2,549,837 | ||||||
133,800 | DENSO Corp. | 4,614,809 | ||||||
35,402 | Hyundai Mobis Co., Ltd.* | 8,864,416 | ||||||
16,029,062 | ||||||||
Automobiles (2.3%): | ||||||||
103,234 | Bayerische Motoren Werke AG (BMW) | 8,092,508 | ||||||
122,500 | Toyota Motor Corp. | 4,825,144 | ||||||
12,917,652 | ||||||||
Beverages (2.2%): | ||||||||
154,927 | Anheuser-Busch InBev NV | 8,849,891 | ||||||
62,697 | Fomento Economico Mexicano, SAB de C.V., SP ADR | 3,506,016 | ||||||
12,355,907 | ||||||||
Biotechnology (1.0%): | ||||||||
145,990 | CSL, Ltd. | 5,408,742 | ||||||
31,550 | Marshall Edwards, Inc.* | 30,288 | ||||||
5,439,030 | ||||||||
Capital Markets (0.9%): | ||||||||
110,029 | Julius Baer Group, Ltd. | 5,154,918 | ||||||
Chemicals (1.0%): | ||||||||
19,582 | Syngenta AG | 5,737,582 | ||||||
Commercial Banks (5.9%): | ||||||||
824,848 | Akbank T.A.S | 4,598,795 | ||||||
406,494 | Banco Bradesco SA, SP ADR | 8,247,763 | ||||||
92,244 | BNP Paribas, Inc. | 5,887,973 | ||||||
10,512,000 | Industrial & Commercial Bank of China | 7,819,073 | ||||||
447,000 | United Overseas Bank, Ltd. | 6,340,076 | ||||||
32,893,680 | ||||||||
Communications Equipment (0.5%): | ||||||||
240,481 | Telefonaktiebolaget LM Ericsson, B Shares | 2,786,669 | ||||||
Distributors (0.6%): | ||||||||
598,000 | Li & Fung, Ltd. | 3,466,747 | ||||||
Diversified Financial Services (0.5%): | ||||||||
130,152 | Kinnevik Investment AB, Class B | 2,654,394 | ||||||
Diversified Telecommunication Services (1.4%): | ||||||||
344,428 | Koninklijke KPN NV | 5,029,358 | ||||||
166,645 | VimpelCom, Ltd., SP ADR | 2,506,341 | ||||||
7,535,699 | ||||||||
Electrical Equipment (0.5%): | ||||||||
52,070 | Bharat Heavy Electricals, Ltd. | 2,705,902 | ||||||
Electronic Equipment, Instruments & Components (4.0%): | ||||||||
1,186,080 | Hon Hai Precision Industry Co., Ltd. | 4,779,977 | ||||||
19,369 | Keyence Corp. | 5,601,107 | ||||||
119,400 | Nidec Corp. | 12,042,637 | ||||||
22,423,721 | ||||||||
Energy Equipment & Services (1.4%): | ||||||||
275,311 | WorleyParsons, Ltd. | 7,521,986 | ||||||
Food & Staples Retailing (3.0%): | ||||||||
407,905 | Koninklijke Ahold NV | 5,386,195 | ||||||
1,109,563 | Tesco plc | 7,356,390 | ||||||
134,421 | Woolworths, Ltd. | 3,706,286 | ||||||
16,448,871 | ||||||||
Food Products (3.9%): | ||||||||
80,593 | Danone SA | 5,061,421 | ||||||
193,948 | Nestle SA | 11,364,640 | ||||||
168,142 | Unilever plc | 5,141,123 | ||||||
21,567,184 | ||||||||
Health Care Equipment & Supplies (1.7%): | ||||||||
86,068 | Cochlear, Ltd. | 7,064,677 | ||||||
225,643 | Smith & Nephew plc | 2,370,859 | ||||||
9,435,536 | ||||||||
Health Care Providers & Services (0.9%): | ||||||||
82,709 | Fresenius Medical Care AG & Co. KGaA | 4,817,760 | ||||||
Hotels, Restaurants & Leisure (1.8%): | ||||||||
1,109,286 | Compass Group plc | 10,054,991 | ||||||
Household Products (0.9%): | ||||||||
93,444 | Reckitt Benckiser Group plc | 5,138,471 | ||||||
Independent Power Producers & Energy Traders (1.7%): | ||||||||
1,337,132 | International Power plc | 9,127,740 | ||||||
Industrial Conglomerates (2.7%): | ||||||||
585,000 | Hutchison Whampoa, Ltd. | 6,019,068 | ||||||
1,037,000 | Keppel Corp., Ltd. | 9,147,512 | ||||||
15,166,580 | ||||||||
Insurance (2.0%): | ||||||||
171,405 | AXA SA | 2,859,880 | ||||||
10,382 | Fairfax Financial Holdings, Ltd. | 4,271,765 | ||||||
220,596 | QBE Insurance Group, Ltd. | 4,092,152 | ||||||
11,223,797 | ||||||||
Internet Software & Services (0.8%): | ||||||||
22,361 | NHN Corp.* | 4,462,803 | ||||||
IT Services (1.5%): | ||||||||
108,454 | Infosys Technologies, Ltd. | 8,343,193 | ||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Life Sciences Tools & Services (0.0%): | ||||||||
376,113 | Art Advanced Research Technologies, Inc.*(a) | $ | — | |||||
Machinery (3.2%): | ||||||||
64,800 | Fanuc, Ltd. | 9,943,170 | ||||||
161,100 | Komatsu, Ltd. | 4,871,097 | ||||||
172,513 | Volvo AB, B Shares* | 3,076,833 | ||||||
17,891,100 | ||||||||
Media (4.9%): | ||||||||
89,287 | Eutelsat Communications | 3,268,873 | ||||||
219,892 | Grupo Televisa SA, SP ADR* | 5,701,799 | ||||||
751,855 | Informa plc | 4,779,357 | ||||||
58,387 | Publicis Groupe | 3,045,999 | ||||||
637,927 | Reed Elsevier plc | 5,388,163 | ||||||
414,094 | WPP plc | 5,116,130 | ||||||
27,300,321 | ||||||||
Metals & Mining (2.0%): | ||||||||
236,891 | BHP Billiton, Ltd. | 11,009,701 | ||||||
Multi-Utilities (1.3%): | ||||||||
1,426,208 | Centrica plc | 7,378,367 | ||||||
Multiline Retail (0.9%): | ||||||||
156,057 | Next plc | 4,808,881 | ||||||
Office Electronics (0.9%): | ||||||||
101,450 | Canon, Inc. | 5,202,082 | ||||||
Oil, Gas & Consumable Fuels (8.9%): | ||||||||
347,200 | BG Group plc | 7,024,133 | ||||||
114,502 | Canadian Natural Resources, Ltd. | 5,108,816 | ||||||
144,925 | Cenovus Energy, Inc. | 4,852,217 | ||||||
108,445 | EnCana Corp. | 3,173,707 | ||||||
232,401 | OAO Gazprom, Registered shares | 5,872,491 | ||||||
144,295 | Petroleo Brasileiro SA, SP ADR, Class A | 4,930,560 | ||||||
168,013 | Royal Dutch Shell plc, B Shares | 5,558,091 | ||||||
133,667 | Suncor Energy, Inc. | 5,147,659 | ||||||
145,691 | Talisman Energy, Inc. | 3,242,138 | ||||||
90,383 | Total SA | 4,798,874 | ||||||
49,708,686 | ||||||||
Pharmaceuticals (10.0%): | ||||||||
73,727 | Bayer AG | 5,422,758 | ||||||
135,328 | Novartis AG, Registered Shares | 7,965,874 | ||||||
86,319 | Novo Nordisk A/S, B Shares | 9,717,458 | ||||||
75,789 | Roche Holding AG | 11,113,664 | ||||||
417,230 | Shire plc | 10,044,005 | ||||||
213,236 | Teva Pharmaceutical Industries, Ltd., SP ADR | 11,115,993 | ||||||
55,379,752 | ||||||||
Road & Rail (0.5%): | ||||||||
38,374 | Canadian National Railway Co. | 2,561,484 | ||||||
Semiconductors & Semiconductor Equipment (1.4%): | ||||||||
611,735 | Taiwan Semiconductor Manufacturing Co., Ltd., SP ADR | 7,671,157 | ||||||
Software (0.9%): | ||||||||
99,804 | SAP AG | 5,057,915 | ||||||
Specialty Retail (2.0%): | ||||||||
1,250,083 | Kingfisher plc | 5,139,152 | ||||||
87,320 | Yamada Denki Co., Ltd. | 5,955,815 | ||||||
11,094,967 | ||||||||
Textiles, Apparel & Luxury Goods (2.2%): | ||||||||
106,105 | Adidas AG | 6,986,166 | ||||||
15,873 | Puma AG | 5,236,207 | ||||||
12,222,373 | ||||||||
Tobacco (3.0%): | ||||||||
179,569 | British American Tobacco plc | 6,912,269 | ||||||
324,689 | Imperial Tobacco Group plc | 9,958,741 | ||||||
16,871,010 | ||||||||
Wireless Telecommunication Services (4.3%): | ||||||||
181,572 | America Movil, SAB de C.V., SP ADR, Series L | 10,411,339 | ||||||
101,720 | Philippine Long Distance Telephone Co. | 5,930,656 | ||||||
2,888,424 | Vodafone Group plc | 7,519,632 | ||||||
23,861,627 | ||||||||
Total Common Stocks (Cost $425,621,499) | 518,645,401 | |||||||
Warrants (0.0%): | ||||||||
Pharmaceuticals (0.0%): | ||||||||
10,000 | Marshall Edwards, Inc., Private Equity*(a) | — | ||||||
Total Warrants (Cost $—) | — | |||||||
Investment Company (6.5%): | ||||||||
36,139,603 | Dreyfus Treasury Prime Cash Management, 0.00%(b) | 36,139,603 | ||||||
Total Investment Company (Cost $36,139,603) | 36,139,603 | |||||||
Total Investment Securities (Cost $461,761,102)(c) — 99.8% | 554,785,004 | |||||||
Net other assets (liabilities) — 0.2% | 1,260,430 | |||||||
Net Assets — 100.0% | $ | 556,045,434 | ||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2010. The total of all such securities represent 0.00% of the net assets of the fund. | |
(b) | The rate represents the effective yield at December 31, 2010. | |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Australia | 7.0 | % | ||
Belgium | 1.6 | |||
Brazil | 2.4 | |||
Canada | 5.1 | |||
Denmark | 1.8 | |||
France | 5.0 | |||
Germany | 6.4 | |||
Hong Kong | 3.1 | |||
India | 2.0 | |||
Israel | 2.0 | |||
Japan | 9.6 | |||
Mexico | 3.5 | |||
Netherlands | 2.8 | |||
Philippines | 1.1 | |||
Republic of Korea (South) | 2.4 | |||
Russian Federation | 1.1 | |||
Singapore | 2.8 | |||
Sweden | 1.5 | |||
Switzerland | 7.5 | |||
Taiwan | 2.2 | |||
Turkey | 0.8 | |||
United Kingdom | 21.3 | |||
United States | 7.0 | |||
100.0 | % | |||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Invesco | ||||
International | ||||
Equity Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 461,761,102 | ||
Investment securities, at value | $ | 554,785,004 | ||
Dividends receivable | 407,573 | |||
Foreign currency, at value (cost $819,966) | 846,632 | |||
Receivable for capital shares issued | 164,437 | |||
Reclaims receivable | 495,187 | |||
Prepaid expenses | 8,064 | |||
Total Assets | 556,706,897 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 41,907 | |||
Manager fees payable | 356,367 | |||
Administration fees payable | 22,078 | |||
Distribution fees payable | 115,958 | |||
Custodian fees payable | 38,785 | |||
Administrative and compliance services fees payable | 4,725 | |||
Trustee fees payable | 945 | |||
Other accrued liabilities | 80,698 | |||
Total Liabilities | 661,463 | |||
Net Assets | $ | 556,045,434 | ||
Net Assets Consist of: | ||||
Capital | $ | 511,549,552 | ||
Accumulated net investment income/(loss) | 4,668,934 | |||
Accumulated net realized gains/(losses) from investment transactions | (53,280,616 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 93,107,564 | |||
Net Assets | $ | 556,045,434 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 36,487,157 | |||
Net Asset Value (offering and redemption price per share) | $ | 15.24 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Invesco | ||||
International | ||||
Equity Fund | ||||
Investment Income: | ||||
Interest | $ | 62 | ||
Dividends | 11,160,833 | |||
Foreign withholding tax | (860,742 | ) | ||
Total Investment Income | 10,300,153 | |||
Expenses: | ||||
Manager fees | 4,232,420 | |||
Administration fees | 228,526 | |||
Distribution fees | 1,175,671 | |||
Custodian fees | 205,715 | |||
Administrative and compliance services fees | 18,006 | |||
Trustees’ fees | 36,670 | |||
Professional fees | 60,449 | |||
Shareholder reports | 42,933 | |||
Other expenses | 19,264 | |||
Total expenses before reductions | 6,019,654 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (605,403 | ) | ||
Less expenses paid indirectly | (4,808 | ) | ||
Net expenses | 5,409,443 | |||
Net Investment Income/(Loss) | 4,890,710 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 12,132,048 | |||
Net realized gains/(losses) on forward foreign currency contracts | (2,504,458 | ) | ||
Net realized gains/(losses) on futures transactions | (321,986 | ) | ||
Payments by affiliates for the violation of certain investment policies and limitations | 45,566 | |||
Change in unrealized appreciation/(depreciation) on investments | 44,692,936 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 54,044,106 | |||
Change in Net Assets Resulting From Operations | $ | 58,934,816 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Statements of Changes in Net Assets
AZL Invesco | ||||||||
International Equity Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 4,890,710 | $ | 2,554,719 | ||||
Net realized gains/(losses) on investment transactions | 9,305,604 | (10,875,868 | ) | |||||
Payments by affiliates for the violation of certain investment policies and limitations | 45,566 | — | ||||||
Change in unrealized appreciation/(depreciation) on investments | 44,692,936 | 76,273,871 | ||||||
Change in net assets resulting from operations | 58,934,816 | 67,952,722 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (2,453,878 | ) | (4,047,356 | ) | ||||
Change in net assets resulting from dividends to shareholders | (2,453,878 | ) | (4,047,356 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 180,772,419 | 46,169,625 | ||||||
Proceeds from shares issued in merger | — | 150,474,944 | ||||||
Proceeds from dividends reinvested | 2,453,878 | 4,047,356 | ||||||
Value of shares redeemed | (88,891,816 | ) | (36,113,766 | ) | ||||
Change in net assets resulting from capital transactions | 94,334,481 | 164,578,159 | ||||||
Change in net assets | 150,815,419 | 228,483,525 | ||||||
Net Assets: | ||||||||
Beginning of period | 405,230,015 | 176,746,490 | ||||||
End of period | $ | 556,045,434 | $ | 405,230,015 | ||||
Accumulated net investment income/(loss) | $ | 4,668,934 | $ | 2,249,416 | ||||
Share Transactions: | ||||||||
Shares issued | 13,131,890 | 4,193,105 | ||||||
Shares issued in merger | — | 11,398,678 | ||||||
Dividends reinvested | 177,047 | 313,749 | ||||||
Shares redeemed | (6,591,230 | ) | (3,274,476 | ) | ||||
Change in shares | 6,717,707 | 12,631,056 | ||||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.61 | $ | 10.31 | $ | 19.95 | $ | 18.27 | $ | 14.57 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.08 | 0.28 | 0.13 | 0.05 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.58 | 3.45 | (8.16 | ) | 2.51 | 3.86 | ||||||||||||||
Total from Investment Activities | 1.70 | 3.53 | (7.88 | ) | 2.64 | 3.91 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.07 | ) | (0.23 | ) | (0.08 | ) | (0.11 | ) | (0.03 | ) | ||||||||||
Net Realized Gains | — | — | (1.68 | ) | (0.85 | ) | (0.18 | ) | ||||||||||||
Total Dividends | (0.07 | ) | (0.23 | ) | (1.76 | ) | (0.96 | ) | (0.21 | ) | ||||||||||
Net Asset Value, End of Period | $ | 15.24 | $ | 13.61 | $ | 10.31 | $ | 19.95 | $ | 18.27 | ||||||||||
Total Return(a) | 12.52 | %(b) | 34.33 | % | (41.51 | )% | 14.62 | % | 27.04 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 556,045 | $ | 405,230 | $ | 176,746 | $ | 373,047 | $ | 317,614 | ||||||||||
Net Investment Income/(Loss) | 1.04 | % | 1.09 | % | 1.66 | % | 0.61 | % | 0.44 | % | ||||||||||
Expenses Before Reductions(c) | 1.28 | % | 1.32 | % | 1.37 | % | 1.35 | % | 1.45 | % | ||||||||||
Expenses Net of Reductions | 1.15 | % | 1.28 | % | 1.37 | % | 1.35 | % | 1.45 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.15 | % | 1.28 | % | 1.37 | % | 1.35 | % | 1.45 | % | ||||||||||
Portfolio Turnover Rate | 39.35 | % | 34.63 | %(e) | 43.70 | % | 41.62 | % | 47.75 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | During the year ended December 31, 2010, Invesco Advisers, Inc. reimbursed $45,566 to the Fund related to violation of certain investment policies and limitations. The corresponding impact to the total return was 0.01%. | |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(d) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. | |
(e) | Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after a fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 77.09%. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Invesco International Equity Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. The monthly average amount for these contracts was $0.9 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. As of December 31, 2010, the Fund did not hold any futures contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | (2,504,458 | ) | $ | (555 | ) | |||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/ (depreciation) on investments | (321,986 | ) | — |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a portfolio management agreement between the Manager and Invesco Advisers, Inc. (“Invesco”), Invesco provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business , based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.45%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL Invesco International Equity Fund | 0.90 | % | 1.45 | % |
* | The Manager voluntarily reduced the management fee to 0.80% on the first $200 million of assets and 0.75% on assets above $200 million. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 0.85% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated in effect limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $13,329 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
During the year ended December 31, 2010, the Subadviser reimbursed $45,566 to the Fund related to violation of certain investment policies and limitations. The impact to the total return is disclosed in the Financial Highlights.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Beverages | $ | 3,506,016 | $ | 8,849,891 | $ | — | $ | 12,355,907 | ||||||||
Biotechnology | 30,288 | 5,408,742 | — | 5,439,030 | ||||||||||||
Commercial Banks | 8,247,763 | 24,645,917 | — | 32,893,680 | ||||||||||||
Diversified Telecommunication Services | 2,506,341 | 5,029,358 | — | 7,535,699 | ||||||||||||
Insurance | 4,271,765 | 6,952,032 | — | 11,223,797 | ||||||||||||
Media | 5,701,799 | 21,598,522 | — | 27,300,321 | ||||||||||||
Oil, Gas & Consumable Fuels | 26,455,097 | 23,253,589 | — | 49,708,686 | ||||||||||||
Pharmaceuticals | 11,115,993 | 44,263,759 | — | 55,379,752 | ||||||||||||
Road & Rail | 2,561,484 | — | — | 2,561,484 | ||||||||||||
Semiconductors & Semiconductors Equipment | 7,671,157 | — | — | 7,671,157 | ||||||||||||
Wireless Telecommunication Services | 10,411,339 | 13,450,288 | — | 23,861,627 | ||||||||||||
All Other Common Stocks+ | — | 282,714,261 | — | 282,714,261 | ||||||||||||
Warrants^ | — | — | — | — | ||||||||||||
Investment Company | 36,139,603 | — | — | 36,139,603 | ||||||||||||
Total Investment Securities | $ | 118,618,645 | $ | 436,166,359 | $ | — | $ | 554,785,004 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
^ | Represents less than $0.50. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Invesco International Equity Fund | $ | 263,352,663 | $ | 171,231,214 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $469,502,745. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 99,203,066 | ||
Unrealized depreciation | (13,920,807 | ) | ||
Net unrealized appreciation | $ | 85,282,259 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the U.S. Treasury regulations.
Expires | Expires | Expires | ||||||||||
12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||
AZL Invesco International Equity Fund | $ | 6,057,349 | $ | 24,015,904 | $ | 14,096,888 |
During the year ended December 31, 2010, the Fund utilized $7,149,080 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $1,397,894 of deferred post October capital and currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Invesco International Equity Fund
AZL Invesco International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Invesco International Equity Fund | $ | 2,453,878 | $ | — | $ | 2,453,878 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Invesco International Equity Fund | $ | 4,047,356 | $ | — | $ | 4,047,356 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(b) | Earnings (Deficit) | |||||||||||||
AZL Invesco International Equity Fund | $ | 4,697,996 | $ | (45,568,035 | ) | $ | 85,365,921 | $ | 44,495,882 | |||||||
(b) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
7. Acquisition of AZL Oppenheimer International Growth Fund
On October 23, 2009, the Fund acquired all of the net assets of the AZL Oppenheimer International Growth Fund, an open-end investment company, pursuant to a plan of reorganization approved by AZL Oppenheimer International Growth Fund shareholders on October 21, 2009. The purpose of the transaction was to combine two funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 11,398,678 shares of the Fund, valued at $150,474,944, for 10,639,293 shares of the AZL Oppenheimer International Growth Fund outstanding on October 23, 2009.
19
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Invesco International Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 1.17% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
23
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
24
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
25
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
27
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
28
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® JPMorgan U.S. Equity Fund
Annual Report
December 31, 2010
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 5
Statement of Assets and Liabilities
Page 9
Statement of Operations
Page 10
Statements of Changes in Net Assets
Page 11
Financial Highlights
Page 12
Notes to the Financial Statements
Page 13
Report of Independent Registered Public Accounting Firm
Page 21
Other Federal Income Tax Information
Page 22
Other Information
Page 23
Approval of Investment Advisory and Subadvisory Agreements
Page 24
Information about the Board of Trustees and Officers
Page 28
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® JPMorgan U.S. Equity Fund
Allianz Investment Management LLC serves as the Manager for the AZL® JPMorgan U.S. Equity Fund and J.P. Morgan Investment Management Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® JPMorgan U.S. Equity Fund returned 12.97%. That compared to a 15.06% total return for its benchmark, the S&P 500 Index1.
The Fund’s positive return on an absolute basis was driven by the U.S. stock market, which offered healthy gains during the period, despite considerable volatility. Better-than-expected earnings drove stocks higher into the second quarter. However, negative developments, including the European sovereign debt crisis and concerns about a “double-dip” recession, pushed stock prices lower through August. When the Federal Reserve Board announced in late August a second round quantitative easing, equities began an advance that lasted through the end of 2010. The announcement was followed by another strong corporate earnings season, with approximately 73% of S&P 500 companies exceeding earnings estimates.
The stock market’s performance during 2010 was widespread. Every industry sector posted positive returns, led by the more economically sensitive consumer discretionary and industrials sectors. Lagging for the year were the utilities and health care sectors. Trends related to better global economic growth emerged toward the end of the year, with the energy and materials sector outperforming over the course of the fourth quarter.
The Fund’s underperformance relative to its benchmark index was driven by stock selection and sector weightings. For example, performance was dampened by the decision to own traditional technology stocks that lacked significant exposure to the rapidly developing cloud computing2 and mobile communications trends. Specifically, the Fund’s overweight positions in the systems hardware, energy and network technology sectors hurt relative returns.*
Overweight positions in basic materials and underweights in the industrial cyclical and pharmaceutical/medical technology sectors helped bolster relative performance.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Standard & Poor’s 500 Index (“S&P 500 Index”) is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. stock market as a whole. Investors cannot invest directly in an index. | |
2 | Cloud computing is location-independent computing, whereby stored servers provide resources, software, and data to computers and other devices on demand, as with the electricity grid |
1
Table of Contents
AZL® JPMorgan U.S. Equity Fund Review
Fund Objective
The Fund’s investment objective is to seek to provide high total return from a portfolio of selected equity securities. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in large- and medium-capitalization equity securities of U.S. companies.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/3/04) | |||||||||||||
AZL® JPMorgan U.S. Equity Fund | 12.97 | % | -2.52 | % | 1.96 | % | 3.55 | % | ||||||||
S&P 500 Index | 15.06 | % | -2.86 | % | 2.29 | % | 3.89 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® JPMorgan U.S. Equity Fund | 1.20 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager has voluntarily reduced the management fee to 0.75%. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the S&P 500 Index is calculated from 4/30/04. | |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted. | ||
The Fund’s performance is measured against the Standard & Poor’s 500 Index (“S&P 500 Index”), an unmanaged index that is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, which is a measure of the U.S. Stock market as a whole. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index. |
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL JPMorgan U.S. Equity Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 1,000.00 | $ | 1,230.00 | $ | 6.07 | 1.08 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 1,000.00 | $ | 1,019.76 | $ | 5.50 | 1.08 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL JPMorgan U.S. Equity Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 3.1 | % | ||
Auto Components | 2.7 | |||
Beverages | 2.4 | |||
Biotechnology | 1.6 | |||
Capital Markets | 3.6 | |||
Chemicals | 3.1 | |||
Commercial Banks | 3.5 | |||
Communications Equipment | 4.5 | |||
Computers & Peripherals | 6.6 | |||
Consumer Finance | 0.4 | |||
Diversified Financial Services | 3.5 | |||
Diversified Telecommunication Services | 2.6 | |||
Electric Utilities | 1.8 | |||
Electronic Equipment, Instruments & Components | 0.7 | |||
Energy Equipment & Services | 1.8 | |||
Food & Staples Retailing | 1.8 | |||
Food Products | 1.2 | |||
Health Care Equipment & Supplies | 0.9 | |||
Health Care Providers & Services | 2.2 | |||
Hotels, Restaurants & Leisure | 2.2 | |||
Household Durables | 0.4 | |||
Household Products | 2.6 | |||
Industrial Conglomerates | 1.9 | |||
Insurance | 3.2 | |||
Internet & Catalog Retail | 1.1 | |||
Internet Software & Services | 0.7 | |||
IT Services | 1.1 | |||
Life Sciences Tools & Services | 0.2 | |||
Machinery | 1.1 | |||
Media | 4.4 | |||
Metals & Mining | 1.9 | |||
Multi-Utilities | 1.1 | |||
Multiline Retail | 0.5 | |||
Oil, Gas & Consumable Fuels | 11.9 | |||
Pharmaceuticals | 5.0 | |||
Real Estate Investment Trusts (REITs) | 0.1 | |||
Road & Rail | 1.7 | |||
Semiconductors & Semiconductor Equipment | 2.1 | |||
Software | 4.5 | |||
Specialty Retail | 1.6 | |||
Tobacco | 0.5 | |||
Water Utilities | 0.2 | |||
Wireless Telecommunication Services | 0.8 | |||
U.S. Treasury Obligations | 0.1 | |||
Investment Company | 1.2 | |||
100.1 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (98.8%): | ||||||||
Aerospace & Defense (3.1%): | ||||||||
81,893 | Honeywell International, Inc. | $ | 4,353,432 | |||||
73,547 | United Technologies Corp. | 5,789,620 | ||||||
10,143,052 | ||||||||
Auto Components (2.7%): | ||||||||
89,075 | General Motors Co.* | 3,283,305 | ||||||
141,951 | Johnson Controls, Inc. | 5,422,528 | ||||||
8,705,833 | ||||||||
Beverages (2.4%): | ||||||||
78,585 | Coca-Cola Co. (The) | 5,168,535 | ||||||
41,181 | PepsiCo, Inc. | 2,690,355 | ||||||
7,858,890 | ||||||||
Biotechnology (1.6%): | ||||||||
3,622 | Alexion Pharmaceuticals, Inc.* | 291,752 | ||||||
34,483 | Biogen, Inc.* | 2,312,085 | ||||||
45,179 | Celgene Corp.* | 2,671,886 | ||||||
5,275,723 | ||||||||
Capital Markets (3.6%): | ||||||||
39,741 | Goldman Sachs Group, Inc. | 6,682,847 | ||||||
37,642 | Invesco, Ltd. | 905,666 | ||||||
81,503 | Morgan Stanley | 2,217,697 | ||||||
20,245 | State Street Corp. | 938,153 | ||||||
57,887 | TD AMERITRADE Holding Corp. | 1,099,274 | ||||||
11,843,637 | ||||||||
Chemicals (3.1%): | ||||||||
103,276 | Dow Chemical Co. (The) | 3,525,843 | ||||||
119,355 | E.I. du Pont de Nemours & Co. | 5,953,427 | ||||||
6,100 | PPG Industries, Inc. | 512,827 | ||||||
9,992,097 | ||||||||
Commercial Banks (3.5%): | ||||||||
43,691 | BB&T Corp. | 1,148,636 | ||||||
8,311 | Comerica, Inc. | 351,057 | ||||||
104,400 | Huntington Bancshares, Inc. | 717,228 | ||||||
76,478 | Regions Financial Corp. | 535,346 | ||||||
6,262 | SVB Financial Group* | 332,199 | ||||||
67,960 | U.S. Bancorp | 1,832,881 | ||||||
200,334 | Wells Fargo & Co. | 6,208,351 | ||||||
6,888 | Zions Bancorp | 166,896 | ||||||
11,292,594 | ||||||||
Communications Equipment (4.5%): | ||||||||
405,307 | Cisco Systems, Inc.* | 8,199,361 | ||||||
77,713 | Juniper Networks, Inc.* | 2,869,164 | ||||||
71,642 | QUALCOMM, Inc. | 3,545,562 | ||||||
14,614,087 | ||||||||
Computers & Peripherals (6.6%): | ||||||||
35,926 | Apple Computer, Inc.* | 11,588,291 | ||||||
92,846 | EMC Corp.* | 2,126,173 | ||||||
81,088 | Hewlett-Packard Co. | 3,413,805 | ||||||
23,602 | International Business Machines Corp. | 3,463,830 | ||||||
14,926 | SanDisk Corp.* | 744,210 | ||||||
21,336,309 | ||||||||
Consumer Finance (0.4%): | ||||||||
24,915 | American Express Co. | 1,069,352 | ||||||
7,223 | Capital One Financial Corp. | 307,411 | ||||||
1,376,763 | ||||||||
Diversified Financial Services (3.5%): | ||||||||
383,237 | Bank of America Corp. | 5,112,382 | ||||||
1,080,847 | Citigroup, Inc.* | 5,112,406 | ||||||
3,778 | CME Group, Inc. | 1,215,571 | ||||||
11,440,359 | ||||||||
Diversified Telecommunication Services (2.6%): | ||||||||
134,558 | AT&T, Inc. | 3,953,314 | ||||||
45,647 | Frontier Communications Corp. | 444,145 | ||||||
110,518 | Verizon Communications, Inc. | 3,954,334 | ||||||
8,351,793 | ||||||||
Electric Utilities (1.8%): | ||||||||
20,266 | American Electric Power Co., Inc. | 729,171 | ||||||
27,300 | Edison International | 1,053,780 | ||||||
34,684 | NextEra Energy, Inc. | 1,803,221 | ||||||
73,903 | NV Energy, Inc. | 1,038,337 | ||||||
32,706 | Southern Co. | 1,250,350 | ||||||
5,874,859 | ||||||||
Electronic Equipment, Instruments & Components (0.7%): | ||||||||
41,181 | Corning, Inc. | 795,617 | ||||||
38,059 | Tyco International, Ltd. | 1,577,165 | ||||||
2,372,782 | ||||||||
Energy Equipment & Services (1.8%): | ||||||||
22,862 | Baker Hughes, Inc. | 1,307,020 | ||||||
12,798 | Cameron International Corp.* | 649,243 | ||||||
14,318 | Halliburton Co. | 584,604 | ||||||
9,897 | Rowan Cos., Inc.* | 345,504 | ||||||
37,706 | Schlumberger, Ltd. | 3,148,451 | ||||||
6,034,822 | ||||||||
Food & Staples Retailing (1.8%): | ||||||||
39,862 | CVS Caremark Corp. | 1,386,002 | ||||||
38,229 | Kroger Co. (The) | 854,801 | ||||||
89,385 | SYSCO Corp. | 2,627,919 | ||||||
8,172 | Wal-Mart Stores, Inc. | 440,716 | ||||||
11,389 | Walgreen Co. | 443,715 | ||||||
5,753,153 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Food Products (1.2%): | ||||||||
25,550 | Campbell Soup Co. | $ | 887,862 | |||||
52,396 | General Mills, Inc. | 1,864,774 | ||||||
20,041 | Kellogg Co. | 1,023,694 | ||||||
3,776,330 | ||||||||
Health Care Equipment & Supplies (0.9%): | ||||||||
41,536 | Boston Scientific Corp.* | 314,428 | ||||||
56,891 | Covidien plc | 2,597,643 | ||||||
2,912,071 | ||||||||
Health Care Providers & Services (2.2%): | ||||||||
11,736 | Aetna, Inc. | 358,065 | ||||||
70,972 | Cardinal Health, Inc. | 2,718,937 | ||||||
4,103 | DaVita, Inc.* | 285,117 | ||||||
7,704 | McKesson HBOC, Inc. | 542,208 | ||||||
16,937 | Medco Health Solutions, Inc.* | 1,037,730 | ||||||
34,623 | UnitedHealth Group, Inc. | 1,250,237 | ||||||
19,259 | WellPoint, Inc.* | 1,095,067 | ||||||
7,287,361 | ||||||||
Hotels, Restaurants & Leisure (2.2%): | ||||||||
65,801 | Carnival Corp. | 3,034,084 | ||||||
12,729 | Darden Restaurants, Inc. | 591,135 | ||||||
34,670 | International Game Technology | 613,312 | ||||||
11,515 | Starwood Hotels & Resorts Worldwide, Inc. | 699,882 | ||||||
43,881 | Yum! Brands, Inc. | 2,152,363 | ||||||
7,090,776 | ||||||||
Household Durables (0.4%): | ||||||||
14,060 | Lennar Corp. | 263,625 | ||||||
1,404 | NVR, Inc.* | 970,192 | ||||||
1,233,817 | ||||||||
Household Products (2.6%): | ||||||||
14,843 | Colgate-Palmolive Co. | 1,192,932 | ||||||
113,744 | Procter & Gamble Co. (The) | 7,317,152 | ||||||
8,510,084 | ||||||||
Industrial Conglomerates (1.9%): | ||||||||
34,584 | 3M Co. | 2,984,599 | ||||||
175,355 | General Electric Co. | 3,207,243 | ||||||
6,191,842 | ||||||||
Insurance (3.2%): | ||||||||
26,337 | ACE, Ltd. | 1,639,478 | ||||||
8,332 | AFLAC, Inc. | 470,175 | ||||||
16,287 | Berkshire Hathaway, Inc., Class B* | 1,304,751 | ||||||
50,964 | MetLife, Inc. | 2,264,840 | ||||||
41,463 | Prudential Financial, Inc. | 2,434,293 | ||||||
21,862 | RenaissanceRe Holdings, Ltd. | 1,392,391 | ||||||
39,528 | XL Group plc | 862,501 | ||||||
10,368,429 | ||||||||
Internet & Catalog Retail (1.1%): | ||||||||
19,757 | Amazon.com, Inc.* | 3,556,260 | ||||||
Internet Software & Services (0.7%): | ||||||||
3,978 | Google, Inc., Class A* | 2,362,813 | ||||||
IT Services (1.1%): | ||||||||
26,023 | Cognizant Technology Solutions Corp., Class A* | 1,907,226 | ||||||
11,305 | Genpact, Ltd.* | 171,836 | ||||||
5,167 | MasterCard, Inc., Class A | 1,157,976 | ||||||
5,485 | Visa, Inc., Class A | 386,034 | ||||||
3,623,072 | ||||||||
Life Sciences Tools & Services (0.2%): | ||||||||
11,431 | Thermo Fisher Scientific, Inc.* | 632,820 | ||||||
Machinery (1.1%): | ||||||||
49,985 | PACCAR, Inc. | 2,870,139 | ||||||
6,948 | Parker Hannifin Corp. | 599,612 | ||||||
3,469,751 | ||||||||
Media (4.4%): | ||||||||
30,072 | CBS Corp. | 572,871 | ||||||
83,408 | Comcast Corp., Class A | 1,832,474 | ||||||
15,157 | DIRECTV Group, Inc. (The), Class A* | 605,219 | ||||||
61,086 | Gannett Co., Inc. | 921,788 | ||||||
235,392 | Time Warner, Inc. | 7,572,561 | ||||||
78,672 | Walt Disney Co. (The) | 2,950,987 | ||||||
14,455,900 | ||||||||
Metals & Mining (1.9%): | ||||||||
38,061 | Alcoa, Inc. | 585,759 | ||||||
46,532 | Freeport-McMoRan Copper & Gold, Inc. | 5,588,028 | ||||||
6,173,787 | ||||||||
Multi-Utilities (1.1%): | ||||||||
29,143 | PG&E Corp. | 1,394,201 | ||||||
28,834 | Public Service Enterprise Group, Inc. | 917,209 | ||||||
6,071 | SCANA Corp. | 246,483 | ||||||
19,600 | Sempra Energy | 1,028,608 | ||||||
6,125 | Xcel Energy, Inc. | 144,244 | ||||||
3,730,745 | ||||||||
Multiline Retail (0.5%): | ||||||||
14,697 | Kohl’s Corp.* | 798,635 | ||||||
13,214 | Target Corp. | 794,558 | ||||||
1,593,193 | ||||||||
Oil, Gas & Consumable Fuels (11.9%): | ||||||||
15,008 | Anadarko Petroleum Corp. | 1,143,009 | ||||||
36,170 | Apache Corp. | 4,312,549 | ||||||
74,365 | Chevron Corp. | 6,785,806 | ||||||
24,573 | ConocoPhillips | 1,673,421 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
29,656 | Devon Energy Corp. | $ | 2,328,293 | |||||
36,582 | EOG Resources, Inc. | 3,343,961 | ||||||
150,234 | Exxon Mobil Corp. | 10,985,110 | ||||||
18,135 | Noble Energy, Inc. | 1,561,061 | ||||||
66,185 | Occidental Petroleum Corp. | 6,492,749 | ||||||
38,625,959 | ||||||||
Pharmaceuticals (5.0%): | ||||||||
110,296 | Abbott Laboratories | 5,284,282 | ||||||
163,948 | Merck & Co., Inc. | 5,908,686 | ||||||
285,020 | Pfizer, Inc. | 4,990,700 | ||||||
16,183,668 | ||||||||
Real Estate Investment Trusts (REITs) (0.1%): | ||||||||
2,127 | Simon Property Group, Inc. | 211,615 | ||||||
Road & Rail (1.7%): | ||||||||
76,311 | Norfolk Southern Corp. | 4,793,857 | ||||||
8,877 | Union Pacific Corp. | 822,543 | ||||||
5,616,400 | ||||||||
Semiconductors & Semiconductor Equipment (2.1%): | ||||||||
34,104 | Analog Devices, Inc. | 1,284,698 | ||||||
36,075 | Applied Materials, Inc. | 506,854 | ||||||
28,326 | Broadcom Corp., Class A | 1,233,597 | ||||||
34,901 | Intersil Corp., Class A | 532,938 | ||||||
15,492 | Lam Research Corp.* | 802,176 | ||||||
7,644 | Marvell Technology Group, Ltd.* | 141,796 | ||||||
10,016 | Novellus Systems, Inc.* | 323,717 | ||||||
16,183 | NVIDIA Corp.* | 249,218 | ||||||
57,194 | Xilinx, Inc. | 1,657,482 | ||||||
6,732,476 | ||||||||
Software (4.5%): | ||||||||
21,648 | Adobe Systems, Inc.* | 666,325 | ||||||
6,856 | Citrix Systems, Inc.* | 469,019 | ||||||
321,687 | Microsoft Corp. | 8,981,501 | ||||||
142,369 | Oracle Corp. | 4,456,150 | ||||||
14,572,995 | ||||||||
Specialty Retail (1.6%): | ||||||||
3,538 | AutoZone, Inc.* | 964,423 | ||||||
87,009 | Lowe’s Cos., Inc. | 2,182,186 | ||||||
92,496 | Staples, Inc. | 2,106,134 | ||||||
5,252,743 | ||||||||
Tobacco (0.5%): | ||||||||
25,544 | Philip Morris International, Inc. | 1,495,090 | ||||||
Water Utilities (0.2%): | ||||||||
24,641 | American Water Works Co., Inc. | 623,171 | ||||||
Wireless Telecommunication Services (0.8%): | ||||||||
9,358 | American Tower Corp., Class A* | 483,247 | ||||||
469,288 | Sprint Nextel Corp.* | 1,985,088 | ||||||
2,468,335 | ||||||||
Total Common Stocks (Cost $264,680,447) | 321,018,256 | |||||||
U.S. Treasury Obligation (0.1%): | ||||||||
$ | 470,000 | U.S. Treasury Notes, 1.13%, 6/30/11(a) | 472,166 | |||||
Total U.S. Treasury Obligation (Cost $472,031) | 472,166 | |||||||
Investment Company (1.2%): | ||||||||
3,814,898 | Dreyfus Treasury Prime Cash Management, 0.00%(b) | 3,814,898 | ||||||
Total Investment Company (Cost $3,814,898) | 3,814,898 | |||||||
Total Investment Securities (Cost $268,967,376)(c) — 100.1% | 325,305,320 | |||||||
Net other assets (liabilities) — (0.1)% | (268,796 | ) | ||||||
Net Assets — 100.0% | $ | 325,036,524 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
plc—Public Limited Company
(a) | All or a portion of the security has been segregated with the custodian to cover margin requirements. The aggregate fair value of the segregated portion of such securities was $190,000 as of December 31, 2010. | |
(b) | The rate represents the effective yield at December 31, 2010. | |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Futures Contracts
Unrealized | ||||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/18/11 | 36 | $ | 2,255,400 | $ | 19,934 |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Bermuda | 0.5 | % | ||
Ireland (Republic of) | 1.1 | |||
Netherlands | 1.0 | |||
Panama | 0.9 | |||
Switzerland | 1.0 | |||
United States | 95.5 | |||
100.0 | % | |||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Statement of Assets and Liabilities
December 31, 2010
AZL JPMorgan | ||||
U.S. Equity | ||||
Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 268,967,376 | ||
Investment securities, at value | $ | 325,305,320 | ||
Interest and dividends receivable | 322,163 | |||
Receivable for capital shares issued | 107,966 | |||
Reclaims receivable | 791 | |||
Prepaid expenses | 4,163 | |||
Total Assets | 325,740,403 | |||
Liabilities: | ||||
Payable for investments purchased | 339,003 | |||
Payable for capital shares redeemed | 23,901 | |||
Payable for variation margin on futures contracts | 2,700 | |||
Manager fees payable | 202,981 | |||
Administration fees payable | 12,457 | |||
Distribution fees payable | 67,660 | |||
Custodian fees payable | 4,161 | |||
Administrative and compliance services fees payable | 2,783 | |||
Trustee fees payable | 348 | |||
Other accrued liabilities | 47,885 | |||
Total Liabilities | 703,879 | |||
Net Assets | $ | 325,036,524 | ||
Net Assets Consist of: | ||||
Capital | $ | 472,138,182 | ||
Accumulated net investment income/(loss) | 2,293,632 | |||
Accumulated net realized gains/(losses) from investment transactions | (205,753,168 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 56,357,878 | |||
Net Assets | $ | 325,036,524 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 34,215,337 | |||
Net Asset Value (offering and redemption price per share) | $ | 9.50 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL JPMorgan | ||||
U.S. Equity | ||||
Fund | ||||
Investment Income: | ||||
Interest | $ | 1,638 | ||
Dividends | 5,436,283 | |||
Foreign withholding tax | (410 | ) | ||
Total Investment Income | 5,437,511 | |||
Expenses: | ||||
Manager fees | 2,330,630 | |||
Administration fees | 130,931 | |||
Distribution fees | 728,320 | |||
Custodian fees | 18,806 | |||
Administrative and compliance services fees | 9,755 | |||
Trustees’ fees | 19,549 | |||
Professional fees | 28,840 | |||
Shareholder reports | 22,429 | |||
Other expenses | 11,513 | |||
Total expenses before reductions | 3,300,773 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (145,668 | ) | ||
Less expenses paid indirectly | (2,794 | ) | ||
Net expenses | 3,152,311 | |||
Net Investment Income/(Loss) | 2,285,200 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 39,982,107 | |||
Net realized gains/(losses) on futures transactions | 864,226 | |||
Change in unrealized appreciation/(depreciation) on investments | (4,678,576 | ) | ||
Net Realized/Unrealized Gains/(Losses) on Investments | 36,167,757 | |||
Change in Net Assets Resulting From Operations | $ | 38,452,957 | ||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Statements of Changes in Net Assets
AZL JPMorgan U.S. Equity Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 2,285,200 | $ | 1,639,939 | ||||
Net realized gains/(losses) on investment transactions | 40,846,333 | (14,701,187 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | (4,678,576 | ) | 70,579,398 | |||||
Change in net assets resulting from operations | 38,452,957 | 57,518,150 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (1,631,644 | ) | (773,175 | ) | ||||
Change in net assets resulting from dividends to shareholders | �� | (1,631,644 | ) | (773,175 | ) | |||
Capital Transactions: | ||||||||
Proceeds from shares issued | 59,588,846 | 141,305,110 | ||||||
Proceeds from shares issued in merger | — | 67,411,149 | ||||||
Proceeds from dividends reinvested | 1,631,644 | 773,175 | ||||||
Value of shares redeemed | (74,116,747 | ) | (28,325,817 | ) | ||||
Change in net assets resulting from capital transactions | (12,896,257 | ) | 181,163,617 | |||||
Change in net assets | 23,925,056 | 237,908,592 | ||||||
Net Assets: | ||||||||
Beginning of period | 301,111,468 | 63,202,876 | ||||||
End of period | $ | 325,036,524 | $ | 301,111,468 | ||||
Accumulated net investment income/(loss) | $ | 2,293,632 | $ | 1,640,076 | ||||
Share Transactions: | ||||||||
Shares issued | 6,875,831 | 21,319,619 | ||||||
Shares issued in merger | — | 8,278,488 | ||||||
Dividends reinvested | 194,475 | 98,368 | ||||||
Shares redeemed | (8,463,723 | ) | (4,047,487 | ) | ||||
Change in shares | (1,393,417 | ) | 25,648,988 | |||||
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 8.46 | $ | 6.35 | $ | 12.42 | $ | 12.68 | $ | 11.36 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.07 | — | (a) | 0.10 | 0.09 | 0.06 | ||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.02 | 2.14 | (4.51 | ) | 0.41 | 1.57 | ||||||||||||||
Total from Investment Activities | 1.09 | 2.14 | (4.41 | ) | 0.50 | 1.63 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.05 | ) | (0.03 | ) | (0.11 | ) | (0.07 | ) | (0.06 | ) | ||||||||||
Net Realized Gains | — | — | (1.55 | ) | (0.69 | ) | (0.25 | ) | ||||||||||||
Total Dividends | (0.05 | ) | (0.03 | ) | (1.66 | ) | (0.76 | ) | (0.31 | ) | ||||||||||
Net Asset Value, End of Period | $ | 9.50 | $ | 8.46 | $ | 6.35 | $ | 12.42 | $ | 12.68 | ||||||||||
Total Return(b) | 12.97 | % | 33.71 | % | (38.68 | )% | 3.80 | %(c) | 14.59 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 325,037 | $ | 301,111 | $ | 63,203 | $ | 139,593 | $ | 129,416 | ||||||||||
Net Investment Income/(Loss) | 0.79 | % | 0.97 | % | 0.79 | % | 0.72 | % | 0.66 | % | ||||||||||
Expenses Before Reductions(d) | 1.13 | % | 1.20 | % | 1.30 | % | 1.25 | % | 1.22 | % | ||||||||||
Expenses Net of Reductions | 1.08 | % | 1.15 | % | 1.22 | % | 1.20 | % | 1.19 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e) | 1.08 | % | 1.15 | % | 1.22 | % | 1.20 | % | 1.19 | % | ||||||||||
Portfolio Turnover Rate | 86.11 | % | 103.19 | % | 125.06 | % | 126.24 | % | 105.81 | % |
(a) | Represents less than $0.005. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | During the year ended December 31, 2007, Oppenheimer Funds, Inc. reimbursed $51,744 to the Fund related to violations of certain investment policies and limitations. The corresponding impact to the total return was 0.04%. | |
(d) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(e) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
12
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL JPMorgan U.S. Equity Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $2.2 million as of December 31, 2010. The monthly average notional amount for these contracts was $4.1 million for the year ended December 31, 2010.
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 19,934 | Payable for variation margin on futures contracts | $ | — |
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | $ | 864,226 | $ | 100 |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and J.P. Morgan Investment Management Inc. (“JPMIM”), JPMIM provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL JPMorgan U.S. Equity Fund | 0.80% | 1.20% |
* | The Manager voluntarily reduced the management fee to 0.75%. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $8,615 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the year, the Fund paid approximately $93 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 321,018,256 | $ | — | $ | — | $ | 321,018,256 | ||||||||
U.S. Treasury Obligation | — | 472,166 | — | 472,166 | ||||||||||||
Investment Company | 3,814,898 | — | — | 3,814,898 | ||||||||||||
Total Investment Securities | 324,833,154 | 472,166 | — | 325,305,320 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 19,934 | — | — | 19,934 | ||||||||||||
Total Investments | $ | 324,853,088 | $ | 472,166 | $ | — | $ | 325,325,254 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. | |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The Fund recognizes significant transfers between Levels 1 and 2 at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL JPMorgan U.S. Equity Fund | $ | 246,154,591 | $ | 259,129,109 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $275,528,062. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 57,218,552 | ||
Unrealized depreciation | (7,441,294 | ) | ||
Net unrealized appreciation | $ | 49,777,258 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | Expires | ||||||||||
12/31/2015 | 12/31/2016 | 12/31/2017 | ||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 60,092,931 | $ | 125,099,162 | $ | 13,967,218 |
During the year ended December 31, 2010, the Fund utilized $36,719,070 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL JPMorgan U.S. Equity Fund
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 1,631,644 | $ | — | $ | 1,631,644 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 773,175 | $ | — | $ | 773,175 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 2,280,395 | $ | (199,159,311 | ) | $ | 49,777,258 | $ | (147,101,658 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
7. Acquisition of AZL JPMorgan Large Cap Equity Fund
On October 23, 2009, the Fund acquired all of the net assets of the AZL JPMorgan Large Cap Equity Fund, an open-end investment company, pursuant to a plan of reorganization approved by AZL JPMorgan Large Cap Equity Fund shareholders on October 21, 2009. The purpose of the transaction was to combine two funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 8,278,488 shares of the Fund, valued at $67,411,149, for 11,143,303 shares of the AZL JPMorgan Large Cap Equity Fund outstanding on October 23, 2009.
20
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL JPMorgan U.S. Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
24
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
25
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
26
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
28
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
29
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® MFS Investors Trust Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 20
Page 20
Other Federal Income Tax Information
Page 21
Page 21
Other Information
Page 22
Page 22
Approval of Investment Advisory and Subadvisory Agreements
Page 23
Page 23
Information about the Board of Trustees and Officers
Page 27
Page 27
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® MFS Investors Trust Fund
Allianz Investment Management LLC serves as the Manager for the AZL® MFS Investors Trust Fund and Massachusetts Financial Services Company serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010 the AZL® MFS Investors Trust Fund returned 11.01%. That compared to a 15.06% total return for its benchmark, the S&P 500 Index1.
The market produced steady gains during the first quarter of the period, driven by global economic stimulus, increased manufacturing and the growth of emerging Asian economies. However, European debt crises led to a loss of investor confidence, causing markets to weaken in spring. Stocks picked up again during the fourth quarter in response to the U.S. Federal Reserve’s quantitative easing policy and new U.S. tax legislation.
Several individual stock holdings benefited the Fund’s relative return. They included shares of an automobile manufacturer, a biotechnology company and a manufacturer of oil and gas drilling equipment.*
The Fund lagged the benchmark due to a combination of ineffective sector allocation and stock selection. The Fund held an underweight position in the industrial goods sector, which detracted from performance as that sector outperformed the benchmark as a whole. Primary detractors in the financial sector including shares of a bank operator and two credit card companies, which underperformed due to ongoing economic pressures in the U.S. and increased financial regulation. In the healthcare sector, two medical product manufacturers and a generic drug maker reduced relative performance. Technology holdings including stocks of a network equipment company and a computer products firm also detracted from the Fund’s relative return.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Standard & Poor’s 500 Index (“S&P 500 Index”) is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® MFS Investors Trust Fund Review
Fund Objective
The Fund’s investment objective is to seek capital appreciation. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing primarily in equity securities.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
Growth based investments can perform differently from the market as a whole and can be more volatile than other types of securities.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (4/29/05) | |||||||||||||
AZL® MFS Investors Trust Fund | 11.01 | % | 0.31 | % | 4.74 | % | 8.13 | % | ||||||||
S&P 500 Index | 15.06 | % | -2.86 | % | 2.29 | % | 3.63 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® MFS Investors Trust Fund | 1.10 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.70% on assets above $100 million. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the S&P 500 Index is calculated from 4/30/05. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Standard & Poor’s 500 Index (“S&P 500 Index”), which is an unmanaged index that is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL MFS Investors Trust Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL MFS Investors Trust Fund | $ | 1,000.00 | $ | 1,208.20 | $ | 5.96 | 1.07% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL MFS Investors Trust Fund | $ | 1,000.00 | $ | 1,019.81 | $ | 5.45 | 1.07% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL MFS Investors Trust Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 2.5 | % | ||
Air Freight & Logistics | 0.4 | |||
Automobiles | 0.8 | |||
Beverages | 3.3 | |||
Biotechnology | 1.3 | |||
Capital Markets | 7.1 | |||
Chemicals | 3.5 | |||
Commercial Banks | 2.5 | |||
Communications Equipment | 2.2 | |||
Computers & Peripherals | 5.9 | |||
Construction & Engineering | 1.0 | |||
Consumer Finance | 1.1 | |||
Diversified Financial Services | 4.7 | |||
Diversified Telecommunication Services | 1.0 | |||
Electric Utilities | 0.7 | |||
Energy Equipment & Services | 4.3 | |||
Food Products | 1.5 | |||
Gas Utilities | 1.0 | |||
Health Care Equipment & Supplies | 4.7 | |||
Hotels, Restaurants & Leisure | 1.3 | |||
Household Products | 4.5 | |||
Industrial Conglomerates | 1.4 | |||
Insurance | 2.4 | |||
Internet Software & Services | 2.3 | |||
IT Services | 3.3 | |||
Life Sciences Tools & Services | 0.8 | |||
Machinery | 2.3 | |||
Media | 2.2 | |||
Multi-Utilities | 1.4 | |||
Multiline Retail | 3.6 | |||
Oil, Gas & Consumable Fuels | 7.0 | |||
Pharmaceuticals | 4.8 | |||
Road & Rail | 1.0 | |||
Semiconductors & Semiconductor Equipment | 2.4 | |||
Software | 2.8 | |||
Specialty Retail | 2.1 | |||
Textiles, Apparel & Luxury Goods | 1.3 | |||
Tobacco | 1.6 | |||
Wireless Telecommunication Services | 1.0 | |||
Investment Company | 1.1 | |||
100.1 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (99.0%): | ||||||||
Aerospace & Defense (2.5%): | ||||||||
21,998 | Lockheed Martin Corp. | $ | 1,537,880 | |||||
82,594 | United Technologies Corp. | 6,501,800 | ||||||
8,039,680 | ||||||||
Air Freight & Logistics (0.4%): | ||||||||
24,213 | Expeditors International of Washington, Inc. | 1,322,030 | ||||||
Automobiles (0.8%): | ||||||||
31,664 | Bayerische Motoren Werke AG (BMW) | 2,482,139 | ||||||
Beverages (3.3%): | ||||||||
144,705 | Diageo plc | 2,679,826 | ||||||
77,400 | Heineken NV | 3,792,906 | ||||||
59,094 | PepsiCo, Inc. | 3,860,611 | ||||||
10,333,343 | ||||||||
Biotechnology (1.3%): | ||||||||
16,778 | Genzyme Corp.* | 1,194,594 | ||||||
77,439 | Gilead Sciences, Inc.* | 2,806,389 | ||||||
4,000,983 | ||||||||
Capital Markets (7.1%): | ||||||||
150,167 | Bank of New York Mellon Corp. | 4,535,043 | ||||||
17,721 | BlackRock, Inc. | 3,377,268 | ||||||
134,066 | Charles Schwab Corp. | 2,293,869 | ||||||
27,413 | Franklin Resources, Inc. | 3,048,600 | ||||||
30,999 | Goldman Sachs Group, Inc. | 5,212,792 | ||||||
82,032 | State Street Corp. | 3,801,363 | ||||||
22,268,935 | ||||||||
Chemicals (3.5%): | ||||||||
31,231 | Linde AG | 4,762,711 | ||||||
35,011 | Monsanto Co. | 2,438,166 | ||||||
39,641 | Praxair, Inc. | 3,784,526 | ||||||
10,985,403 | ||||||||
Commercial Banks (2.5%): | ||||||||
58,145 | SunTrust Banks, Inc. | 1,715,859 | ||||||
203,032 | Wells Fargo & Co. | 6,291,962 | ||||||
8,007,821 | ||||||||
Communications Equipment (2.2%): | ||||||||
338,178 | Cisco Systems, Inc.* | 6,841,341 | ||||||
Computers & Peripherals (5.9%): | ||||||||
26,651 | Apple Computer, Inc.* | 8,596,547 | ||||||
268,449 | EMC Corp.* | 6,147,482 | ||||||
34,278 | Hewlett-Packard Co. | 1,443,104 | ||||||
17,220 | International Business Machines Corp. | 2,527,207 | ||||||
18,714,340 | ||||||||
Construction & Engineering (1.0%): | ||||||||
45,660 | Fluor Corp. | 3,025,432 | ||||||
Consumer Finance (1.1%): | ||||||||
78,710 | American Express Co. | 3,378,233 | ||||||
Diversified Financial Services (4.7%): | ||||||||
467,098 | Bank of America Corp. | 6,231,087 | ||||||
198,670 | JPMorgan Chase & Co. | 8,427,582 | ||||||
14,658,669 | ||||||||
Diversified Telecommunication Services (1.0%): | ||||||||
104,449 | AT&T, Inc. | 3,068,712 | ||||||
Electric Utilities (0.7%): | ||||||||
59,049 | American Electric Power Co., Inc. | 2,124,583 | ||||||
Energy Equipment & Services (4.3%): | ||||||||
92,967 | Halliburton Co. | 3,795,843 | ||||||
53,861 | National-Oilwell Varco, Inc. | 3,622,152 | ||||||
55,788 | Noble Corp. | 1,995,537 | ||||||
50,375 | Schlumberger, Ltd. | 4,206,312 | ||||||
13,619,844 | ||||||||
Food Products (1.5%): | ||||||||
74,266 | General Mills, Inc. | 2,643,127 | ||||||
35,591 | Nestle SA | 2,085,502 | ||||||
4,728,629 | ||||||||
Gas Utilities (1.0%): | ||||||||
59,708 | QEP Resources, Inc. | 2,167,998 | ||||||
59,828 | Questar Corp. | 1,041,605 | ||||||
3,209,603 | ||||||||
Health Care Equipment & Supplies (4.7%): | ||||||||
38,807 | Baxter International, Inc. | 1,964,410 | ||||||
46,152 | Becton Dickinson & Co. | 3,900,767 | ||||||
131,915 | Medtronic, Inc. | 4,892,727 | ||||||
93,162 | St. Jude Medical, Inc.* | 3,982,676 | ||||||
14,740,580 | ||||||||
Hotels, Restaurants & Leisure (1.3%): | ||||||||
28,992 | Carnival Corp. | 1,336,821 | ||||||
68,804 | International Game Technology | 1,217,143 | ||||||
320,737 | Ladbrokes plc | 613,935 | ||||||
16,364 | Starwood Hotels & Resorts Worldwide, Inc. | 994,604 | ||||||
4,162,503 | ||||||||
Household Products (4.5%): | ||||||||
40,656 | Colgate-Palmolive Co. | 3,267,523 | ||||||
114,606 | Procter & Gamble Co. (The) | 7,372,604 | ||||||
64,049 | Reckitt Benckiser Group plc | 3,522,044 | ||||||
14,162,171 | ||||||||
Industrial Conglomerates (1.4%): | ||||||||
52,310 | 3M Co. | 4,514,353 | ||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Insurance (2.4%): | ||||||||
58,100 | AFLAC, Inc. | $ | 3,278,583 | |||||
60,220 | Aon Corp. | 2,770,722 | ||||||
27,999 | Travelers Cos., Inc. (The) | 1,559,824 | ||||||
7,609,129 | ||||||||
Internet Software & Services (2.3%): | ||||||||
9,113 | Google, Inc., Class A* | 5,412,848 | ||||||
56,873 | VeriSign, Inc. | 1,858,041 | ||||||
7,270,889 | ||||||||
IT Services (3.3%): | ||||||||
87,615 | Accenture plc, Class A | 4,248,451 | ||||||
15,690 | MasterCard, Inc., Class A | 3,516,286 | ||||||
35,248 | Visa, Inc., Class A | 2,480,754 | ||||||
10,245,491 | ||||||||
Life Sciences Tools & Services (0.8%): | ||||||||
45,220 | Thermo Fisher Scientific, Inc.* | 2,503,379 | ||||||
Machinery (2.3%): | ||||||||
151,698 | Danaher Corp. | 7,155,595 | ||||||
Media (2.2%): | ||||||||
184,247 | Walt Disney Co. (The) | 6,911,105 | ||||||
Multi-Utilities (1.4%): | ||||||||
53,932 | Alliant Energy Corp. | 1,983,080 | ||||||
44,084 | Wisconsin Energy Corp. | 2,594,784 | ||||||
4,577,864 | ||||||||
Multiline Retail (3.6%): | ||||||||
68,257 | Kohl’s Corp.* | 3,709,085 | ||||||
34,949 | Nordstrom, Inc. | 1,481,139 | ||||||
101,598 | Target Corp. | 6,109,088 | ||||||
11,299,312 | ||||||||
Oil, Gas & Consumable Fuels (7.0%): | ||||||||
60,441 | Chevron Corp. | 5,515,241 | ||||||
30,314 | EOG Resources, Inc. | 2,771,003 | ||||||
38,571 | Exxon Mobil Corp. | 2,820,311 | ||||||
50,777 | Hess Corp. | 3,886,472 | ||||||
34,450 | Noble Energy, Inc. | 2,965,456 | ||||||
41,112 | Occidental Petroleum Corp. | 4,033,087 | ||||||
21,991,570 | ||||||||
Pharmaceuticals (4.8%): | ||||||||
118,413 | Abbott Laboratories | 5,673,167 | ||||||
105,109 | Johnson & Johnson Co. | 6,500,992 | ||||||
55,101 | Teva Pharmaceutical Industries, Ltd., SP ADR | 2,872,415 | ||||||
15,046,574 | ||||||||
Road & Rail (1.0%): | ||||||||
46,240 | Canadian National Railway Co. | 3,073,573 | ||||||
Semiconductors & Semiconductor Equipment (2.4%): | ||||||||
128,353 | Intel Corp. | 2,699,264 | ||||||
102,261 | Microchip Technology, Inc. | 3,498,349 | ||||||
3,071 | Samsung Electronics Co., Ltd. | 1,293,592 | ||||||
7,491,205 | ||||||||
Software (2.8%): | ||||||||
280,165 | Oracle Corp. | 8,769,164 | ||||||
Specialty Retail (2.1%): | ||||||||
40,173 | Sherwin Williams Co. | 3,364,489 | ||||||
143,835 | Staples, Inc. | 3,275,123 | ||||||
6,639,612 | ||||||||
Textiles, Apparel & Luxury Goods (1.3%): | ||||||||
47,098 | Nike, Inc., Class B | 4,023,111 | ||||||
Tobacco (1.6%): | ||||||||
87,534 | Philip Morris International, Inc. | 5,123,365 | ||||||
Wireless Telecommunication Services (1.0%): | ||||||||
60,094 | American Tower Corp., Class A* | 3,103,254 | ||||||
Total Common Stocks (Cost $264,125,855) | 311,223,519 | |||||||
Investment Company (1.1%): | ||||||||
3,582,669 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 3,582,669 | ||||||
Total Investment Company (Cost $3,582,669) | 3,582,669 | |||||||
Total Investments Securities (Cost $267,708,524)(b) — 100.1% | 314,806,188 | |||||||
Net other assets (liabilities) — (0.1)% | (210,572 | ) | ||||||
Net Assets — 100.0% | $ | 314,595,616 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
ADR—American Depositary Receipt
plc—Public Limited Company
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Schedule of Portfolio Investments, continued
December 31, 2010
As of December 31, 2010, the Fund’s open forward foreign currency contracts were as follows:
Unrealized | ||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||
Deliver 24,773 British Pounds in exchange for U.S. Dollars | Deutsche Bank | 1/4/11 | $ | 38,417 | $ | 38,616 | $ | (199 | ) | |||||||
$ | (199 | ) | ||||||||||||||
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Canada | 1 | .0% | |||
Germany | 2 | .3 | |||
Ireland (Republic of) | 1 | .3 | |||
Israel | 0 | .9 | |||
Netherlands | 2 | .5 | |||
Panama | 0 | .4 | |||
Republic of Korea (South) | 0 | .4 | |||
Switzerland | 1 | .3 | |||
United Kingdom | 2 | .2 | |||
United States | 87 | .7 | |||
100 | .0% | ||||
See accompanying notes to the financial statements.
7
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Statement of Assets and Liabilities
December 31, 2010
AZL MFS | ||||
Investors | ||||
Trust Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 267,708,524 | ||
Investment securities, at value | $ | 314,806,188 | ||
Dividends receivable | 234,883 | |||
Foreign currency, at value (cost $11,381) | 11,381 | |||
Receivable for capital shares issued | 34,391 | |||
Receivable for expenses paid indirectly | 1,086 | |||
Receivable for investments sold | 44,766 | |||
Prepaid expenses | 3,700 | |||
Total Assets | 315,136,395 | |||
Liabilities: | ||||
Unrealized depreciation on forward foreign currency contracts | 199 | |||
Payable for capital shares redeemed | 211,922 | |||
Manager fees payable | 188,825 | |||
Administration fees payable | 12,840 | |||
Distribution fees payable | 65,921 | |||
Custodian fees payable | 4,286 | |||
Administrative and compliance services fees payable | 3,063 | |||
Trustee fees payable | 455 | |||
Other accrued liabilities | 53,268 | |||
Total Liabilities | 540,779 | |||
Net Assets | $ | 314,595,616 | ||
Net Assets Consist of: | ||||
Capital | $ | 303,497,506 | ||
Accumulated net investment income/(loss) | 1,891,142 | |||
Accumulated net realized gains/(losses) from investment transactions | (37,890,730 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 47,097,698 | |||
Net Assets | $ | 314,595,616 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 22,157,832 | |||
Net Asset Value (offering and redemption price per share) | $ | 14.20 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL MFS | ||||
Investors | ||||
Trust Fund | ||||
Investment Income: | ||||
Dividends | $ | 5,262,827 | ||
Foreign withholding tax | (65,107 | ) | ||
Total Investment Income | 5,197,720 | |||
Expenses: | ||||
Manager fees | 2,331,442 | |||
Administration fees | 141,797 | |||
Distribution fees | 777,147 | |||
Custodian fees | 27,855 | |||
Administrative and compliance services fees | 13,466 | |||
Trustees’ fees | 26,934 | |||
Professional fees | 42,954 | |||
Shareholder reports | 30,729 | |||
Other expenses | 15,834 | |||
Total expenses before reductions | 3,408,158 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (105,433 | ) | ||
Less expenses paid indirectly | (17,939 | ) | ||
Net expenses | 3,284,786 | |||
Net Investment Income/(Loss) | 1,912,934 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 8,634,552 | |||
Net realized gains/(losses) on forward foreign currency contracts | (14,946 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 21,620,188 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 30,239,794 | |||
Change in Net Assets Resulting From Operations | $ | 32,152,728 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Statements of Changes in Net Assets
AZL MFS Investors Trust Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 1,912,934 | $ | 447,407 | ||||
Net realized gains/(losses) on investment transactions | 8,619,606 | 25,295,267 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 21,620,188 | 99,802,215 | ||||||
Change in net assets resulting from operations | 32,152,728 | 125,544,889 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (406,267 | ) | (59,235 | ) | ||||
Change in net assets resulting from dividends to shareholders | (406,267 | ) | (59,235 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 30,610,308 | 88,249,320 | ||||||
Proceeds from dividends reinvested | 406,267 | 59,235 | ||||||
Value of shares redeemed | (102,789,053 | ) | (131,919,042 | ) | ||||
Change in net assets resulting from capital transactions | (71,772,478 | ) | (43,610,487 | ) | ||||
Change in net assets | (40,026,017 | ) | 81,875,167 | |||||
Net Assets: | ||||||||
Beginning of period | 354,621,633 | 272,746,466 | ||||||
End of period | $ | 314,595,616 | $ | 354,621,633 | ||||
Accumulated net investment income/(loss) | $ | 1,891,142 | $ | 406,255 | ||||
Share Transactions: | ||||||||
Shares issued | 2,349,721 | 8,947,659 | ||||||
Dividends reinvested | 31,990 | 4,990 | ||||||
Shares redeemed | (7,897,252 | ) | (13,603,690 | ) | ||||
Change in shares | (5,515,541 | ) | (4,651,041 | ) | ||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.81 | $ | 8.44 | $ | 14.85 | $ | 13.92 | $ | 12.35 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.10 | 0.02 | — | (a) | 0.02 | 0.03 | ||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.31 | 4.35 | (5.77 | ) | 1.45 | 1.55 | ||||||||||||||
Total from Investment Activities | 1.41 | 4.37 | (5.77 | ) | 1.47 | 1.58 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.02 | ) | — | (a) | (0.01 | ) | (0.03 | ) | — | |||||||||||
Net Realized Gains | — | — | (0.63 | ) | (0.51 | ) | (0.01 | ) | ||||||||||||
Total Dividends | (0.02 | ) | — | (a) | (0.64 | ) | (0.54 | ) | (0.01 | ) | ||||||||||
Net Asset Value, End of Period | $ | 14.20 | $ | 12.81 | $ | 8.44 | $ | 14.85 | $ | 13.92 | ||||||||||
Total Return(b) | 11.01 | % | 51.80 | % | (40.11 | )% | 10.73 | % | 12.79 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 314,596 | $ | 354,622 | $ | 272,746 | $ | 383,239 | $ | 314,449 | ||||||||||
Net Investment Income/(Loss) | 0.62 | % | 0.15 | % | 0.02 | % | 0.11 | % | 0.28 | % | ||||||||||
Expenses Before Reductions(c) | 1.10 | % | 1.10 | % | 1.11 | % | 1.12 | % | 1.15 | % | ||||||||||
Expenses Net of Reductions | 1.06 | % | 1.04 | % | 1.03 | % | 1.04 | % | 1.08 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.06 | % | 1.07 | % | 1.08 | % | 1.07 | % | 1.11 | % | ||||||||||
Portfolio Turnover Rate | 21.36 | %(e) | 193.49 | % | 144.26 | % | 119.80 | % | 129.27 | % |
(a) | Represents less than $0.005. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(d) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. | |
(e) | Effective October 26, 2009, the Subadviser changed from Jennison Associates LLC to Massachusettes Financial Services Company (“MFS”). Implementation of MFS’ investment strategy has contributed to a lower portfolio turnover rate for the year ended December 31, 2010 as compared to prior years. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL MFS Investors Trust Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. The notional amount foreign currency exchange contracts was $38 thousand as of December 31, 2010. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Foreign Exchange Contracts | Unrealized appreciation on forward foreign currency contracts | $ | — | Unrealized depreciation on forward foreign currency contracts | $ | 199 |
* | Total Fair Value is presented by Primary Risk Exposure. For forward foreign currency contracts, such amounts represent the unrealized gain/appreciation (for asset derivatives) or loss/depreciation (for liability derivatives). |
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | (14,946 | ) | $ | (199 | ) |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a portfolio management agreement effective October 26, 2009 between the Manager and Massachusetts Financial Services Company (“MFS”), MFS provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to October 26, 2009, the Fund was subadvised by Jennison Associates LLC. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL MFS Investors Trust Fund | 0.75 | % | 1.20 | % |
* | The Manager voluntarily reduced the management fee to 0.70% on assets above $100 million. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $9,414 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Automobiles | $ | — | $ | 2,482,139 | $ | — | $ | 2,482,139 | ||||||||
Beverages | 3,860,611 | 6,472,732 | — | 10,333,343 | ||||||||||||
Chemicals | 6,222,692 | 4,762,711 | — | 10,985,403 | ||||||||||||
Food Products | 2,643,127 | 2,085,502 | — | 4,728,629 | ||||||||||||
Hotels, Restaurants & Leisure | 3,548,568 | 613,935 | — | 4,162,503 | ||||||||||||
Household Products | 10,640,127 | 3,522,044 | — | 14,162,171 | ||||||||||||
Semiconductors and Semiconductor Equipment | 6,197,613 | 1,293,592 | — | 7,491,205 | ||||||||||||
All Other Common Stocks+ | 256,878,126 | — | — | 256,878,126 | ||||||||||||
Investment Company | 3,582,669 | — | — | 3,582,669 | ||||||||||||
Total Investment Securities | 293,573,533 | 21,232,655 | — | 314,806,188 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Forward Foreign Currency Contracts | — | (199 | ) | — | (199 | ) | ||||||||||
Total Investments | $ | 293,573,533 | $ | 21,232,456 | $ | — | $ | 314,805,989 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. | |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL MFS Investors Trust Fund | $ | 65,794,862 | $ | 135,439,687 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $268,853,921. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 51,558,553 | ||
Unrealized depreciation | (5,606,286 | ) | ||
Net unrealized appreciation | $ | 45,952,267 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL MFS Investors Trust Fund | $ | 23,864,218 | $ | 12,881,114 |
During the year ended December 31, 2010, the Fund utilized $8,258,488 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $915 of deferred post October currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL MFS Investors Trust Fund
AZL MFS Investors Trust Fund
Notes to the Financial Statements, continued
December 31, 2010
Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL MFS Investors Trust Fund | $ | 406,267 | $ | — | $ | 406,267 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Ordinary | Return of | Total | ||||||||||
Income | Capital | Distributions(a) | ||||||||||
AZL MFS Investors Trust Fund | $ | 59,235 | $ | — | $ | 59,235 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL MFS Investors Trust Fund | $ | 1,892,056 | $ | (36,746,247 | ) | $ | 45,952,301 | $ | 11,098,110 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
19
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL MFS Investors Trust Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (”Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
23
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
24
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
25
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
27
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
28
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Mid Cap Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 12
Page 12
Statement of Operations
Page 13
Page 13
Statement of Changes in Net Assets
Page 14
Page 14
Financial Highlights
Page 15
Page 15
Notes to the Financial Statements
Page 16
Page 16
Report of Independent Registered Public Accounting Firm
Page 24
Page 24
Other Federal Income Tax Information
Page 25
Page 25
Other Information
Page 26
Page 26
Approval of Investment Advisory and Subadvisory Agreements
Page 27
Page 27
Information about the Board of Trustees and Officers
Page 31
Page 31
This report is submitted for the general information of the shareholders of the Fund. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Mid Cap Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Mid Cap Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the period ended December 31, 2010?
For the period ended December 31, 2010, the AZL® Mid Cap Index Fund returned 24.67%1, which compared to a 26.64% total return for its benchmark, the S&P MidCap 400 Index2.
The Fund attempts to replicate the performance of the S&P MidCap 400 index of medium-sized U.S. stocks. These stocks performed well early in the period. Investors were encouraged by improving U.S. unemployment figures and strong corporate earnings. Mid caps suffered a setback midway through the period, however, due in large part to fallout from the European sovereign debt crisis and a stalled U.S. job market. Those factors contributed to fears of a “double-dip” recession.
Those fears receded later in the period as the U.S. job market started growing and the midterm election results were seen by investors as good news for the capital markets. Equities rebounded in that environment and posted strong returns to finish the 12-month period. Mid-cap stocks performed especially strongly, out-gaining both large- and small-cap stocks during the period.
The strongest-performing sectors during the period included information technology, consumer discretionary and industrials. The telecommunications services sector was the worst-performing sector during the period, despite a 14% gain. Other relatively weak sectors included financials and utilities.
The Fund underperformed the Index during the period primarily due to the timing of investment transactions executed in connection with the purchase of fund shares.
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The S&P MidCap 400 Index (“S&P 400 Index”) is the most widely used index for mid-sized companies. The S&P 400 covers 7% of the U.S. equities market, and is part of a series of S&P U.S. indices that can be used as building blocks for portfolio composition. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Mid Cap Index Fund Review
Fund Objective
The Fund’s investment objective is to seek to match the performance of the Standard & Poor’s MidCap 400® Index (“S&P 400 Index”) as closely as possible. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets in a statistically selected sampling of equity securities of companies included in the S&P 400 Index and in derivative instruments linked to the S&P 400 Index, primarily futures contracts.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Mid-capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure.
The Fund does not attempt to manage market volatility or reduce the effects of poor stock performance. In addition, factors such as Fund expenses, selection of a representative portfolio, changes in the composition of the index, or the timing of purchases or redemptions of Fund shares may affect the correlation between the performance of the index and the Fund’s performance.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||
1 | Inception | |||||||
Year | (5/1/09) | |||||||
AZL® Mid Cap Index Fund | 24.67 | % | 33.54 | % | ||||
S&P MidCap 400 Index | 26.64 | % | 35.84 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio1 | Gross | |||
AZL® Mid Cap Index Fund | 0.67 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.60% through April 30, 2011 and 0.71% effective May 1, 2011 through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and expenses the Fund’s gross ratio would be 0.66%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the S&P MidCap 400 Index, which is the most widely used index for mid-sized companies. The S&P 400 covers 7% of the U.S. equities market, and is part of a series of S&P U.S. indices that can be used as building blocks for portfolio composition. The index is unmanaged and does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Mid Cap Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Mid Cap Index Fund | $ | 1,000.00 | $ | 1,278.90 | $ | 3.45 | 0.60 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Mid Cap Index Fund | $ | 1,000.00 | $ | 1,022.18 | $ | 3.06 | 0.60 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Mid Cap Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 0.5 | % | ||
Airlines | 0.4 | |||
Auto Components | 1.1 | |||
Automobiles | 0.1 | |||
Beverages | 0.3 | |||
Biotechnology | 0.9 | |||
Building Products | 0.2 | |||
Capital Markets | 2.3 | |||
Chemicals | 3.3 | |||
Commercial Banks | 3.5 | |||
Commercial Services & Supplies | 1.6 | |||
Communications Equipment | 1.5 | |||
Computers & Peripherals | 0.4 | |||
Construction & Engineering | 1.3 | |||
Construction Materials | 0.4 | |||
Containers & Packaging | 1.5 | |||
Distributors | 0.4 | |||
Diversified Consumer Services | 1.1 | |||
Diversified Financial Services | 0.4 | |||
Diversified Telecommunication Services | 0.3 | |||
Electric Utilities | 1.6 | |||
Electrical Equipment | 2.0 | |||
Electronic Equipment, Instruments & Components | 2.2 | |||
Energy Equipment & Services | 2.4 | |||
Food & Staples Retailing | 0.4 | |||
Food Products | 1.6 | |||
Gas Utilities | 2.0 | |||
Health Care Equipment & Supplies | 4.0 | |||
Health Care Providers & Services | 3.0 | |||
Health Care Technology | 0.3 | |||
Hotels, Restaurants & Leisure | 2.1 | |||
Household Durables | 1.4 | |||
Household Products | 1.0 | |||
Independent Power Producers & Energy Traders | 0.1 | |||
Industrial Conglomerates | 0.2 | |||
Insurance | 4.0 | |||
Internet Software & Services | 0.8 | |||
IT Services | 2.0 | |||
Leisure Equipment & Products | 0.4 | |||
Life Sciences Tools & Services | 1.6 | |||
Machinery | 6.3 | |||
Marine | 0.4 | |||
Media | 1.0 | |||
Metals & Mining | 1.3 | |||
Multi-Utilities | 1.7 | |||
Multiline Retail | 0.8 | |||
Office Electronics | 0.2 | |||
Oil, Gas & Consumable Fuels | 3.3 | |||
Paper & Forest Products | 0.1 | |||
Personal Products | 0.3 | |||
Pharmaceuticals | 1.0 | |||
Professional Services | 1.1 | |||
Real Estate Investment Trusts (REITs) | 7.3 | |||
Real Estate Management & Development | 0.3 | |||
Road & Rail | 1.2 | |||
Semiconductors & Semiconductor Equipment | 3.2 | |||
Software | 4.3 | |||
Specialty Retail | 4.0 | |||
Textiles, Apparel & Luxury Goods | 1.6 | |||
Thrifts & Mortgage Finance | 1.4 | |||
Tobacco | 0.1 | |||
Trading Companies & Distributors | 0.5 | |||
Water Utilities | 0.3 | |||
Wireless Telecommunication Services | 0.5 | |||
Investment Company | 2.6 | |||
99.4 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (96.8%): | ||||||||
Aerospace & Defense (0.5%): | ||||||||
4,501 | Alliant Techsystems, Inc.* | $ | 335,009 | |||||
13,820 | BE Aerospace, Inc.* | 511,755 | ||||||
846,764 | ||||||||
Airlines (0.4%): | ||||||||
18,325 | AirTran Holdings, Inc.* | 135,422 | ||||||
4,978 | Alaska Air Group, Inc.* | 282,203 | ||||||
27,266 | JetBlue Airways Corp.* | 180,228 | ||||||
597,853 | ||||||||
Auto Components (1.1%): | ||||||||
15,372 | BorgWarner, Inc.* | 1,112,318 | ||||||
18,969 | Gentex Corp. | 560,724 | ||||||
1,673,042 | ||||||||
Automobiles (0.1%): | ||||||||
5,735 | Thor Industries, Inc. | 194,761 | ||||||
Beverages (0.3%): | ||||||||
9,338 | Hansen Natural Corp.* | 488,191 | ||||||
Biotechnology (0.9%): | ||||||||
6,769 | United Therapeutics Corp.* | 427,936 | ||||||
27,458 | Vertex Pharmaceuticals, Inc.* | 961,854 | ||||||
1,389,790 | ||||||||
Building Products (0.2%): | ||||||||
6,068 | Lennox International, Inc. | 286,956 | ||||||
Capital Markets (2.3%): | ||||||||
6,969 | Affiliated Managers Group, Inc.* | 691,464 | ||||||
26,365 | Apollo Investment Corp. | 291,861 | ||||||
15,992 | Eaton Vance Corp. | 483,438 | ||||||
3,410 | Greenhill & Co., Inc. | 278,529 | ||||||
16,721 | Jefferies Group, Inc. | 445,280 | ||||||
13,509 | Raymond James Financial, Inc. | 441,744 | ||||||
19,716 | SEI Investments Co. | 469,044 | ||||||
11,541 | Waddell & Reed Financial, Inc., Class A | 407,282 | ||||||
3,508,642 | ||||||||
Chemicals (3.3%): | ||||||||
12,375 | Albemarle Corp. | 690,278 | ||||||
10,656 | Ashland, Inc. | 541,964 | ||||||
8,838 | Cabot Corp. | 332,751 | ||||||
6,675 | Cytec Industries, Inc. | 354,176 | ||||||
5,991 | Intrepid Potash, Inc.* | 223,404 | ||||||
8,869 | Lubrizol Corp. | 947,919 | ||||||
2,507 | Minerals Technologies, Inc. | 163,983 | ||||||
1,336 | NewMarket Corp. | 164,822 | ||||||
10,755 | Olin Corp. | 220,693 | ||||||
17,422 | RPM International, Inc. | 385,026 | ||||||
6,211 | Scotts Miracle-Gro Co. (The), Class A | 315,332 | ||||||
6,718 | Sensient Technologies Corp. | 246,752 | ||||||
13,309 | Valspar Corp. (The) | 458,894 | ||||||
5,045,994 | ||||||||
Commercial Banks (3.5%): | ||||||||
23,392 | Associated Banc-Corp. | 354,389 | ||||||
9,935 | BancorpSouth, Inc. | 158,463 | ||||||
6,518 | Bank of Hawaii Corp. | 307,715 | ||||||
10,619 | Cathay General Bancorp | 177,337 | ||||||
6,269 | City National Corp. | 384,666 | ||||||
10,482 | Commerce Bancshares, Inc. | 416,440 | ||||||
8,236 | Cullen/Frost Bankers, Inc. | 503,384 | ||||||
20,004 | East West Bancorp, Inc. | 391,078 | ||||||
14,707 | FirstMerit Corp. | 291,052 | ||||||
26,895 | Fulton Financial Corp. | 278,094 | ||||||
7,143 | International Bancshares Corp. | 143,074 | ||||||
4,327 | PacWest Bancorp | 92,511 | ||||||
6,308 | Prosperity Bancshares, Inc. | 247,778 | ||||||
5,676 | SVB Financial Group* | 301,112 | ||||||
106,134 | Synovus Financial Corp. | 280,194 | ||||||
17,163 | TCF Financial Corp. | 254,184 | ||||||
7,688 | Trustmark Corp. | 190,970 | ||||||
21,802 | Valley National Bancorp | 311,769 | ||||||
9,897 | Webster Financial Corp. | 194,971 | ||||||
3,936 | Westamerica Bancorp | 218,330 | ||||||
5,497,511 | ||||||||
Commercial Services & Supplies (1.6%): | ||||||||
6,324 | Brink’s Co. (The) | 169,989 | ||||||
3,100 | Clean Harbors, Inc.* | 260,648 | ||||||
9,444 | Copart, Inc.* | 352,733 | ||||||
14,902 | Corrections Corp. of America* | 373,444 | ||||||
6,938 | Deluxe Corp. | 159,713 | ||||||
7,719 | Herman Miller, Inc. | 195,291 | ||||||
6,057 | HNI Corp. | 188,978 | ||||||
4,176 | Mine Safety Appliances Co. | 129,999 | ||||||
8,601 | Rollins, Inc. | 169,870 | ||||||
15,561 | Waste Connections, Inc. | 428,394 | ||||||
2,429,059 | ||||||||
Communications Equipment (1.5%): | ||||||||
8,528 | ADTRAN, Inc. | 308,799 | ||||||
12,649 | Ciena Corp.* | 266,262 | ||||||
12,847 | CommScope, Inc.* | 401,083 | ||||||
6,440 | Plantronics, Inc. | 239,697 | ||||||
11,542 | Polycom, Inc.* | 449,907 | ||||||
19,865 | Riverbed Technology, Inc.* | 698,652 | ||||||
2,364,400 | ||||||||
Computers & Peripherals (0.4%): | ||||||||
8,878 | Diebold, Inc. | 284,540 | ||||||
21,532 | NCR Corp.* | 330,947 | ||||||
615,487 | ||||||||
Construction & Engineering (1.3%): | ||||||||
16,021 | Aecom Technology Corp.* | 448,107 | ||||||
4,615 | Granite Construction, Inc. | 126,589 | ||||||
20,401 | KBR, Inc. | 621,619 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering, continued | ||||||||
11,483 | Shaw Group, Inc.* | $ | 393,063 | |||||
11,183 | URS Corp.* | 465,325 | ||||||
2,054,703 | ||||||||
Construction Materials (0.4%): | ||||||||
6,153 | Martin Marietta Materials, Inc. | 567,553 | ||||||
Containers & Packaging (1.5%): | ||||||||
9,065 | AptarGroup, Inc. | 431,222 | ||||||
4,207 | Greif, Inc., Class A | 260,413 | ||||||
13,861 | Packaging Corp. of America | 358,168 | ||||||
5,261 | Rock-Tenn Co., Class A | 283,831 | ||||||
6,790 | Silgan Holdings, Inc. | 243,150 | ||||||
13,907 | Sonoco Products Co. | 468,249 | ||||||
14,573 | Temple-Inland, Inc. | 309,531 | ||||||
2,354,564 | ||||||||
Distributors (0.4%): | ||||||||
19,519 | LKQ Corp.* | 443,472 | ||||||
3,767 | Watsco, Inc. | 237,622 | ||||||
681,094 | ||||||||
Diversified Consumer Services (1.1%): | ||||||||
8,900 | Career Education Corp.* | 184,497 | ||||||
3,555 | ITT Educational Services, Inc.* | 226,418 | ||||||
3,987 | Matthews International Corp., Class A | 139,465 | ||||||
7,826 | Regis Corp. | 129,912 | ||||||
33,042 | Service Corp. International | 272,596 | ||||||
9,064 | Sotheby’s | 407,880 | ||||||
1,831 | Strayer Education, Inc. | 278,715 | ||||||
1,639,483 | ||||||||
Diversified Financial Services (0.4%): | ||||||||
16,052 | MSCI, Inc., Class A* | 625,386 | ||||||
Diversified Telecommunication Services (0.3%): | ||||||||
26,779 | Cincinnati Bell, Inc.* | 74,981 | ||||||
20,451 | TW Telecom, Inc.* | 348,690 | ||||||
423,671 | ||||||||
Electric Utilities (1.6%): | ||||||||
8,213 | Cleco Corp. | 252,632 | ||||||
16,076 | DPL, Inc. | 413,314 | ||||||
18,335 | Great Plains Energy, Inc. | 355,516 | ||||||
12,728 | Hawaiian Electric Industries, Inc. | 290,071 | ||||||
6,640 | IDACORP, Inc. | 245,547 | ||||||
31,785 | NV Energy, Inc. | 446,579 | ||||||
11,722 | PNM Resources, Inc. | 152,620 | ||||||
15,056 | Westar Energy, Inc. | 378,809 | ||||||
2,535,088 | ||||||||
Electrical Equipment (2.0%): | ||||||||
5,820 | Acuity Brands, Inc. | 335,639 | ||||||
21,629 | AMETEK, Inc. | 848,919 | ||||||
6,375 | Baldor Electric Co. | 401,880 | ||||||
8,112 | Hubbell, Inc., Class B | 487,774 | ||||||
5,217 | Regal-Beloit Corp. | 348,287 | ||||||
7,004 | Thomas & Betts Corp.* | 338,293 | ||||||
8,012 | Woodward Governor Co. | 300,931 | ||||||
3,061,723 | ||||||||
Electronic Equipment, Instruments & Components (2.2%): | ||||||||
15,650 | Arrow Electronics, Inc.* | 536,013 | ||||||
20,536 | Avnet, Inc.* | 678,304 | ||||||
21,193 | Ingram Micro, Inc., Class A* | 404,574 | ||||||
5,462 | Itron, Inc.* | 302,868 | ||||||
7,928 | National Instruments Corp. | 298,410 | ||||||
6,303 | Tech Data Corp.* | 277,458 | ||||||
16,228 | Trimble Navigation, Ltd.* | 647,984 | ||||||
22,293 | Vishay Intertechnology, Inc.* | 327,261 | ||||||
3,472,872 | ||||||||
Energy Equipment & Services (2.4%): | ||||||||
7,582 | Atwood Oceanics, Inc.* | 283,339 | ||||||
4,633 | Dril-Quip, Inc.* | 360,077 | ||||||
8,548 | Exterran Holdings, Inc.* | 204,725 | ||||||
14,259 | Helix Energy Solutions Group, Inc.* | 173,104 | ||||||
7,313 | Oceaneering International, Inc.* | 538,456 | ||||||
20,831 | Patterson-UTI Energy, Inc. | 448,908 | ||||||
23,747 | Pride International, Inc.* | 783,651 | ||||||
10,653 | Superior Energy Services, Inc.* | 372,748 | ||||||
6,947 | Tidewater, Inc. | 374,027 | ||||||
5,374 | Unit Corp.* | 249,784 | ||||||
3,788,819 | ||||||||
Food & Staples Retailing (0.4%): | ||||||||
7,381 | BJ’s Wholesale Club, Inc.* | 353,550 | ||||||
5,780 | Ruddick Corp. | 212,935 | ||||||
566,485 | ||||||||
Food Products (1.6%): | ||||||||
10,219 | Corn Products International, Inc. | 470,074 | ||||||
10,241 | Flowers Foods, Inc. | 275,585 | ||||||
15,666 | Green Mountain Coffee Roasters, Inc.* | 514,785 | ||||||
2,600 | Lancaster Colony Corp. | 148,720 | ||||||
7,424 | Ralcorp Holdings, Inc.* | 482,634 | ||||||
22,437 | Smithfield Foods, Inc.* | 462,875 | ||||||
3,355 | Tootsie Roll Industries, Inc. | 97,195 | ||||||
2,451,868 | ||||||||
Gas Utilities (2.0%): | ||||||||
10,548 | AGL Resources, Inc. | 378,146 | ||||||
12,221 | Atmos Energy Corp. | 381,295 | ||||||
9,716 | Energen Corp. | 468,894 | ||||||
11,107 | National Fuel Gas Co. | 728,841 | ||||||
23,596 | Questar Corp. | 410,806 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities, continued | ||||||||
14,930 | UGI Corp. | $ | 471,490 | |||||
6,904 | WGL Holdings, Inc. | 246,956 | ||||||
3,086,428 | ||||||||
Health Care Equipment & Supplies (4.0%): | ||||||||
9,358 | Beckman Coulter, Inc. | 704,002 | ||||||
15,428 | Edwards Lifesciences Corp.* | 1,247,199 | ||||||
6,516 | Gen-Probe, Inc.* | 380,209 | ||||||
8,523 | Hill-Rom Holdings, Inc. | 335,550 | ||||||
35,122 | Hologic, Inc.* | 660,996 | ||||||
7,771 | IDEXX Laboratories, Inc.* | 537,909 | ||||||
9,466 | Immucor, Inc.* | 187,711 | ||||||
8,462 | Kinetic Concepts, Inc.* | 354,389 | ||||||
7,964 | Masimo Corp. | 231,513 | ||||||
20,432 | ResMed, Inc.* | 707,764 | ||||||
7,995 | STERIS Corp. | 291,498 | ||||||
5,405 | Teleflex, Inc. | 290,843 | ||||||
7,905 | Thoratec Corp.* | 223,870 | ||||||
6,153,453 | ||||||||
Health Care Providers & Services (3.0%): | ||||||||
12,508 | Community Health Systems, Inc.* | 467,424 | ||||||
33,876 | Health Management Associates, Inc., Class A* | 323,177 | ||||||
12,916 | Health Net, Inc.* | 352,478 | ||||||
12,469 | Henry Schein, Inc.* | 765,472 | ||||||
5,411 | Kindred Healthcare, Inc.* | 99,400 | ||||||
7,131 | LifePoint Hospitals, Inc.* | 262,064 | ||||||
13,194 | Lincare Holdings, Inc. | 353,995 | ||||||
6,445 | MEDNAX, Inc.* | 433,684 | ||||||
15,670 | Omnicare, Inc. | 397,861 | ||||||
8,562 | Owens & Minor, Inc. | 251,980 | ||||||
13,145 | Universal Health Services, Inc., Class B | 570,756 | ||||||
11,649 | VCA Antech, Inc.* | 271,305 | ||||||
5,752 | WellCare Health Plans, Inc.* | 173,825 | ||||||
4,723,421 | ||||||||
Health Care Technology (0.3%): | ||||||||
25,287 | Allscripts-Misys Healthcare Solutions, Inc.* | 487,280 | ||||||
Hotels, Restaurants & Leisure (2.1%): | ||||||||
7,246 | Bally Technologies, Inc.* | 305,709 | ||||||
4,111 | Bob Evans Farms, Inc. | 135,499 | ||||||
7,726 | Boyd Gaming Corp.* | 81,896 | ||||||
12,480 | Brinker International, Inc. | 260,582 | ||||||
8,011 | Cheesecake Factory, Inc. (The)* | 245,617 | ||||||
4,181 | Chipotle Mexican Grill, Inc., Class A* | 889,131 | ||||||
3,968 | International Speedway Corp., Class A | 103,843 | ||||||
5,663 | Life Time Finess, Inc.* | 232,126 | ||||||
4,101 | Panera Bread Co., Class A* | 415,062 | ||||||
8,697 | Scientific Games Corp.* | 86,622 | ||||||
43,517 | Wendy’s/Arby’s Group, Inc. | 201,049 | ||||||
7,809 | WMS Industries, Inc.* | 353,279 | ||||||
3,310,415 | ||||||||
Household Durables (1.4%): | ||||||||
5,421 | American Greetings Corp., Class A | 120,129 | ||||||
9,766 | KB Home | 131,743 | ||||||
5,100 | M.D.C. Holdings, Inc. | 146,727 | ||||||
7,603 | Mohawk Industries, Inc.* | 431,546 | ||||||
763 | NVR, Inc.* | 527,248 | ||||||
5,990 | Ryland Group, Inc. (The) | 102,010 | ||||||
19,506 | Toll Brothers, Inc.* | 370,614 | ||||||
8,535 | Tupperware Brands Corp. | 406,864 | ||||||
2,236,881 | ||||||||
Household Products (1.0%): | ||||||||
9,864 | Aaron’s, Inc. | 201,127 | ||||||
9,613 | Church & Dwight Co., Inc. | 663,489 | ||||||
9,538 | Energizer Holdings, Inc.* | 695,320 | ||||||
1,559,936 | ||||||||
Independent Power Producers & Energy Traders (0.1%): | ||||||||
14,151 | Dynegy, Inc.* | 79,529 | ||||||
Industrial Conglomerates (0.2%): | ||||||||
8,243 | Carlisle Cos., Inc. | 327,577 | ||||||
Insurance (4.0%): | ||||||||
10,632 | American Financial Group, Inc. | 343,307 | ||||||
14,327 | Arthur J. Gallagher & Co. | 416,629 | ||||||
15,810 | Brown & Brown, Inc. | 378,492 | ||||||
14,078 | CoreLogic, Inc. | 260,725 | ||||||
7,393 | Everest Re Group, Ltd. | 627,074 | ||||||
30,677 | Fidelity National Financial, Inc., Class A | 419,661 | ||||||
14,094 | First American Financial Corp. | 210,564 | ||||||
6,098 | Hanover Insurance Group, Inc. (The) | 284,899 | ||||||
15,583 | HCC Insurance Holdings, Inc. | 450,972 | ||||||
4,816 | Mercury General Corp. | 207,136 | ||||||
34,400 | Old Republic International Corp. | 468,872 | ||||||
11,580 | Protective Life Corp. | 308,491 | ||||||
9,896 | Reinsurance Group of America, Inc. | 531,514 | ||||||
6,217 | StanCorp Financial Group, Inc. | 280,636 | ||||||
8,547 | Transatlantic Holdings, Inc. | 441,196 | ||||||
6,731 | Unitrin, Inc. | 165,179 | ||||||
16,074 | W.R. Berkley Corp. | 440,106 | ||||||
6,235,453 | ||||||||
Internet Software & Services (0.8%): | ||||||||
5,368 | Digital River, Inc.* | 184,767 | ||||||
6,216 | Equinix, Inc.* | 505,112 |
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Internet Software & Services, continued | ||||||||
13,125 | Rackspace Hosting, Inc.* | $ | 412,256 | |||||
11,000 | ValueClick, Inc.* | 176,330 | ||||||
1,278,465 | ||||||||
IT Services (2.0%): | ||||||||
10,845 | Acxiom Corp.* | 185,992 | ||||||
7,027 | Alliance Data Systems Corp.* | 499,128 | ||||||
16,899 | Broadridge Financial Solutions, Inc. | 370,595 | ||||||
16,471 | Convergys Corp.* | 216,923 | ||||||
4,814 | DST Systems, Inc. | 213,501 | ||||||
9,874 | Gartner, Inc.* | 327,817 | ||||||
10,768 | Global Payments, Inc. | 497,589 | ||||||
12,343 | Lender Processing Services, Inc. | 364,365 | ||||||
3,051 | ManTech International Corp., Class A* | 126,098 | ||||||
8,301 | NeuStar, Inc., Class A* | 216,241 | ||||||
5,794 | SRA International, Inc., Class A* | 118,487 | ||||||
3,136,736 | ||||||||
Leisure Equipment & Products (0.4%): | ||||||||
36,355 | Eastman Kodak Co.* | 194,863 | ||||||
4,581 | Polaris Industries, Inc. | 357,409 | ||||||
552,272 | ||||||||
Life Sciences Tools & Services (1.6%): | ||||||||
2,630 | Bio-Rad Laboratories, Inc., Class A* | 273,125 | ||||||
7,803 | Charles River Laboratories International, Inc.* | 277,319 | ||||||
8,765 | Covance, Inc.* | 450,609 | ||||||
4,435 | Mettler-Toledo International, Inc.* | 670,616 | ||||||
16,064 | Pharmaceutical Product Development, Inc. | 435,977 | ||||||
5,013 | Techne Corp. | 329,204 | ||||||
2,436,850 | ||||||||
Machinery (6.3%): | ||||||||
12,575 | AGCO Corp.* | 637,050 | ||||||
10,947 | Bucyrus International, Inc., Class A | 978,662 | ||||||
6,242 | Crane Co. | 256,359 | ||||||
10,338 | Donaldson Co., Inc. | 602,499 | ||||||
7,093 | Gardner Denver, Inc. | 488,140 | ||||||
8,094 | Graco, Inc. | 319,308 | ||||||
10,882 | Harsco Corp. | 308,178 | ||||||
11,067 | IDEX Corp. | 432,941 | ||||||
13,955 | Joy Global, Inc. | 1,210,596 | ||||||
11,095 | Kennametal, Inc. | 437,809 | ||||||
5,712 | Lincoln Electric Holdings, Inc. | 372,822 | ||||||
4,590 | Nordson Corp. | 421,729 | ||||||
12,261 | Oshkosh Truck Corp.* | 432,078 | ||||||
13,338 | Pentair, Inc. | 486,970 | ||||||
6,785 | SPX Corp. | 485,060 | ||||||
14,719 | Terex Corp.* | 456,878 | ||||||
10,891 | Timken Co. | 519,828 | ||||||
10,781 | Trinity Industries, Inc. | 286,882 | ||||||
2,885 | Valmont Industries, Inc. | 255,986 | ||||||
6,480 | Wabtec Corp. | 342,727 | ||||||
9,732,502 | ||||||||
Marine (0.4%): | ||||||||
5,580 | Alexander & Baldwin, Inc. | 223,367 | ||||||
7,235 | Kirby Corp.* | 318,702 | ||||||
542,069 | ||||||||
Media (1.0%): | ||||||||
14,428 | AOL, Inc.* | 342,088 | ||||||
9,681 | DreamWorks Animation SKG, Inc., Class A* | 285,299 | ||||||
5,357 | Harte-Hanks, Inc. | 68,409 | ||||||
6,273 | John Wiley & Sons, Inc. | 283,791 | ||||||
7,748 | Lamar Advertising Co.* | 308,680 | ||||||
15,983 | New York Times Co., Class A* | 156,633 | ||||||
3,256 | Scholastic Corp. | 96,182 | ||||||
1,541,082 | ||||||||
Metals & Mining (1.3%): | ||||||||
5,945 | Carpenter Technology Corp. | 239,227 | ||||||
15,459 | Commercial Metals Co. | 256,465 | ||||||
4,423 | Compass Minerals International, Inc. | 394,841 | ||||||
10,083 | Reliance Steel & Aluminum Co. | 515,241 | ||||||
29,334 | Steel Dynamics, Inc. | 536,812 | ||||||
7,586 | Worthington Industries, Inc. | 139,583 | ||||||
2,082,169 | ||||||||
Multi-Utilities (1.7%): | ||||||||
14,981 | Alliant Energy Corp. | 550,851 | ||||||
5,308 | Black Hills Corp. | 159,240 | ||||||
25,442 | MDU Resources Group, Inc. | 515,709 | ||||||
13,999 | NSTAR | 590,618 | ||||||
13,173 | OGE Energy Corp. | 599,898 | ||||||
11,038 | Vectren Corp. | 280,145 | ||||||
2,696,461 | ||||||||
Multiline Retail (0.8%): | ||||||||
6,338 | 99 Cents Only Stores* | 101,028 | ||||||
16,921 | Dollar Tree, Inc.* | 948,929 | ||||||
21,751 | Saks, Inc.* | 232,736 | ||||||
1,282,693 | ||||||||
Office Electronics (0.2%): | ||||||||
7,641 | Zebra Technologies Corp., Class A* | 290,282 | ||||||
Oil, Gas & Consumable Fuels (3.3%): | ||||||||
21,957 | Arch Coal, Inc. | 769,813 | ||||||
6,274 | Bill Barrett Corp.* | 258,050 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
11,446 | Cimarex Energy Co. | $ | 1,013,314 | |||||
6,440 | Comstock Resources, Inc.* | 158,166 | ||||||
15,323 | Forest Oil Corp.* | 581,814 | ||||||
14,292 | Frontier Oil Corp.* | 257,399 | ||||||
3,621 | Overseas Shipholding Group, Inc. | 128,256 | ||||||
10,828 | Patriot Coal Corp.* | 209,738 | ||||||
18,934 | Plains Exploration & Production Co.* | 608,539 | ||||||
15,888 | Quicksilver Resources, Inc.* | 234,189 | ||||||
8,522 | SM Energy Co. | 502,202 | ||||||
16,828 | Southern Union Co. | 405,050 | ||||||
5,126,530 | ||||||||
Paper & Forest Products (0.1%): | ||||||||
17,844 | Louisiana-Pacific Corp.* | 168,804 | ||||||
Personal Products (0.3%): | ||||||||
11,600 | Alberto-Culver Co. | 429,664 | ||||||
Pharmaceuticals (1.0%): | ||||||||
15,621 | Endo Pharmaceuticals Holdings, Inc.* | 557,826 | ||||||
8,196 | Medicis Pharmaceutical Corp., Class A | 219,571 | ||||||
11,218 | Perrigo Co. | 710,436 | ||||||
1,487,833 | ||||||||
Professional Services (1.1%): | ||||||||
4,638 | Corporate Executive Board Co. | 174,157 | ||||||
6,279 | FTI Consulting, Inc.* | 234,081 | ||||||
6,260 | Korn/Ferry International* | 144,669 | ||||||
11,023 | Manpower, Inc. | 691,803 | ||||||
6,644 | Navigant Consulting, Inc.* | 61,125 | ||||||
6,123 | Towers Watson & Co., Class A | 318,763 | ||||||
1,624,598 | ||||||||
Real Estate Investment Trusts (REITs) (7.3%): | ||||||||
7,479 | Alexandria Real Estate Equities, Inc. | 547,912 | ||||||
22,755 | AMB Property Corp. | 721,561 | ||||||
8,663 | BRE Properties, Inc. | 376,840 | ||||||
9,282 | Camden Property Trust | 501,042 | ||||||
9,042 | Corporate Office Properties Trust | 316,018 | ||||||
14,006 | Cousins Properties, Inc. | 116,812 | ||||||
34,077 | Duke Realty Corp. | 424,599 | ||||||
6,238 | Equity One, Inc. | 113,407 | ||||||
4,234 | Essex Property Trust, Inc. | 483,607 | ||||||
8,314 | Federal Realty Investment Trust | 647,910 | ||||||
9,025 | Highwoods Properties, Inc. | 287,446 | ||||||
16,685 | Hospitality Properties Trust | 384,422 | ||||||
15,435 | Liberty Property Trust | 492,685 | ||||||
17,583 | Macerich Co. (The) | 832,907 | ||||||
10,750 | Mack-Cali Realty Corp. | 355,395 | ||||||
17,062 | Nationwide Health Properties, Inc. | 620,716 | ||||||
13,314 | OMEGA Healthcare Investors, Inc. | 298,766 | ||||||
5,410 | Potlatch Corp. | 176,095 | ||||||
10,888 | Rayonier, Inc. | 571,838 | ||||||
15,825 | Realty Income Corp. | 541,215 | ||||||
11,065 | Regency Centers Corp. | 467,386 | ||||||
18,920 | Senior Housing Properties Trust | 415,105 | ||||||
10,576 | SL Green Realty Corp. | 713,986 | ||||||
24,615 | UDR, Inc. | 578,945 | ||||||
16,276 | Weingarten Realty Investors | 386,718 | ||||||
11,373,333 | ||||||||
Real Estate Management & Development (0.3%): | ||||||||
5,764 | Jones Lang LaSalle, Inc. | 483,715 | ||||||
Road & Rail (1.2%): | ||||||||
7,403 | Con-way, Inc. | 270,728 | ||||||
11,995 | J.B. Hunt Transport Services, Inc. | 489,516 | ||||||
13,867 | Kansas City Southern Industries, Inc.* | 663,675 | ||||||
6,640 | Landstar System, Inc. | 271,841 | ||||||
5,992 | Werner Enterprises, Inc. | 135,419 | ||||||
1,831,179 | ||||||||
Semiconductors & Semiconductor Equipment (3.2%): | ||||||||
61,931 | Atmel Corp.* | 762,990 | ||||||
14,656 | Cree, Inc.* | 965,684 | ||||||
16,742 | Fairchild Semiconductor International, Inc.* | 261,343 | ||||||
20,959 | Integrated Device Technology, Inc.* | 139,587 | ||||||
9,380 | International Rectifier Corp.* | 278,492 | ||||||
16,811 | Intersil Corp., Class A | 256,704 | ||||||
16,618 | Lam Research Corp.* | 860,480 | ||||||
37,152 | RF Micro Devices, Inc.* | 273,067 | ||||||
8,432 | Semtech Corp.* | 190,901 | ||||||
5,912 | Silicon Laboratories, Inc.* | 272,070 | ||||||
24,769 | Skyworks Solutions, Inc.* | 709,136 | ||||||
4,970,454 | ||||||||
Software (4.3%): | ||||||||
4,491 | ACI Worldwide, Inc.* | 120,673 | ||||||
2,161 | Advent Software, Inc.* | 125,165 | ||||||
12,297 | Ansys, Inc.* | 640,305 | ||||||
36,120 | Cadence Design Systems, Inc.* | 298,351 | ||||||
6,163 | Concur Technologies, Inc.* | 320,045 | ||||||
6,266 | FactSet Research Systems, Inc. | 587,500 | ||||||
5,451 | Fair Isaac Corp. | 127,390 | ||||||
12,682 | Informatica Corp.* | 558,389 | ||||||
11,573 | Jack Henry & Associates, Inc. | 337,353 | ||||||
14,830 | Mentor Graphics Corp.* | 177,960 | ||||||
10,890 | Micros Systems, Inc.* | 477,635 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
15,930 | Parametric Technology Corp.* | $ | 358,903 | |||||
8,130 | Quest Software, Inc.* | 225,526 | ||||||
14,212 | Rovi Corp.* | 881,286 | ||||||
9,494 | Solera Holdings, Inc. | 487,232 | ||||||
20,077 | Synopsys, Inc.* | 540,272 | ||||||
22,567 | TIBCO Software, Inc.* | 444,796 | ||||||
6,708,781 | ||||||||
Specialty Retail (4.0%): | ||||||||
11,359 | Advance Auto Parts, Inc. | 751,398 | ||||||
12,497 | Aeropostale, Inc.* | 307,926 | ||||||
26,449 | American Eagle Outfitters, Inc. | 386,949 | ||||||
7,848 | Ann Taylor Stores Corp.* | 214,957 | ||||||
5,391 | Barnes & Noble, Inc. | 76,283 | ||||||
24,008 | Chico’s FAS, Inc. | 288,816 | ||||||
8,705 | Collective Brands, Inc.* | 183,676 | ||||||
11,979 | Dick’s Sporting Goods, Inc.* | 449,212 | ||||||
9,369 | Dress Barn, Inc.* | 247,529 | ||||||
21,041 | Foot Locker, Inc. | 412,824 | ||||||
8,581 | Guess?, Inc. | 406,053 | ||||||
8,642 | J. Crew Group, Inc.* | 372,816 | ||||||
37,464 | Office Depot, Inc.* | 202,306 | ||||||
15,893 | PetSmart, Inc. | 632,859 | ||||||
8,707 | Rent-A-Center, Inc. | 281,062 | ||||||
9,854 | Tractor Supply Co. | 477,820 | ||||||
14,347 | Williams-Sonoma, Inc. | 512,044 | ||||||
6,204,530 | ||||||||
Textiles, Apparel & Luxury Goods (1.6%): | ||||||||
5,209 | Deckers Outdoor Corp.* | 415,366 | ||||||
6,945 | Fossil, Inc.* | 489,483 | ||||||
12,946 | Hanesbrands, Inc.* | 328,828 | ||||||
8,970 | Phillips-Van Heusen Corp. | 565,200 | ||||||
5,273 | Timberland Co., Class A* | 129,663 | ||||||
4,757 | Under Armour, Inc.* | 260,874 | ||||||
6,015 | Warnaco Group, Inc. (The)* | 331,246 | ||||||
2,520,660 | ||||||||
Thrifts & Mortgage Finance (1.4%): | ||||||||
11,158 | Astoria Financial Corp. | 155,208 | ||||||
28,262 | First Niagara Financial Group, Inc. | 395,103 | ||||||
58,863 | New York Community Bancorp, Inc. | 1,109,567 | ||||||
14,207 | NewAlliance Bancshares, Inc. | 212,821 | ||||||
15,212 | Washington Federal, Inc. | 257,387 | ||||||
2,130,086 | ||||||||
Tobacco (0.1%): | ||||||||
3,218 | Universal Corp. | 130,973 | ||||||
Trading Companies & Distributors (0.5%): | ||||||||
6,260 | GATX Corp. | 220,853 | ||||||
6,023 | MSC Industrial Direct Co., Inc., Class A | 389,628 | ||||||
8,185 | United Rentals, Inc.* | 186,208 | ||||||
796,689 | ||||||||
Water Utilities (0.3%): | ||||||||
18,589 | Aqua America, Inc. | 417,881 | ||||||
Wireless Telecommunication Services (0.5%): | ||||||||
9,491 | Syniverse Holdings, Inc.* | 292,797 | ||||||
12,418 | Telephone and Data Systems, Inc. | 453,878 | ||||||
746,675 | ||||||||
Total Common Stocks (Cost $124,394,269) | 150,086,098 | |||||||
Investment Company (2.6%): | ||||||||
4,055,855 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 4,055,855 | ||||||
Total Investment Company (Cost $4,055,855) | 4,055,855 | |||||||
Total Investment Securities (Cost $128,450,124)(b) — 99.4% | 154,141,953 | |||||||
Net other assets (liabilities) — 0.6% | 853,432 | |||||||
Net Assets — 100.0% | $ | 154,995,385 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Futures Contracts
Cash of $567,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2010:
Unrealized | ||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||
S&P 400 Index E-Mini March Futures | Long | 3/18/11 | 51 | $ | 4,617,030 | $ | 41,441 |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Bermuda | 0 | .4% | |||
United States | 99 | .6 | |||
100 | .0% | ||||
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Mid | ||||
Cap Index | ||||
Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 128,450,124 | ||
Investment securities, at value | $ | 154,141,953 | ||
Segregated cash for collateral | 567,000 | |||
Dividends receivable | 117,679 | |||
Receivable for capital shares issued | 290,385 | |||
Prepaid expenses | 2,156 | |||
Total Assets | 155,119,173 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 3,911 | |||
Payable for variation margin on futures contracts | 32,505 | |||
Manager fees payable | 28,955 | |||
Administration fees payable | 6,178 | |||
Distribution fees payable | 31,955 | |||
Custodian fees payable | 3,645 | |||
Administrative and compliance services fees payable | 928 | |||
Trustee fees payable | 164 | |||
Other accrued liabilities | 15,547 | |||
Total Liabilities | 123,788 | |||
Net Assets | $ | 154,995,385 | ||
Net Assets Consist of: | ||||
Capital | $ | 121,505,964 | ||
Accumulated net investment income/(loss) | 750,947 | |||
Accumulated net realized gains/(losses) from investment transactions | 7,005,204 | |||
Net unrealized appreciation/(depreciation) on investments | 25,733,270 | |||
Net Assets | $ | 154,995,385 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 9,583,810 | |||
Net Asset Value (offering and redemption price per share) | $ | 16.17 | ||
12
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Mid | ||||
Cap Index | ||||
Fund | ||||
Investment Income: | ||||
Interest | $ | 82 | ||
Dividends | 1,384,317 | |||
Total Investment Income | 1,384,399 | |||
Expenses: | ||||
Manager fees | 263,938 | |||
Administration fees | 57,602 | |||
Distribution fees | 263,938 | |||
Custodian fees | 28,128 | |||
Administrative and compliance services fees | 3,860 | |||
Trustees’ fees | 7,830 | |||
Professional fees | 11,062 | |||
Shareholder reports | 9,445 | |||
Other expenses | 3,586 | |||
Total expenses before reductions | 649,389 | |||
Less expenses contractually waived/reimbursed by the Manager | (15,938 | ) | ||
Net expenses | 633,451 | |||
Net Investment Income/(Loss) | 750,948 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 6,429,456 | |||
Net realized gains/(losses) on futures transactions | 798,636 | |||
Change in unrealized appreciation/(depreciation) on investments | 15,396,510 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 22,624,602 | |||
Change in Net Assets Resulting From Operations | $ | 23,375,550 | ||
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Statements of Changes in Net Assets
AZL Mid Cap Index Fund | ||||||||
For the | May 1, 2009 | |||||||
Year Ended | to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 750,948 | $ | 316,892 | ||||
Net realized gains/(losses) on investment transactions | 7,228,092 | 525,981 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 15,396,510 | 10,336,760 | ||||||
Change in net assets resulting from operations | 23,375,550 | 11,179,633 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (332,765 | ) | — | |||||
From net realized gains on investments | (748,869 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (1,081,634 | ) | — | |||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 104,238,155 | 63,430,592 | ||||||
Proceeds from dividends reinvested | 1,081,634 | — | ||||||
Value of shares redeemed | (37,828,780 | ) | (9,399,765 | ) | ||||
Change in net assets resulting from capital transactions | 67,491,009 | 54,030,827 | ||||||
Change in net assets | 89,784,925 | 65,210,460 | ||||||
Net Assets: | ||||||||
Beginning of period | 65,210,460 | — | ||||||
End of period | $ | 154,995,385 | $ | 65,210,460 | ||||
Accumulated net investment income/(loss) | $ | 750,947 | $ | 332,764 | ||||
Share Transactions: | ||||||||
Shares issued | 7,178,404 | 5,767,705 | ||||||
Dividends reinvested | 78,209 | — | ||||||
Shares redeemed | (2,654,539 | ) | (785,969 | ) | ||||
Change in shares | 4,602,074 | 4,981,736 | ||||||
(a) | Period from commencement of operations. |
14
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended | May 1, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Net Asset Value, Beginning of Period | $ | 13.09 | $ | 10.00 | ||||
Investment Activities: | ||||||||
Net Investment Income/(Loss) | 0.05 | 0.06 | ||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.16 | 3.03 | ||||||
Total from Investment Activities | 3.21 | 3.09 | ||||||
Dividends to Shareholders From: | ||||||||
Net Investment Income | (0.04 | ) | — | |||||
Net Realized Gains | (0.09 | ) | — | |||||
Total Dividends | (0.13 | ) | — | |||||
Net Asset Value, End of Period | $ | 16.17 | $ | 13.09 | ||||
Total Return(b)(c) | 24.67 | % | 30.90 | % | ||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||
Net Assets, End of Period ($000’s) | $ | 154,995 | $ | 65,210 | ||||
Net Investment Income/(Loss)(d) | 0.71 | % | 1.12 | % | ||||
Expenses Before Reductions(d)(e) | 0.61 | % | 0.66 | % | ||||
Expenses Net of Reductions(d) | 0.60 | % | 0.60 | % | ||||
Portfolio Turnover Rate(c) | 34.31 | % | 27.28 | % |
(a) | Period from commencement of operations. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
15
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Mid Cap Index Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $4.6 million as of December 31, 2010. The monthly average notional amount for these contracts was $3.2 million for the year ended December 31, 2010.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 41,441 | Payable for variation margin on futures contracts | $ | — |
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | $ | 798,636 | $ | (26,330 | ) |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and BlackRock Investment Management, LLC (“BlackRock Investment”), BlackRock Investment provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.60% through April 30, 2011 and 0.71% effective May 1, 2011 through April 30, 2012.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Mid Cap Index Fund | 0.25 | % | 0.60 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | |||||||
12/31/2012 | 12/31/2013 | |||||||
AZL Mid Cap Index Fund | $ | 17,584 | $ | 15,938 |
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $2,793 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 150,086,098 | $ | — | $ | — | $ | 150,086,098 | ||||||||
Investment Company | 4,055,855 | — | — | 4,055,855 | ||||||||||||
Total Investment Securities | 154,141,953 | — | — | 154,141,953 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 41,441 | — | — | 41,441 | ||||||||||||
Total Investments | $ | 154,183,394 | $ | — | $ | — | $ | 154,183,394 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. | |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Mid Cap Index Fund | $ | 99,912,998 | $ | 34,346,496 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $128,893,471. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 27,033,833 | ||
Unrealized depreciation | (1,785,351 | ) | ||
Net unrealized appreciation | $ | 25,248,482 | ||
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Mid Cap Index Fund | $ | 845,670 | $ | 235,964 | $ | 1,081,634 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Mid Cap Index Fund
AZL Mid Cap Index Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Undistributed | Accumulated | Total | |||||||||||||||||||||
Ordinary | Long Term Capital | Accumulated | Capital and | Unrealized | Accumulated | |||||||||||||||||||
Income | Gains | Earnings | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||||||||
AZL Mid Cap Index Fund | $ | 5,136,418 | $ | 3,104,521 | $ | 8,240,939 | $ | — | $ | 25,248,482 | $ | 33,489,421 |
23
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Mid Cap Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 48.73% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
During the year ended December 31, 2010, the Fund declared net long-term capital gain distributions of $235,964.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $512,905.
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (”Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
27
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
28
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
29
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
30
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
31
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
32
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Money Market Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 17
Page 17
Other Federal Income Tax Information
Page 18
Page 18
Other Information
Page 19
Page 19
Approval of Investment Advisory and Subadvisory Agreements
Page 20
Page 20
Information about the Board of Trustees and Officers
Page 24
Page 24
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Money Market Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Money Market Fund, and BlackRock Institutional Management Corporation serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
The Federal Open Market Committee held the federal funds target rate at the historically low level of 0.00%-0.25% during the period. The low rates, which were intended in part to jumpstart a weak economy, led to very low yields on money market securities. Diminishing supply, concerns about European sovereign debt and new federal rules for money market funds all contributed to a challenging environment for the Fund.
The Fund maintained a relatively long average-weighted maturity for most of the year in light of expectations for low interest rates. However, during the second quarter the Fund periodically shortened its average-weighted maturity in response to market volatility related to concerns about sovereign debt problems in peripheral European countries.*
The Securities and Exchange Commission (“the SEC”) implemented new rules for money market funds in May, with specific requirements regarding liquidity, quality, disclosure and transparency. The Fund fulfilled all the requirements of the new rules in accordance with the time line established by the SEC, using Treasury bills and other government securities to augment the quality, liquidity and diversification of the portfolio. However, these measures contributed to a reduction in the Fund’s yield during the second half of the period.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. |
1
Table of Contents
AZL® Money Market Fund Review
Fund Objective
The Fund’s investment objective is to seek current income consistent with stability of principal. The Fund seeks to achieve its objective by investing in a broad range of short-term, high-quality U.S. dollar-denominated money market instruments, including government, U.S. and foreign bank, commercial and other obligations.
Investment Concerns
An investment in the Fund is neither guaranteed nor insured by the FDIC or any other government agency. Although the Fund strives to maintain the value of your investment at $1.00 per share, it is possible to lose money by investing in this Fund. Past performance is not predictive of future performance as yields on money market funds fluctuate daily.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
1 | 3 | 5 | 10 | |||||||||||||
Year | Year | Year | Years | |||||||||||||
AZL® Money Market Fund | 0.00 | % | 0.88 | % | 2.36 | % | 1.95 | % | ||||||||
Three-Month U.S. Treasury Bill Index | 0.14 | % | 0.56 | % | 2.13 | % | 2.12 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Money Market Fund | 0.69 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.87% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
Yield as of December 31, 2010
7 Day | 7 Day | 30 Day | ||||||||||
Average | Effective | Average | ||||||||||
AZL® Money Market Fund | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
The Fund’s performance is compared to the Three-Month U.S. Treasury Bill Index. The Treasury Bill Index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
The Manager has voluntarily undertaken to waive, reimburse, or pay the Fund’s expenses to the extent necessary in order to maintain a minimum daily net investment income for the Fund of 0.00%. The Distributor may waive its Rule 12b-1 fees. The amount waived, reimbursed, or paid by the Manager and/or the Distributor will be repaid to the Manager and/or the Distributor subject to certain limitations as further described in Note 3 to the Financial Statements. The ability of the Manager and/or Distributor to receive such payments could negatively affect the Fund’s future yield. The 7-day yield quotation is as of 12/31/10 and more closely reflects the current earnings of the Fund than the total return quotation.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Money Market Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
�� | ||||||||||||||||
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Money Market Fund | $ | 1,000.00 | $ | 1,000.00 | $ | 1.87 | 0.37% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Money Market Fund | $ | 1,000.00 | $ | 1,023.34 | $ | 1.89 | 0.37% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Money Market Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Certificates of Deposit | 21.1 | % | ||
Commercial Paper | 42.7 | |||
Corporate Bonds | 0.8 | |||
Yankee Dollars | 1.5 | |||
Municipal Bonds | 13.8 | |||
U.S. Government Agency Mortgages | 9.2 | |||
U.S. Treasury Obligations | 10.9 | |||
Investment Company | 6.1 | |||
106.1 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Schedule of Portfolio Investments
December 31, 2010
Principal | Amortized | |||||||
Amount | Cost | |||||||
Certificates of Deposit (21.1%): | ||||||||
Commercial Banks (18.5%): | ||||||||
$ | 5,000,000 | Bank of Montreal, Chicago, 0.31%, 1/31/11(a) | $ | 5,000,000 | ||||
10,000,000 | Bank Tokyo-Mitsubishi UFJ, NY, 0.30%, 3/14/11 | 10,000,000 | ||||||
7,500,000 | Barclays Bank plc, NY, 0.42%, 2/18/11 | 7,500,000 | ||||||
10,000,000 | BNP Paribas, NY, 0.39%, 5/5/11 | 10,000,000 | ||||||
10,000,000 | Canadian Imperial Bank of Commerce, NY, 0.42%, 1/3/11(a) | 10,000,000 | ||||||
10,000,000 | Commomwealth Bank of Australia, 0.49%, 1/14/11 | 10,000,864 | ||||||
15,000,000 | Credit Agricole CIB, NY, 0.32%, 2/14/11 | 15,000,000 | ||||||
10,000,000 | Fortis Bank, NY, 0.33%, 2/15/11 | 9,999,938 | ||||||
10,000,000 | Lloyds TSB Bank plc, NY, 0.42%, 5/12/11 | 10,000,000 | ||||||
8,000,000 | Royal Bank of Canada, NY, 0.37%, 1/3/11(a) | 8,000,000 | ||||||
21,000,000 | Royal Bank of Scotland plc, NY, 0.67%, 1/3/11(a) | 21,000,000 | ||||||
20,000,000 | Royal Bank of Scotland plc, NY, 0.50%, 1/21/11(a) | 20,000,000 | ||||||
10,000,000 | Societe Generale, NY, 0.39%, 2/3/11(a) | 10,000,000 | ||||||
2,500,000 | Toronto-Dominion Bank, 0.27%, 1/4/11(a) | 2,500,000 | ||||||
10,000,000 | Toronto-Dominion Bank, 0.28%, 3/22/11 | 10,000,000 | ||||||
159,000,802 | ||||||||
Diversified Financial Services (2.6%): | ||||||||
4,500,000 | Rabobank Nederland NV, NY, 0.27%, 1/8/11(a) | 4,500,000 | ||||||
5,000,000 | Rabobank Nederland NV, NY, 0.26%, 1/13/11(a) | 5,000,000 | ||||||
6,000,000 | Rabobank Nederland NV, NY, 0.57%, 1/18/11 | 6,000,000 | ||||||
7,000,000 | Rabobank Nederland NV, NY, 0.35%, 1/18/11(a) | 7,000,000 | ||||||
22,500,000 | ||||||||
Total Certificates of Deposit (Cost $181,500,802) | 181,500,802 | |||||||
Commercial Paper (42.7%): | ||||||||
Commercial Banks (9.0%): | ||||||||
10,000,000 | BNP Paribas Finance, Inc., 0.49%, 2/11/11(b) | 9,994,419 | ||||||
10,000,000 | BNP Paribas Finance, Inc., 0.42%, 3/1/11(b) | 9,993,117 | ||||||
10,000,000 | Credit Agricole NA, 0.40%, 2/8/11(b) | 9,995,778 | ||||||
10,000,000 | Credit Agricole NA, 0.41%, 4/8/11(b) | 9,988,953 | ||||||
17,114,000 | Natixis US Finance Co., 0.27%, 1/7/11(b) | 17,113,230 | ||||||
10,000,000 | NRW Bank, 0.40%, 2/3/11(b)(c) | 9,996,379 | ||||||
10,000,000 | State Street Corp., 0.31%, 2/22/11(b) | 9,995,522 | ||||||
77,077,398 | ||||||||
Diversified Financial Services (33.7%): | ||||||||
10,000,000 | Argento Variable Funding LLC, 0.56%, 2/14/11(b)(c) | 9,993,156 | ||||||
10,000,000 | Argento Variable Funding LLC, 0.36%, 2/23/11(b)(c) | 9,994,700 | ||||||
7,000,000 | BNZ International Funding, Ltd., 0.35%, 1/4/11(a)(c) | 7,000,066 | ||||||
20,000,000 | Cancara Asset Securitization LLC, 0.30%, 1/24/11(b)(c) | 19,996,167 | ||||||
10,000,000 | Cancara Asset Securitization LLC, 0.46%, 4/26/11(b)(c) | 9,985,306 | ||||||
10,000,000 | Clipper Receivables Co. LLC, 0.52%, 1/18/11(b)(c) | 9,997,544 | ||||||
10,000,000 | Clipper Receivables Co. LLC, 0.44%, 2/15/11(b)(c) | 9,994,500 | ||||||
20,645,000 | Fairway Finance Corp., 0.15%, 1/3/11(b)(c) | 20,644,828 | ||||||
15,000,000 | Fairway Finance Corp. LLC, 0.29%, 5/4/11(b)(c) | 15,000,000 | ||||||
15,000,000 | ING Funding LLC, 0.23%, 1/7/11(b) | 14,999,425 | ||||||
10,000,000 | ING Funding LLC, 0.43%, 4/5/11(b) | 9,988,772 | ||||||
25,000,000 | Manhattan Asset Funding Co., 0.28%, 1/18/11(b)(c) | 24,996,694 | ||||||
5,000,000 | MetLife Funding, Inc., 0.29%, 1/12/11(b)(c) | 4,999,557 | ||||||
18,000,000 | MetLife Short Term Funding, 0.25%, 1/20/11(b)(c) | 17,997,625 | ||||||
10,000,000 | Nieuw Amsterdam Receivables, 0.37%, 1/7/11(b)(c) | 9,999,383 | ||||||
15,000,000 | Nieuw Amsterdam Receivables, 0.30%, 1/21/11(b)(c) | 14,997,500 | ||||||
24,000,000 | Romulus Funding Corp., 0.43%, 1/12/11(b)(c) | 23,996,847 | ||||||
10,000,000 | Royal Park Investment Funding Corp., 0.32%, 1/7/11(b) | 9,999,475 | ||||||
10,000,000 | Solitaire Funding LLC, 0.28%, 1/24/11(b)(c) | 9,998,211 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Amortized | |||||||
Amount | Cost | |||||||
Commercial Paper, continued | ||||||||
Diversified Financial Services, continued | ||||||||
$ | 8,000,000 | Sydney Capital Corp., 0.40%, 1/14/11(b)(c) | $ | 7,998,844 | ||||
20,000,000 | Thames Asset Global Securitization, 0.38%, 4/18/11(b)(c) | 19,977,411 | ||||||
8,000,000 | Windmill Funding Corp., 0.40%, 3/1/11(b)(c) | 7,994,756 | ||||||
290,550,767 | ||||||||
Total Commercial Paper (Cost $367,628,165) | 367,628,165 | |||||||
Corporate Bond (0.8%): | ||||||||
Commercial Banks (0.8%): | ||||||||
6,635,000 | KBC Bank NV, 1.72%, 1/1/11, MTN(a) | 6,635,000 | ||||||
Total Corporate Bond (Cost $6,635,000) | 6,635,000 | |||||||
Yankee Dollars (1.5%): | ||||||||
Commercial Banks (1.5%): | ||||||||
5,000,000 | Groupe BPCE, 0.35%, 3/10/11(b)(c) | 4,996,694 | ||||||
8,000,000 | Westpac Banking Corp., NY, 0.34%, 1/5/11(a) | 8,000,000 | ||||||
12,996,694 | ||||||||
Total Yankee Dollars (Cost $12,996,694) | 12,996,694 | |||||||
Municipal Bonds (13.8%): | ||||||||
California (6.4%): | ||||||||
16,500,000 | California Health Facilities Financing Authority Revenue, Series B, 0.29%, 1/7/11, LOC: JPMorgan Chase Bank(a) | 16,500,000 | ||||||
18,095,000 | California Housing Finance Agency Revenue, Series E, 0.33%, 1/7/11, AMT(a) | 18,095,000 | ||||||
10,000,000 | California Housing Finance Agency Revenue, Series E-1, 0.33%, 1/7/11, LOC: Freddie Mac, Fannie Mae, AMT(a) | 10,000,000 | ||||||
11,000,000 | Los Angeles Community Redevelopment Agency Multi-Family Housing Revenue, Series A, 0.31%, 1/7/11, Fannie Mae, LIQ FAC: Fannie Mae, AMT(a) | 11,000,000 | ||||||
55,595,000 | ||||||||
Colorado (1.9%): | ||||||||
16,355,000 | Moffat County Pollution Control Revenue, 0.35%, 1/7/11, LOC: Wells Fargo Bank N.A.(a) | 16,355,000 | ||||||
New York (2.9%): | ||||||||
10,000,000 | New York City Housing Development Corp. Multi-Family Rent Revenue, Series A, 0.33%, 1/7/11, LIQ FAC: Fannie Mae, AMT(a) | 10,000,000 | ||||||
15,000,000 | New York City Housing Development Corp. Multi-Family Rent Revenue, Series A, 0.30%, 1/7/11, LIQ FAC: Fannie Mae(a) | 15,000,000 | ||||||
25,000,000 | ||||||||
Pennsylvania (2.0%): | ||||||||
17,320,000 | Pennsylvania Housing Finance Agency Revenue, Series 86B, 0.32%, 1/7/11, GO of Agency, LOC: Freddie Mac, Fannie Mae, AMT(a) | 17,320,000 | ||||||
Texas (0.6%): | ||||||||
5,000,000 | Houston Texas Utility System Revenue, Series D-1, 0.33%, 1/7/11, AGM(a) | 5,000,000 | ||||||
Total Municipal Bonds (Cost $119,270,000) | 119,270,000 | |||||||
U.S. Government Agency Mortgages (9.2%): | ||||||||
Federal Home Loan Bank (2.4%) | ||||||||
10,000,000 | 0.21%, 6/15/11(b) | 9,990,375 | ||||||
10,000,000 | 0.18%, 1/15/11(a) | 9,995,735 | ||||||
19,986,110 | ||||||||
Federal Home Loan Mortgage Corporation (4.3%) | ||||||||
18,000,000 | 0.17%, 2/5/11(a) | 17,998,307 | ||||||
2,004,000 | 0.21%, 6/7/11(b) | 2,002,165 | ||||||
9,000,000 | 0.21%, 1/29/11(a) | 8,995,492 | ||||||
8,500,000 | 0.24%, 1/3/12(a) | 8,495,672 | ||||||
37,491,636 | ||||||||
Fair | ||||||||
Shares | Value | |||||||
Federal National Mortgage Association (2.5%) | ||||||||
8,000,000 | 0.17%, 2/13/11(a) | $ | 8,000,550 | |||||
9,000,000 | 0.25%, 1/26/12(a) | 8,997,183 | ||||||
4,500,000 | 0.29%, 1/20/11(a) | 4,498,206 | ||||||
21,495,939 | ||||||||
Total U.S. Government Agency Mortgages (Cost $78,973,685) | 78,973,685 | |||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Amortized | |||||||
Amount | Cost | |||||||
U.S. Treasury Obligations (10.9%): | ||||||||
U.S. Treasury Bills (3.8%) | ||||||||
$ | 14,000,000 | 0.18%, 2/17/11(b) | $ | 13,996,710 | ||||
4,000,000 | 0.19%, 5/26/11(b) | 3,996,937 | ||||||
15,000,000 | 0.21%, 6/2/11(b) | 14,986,953 | ||||||
32,980,600 | ||||||||
U.S. Treasury Notes (7.1%) | ||||||||
10,000,000 | 0.88%, 1/31/11 | 10,005,111 | ||||||
32,000,000 | 0.88%, 3/31/11 | 32,051,437 | ||||||
9,000,000 | 0.88%, 5/31/11 | 9,024,438 | ||||||
10,000,000 | 1.13%, 6/30/11 | 10,045,240 | ||||||
61,126,226 | ||||||||
Total U.S. Treasury Obligations (Cost $94,106,826) | 94,106,826 | |||||||
Investment Company (6.1%): | ||||||||
52,814,021 | Dreyfus Treasury Prime Cash Management, 0.00%(b) | 52,814,021 | ||||||
Total Investment Company (Cost $52,814,021) | 52,814,021 | |||||||
Total Investment Securities (Cost $913,925,193)(d) — 106.1% | 913,925,193 | |||||||
Net other assets (liabilities) — (6.1)% | (52,854,945 | ) | ||||||
Net Assets — 100.0% | $ | 861,070,248 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
AGM—Assured Guaranty Municipal Corporation
AMT—Subject to alternative minimum tax
GO—General Obligation
LIQ FAC—Liquidity Facility
LLC—Limited Liability Company
LOC—Letter of Credit
MTN—Medium Term Note
plc—Public Limited Company
(a) | Variable rate security. The rate presented represents the rate in effect at December 31, 2010. These securities are deemed to have a maturity remaining until the next adjustment of the interest rate or the longer of the demand period or time to the next readjustment. | |
(b) | The rate represents the effective yield at December 31, 2010. | |
(c) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investor. The sub-adviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. | |
(d) | Aggregate cost for federal income tax and financial reporting purposes is substantially the same. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Australia | 0 | .9% | |||
Canada | 1 | .4 | |||
France | 1 | .6 | |||
Germany | 1 | .1 | |||
Netherlands | 0 | .8 | |||
United Kingdom | 4 | .5 | |||
United States | 89 | .7 | |||
100 | .0% | ||||
See accompanying notes to the financial statements.
7
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Money | ||||
Market Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 913,925,193 | ||
Investment securities, at value | $ | 913,925,193 | ||
Interest receivable | 329,360 | |||
Receivable from Manager | 7,552 | |||
Prepaid expenses | 11,613 | |||
Total Assets | 914,273,718 | |||
Liabilities: | ||||
Cash overdraft | 52,757,173 | |||
Administration fees payable | 33,018 | |||
Distribution fees payable | 179,777 | |||
Custodian fees payable | 4,850 | |||
Administrative and compliance services fees payable | 7,511 | |||
Trustee fees payable | 1,502 | |||
Other accrued liabilities | 219,639 | |||
Total Liabilities | 53,203,470 | |||
Net Assets | $ | 861,070,248 | ||
Net Assets Consist of: | ||||
Capital | $ | 861,055,185 | ||
Accumulated net realized gains/(losses) from investment transactions | 15,063 | |||
Net Assets | $ | 861,070,248 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 861,055,826 | |||
Net Asset Value (offering and redemption price per share) | $ | 1.00 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Money | ||||
Market Fund | ||||
Investment Income: | ||||
Interest | $ | 3,056,248 | ||
Total Investment Income | 3,056,248 | |||
Expenses: | ||||
Manager fees | 3,182,927 | |||
Administration fees | 404,585 | |||
Distribution fees | 2,273,524 | |||
Custodian fees | 27,317 | |||
Administrative and compliance services fees | 39,099 | |||
Trustees’ fees | 76,610 | |||
Professional fees | 115,595 | |||
Shareholder reports | 89,562 | |||
Other expenses | 124,898 | |||
Total expenses before reductions | 6,334,117 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (3,302,245 | ) | ||
Net expenses | 3,031,872 | |||
Net Investment Income | 24,376 | |||
Net Realized Gains/(Losses) on Investments | 16,461 | |||
Change in Net Assets Resulting From Operations | $ | 40,837 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Statements of Changes in Net Assets
AZL Money Market Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income | $ | 24,376 | $ | 2,329,901 | ||||
Net realized gains/(losses) on investment transactions | 16,461 | 42,094 | ||||||
Change in net assets resulting from operations | 40,837 | 2,371,995 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (24,377 | ) | (2,329,901 | ) | ||||
From net realized gains on investments | (43,007 | ) | (28,033 | ) | ||||
Change in net assets resulting from dividends to shareholders | (67,384 | ) | (2,357,934 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 618,523,335 | 570,370,276 | ||||||
Proceeds from dividends reinvested | 67,384 | 2,357,934 | ||||||
Value of shares redeemed | (659,265,186 | ) | (700,257,288 | ) | ||||
Change in net assets resulting from capital transactions | (40,674,467 | ) | (127,529,078 | ) | ||||
Change in net assets | (40,701,014 | ) | (127,515,017 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 901,771,262 | 1,029,286,279 | ||||||
End of period | $ | 861,070,248 | $ | 901,771,262 | ||||
Accumulated net investment income | $ | — | $ | 1 | ||||
Share Transactions: | ||||||||
Shares issued | 618,523,334 | 570,370,276 | ||||||
Dividends reinvested | 67,384 | 2,357,934 | ||||||
Shares redeemed | (659,265,186 | ) | (700,257,288 | ) | ||||
Change in shares | (40,674,468 | ) | (127,529,078 | ) | ||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income | — | (a) | — | (a) | 0.02 | 0.05 | 0.04 | |||||||||||||
Net Realized Gains/(Losses) on Investments | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | ||||||||||
Total from Investment Activities | — | (a) | — | (a) | 0.02 | 0.05 | 0.04 | |||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | — | (a) | — | (a) | (0.02 | ) | (0.05 | ) | (0.04 | ) | ||||||||||
Net Realized Gains | — | (a) | — | (a) | — | — | — | |||||||||||||
Total Dividends | — | (a) | — | (a) | (0.02 | ) | (0.05 | ) | (0.04 | ) | ||||||||||
Net Asset Value, End of Period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
Total Return(b) | — | % | 0.22 | % | 2.44 | % | 4.79 | % | 4.43 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 861,070 | $ | 901,771 | $ | 1,029,286 | $ | 596,861 | $ | 404,406 | ||||||||||
Net Investment Income | — | % | 0.22 | % | 2.36 | % | 4.66 | % | 4.41 | % | ||||||||||
Expenses Before Reductions(c) | 0.70 | % | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | ||||||||||
Expenses Net of Reductions | 0.33 | %(d) | 0.59 | %(d) | 0.69 | % | 0.69 | % | 0.69 | % |
(a) | Represents less than $0.005. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(d) | The expense ratio for the period reflects the reduction of certain expenses to maintain a certain minimum yield. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Money Market Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described below.
Investments of the Fund are valued, in accordance with Rule 2a-7 of the 1940 Act, at amortized cost, which approximates fair value. Under the amortized cost method, discounts or premiums are amortized on a constant basis to the maturity of the security.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Notes to the Financial Statements, continued
December 31, 2010
investments sold are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends from net investment income are declared daily and paid monthly from the Fund. The net realized gains, if any, are declared and paid at least annually by the Fund. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, between the Manager and BlackRock Institutional Management Corporation (“BlackRock Institutional”), BlackRock Institutional provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.87%.
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Notes to the Financial Statements, continued
December 31, 2010
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Money Market Fund | 0.35 | % | 0.87 | % |
The Manager has voluntarily undertaken to waive, reimburse, or pay Fund expenses to the extent necessary in order to maintain a minimum daily net investment income for the Fund of 0.00%. The Distributor may waive its Rule 12b-1 fees. The amount waived, reimbursed, or paid by the Manager and/or the Distributor will be repaid to the Manager and/or the Distributor subject to the following limitations:
1. The repayments will not cause the Fund’s net investment income to fall below 0.00%.
2. | The repayments must be made no later than three years after the end of the fiscal year in which the waiver, reimbursement, or payment took place. |
3. Any expense recovery paid by the Fund will not cause its expense ratio to exceed 0.87%.
The ability of the Manager and/or the Distributor to receive such payments could negatively affect the Fund’s future yield. For the year ended December 31, 2010 the Fund waived $3,302,245 relating to this agreement, these amounts are reflected on the Statement of Operations at “Expenses voluntarily waived/reimbursed by the Manager.”
Any amounts waived or reimbursed by the Manager in a particular fiscal year under this agreement will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | |||||||
12/31/2012 | 12/31/2013 | |||||||
AZL Money Market Fund | $ | 1,064,636 | $ | 3,302,245 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Notes to the Financial Statements, continued
December 31, 2010
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $27,234 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described in Note 2 above, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Certificates of Deposit | $ | — | $ | 181,500,802 | $ | — | $ | 181,500,802 | ||||||||
Commercial Paper | — | 367,628,165 | — | 367,628,165 | ||||||||||||
Corporate Bond | — | 6,635,000 | — | 6,635,000 | ||||||||||||
Investment Company | 52,814,021 | — | — | 52,814,021 | ||||||||||||
Municipal Bonds | — | 119,270,000 | — | 119,270,000 | ||||||||||||
U.S. Government Agency Mortgages | — | 78,973,685 | — | 78,973,685 | ||||||||||||
U.S. Treasury Obligations | — | 94,106,826 | — | 94,106,826 | ||||||||||||
Yankee Dollars | — | 12,996,694 | — | 12,996,694 | ||||||||||||
Total Investment Securities | $ | 52,814,021 | $ | 861,111,172 | $ | — | $ | 913,925,193 | ||||||||
The Fund recognizes significant transfers between Level 1 and Level 2 at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Money Market Fund
AZL Money Market Fund
Notes to the Financial Statements, continued
December 31, 2010
valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Money Market Fund | $ | 64,426 | $ | 2,958 | $ | 67,384 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Money Market Fund | $ | 2,357,934 | $ | — | $ | 2,357,934 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Total | |||||||
Ordinary | Accumulated | |||||||
Income | Earnings | |||||||
AZL Money Market Fund | $ | 15,063 | $ | 15,063 |
16
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Money Market Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2010, the fund declared net long-term capital gain distributions of $2,958.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $40,049.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (”Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
20
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
21
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
22
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
24
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present, Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
25
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Morgan Stanley Global Real Estate Fund
(formerly AZL® Van Kampen Global Real Estate Fund)
Annual Report
December 31, 2010
(formerly AZL® Van Kampen Global Real Estate Fund)
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 21
Page 21
Other Federal Income Tax Information
Page 22
Page 22
Other Information
Page 23
Page 23
Approval of Investment Advisory and Subadvisory Agreements
Page 24
Page 24
Information about the Board of Trustees and Officers
Page 28
Page 28
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Morgan Stanley Global Real Estate Fund (formerly AZL® Van Kampen Global Real Estate Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Morgan Stanley Global Real Estate Fund and Morgan Stanley Investment Management serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
The AZL® Morgan Stanley Global Real Estate Fund includes three regional portfolios, with investments in the U.S., Asia and Europe. For the 12 month period ended December 31, 2010, the Fund returned 20.86%1. That compared to a 20.40% return for its benchmark, FTSE EPRA/ NAREIT Developed Real Estate Index2.
For most of the period, the real estate sector continued the strong recovery that began in mid-March 2009, which benefited the Fund’s absolute return. The gains appeared to be driven by an improved global economic outlook, as well as continued improvements in capital market conditions.
Within the global portfolio, the U.S. and Asian regions contributed to performance relative to the benchmark index, while the European region detracted. In Asia, the portfolio benefited from stock selection in Hong Kong and Singapore; in Europe, from stock selection in France and the Netherlands and an underweight position to Belgium; and in the U.S., from within the hotel, apartment and office sectors.
These gains were partially offset by the negative impact of stock selection in the U.S. shopping center sector and in Japan. The Fund’s overweight position in the U.K. and its underweight position in Sweden also dragged on relative performance.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Financial Times London Stock Exchange (“FTSE”) European Public Real Estate Association (“EPRA”)/ NAREIT Developed Real Estate Index Series is designed to represent general trends in eligible real estate stocks worldwide. Relevant real estate activities are defined as the ownership, disposure and development of income-producing real estate. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Morgan Stanley Global Real Estate Fund Review
Fund Objective
The Fund’s investment objective is to seek to provide income and capital appreciation. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of the Fund’s assets, plus any borrowings for investment purposes, will be invested in equity securities of companies in the real estate industry, including REOCs, REITs, and foreign real estate companies.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Investments in the Funds are subject to the risks related to direct investment in real estate, such as real estate risk, regulatory risks, concentration risk, and diversification risk. By itself the Fund does not constitute a complete investment plan and should be considered a long-term investment for investors who can afford to weather changes in the value of their investments.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||
1 | 3 | Inception | ||||||||||
Year | Year | (5/1/06) | ||||||||||
AZL® Morgan Stanley Global Real Estate Fund | 20.86 | % | -2.82 | % | 0.42 | % | ||||||
FTSE EPRA/NAREIT Developed Real Estate Index (gross of withholding taxes) | 20.40 | % | -4.53 | % | 0.42 | % | ||||||
FTSE EPRA/NAREIT Developed Real Estate Index (net of withholding taxes) | 20.10 | % | -4.56 | % | 0.40 | % | ||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Morgan Stanley Global Real Estate Fund | 1.40 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.35% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Financial Times London Stock Exchange (“FTSE”) European Public Real Estate Association (“EPRA”)/NAREIT Developed Real Estate Index series which is designed to represent general trends in eligible real estate stocks worldwide. Relevant real estate activities are defined as the ownership, disposure and development of income-producing real estate. The index noted as “gross of withholding taxes” does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The index noted as “net of withholding taxes” reflects the reinvestment of dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Morgan Stanley Global Real Estate Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the period presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 1,000.00 | $ | 1,261.90 | $ | 7.70 | 1.35 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 1,000.00 | $ | 1,018.40 | $ | 6.87 | 1.35 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Morgan Stanley Global Real Estate Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Diversified Real Estate Activities | 24.4 | % | ||
Diversified REIT’s | 8.9 | |||
Health Care Providers & Services | 0.4 | |||
Hotels, Resorts & Cruise Lines | 1.5 | |||
Industrial REIT’s | 1.9 | |||
Mortgage REIT’s | 0.5 | |||
Office REIT’s | 6.2 | |||
Real Estate Investment Trusts (REITs) | 2.1 | |||
Real Estate Management & Development | 5.6 | |||
Real Estate Operating Companies | 11.5 | |||
Residential REIT’s | 7.3 | |||
Retail REIT’s | 18.4 | |||
Specialized REIT’s | 7.8 | |||
Investment Company | 2.5 | |||
99.0 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (96.5%): | ||||||||
Diversified Real Estate Activities (24.4%): | ||||||||
739,136 | Beni Stabili SpA | $ | 625,036 | |||||
22,278 | Beni Stabili SpA* | 19,053 | ||||||
901,000 | Capitaland, Ltd. | 2,615,430 | ||||||
97,000 | City Developments, Ltd. | 949,366 | ||||||
571,000 | Hang Lung Properties, Ltd. | 2,670,091 | ||||||
307,113 | Henderson Land Development Co., Ltd. | 2,091,191 | ||||||
511,803 | Kerry Properties, Ltd. | 2,662,150 | ||||||
392,000 | Mitsubishi Estate Co., Ltd. | 7,266,988 | ||||||
313,000 | Mitsui Fudosan Co., Ltd. | 6,236,440 | ||||||
214,000 | Poly Hong Kong Investment, Ltd. | 209,181 | ||||||
203,000 | Sumitomo Realty & Development Co. | 4,844,277 | ||||||
695,584 | Sun Hung Kai Properties, Ltd. | 11,530,401 | ||||||
468,000 | Wharf Holdings, Ltd. (The) | 3,596,259 | ||||||
45,315,863 | ||||||||
Diversified REIT’s (8.9%): | ||||||||
237,660 | British Land Co. plc | 1,945,229 | ||||||
113,701 | Cousins Properties, Inc. | 948,263 | ||||||
194,089 | Dexus Property Group | 157,712 | ||||||
4,385 | Fonciere des Regions | 424,567 | ||||||
2,404 | Gecina SA | 264,613 | ||||||
470,572 | GPT Group | 1,413,364 | ||||||
9,557 | ICADE | 975,533 | ||||||
213,302 | Land Securities Group plc | 2,243,480 | ||||||
14,829 | Liberty Property Trust | 473,342 | ||||||
434,636 | Mirvac Group | 544,138 | ||||||
5,922 | PS Business Parks, Inc. | 329,974 | ||||||
49,340 | Retail Opportunity Investments Corp. | 488,959 | ||||||
25,568 | Shaftesbury plc | 178,687 | ||||||
629,676 | Stockland Trust Group | 2,315,958 | ||||||
42,981 | Vornado Realty Trust | 3,581,607 | ||||||
2,164 | Wereldhave NV | 211,422 | ||||||
16,496,848 | ||||||||
Health Care Providers & Services (0.4%): | ||||||||
19,194 | Assisted Living Concepts, Inc., Class A* | 624,381 | ||||||
19,005 | Capital Senior Living Corp.* | 127,333 | ||||||
751,714 | ||||||||
Hotels, Resorts & Cruise Lines (1.5%): | ||||||||
45,648 | Starwood Hotels & Resorts Worldwide, Inc. | 2,774,485 | ||||||
Industrial REIT’s (1.9%): | ||||||||
64,668 | AMB Property Corp. | 2,050,622 | ||||||
77,950 | DCT Industrial Trust, Inc. | 413,915 | ||||||
211,964 | SERGO plc | 947,225 | ||||||
3,411,762 | ||||||||
Mortgage REIT’s (0.5%): | ||||||||
213 | Colony Financial, Inc. | 4,264 | ||||||
10,860 | CreXus Investment Corp. | 142,266 | ||||||
33,790 | Starwood Property Trust, Inc. | 725,809 | ||||||
872,339 | ||||||||
Office REIT’s (6.2%): | ||||||||
29,047 | Alstria Office AG | 394,877 | ||||||
2,655 | Befimmo SCA Sicafi | 217,568 | ||||||
35,089 | Boston Properties, Inc. | 3,021,163 | ||||||
305,000 | CapitaCommercial Trust | 356,971 | ||||||
606,871 | Commonwealth Property Office Fund | 514,914 | ||||||
10,004 | CommonWealth REIT | 255,202 | ||||||
28,725 | Derwent Valley Holdings plc | 699,612 | ||||||
15,170 | Digital Realty Trust, Inc. | 781,862 | ||||||
11,990 | Douglas Emmett, Inc. | 199,034 | ||||||
20,310 | Duke Realty Corp. | 253,063 | ||||||
62,823 | Great Portland Estates plc | 353,525 | ||||||
17,380 | Hudson Pacific Properties, Inc. | 261,569 | ||||||
97 | Japan Real Estate Investment Corp. | 1,006,143 | ||||||
48,734 | Mack-Cali Realty Corp. | 1,611,146 | ||||||
115 | Nippon Building Fund, Inc. | 1,179,663 | ||||||
1,350 | Parkway Properties, Inc. | 23,652 | ||||||
1,473 | Societe de la Tour Eiffel | 114,125 | ||||||
2,354 | Societe Immobiliere de Locationpour l’Industrie et le Commerce | 291,510 | ||||||
11,535,599 | ||||||||
Real Estate Investment Trusts (REITs) (2.1%): | ||||||||
4,190 | American Campus Communities, Inc. | 133,074 | ||||||
12,605 | BioMed Realty Trust, Inc. | 235,083 | ||||||
193,000 | CapitaMalls Asia, Ltd. | 291,777 | ||||||
20,490 | Coresite Realty Corp. | 279,484 | ||||||
910 | Lexington Corporate Properties Trust | 7,235 | ||||||
274,350 | LXB Retail Properties plc* | 422,337 | ||||||
118,110 | Metric Property Investments plc* | 197,896 | ||||||
816,874 | Westfield Retail Trust* | 2,146,811 | ||||||
17,060 | Winthrop Realty Trust | 218,197 | ||||||
3,931,894 | ||||||||
Real Estate Management & Development (5.6%): | ||||||||
64,000 | Agile Property Holdings, Ltd. | 94,081 | ||||||
14,285 | Atrium European Real Estate, Ltd. | 83,436 | ||||||
13,566 | Atrium Ljungberg AB, B Shares | 174,599 | ||||||
2,485,087 | BGP Holdings plc*(a)(b) | — | ||||||
36,700 | BR Properties SA | 401,588 | ||||||
47,295 | Capital & Counties Properties plc | 111,215 | ||||||
1,633,120 | China Overseas Land��& Investment, Ltd. | 3,019,577 | ||||||
1,469,000 | China Resources Land, Ltd. | 2,680,079 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
4,173 | Conwert Immobilien Invest AG | $ | 59,987 | |||||
994,500 | Guangzhou R&F Properties Co., Ltd. | 1,422,277 | ||||||
309,181 | Keppel Land, Ltd. | 1,156,533 | ||||||
191,500 | Shimao Property Holdings, Ltd. | 288,843 | ||||||
227,902 | Sino Land Co., Ltd. | 425,440 | ||||||
177,579 | ST Modwen Properties plc | 457,310 | ||||||
10,374,965 | ||||||||
Real Estate Operating Companies (11.5%): | ||||||||
49,600 | BR Malls Participacoes SA | 511,241 | ||||||
125,669 | Brookfield Properties Corp. | 2,202,978 | ||||||
557,328 | Capital & Regional plc* | 279,896 | ||||||
8,078 | Castellum AB | 110,758 | ||||||
59,072 | Citycon Oyj | 243,155 | ||||||
9,753 | Deutsche Euroshop AG | 371,347 | ||||||
47,699 | Development Securities plc | 167,207 | ||||||
133,890 | Forest City Enterprises, Inc., Class A* | 2,234,624 | ||||||
113,860 | General Growth Properties, Inc. | 1,762,553 | ||||||
354,848 | Grainger Trust plc | 585,334 | ||||||
845,500 | Hongkong Land Holdings, Ltd. | 6,133,897 | ||||||
57,061 | Hufvudstaden AB | 667,168 | ||||||
348,250 | Hysan Development Co., Ltd. | 1,639,343 | ||||||
181,552 | Minerva plc* | 224,466 | ||||||
514 | NTT Urban Development Corp. | 506,180 | ||||||
47,676 | Prologis European Properties* | 306,481 | ||||||
17,719 | PSP Swiss Property AG | 1,421,674 | ||||||
448,858 | Quintain Estates & Development plc* | 294,197 | ||||||
308,680 | Safestore Holdings, Ltd. | 625,688 | ||||||
14,836 | Sponda Oyj | 76,945 | ||||||
4,980 | Swiss Prime Site AG | 371,724 | ||||||
218,908 | Unite Group plc* | 662,906 | ||||||
21,399,762 | ||||||||
Residential REIT’s (7.3%): | ||||||||
24,278 | AvalonBay Communities, Inc. | 2,732,489 | ||||||
15,004 | Boardwalk REIT | 622,651 | ||||||
30 | BRE Properties, Inc. | 1,305 | ||||||
36,385 | Camden Property Trust | 1,964,062 | ||||||
22,698 | Equity Lifestyle Properties, Inc. | 1,269,499 | ||||||
125,201 | Equity Residential Properties Trust | 6,504,192 | ||||||
9,545 | Post Properties, Inc. | 346,484 | ||||||
13,440,682 | ||||||||
Retail REIT’s (18.4%): | ||||||||
40,866 | Acadia Realty Trust | 745,396 | ||||||
297,000 | CapitaMall Trust | 451,350 | ||||||
636,469 | CFS Retail Property Trust | 1,145,204 | ||||||
17,656 | Corio NV | 1,134,095 | ||||||
17,494 | Eurocommercial Properties NV | 805,908 | ||||||
12,820 | Federal Realty Investment Trust | 999,063 | ||||||
247,313 | Hammerson plc | 1,609,847 | ||||||
11,310 | Kite Realty Group Trust | 61,187 | ||||||
30,788 | Klepierre | 1,111,744 | ||||||
111,769 | Liberty International plc | 728,278 | ||||||
10,868 | Macerich Co. (The) | 514,817 | ||||||
7,386 | Mercialys SA | 277,486 | ||||||
82,071 | Regency Centers Corp. | 3,466,679 | ||||||
81,520 | RioCan | 1,804,266 | ||||||
77,724 | Simon Property Group, Inc. | 7,732,761 | ||||||
370,000 | Suntec REIT | 432,542 | ||||||
5,975 | Taubman Centers, Inc. | 301,618 | ||||||
21,698 | Unibail | 4,297,715 | ||||||
968 | Vastned Retail NV | 67,256 | ||||||
660,890 | Westfield Group | 6,471,704 | ||||||
34,158,916 | ||||||||
Specialized REIT’s (7.8%): | ||||||||
115,343 | Big Yellow Group plc | 630,461 | ||||||
29,880 | Extendicare REIT | 275,954 | ||||||
80,062 | HCP, Inc. | 2,945,481 | ||||||
48,416 | Healthcare Realty Trust, Inc. | 1,024,967 | ||||||
262,435 | Host Hotels & Resorts, Inc. | 4,689,713 | ||||||
3,960 | LTC Properties, Inc. | 111,197 | ||||||
8,880 | Nationwide Health Properties, Inc. | 323,054 | ||||||
26,528 | Public Storage, Inc. | 2,690,470 | ||||||
46,374 | Senior Housing Properties Trust | 1,017,446 | ||||||
8,597 | Sovran Self Storage, Inc. | 316,456 | ||||||
8,846 | Ventas, Inc. | 464,238 | ||||||
14,489,437 | ||||||||
Total Common Stocks (Cost $137,869,720) | 178,954,266 | |||||||
Investment Company (2.5%): | ||||||||
4,680,407 | Dreyfus Treasury Prime Cash Management, 0.00%(c) | 4,680,407 | ||||||
Total Investment Company (Cost $4,680,407) | 4,680,407 | |||||||
Total Investment Securities (Cost $142,550,127)(d) — 99.0% | 183,634,673 | |||||||
Net other assets (liabilities) — 1.0% | 1,850,659 | |||||||
Net Assets — 100.0% | $ | 185,485,332 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments, continued
December 31, 2010
plc—Public Limited Company
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2010, these securities represent 0.00% of the net assets of the Fund. | |
(b) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2010. The total of such securities represent 0.00% of the net assets of the Fund. | |
(c) | The rate represents the effective yield at December 31, 2010. | |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. | |
As of December 31 2010, the Fund’s open forward foreign currency contracts were as follows: |
Unrealized | ||||||||||||||||||||
Delivery | Contract | Fair | Appreciation/ | |||||||||||||||||
Short Contracts | Counterparty | Date | Amount | Value | (Depreciation) | |||||||||||||||
Deliver 19,395,686 Japanese Yen in exchange for U.S. Dollars | State Street | 1/4/11 | $ | 235,699 | $ | 238,963 | $ | (3,264 | ) | |||||||||||
Deliver 3,117,052 Japanese Yen in exchange for U.S. Dollars | State Street | 1/5/11 | 38,312 | 38,404 | (92 | ) | ||||||||||||||
Deliver 2,609,245 Japanese Yen in exchange for U.S. Dollars | Credit Suisse | 1/6/11 | 32,007 | 32,148 | (141 | ) | ||||||||||||||
$ | (3,497 | ) | ||||||||||||||||||
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010: |
Country | Percentage | |||
Australia | 8.0 | % | ||
Austria | — | |||
Belgium | 0.1 | |||
Belize | 0.2 | |||
Bermuda | 3.3 | |||
Brazil | 0.3 | |||
Canada | 2.7 | |||
China | 0.2 | |||
Finland | 0.2 | |||
France | 4.2 | |||
Germany | 0.4 | |||
Hong Kong | 17.4 | |||
Italy | 0.3 | |||
Japan | 11.5 | |||
Jersey | — | ^ | ||
Luxembourg | 0.2 | |||
Netherlands | 1.2 | |||
Singapore | 3.4 | |||
Sweden | 0.5 | |||
Switzerland | 1.0 | |||
United Kingdom | 7.3 | |||
United States | 37.6 | |||
100.0 | % | |||
^ | Represents less than 0.05%. |
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Morgan Stanley | ||||
Global Real | ||||
Estate Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 142,550,127 | ||
Investment securities, at value | $ | 183,634,673 | ||
Dividends receivable | 440,832 | |||
Foreign currency, at value (cost $1,127,257) | 1,139,507 | |||
Receivable for capital shares issued | 82,955 | |||
Receivable for expenses paid indirectly | 490 | |||
Receivable for investments sold | 393,442 | |||
Reclaims receivable | 58,339 | |||
Prepaid expenses | 2,481 | |||
Total Assets | 185,752,719 | |||
Liabilities: | ||||
Unrealized depreciation on forward foreign currency contracts | 3,497 | |||
Payable for capital shares redeemed | 15,618 | |||
Manager fees payable | 148,118 | |||
Administration fees payable | 9,496 | |||
Distribution fees payable | 38,092 | |||
Custodian fees payable | 23,390 | |||
Administrative and compliance services fees payable | 1,592 | |||
Trustee fees payable | 318 | |||
Other accrued liabilities | 27,266 | |||
Total Liabilities | 267,387 | |||
Net Assets | $ | 185,485,332 | ||
Net Assets Consist of: | ||||
Capital | $ | 200,077,891 | ||
Accumulated net investment income/(loss) | 4,331,696 | |||
Accumulated net realized gains/(losses) from investment transactions | (60,013,193 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 41,088,938 | |||
Net Assets | $ | 185,485,332 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 20,629,014 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.99 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
Morgan Stanley | ||||
Global Real | ||||
Estate Fund | ||||
Investment Income: | ||||
Dividends | $ | 7,048,731 | ||
Foreign withholding tax | (188,530 | ) | ||
Total Investment Income | 6,860,201 | |||
Expenses: | ||||
Manager fees | 1,452,582 | |||
Administration fees | 97,932 | |||
Distribution fees | 403,495 | |||
Custodian fees | 131,739 | |||
Administrative and compliance services fees | 6,391 | |||
Trustees’ fees | 12,882 | |||
Professional fees | 18,552 | |||
Shareholder reports | 14,912 | |||
Recoupment of prior expenses reimbursed by the Manager | 29,572 | |||
Other expenses | 6,923 | |||
Total expenses before reductions | 2,174,980 | |||
Less expenses paid indirectly | (13,049 | ) | ||
Net expenses | 2,161,931 | |||
Net Investment Income/(Loss) | 4,698,270 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 2,333,748 | |||
Net realized gains/(losses) on forward foreign currency contracts | 23,261 | |||
Change in unrealized appreciation/(depreciation) on investments | 24,505,247 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 26,862,256 | |||
Change in Net Assets Resulting From Operations | $ | 31,560,526 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Statements of Changes in Net Assets
AZL Morgan Stanley | ||||||||
Global Real Estate Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 4,698,270 | $ | 2,397,134 | ||||
Net realized gains/(losses) on investment transactions | 2,357,009 | (32,139,468 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 24,505,247 | 75,836,654 | ||||||
Change in net assets resulting from operations | 31,560,526 | 46,094,320 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (3,041,547 | ) | (1,590,970 | ) | ||||
Change in net assets resulting from dividends to shareholders | (3,041,547 | ) | (1,590,970 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 59,047,937 | 46,166,880 | ||||||
Proceeds from dividends reinvested | 3,041,547 | 1,590,970 | ||||||
Value of shares redeemed | (50,032,002 | ) | (35,952,459 | ) | ||||
Change in net assets resulting from capital transactions | 12,057,482 | 11,805,391 | ||||||
Change in net assets | 40,576,461 | 56,308,741 | ||||||
Net Assets: | ||||||||
Beginning of period | 144,908,871 | 88,600,130 | ||||||
End of period | $ | 185,485,332 | $ | 144,908,871 | ||||
Accumulated net investment income/(loss) | $ | 4,331,696 | $ | 2,382,656 | ||||
Share Transactions: | ||||||||
Shares issued | 7,342,641 | 8,616,575 | ||||||
Dividends reinvested | 366,010 | 213,840 | ||||||
Shares redeemed | (6,226,383 | ) | (5,919,358 | ) | ||||
Change in shares | 1,482,268 | 2,911,057 | ||||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 1, 2006 | ||||||||||||||||||||
Year Ended December 31, | December 31, | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006(a) | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.57 | $ | 5.46 | $ | 10.93 | $ | 12.08 | $ | 10.00 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.23 | 0.11 | 0.13 | 0.13 | 0.05 | |||||||||||||||
Net Realized and Unrealized Gains/ (Losses) on Investments | 1.34 | 2.08 | (4.91 | ) | (1.17 | ) | 2.12 | |||||||||||||
Total from Investment Activities | 1.57 | 2.19 | (4.78 | ) | (1.04 | ) | 2.17 | |||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.15 | ) | (0.08 | ) | (0.16 | ) | (0.06 | ) | (0.07 | ) | ||||||||||
Net Realized Gains | — | — | (0.53 | ) | (0.05 | ) | (0.02 | ) | ||||||||||||
Total Dividends | (0.15 | ) | (0.08 | ) | (0.69 | ) | (0.11 | ) | (0.09 | ) | ||||||||||
Net Asset Value, End of Period | $ | 8.99 | $ | 7.57 | $ | 5.46 | $ | 10.93 | $ | 12.08 | ||||||||||
Total Return(b)(c) | 20.86 | % | 40.19 | % | (45.83 | )% | (8.68 | )% | 21.66 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 185,485 | $ | 144,909 | $ | 88,600 | $ | 157,039 | $ | 134,713 | ||||||||||
Net Investment Income/(Loss)(d) | 2.91 | % | 2.08 | % | 1.70 | % | 1.07 | % | 1.00 | % | ||||||||||
Expenses Before Reductions(d)(e) | 1.35 | % | 1.40 | % | 1.43 | % | 1.37 | % | 1.45 | % | ||||||||||
Expenses Net of Reductions(d) | 1.34 | % | 1.34 | % | 1.36 | % | 1.35 | % | 1.33 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d)(f) | 1.35 | % | 1.35 | % | 1.36 | % | 1.35 | % | 1.33 | % | ||||||||||
Portfolio Turnover Rate(c) | 26.85 | % | 47.65 | % | 45.59 | % | 46.22 | % | 10.75 | % |
(a) | Period from commencement of operations. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(f) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Morgan Stanley Global Real Estate Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. The contract amount of foreign currency exchange contracts outstanding was $0.3 million as of December 31, 2010. The monthly average amount for these contracts was $0.1 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Foreign Exchange Contracts | Unrealized appreciation on forward foreign currency contracts | $ | — | Unrealized depreciation on forward foreign currency contracts | $ | 3,497 |
* | Total Fair Value is presented by Primary Risk Exposure. For forward foreign currency contracts, such amounts represent the unrealized gain/appreciation (for asset derivatives) or loss/(depreciation) (for liability derivatives). |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 23,261 | $ | (4,372 | ) |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective June 1, 2010 between the Manager and Morgan Stanley Investment Management, Inc. (“MSIM”), MSIM provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to June 1, 2010 the Fund was subadvised by Van Kampen Asset Management. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.35%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Morgan Stanley Global Real Estate Fund | 0.90% | 1.35% |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | |||||||
12/31/2011 | 12/31/2012 | |||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 92,475 | $ | 62,970 |
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $4,638 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the period, the Fund paid approximately $1,580 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets |
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Diversified Real Estate Activities | $ | — | $ | 45,315,863 | $ | — | $ | 45,315,863 | ||||||||
Diversified REITs | 5,822,145 | 10,674,703 | — | 16,496,848 | ||||||||||||
Industrial REIT’s | 2,464,537 | 947,225 | — | 3,411,762 | ||||||||||||
Office REIT’s | 6,406,691 | 5,128,908 | — | 11,535,599 | ||||||||||||
Real Estate Investment Trusts (REITs) | 3,442,221 | 489,673 | — | 3,931,894 | ||||||||||||
Real Estate Management & Development | 401,588 | 9,973,377 | — | 10,374,965 | ||||||||||||
Real Estate Operating Companies | 6,711,396 | 14,688,366 | — | 21,399,762 | ||||||||||||
Retail REITs | 15,625,787 | 18,533,129 | — | 34,158,916 | ||||||||||||
Specialized REITs | 13,858,976 | 630,461 | — | 14,489,437 | ||||||||||||
All Other Common Stocks+ | 17,839,220 | — | — | 17,839,220 | ||||||||||||
Investment Company | 4,680,407 | — | — | 4,680,407 | ||||||||||||
Total Investment Securities | 77,252,968 | 106,381,705 | — | 183,634,673 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Forward Foreign Currency Contracts | — | (3,497 | ) | — | (3,497 | ) | ||||||||||
Total Investments | $ | 77,252,968 | $ | 106,378,208 | $ | — | $ | 183,631,176 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. | |
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 55,470,316 | $ | 41,751,046 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $160,277,687. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 43,665,071 | ||
Unrealized depreciation | (20,308,085 | ) | ||
Net unrealized appreciation | $ | 23,356,986 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 17,661,064 | $ | 26,029,940 |
During the year ended December 31, 2010, the Fund utilized $8,633 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $20,409 of deferred post October capital and currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 3,041,547 | $ | — | $ | 3,041,547 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 1,590,970 | $ | — | $ | 1,590,970 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Global Real Estate Fund
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||||||
Ordinary | Accumulated | Capital and | Unrealized | Accumulated | ||||||||||||||||
Income | Earnings | Other Losses | Appreciation(a) | Earnings (Deficit) | ||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 5,757,337 | $ | 5,757,337 | $ | (43,711,414 | ) | $ | 23,361,518 | $ | (14,592,559 | ) |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
20
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Morgan Stanley Global Real Estate Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 8.52% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
24
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
25
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
26
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
28
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
29
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Morgan Stanley International Equity Fund
(formerly AZL® Van Kampen International Equity Fund)
Annual Report
December 31, 2010
(formerly AZL® Van Kampen International Equity Fund)
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 20
Page 20
Other Federal Income Tax Information
Page 21
Page 21
Other Information
Page 22
Page 22
Approval of Investment Advisory and Subadvisory Agreements
Page 23
Page 23
Information about the Board of Trustees and Officers
Page 27
Page 27
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Morgan Stanley International Equity Fund (formerly AZL® Van Kampen International Equity Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Morgan Stanley International Equity Fund and Morgan Stanley Investment Management Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Morgan Stanley International Equity Fund returned 5.95%. That compared to a 8.21% and 12.34% total return for its benchmark’s, the MSCI EAFE Index1 and the MSCI World Index2, respectively.
The Fund’s positive absolute return was driven largely by strong gains in the equity markets toward the end of 2010, after the U.S. stimulus and Irish debt packages were unveiled.
The Fund’s stock selection was a major contributor to its absolute performance. The Fund’s underweight position in the financial sector, especially banks and insurance companies, also contributed to absolute returns. In addition, stock selection in the industrial sector and an overweight position in consumer staples benefited the Fund.*
Stock selection in materials and consumer discretionary was the biggest detractor from the Fund’s absolute performance.*
The Fund’s underperformance relative to its benchmark index was the result of an underweight position in materials such as hard commodities, as well as its exposure to construction. The Fund’s underweight position and stock selection in consumer discretionary—in particular, not owning shares of auto makers—was another major source of relative weakness. Weak stock selection across a number of countries, namely Germany, Switzerland Ireland, also negatively affected relative returns.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
To provide a more accurate representation of benchmark performance the Fund changed its benchmark from the MSCI World Index to the MSCI EAFE Index. | ||
1 | The Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. | |
2 | The Morgan Stanley Capital International (“MSCI”) World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. | |
Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Morgan Stanley International Equity Fund Review
Fund Objective
The Fund’s investment objective is to seeks long-term capital appreciation. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of the Fund’s assets in equity securities, including certain derivative instruments.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/1/03) | |||||||||||||
AZL® Morgan Stanley International Equity Fund | 5.95 | % | -1.49 | % | 4.95 | % | 9.29 | % | ||||||||
MSCI World Index (gross of withholding taxes) | 12.34 | % | -4.29 | % | 2.99 | % | 8.72 | %1 | ||||||||
MSCI World Index (net of withholding taxes) | 11.76 | % | -4.85 | % | 2.43 | % | 8.15 | %1 | ||||||||
MSCI EAFE Index (gross of withholding taxes) | 8.21 | % | -6.55 | % | 2.94 | % | 10.78 | %1 | ||||||||
MSCI EAFE Index (net of withholding taxes) | 7.75 | % | -7.02 | % | 2.46 | % | 10.30 | %1 | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Morgan Stanley International Equity Fund | 1.33 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager has voluntarily reduced the management fee to 0.80%. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 0.85%. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.39% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The since inception performance data and hypothetical $10,000 investment for the MSCI World Index is calculated from 4/30/03. | |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted. | ||
To provide a more accurate representation of benchmark performance the Fund changed it’s current benchmark from the Morgan Stanley Capital International (“MCSI”) World Index to the Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index. The Fund’s performance is measured against the MSCI World Index and the MSCI EAFE Index, which are unmanaged indices. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI EAFE Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. Indices noted as “gross of withholding taxes” do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. Indices noted as “net of withholding taxes” reflect the reinvestment of dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index. |
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Morgan Stanley International Equity Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Morgan Stanley International Equity Fund | $ | 1,000.00 | $ | 1,206.00 | $ | 6.67 | 1.20% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Morgan Stanley International Equity Fund | $ | 1,000.00 | $ | 1,019.16 | $ | 6.11 | 1.20% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Morgan Stanley International Equity Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Auto Components | 1.5 | % | ||
Automobiles | 1.9 | |||
Beverages | 1.4 | |||
Chemicals | 3.0 | |||
Commercial Banks | 10.0 | |||
Construction Materials | 3.5 | |||
Diversified Financial Services | 1.1 | |||
Diversified Telecommunication Services | 1.4 | |||
Electric Utilities | 2.2 | |||
Electrical Equipment | 2.9 | |||
Electronic Equipment, Instruments & Components | 4.7 | |||
Energy Equipment & Services | 0.7 | |||
Food & Staples Retailing | 1.2 | |||
Food Products | 7.5 | |||
Household Durables | 1.3 | |||
Household Products | 3.6 | |||
Industrial Conglomerates | 1.2 | |||
Insurance | 7.0 | |||
Machinery | 1.8 | |||
Marine | 0.7 | |||
Media | 1.4 | |||
Metals & Mining | 2.4 | |||
Multi-Utilities | 0.5 | |||
Oil, Gas & Consumable Fuels | 7.5 | |||
Pharmaceuticals | 8.9 | |||
Professional Services | 1.5 | |||
Real Estate Management & Development | 1.0 | |||
Semiconductors & Semiconductor Equipment | 1.9 | |||
Specialty Retail | 0.4 | |||
Tobacco | 6.9 | |||
Trading Companies & Distributors | 3.6 | |||
Wireless Telecommunication Services | 2.2 | |||
Investment Company | 2.9 | |||
99.7 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (96.8%): | ||||||||
Auto Components (1.5%): | ||||||||
329,000 | NGK Spark Plugs Co., Ltd. | $ | 5,044,794 | |||||
Automobiles (1.9%): | ||||||||
162,500 | Toyota Motor Corp. | 6,400,701 | ||||||
Beverages (1.4%): | ||||||||
131,344 | Dr Pepper Snapple Group, Inc. | 4,618,055 | ||||||
Chemicals (3.0%): | ||||||||
76,657 | Akzo Nobel NV | 4,770,529 | ||||||
71,400 | Nitto Denkl Corp. | 3,360,585 | ||||||
21,649 | Orica, Ltd. | 550,960 | ||||||
146,800 | Taiyo Nippon Sanso Corp. | 1,295,580 | ||||||
9,977,654 | ||||||||
Commercial Banks (10.0%): | ||||||||
342,584 | Banco Santander SA | 3,639,502 | ||||||
1,505,455 | Barclays plc | 6,192,706 | ||||||
179,000 | Chiba Bank, Ltd. (The) | 1,163,379 | ||||||
680,038 | HSBC Holdings plc | 6,928,812 | ||||||
3,088,229 | Lloyds Banking Group plc* | 3,166,653 | ||||||
70,378 | Societe Generale | 3,789,283 | ||||||
120,672 | Sumitomo Mitsui Financial Group, Inc. | 4,296,378 | ||||||
650,000 | Sumitomo Trust & Banking Co., Ltd. (The) | 4,097,450 | ||||||
33,274,163 | ||||||||
Construction Materials (3.5%): | ||||||||
239,147 | CRH plc | 4,958,624 | ||||||
88,657 | Holcim, Ltd., Registered Shares | 6,702,204 | ||||||
11,660,828 | ||||||||
Diversified Financial Services (1.1%): | ||||||||
234,881 | UBS AG, Registered Shares* | 3,856,168 | ||||||
Diversified Telecommunication Services (1.4%): | ||||||||
105,374 | France Telecom SA | 2,199,553 | ||||||
103,964 | Telefonica SA | 2,360,766 | ||||||
4,560,319 | ||||||||
Electric Utilities (2.2%): | ||||||||
77,285 | E.ON AG | 2,362,755 | ||||||
255,451 | Scottish & Southern Energy plc | 4,880,499 | ||||||
7,243,254 | ||||||||
Electrical Equipment (2.9%): | ||||||||
131,423 | Legrand SA | 5,355,735 | ||||||
416,000 | Mitsubishi Electric Corp. | 4,362,697 | ||||||
9,718,432 | ||||||||
Electronic Equipment, Instruments & Components (4.7%): | ||||||||
322,000 | Hitachi, Ltd. | 1,718,504 | ||||||
195,200 | HOYA Corp. | 4,737,752 | ||||||
24,000 | Keyence Corp. | 6,940,295 | ||||||
29,900 | TDK Corp. | 2,078,535 | ||||||
15,475,086 | ||||||||
Energy Equipment & Services (0.7%): | ||||||||
81,710 | WorleyParsons, Ltd. | 2,232,462 | ||||||
Food & Staples Retailing (1.2%): | ||||||||
926,075 | William Morrison Supermarkets plc | 3,865,358 | ||||||
Food Products (7.5%): | ||||||||
216,218 | Nestle SA | 12,669,580 | ||||||
397,114 | Unilever NV | 12,352,977 | ||||||
25,022,557 | ||||||||
Household Durables (1.3%): | ||||||||
428,100 | Sekisui House, Ltd. | 4,321,220 | ||||||
Household Products (3.6%): | ||||||||
95,200 | Kao Corp. | 2,564,432 | ||||||
170,542 | Reckitt Benckiser Group plc | 9,378,078 | ||||||
11,942,510 | ||||||||
Industrial Conglomerates (1.2%): | ||||||||
200,721 | Smiths Group plc | 3,898,786 | ||||||
Insurance (7.0%): | ||||||||
78,106 | Admiral Group plc | 1,846,260 | ||||||
788,889 | AMP, Ltd. | 4,265,726 | ||||||
2,324,499 | Legal & General Group plc | 3,510,187 | ||||||
142,200 | MS&AD Insurance Group Holdings, Inc. | 3,562,628 | ||||||
813,720 | Prudential plc | 8,485,267 | ||||||
67,250 | T&D Holdings, Inc. | 1,704,057 | ||||||
23,374,125 | ||||||||
Machinery (1.8%): | ||||||||
56,139 | Vallourec SA | 5,897,609 | ||||||
Marine (0.7%): | ||||||||
345,723 | Mitsui O.S.K. Lines, Ltd. | 2,357,251 | ||||||
Media (1.4%): | ||||||||
50,700 | Asatsu-DK, Inc. | 1,382,976 | ||||||
372,510 | Reed Elsevier plc | 3,146,355 | ||||||
4,529,331 | ||||||||
Metals & Mining (2.4%): | ||||||||
58,185 | ArcelorMittal | 2,213,377 | ||||||
103,297 | BHP Billiton plc | 4,117,771 | ||||||
69,172 | Xstrata plc | 1,628,213 | ||||||
7,959,361 | ||||||||
Multi-Utilities (0.5%): | ||||||||
176,615 | National Grid plc | 1,539,658 | ||||||
Oil, Gas & Consumable Fuels (7.5%): | ||||||||
273,461 | BG Group plc | 5,532,334 | ||||||
593,559 | BP plc | 4,348,519 | ||||||
55,662 | Cenovus Energy, Inc. | 1,863,613 | ||||||
34,931 | EnCana Corp. | 1,022,276 | ||||||
163,921 | Eni SpA | 3,581,293 | ||||||
382 | INPEX Corp. | 2,235,008 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
347,027 | Santos, Ltd. | $ | 4,663,386 | |||||
29,789 | Total SA | 1,581,643 | ||||||
24,828,072 | ||||||||
Pharmaceuticals (8.9%): | ||||||||
51,100 | Astellas Pharma, Inc. | 1,947,085 | ||||||
85,234 | Bayer AG | 6,269,119 | ||||||
142,047 | Novartis AG, Registered Shares | 8,361,378 | ||||||
61,969 | Roche Holding AG | 9,087,106 | ||||||
62,780 | Sanofi-Aventis | 4,030,753 | ||||||
29,695,441 | ||||||||
Professional Services (1.5%): | ||||||||
2,493,026 | Hays plc | 5,015,652 | ||||||
Real Estate Management & Development (1.0%): | ||||||||
175,000 | Mitsubishi Estate Co., Ltd. | 3,244,191 | ||||||
Semiconductors & Semiconductor Equipment (1.9%): | ||||||||
97,800 | Tokyo Electron, Ltd. | 6,184,480 | ||||||
Specialty Retail (0.4%): | ||||||||
258,695 | Esprit Holdings, Ltd. | 1,231,074 | ||||||
Tobacco (6.9%): | ||||||||
296,014 | British American Tobacco plc | 11,394,664 | ||||||
373,002 | Imperial Tobacco Group plc | 11,440,580 | ||||||
22,835,244 | ||||||||
Trading Companies & Distributors (3.6%): | ||||||||
290,219 | Bunzl plc | 3,253,378 | ||||||
216,500 | Mitsubishi Corp. | 5,856,172 | ||||||
182,253 | Travis Perkins plc | 3,009,346 | ||||||
12,118,896 | ||||||||
Wireless Telecommunication Services (2.2%): | ||||||||
1,100 | NTT DoCoMo, Inc. | 1,921,117 | ||||||
2,061,086 | Vodafone Group plc | 5,365,767 | ||||||
7,286,884 | ||||||||
Total Common Stocks (Cost $291,302,715) | 321,209,616 | |||||||
Investment Company (2.9%): | ||||||||
9,699,534 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 9,699,534 | ||||||
Total Investment Company (Cost $9,699,534) | 9,699,534 | |||||||
Total Investment Securities (Cost $301,002,249)(b) — 99.7% | 330,909,150 | |||||||
Net other assets (liabilities) — 0.3% | 906,273 | |||||||
Net Assets — 100.0% | $ | 331,815,423 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
plc—Public Limited Company
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010: |
Country | Percentage | ||||
Australia | 3.5 | % | |||
Canada | 0.9 | ||||
France | 6.9 | ||||
Germany | 2.6 | ||||
Hong Kong | 0.4 | ||||
Ireland (Republic of) | 1.5 | ||||
Italy | 1.1 | ||||
Japan | 25.0 | ||||
Netherlands | 5.8 | ||||
Spain | 1.8 | ||||
Switzerland | 12.3 | ||||
United Kingdom | 33.9 | ||||
United States | 4.3 | ||||
100.0 | % | ||||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Morgan Stanley | ||||
International | ||||
Equity Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 301,002,249 | ||
Investment securities, at value | $ | 330,909,150 | ||
Dividends receivable | 270,979 | |||
Foreign currency, at value (cost $262,985) | 266,765 | |||
Receivable for capital shares issued | 94,953 | |||
Receivable for expenses paid indirectly | 3 | |||
Reclaims receivable | 662,160 | |||
Prepaid expenses | 4,485 | |||
Total Assets | 332,208,495 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 773 | |||
Manager fees payable | 222,212 | |||
Administration fees payable | 14,505 | |||
Distribution fees payable | 69,441 | |||
Custodian fees payable | 29,562 | |||
Administrative and compliance services fees payable | 3,047 | |||
Trustee fees payable | 609 | |||
Other accrued liabilities | 52,923 | |||
Total Liabilities | 393,072 | |||
Net Assets | $ | 331,815,423 | ||
Net Assets Consist of: | ||||
Capital | $ | 316,304,519 | ||
Accumulated net investment income/(loss) | 3,080,521 | |||
Accumulated net realized gains/(losses) from investment transactions | (17,554,610 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 29,984,993 | |||
Net Assets | $ | 331,815,423 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 21,245,966 | |||
Net Asset Value (offering and redemption price per share) | $ | 15.62 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
Morgan Stanley | ||||
International | ||||
Equity Fund | ||||
Investment Income: | ||||
Dividends | $ | 10,098,034 | ||
Foreign withholding tax | (704,322 | ) | ||
Total Investment Income | 9,393,712 | |||
Expenses: | ||||
Manager fees | 3,110,281 | |||
Administration fees | 166,627 | |||
Distribution fees | 818,493 | |||
Custodian fees | 142,842 | |||
Administrative and compliance services fees | 13,691 | |||
Trustees’ fees | 27,774 | |||
Professional fees | 43,616 | |||
Shareholder reports | 31,632 | |||
Other expenses | 14,325 | |||
Total expenses before reductions | 4,369,281 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (491,098 | ) | ||
Less expenses paid indirectly | (65 | ) | ||
Net expenses | 3,878,118 | |||
Net Investment Income/(Loss) | 5,515,594 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | (2,451,028 | ) | ||
Net realized gains/(losses) on forward foreign currency contracts | (1,954,436 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 15,594,302 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 11,188,838 | |||
Change in Net Assets Resulting From Operations | $ | 16,704,432 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Statements of Changes in Net Assets
AZL Morgan Stanley | ||||||||
International Equity Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 5,515,594 | $ | 3,567,805 | ||||
Net realized gains/(losses) on investment transactions | (4,405,464 | ) | 19,762,263 | |||||
Change in unrealized appreciation/(depreciation) on investments | 15,594,302 | 26,564,764 | ||||||
Change in net assets resulting from operations | 16,704,432 | 49,894,832 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (1,466,815 | ) | (17,672,893 | ) | ||||
From net realized gains on investments | (1,865,974 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (3,332,789 | ) | (17,672,893 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 15,286,904 | 21,446,121 | ||||||
Proceeds from shares issued in merger | — | 133,760,290 | ||||||
Proceeds from dividends reinvested | 3,332,789 | 17,672,893 | ||||||
Value of shares redeemed | (62,723,005 | ) | (49,905,160 | ) | ||||
Change in net assets resulting from capital transactions | (44,103,312 | ) | 122,974,144 | |||||
Change in net assets | (30,731,669 | ) | 155,196,083 | |||||
Net Assets: | ||||||||
Beginning of period | 362,547,092 | 207,351,009 | ||||||
End of period | $ | 331,815,423 | $ | 362,547,092 | ||||
Accumulated net investment income/(loss) | $ | 3,080,521 | $ | 974,283 | ||||
Share Transactions: | ||||||||
Shares issued | 1,025,822 | 1,593,435 | ||||||
Shares issued in merger | — | 9,009,665 | ||||||
Dividends reinvested | 230,324 | 1,232,419 | ||||||
Shares redeemed | (4,346,644 | ) | (3,738,135 | ) | ||||
Change in shares | (3,090,498 | ) | 8,097,384 | |||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.90 | $ | 12.77 | $ | 19.57 | $ | 18.14 | $ | 15.46 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.27 | 0.26 | 0.46 | 0.35 | 0.16 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.61 | 3.06 | (5.80 | ) | 1.42 | 3.09 | ||||||||||||||
Total from Investment Activities | 0.88 | 3.32 | (5.34 | ) | 1.77 | 3.25 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.07 | ) | (1.19 | ) | (0.34 | ) | — | (0.25 | ) | |||||||||||
Net Realized Gains | (0.09 | ) | — | (1.12 | ) | (0.34 | ) | (0.32 | ) | |||||||||||
Total Dividends | (0.16 | ) | (1.19 | ) | (1.46 | ) | (0.34 | ) | (0.57 | ) | ||||||||||
Net Asset Value, End of Period | $ | 15.62 | $ | 14.90 | $ | 12.77 | $ | 19.57 | $ | 18.14 | ||||||||||
Total Return(a) | 5.95 | % | 26.32 | % | (28.56 | )% | 9.82 | % | 21.25 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 331,815 | $ | 362,547 | $ | 207,351 | $ | 413,382 | $ | 391,610 | ||||||||||
Net Investment Income/(Loss) | 1.68 | % | 1.51 | % | 2.31 | % | 1.71 | % | 1.31 | % | ||||||||||
Expenses Before Reductions(b) | 1.33 | % | 1.33 | % | 1.35 | % | 1.32 | % | 1.32 | % | ||||||||||
Expenses Net of Reductions | 1.18 | % | 1.26 | % | 1.29 | % | 1.32 | % | 1.32 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.18 | % | 1.26 | % | 1.30 | % | 1.32 | % | 1.32 | % | ||||||||||
Portfolio Turnover Rate | 35.02 | % | 29.56 | %(d) | 27.13 | % | 31.26 | % | 19.43 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. | |
(d) | Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after a fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded the portfolio turnover rate would have been 153.46%. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Morgan Stanley International Equity Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. The monthly average amount for these contracts was $19.3 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | (1,954,436 | ) | $ | (492,522 | ) |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective June 1, 2010 between the Manager and Morgan Stanley Investment Management, Inc. (“MSIM”), MSIM provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to June 1, 2010 the Fund was subadvised by Van Kampen Asset Management. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.39%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL Morgan Stanley International Equity Fund | 0.95% | 1.39% |
* | The Manager voluntarily reduced the management fee to 0.80% on all assets. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 0.85% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $9,849 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the year, the Fund paid approximately $2,456 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Beverages | $ | 4,618,055 | $ | — | $ | — | $ | 4,618,055 | ||||||||
Oil, Gas & Consumable Fuels | 2,885,889 | 21,942,183 | — | 24,828,072 | ||||||||||||
All Other Common Stocks+ | — | 291,763,489 | — | 291,763,489 | ||||||||||||
Investment Company | 9,699,534 | — | — | 9,699,534 | ||||||||||||
Total Investment Securities | $ | 17,203,478 | $ | 313,705,672 | $ | — | $ | 330,909,150 | ||||||||
+ | For detailed Industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Morgan Stanley International Equity Fund | $ | 111,108,975 | $ | 152,643,875 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $304,133,910. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 39,376,591 | ||
Unrealized depreciation | (12,601,351 | ) | ||
Net unrealized appreciation | $ | 26,775,240 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | Expires | ||||||||||
12/31/2015 | 12/31/2016 | 12/31/2018 | ||||||||||
AZL Morgan Stanley International Equity Fund | $ | 4,478,674 | $ | 6,813,930 | $ | 3,127,390 |
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $2,956 of deferred post October capital losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley International Equity Fund
AZL Morgan Stanley International Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Morgan Stanley International Equity Fund | $ | 3,332,789 | $ | — | $ | 3,332,789 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Morgan Stanley International Equity Fund | $ | 17,672,893 | $ | — | $ | 17,672,893 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Morgan Stanley International Equity Fund | $ | 3,080,521 | $ | (14,422,950 | ) | $ | 26,853,333 | $ | 15,510,904 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
7. Acquisition of AZL Oppenheimer Global Fund
On October 23, 2009, the Fund acquired all of the net assets of the AZL Oppenheimer Global Fund, an open-end investment company, pursuant to a plan of reorganization approved by AZL Oppenheimer Global Fund shareholders on October 21, 2009. The purpose of the transaction was to combine two funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 9,009,665 shares of the Fund, valued at $133,760,290, for 12,244,597 shares of the AZL Oppenheimer Global Fund outstanding on October 23, 2009.
19
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Morgan Stanley International Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 42.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $1,865,958.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
23
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
24
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
25
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
27
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
28
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Morgan Stanley Mid Cap Growth Fund
(formerly AZL® Van Kampen Mid Cap Growth Fund)
Annual Report
December 31, 2010
(formerly AZL® Van Kampen Mid Cap Growth Fund)
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 20
Page 20
Other Information
Page 21
Page 21
Approval of Investment Advisory and Subadvisory Agreements
Page 22
Page 22
Information about the Board of Trustees and Officers
Page 26
Page 26
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Morgan Stanley Mid Cap Growth Fund (formerly AZL® Van Kampen Mid Cap Growth Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Morgan Stanley Mid Cap Growth Fund and Morgan Stanley Investment Management Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Morgan Stanley Mid Cap Growth Fund returned 32.50%1. That compared to a 26.38% total return for its benchmark, the Russell Midcap® Growth Index2.
The Fund emphasizes shares of high-quality companies with sustainable competitive advantages. Such stocks performed well in absolute terms in 2010, helping the Fund post a positive return.
The Fund’s outperformance relative to its benchmark was largely driven by stock selection in technology. The sector’s leading contributors were in the computer services software and systems industry. Both stock selection and an overweight position in consumer discretionary shares were advantageous to relative performance. Within the sector, exposure to the hotel and motel industry was the most beneficial. In addition, both stock selection and an underweight position in utilities contributed to performance relative to the Fund’s benchmark, primarily due to returns in the telecommunications industry.*
Stock selection in energy had the largest negative effect on relative performance, although an underweight position in the sector slightly mitigated that effect. Within the sector, the portfolio’s exposure to natural gas producers dragged on relative performance. In addition, both stock selection and an overweight position in financial services hampered relative performance. Specifically, the financial data and systems industry was the main underperformer.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Morgan Stanley Mid Cap Growth Fund Review
Fund Objective
The Fund’s investment objective is to seek capital growth. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in common stocks and other equity securities of mid capitalization growth companies.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Mid capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure.
Growth based investments can perform differently from the market as a whole and can be more volatile that other types of securities.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (4/30/01) | |||||||||||||
AZL® Morgan Stanley Mid Cap Growth Fund | 32.50 | % | 2.45 | % | 7.49 | % | 6.93 | % | ||||||||
Russell Midcap® Growth Index | 26.38 | % | 0.97 | % | 4.88 | % | 4.67 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio1 | Gross | |||
AZL® Morgan Stanley Mid Cap Growth Fund | 1.18 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.80% on the first $100 million of assets and 0.75% on assets above $100 million. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.30% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and expenses the Fund’s gross ratio would be 1.17%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell Midcap ® Growth Index, an unmanaged index which measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Morgan Stanley Mid Cap Growth Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 1,000.00 | $ | 1,315.30 | $ | 6.42 | 1.10 | % |
* | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 1,000.00 | $ | 1,019.66 | $ | 5.60 | 1.10 | % |
* | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Morgan Stanley Mid Cap Growth Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Air Freight & Logistics | 3.7 | % | ||
Capital Markets | 2.6 | |||
Chemicals | 4.7 | |||
Commercial Services & Supplies | 2.9 | |||
Computers & Peripherals | 2.6 | |||
Construction Materials | 1.3 | |||
Diversified Consumer Services | 1.4 | |||
Diversified Financial Services | 5.7 | |||
Electrical Equipment | 0.8 | |||
Health Care Equipment & Supplies | 5.7 | |||
Hotels, Restaurants & Leisure | 9.8 | |||
Household Durables | 1.7 | |||
Internet & Catalog Retail | 6.5 | |||
Internet Software & Services | 2.1 | |||
IT Services | 1.4 | |||
Life Sciences Tools & Services | 4.3 | |||
Machinery | 2.0 | |||
Media | 5.2 | |||
Metals & Mining | 2.3 | |||
Multiline Retail | 2.1 | |||
Oil, Gas & Consumable Fuels | 3.8 | |||
Personal Products | 3.8 | |||
Professional Services | 5.8 | |||
Semiconductors & Semiconductor Equipment | 0.9 | |||
Software | 11.5 | |||
Textiles, Apparel & Luxury Goods | 1.2 | |||
Trading Companies & Distributors | 1.4 | |||
Transportation Infrastructure | 0.5 | |||
Wireless Telecommunication Services | 1.4 | |||
Investment Company | 1.0 | |||
100.1 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (98.6%): | ||||||||
Air Freight & Logistics (3.7%): | ||||||||
87,971 | C.H. Robinson Worldwide, Inc. | $ | 7,054,394 | |||||
182,503 | Expeditors International of Washington, Inc. | 9,964,664 | ||||||
17,019,058 | ||||||||
Capital Markets (2.6%): | ||||||||
80,261 | Greenhill & Co., Inc. | 6,555,718 | ||||||
80,442 | T. Rowe Price Group, Inc. | 5,191,727 | ||||||
11,747,445 | ||||||||
Chemicals (4.7%): | ||||||||
225,256 | Intrepid Potash, Inc.* | 8,399,796 | ||||||
216,017 | Nalco Holding Co. | 6,899,583 | ||||||
153,804 | Rockwood Holdings, Inc.* | 6,016,813 | ||||||
21,316,192 | ||||||||
Commercial Services & Supplies (2.9%): | ||||||||
354,886 | Covanta Holding Corp. | 6,100,490 | ||||||
89,620 | Stericycle, Inc.* | 7,252,051 | ||||||
13,352,541 | ||||||||
Computers & Peripherals (2.6%): | ||||||||
288,382 | Teradata Corp.* | 11,869,803 | ||||||
Construction Materials (1.3%): | ||||||||
66,434 | Martin Marietta Materials, Inc. | 6,127,872 | ||||||
Diversified Consumer Services (1.4%): | ||||||||
60,185 | New Oriental Education & Technology Group, Inc., SP ADR* | 6,333,268 | ||||||
Diversified Financial Services (5.7%): | ||||||||
53,610 | Intercontinental Exchange, Inc.* | 6,387,631 | ||||||
252,840 | Leucadia National Corp. | 7,377,871 | ||||||
68,613 | Moody’s Corp. | 1,820,989 | ||||||
269,756 | MSCI, Inc., Class A* | 10,509,694 | ||||||
26,096,185 | ||||||||
Electrical Equipment (0.8%): | ||||||||
28,432 | First Solar, Inc.* | 3,700,140 | ||||||
Health Care Equipment & Supplies (5.7%): | ||||||||
129,465 | Gen-Probe, Inc.* | 7,554,283 | ||||||
85,057 | IDEXX Laboratories, Inc.* | 5,887,645 | ||||||
35,093 | Intuitive Surgical, Inc.* | 9,045,221 | ||||||
324,311 | Ironwood Pharmaceuticals, Inc.* | 1,674,278 | ||||||
24,161,427 | ||||||||
Hotels, Restaurants & Leisure (9.8%): | ||||||||
86,502 | Betfair Group plc* | 1,300,485 | ||||||
34,486 | Chipotle Mexican Grill, Inc., Class A* | 7,333,793 | ||||||
271,522 | Ctrip.com International, Ltd., SP ADR* | 10,983,065 | ||||||
503,399 | Edenred* | 11,922,332 | ||||||
127,010 | Wynn Resorts, Ltd. | 13,188,718 | ||||||
44,728,393 | ||||||||
Household Durables (1.7%): | ||||||||
244,734 | Gafisa SA, SP ADR | 3,555,985 | ||||||
6,232 | NVR, Inc.* | 4,306,437 | ||||||
7,862,422 | ||||||||
Internet & Catalog Retail (6.5%): | ||||||||
106,248 | Groupon, Inc.*(a)(b) | 3,356,374 | ||||||
61,996 | Netflix, Inc.* | 10,892,697 | ||||||
38,308 | Priceline.com, Inc.* | 15,305,962 | ||||||
29,555,033 | ||||||||
Internet Software & Services (2.1%): | ||||||||
116,922 | Akamai Technologies, Inc.* | 5,501,180 | ||||||
2,354,000 | Alibaba.com, Ltd. | 4,220,977 | ||||||
9,722,157 | ||||||||
IT Services (1.4%): | ||||||||
191,584 | Gartner, Inc.* | 6,360,589 | ||||||
Life Sciences Tools & Services (4.3%): | ||||||||
219,808 | Illumina, Inc.* | 13,922,639 | ||||||
88,389 | Techne Corp. | 5,804,505 | ||||||
19,727,144 | ||||||||
Machinery (2.0%): | ||||||||
77,166 | Schindler Holding AG | 9,121,551 | ||||||
Media (5.2%): | ||||||||
110,846 | Discovery Communications, Inc., Class C* | 4,066,940 | ||||||
326,395 | Groupe Aeroplan, Inc. | 4,488,752 | ||||||
115,312 | Morningstar, Inc. | 6,120,761 | ||||||
154,132 | Naspers, Ltd. | 9,088,317 | ||||||
23,764,770 | ||||||||
Metals & Mining (2.3%): | ||||||||
1,717,757 | Lynas Corp., Ltd.* | 3,608,569 | ||||||
133,392 | Molycorp, Inc.* | 6,656,261 | ||||||
10,264,830 | ||||||||
Multiline Retail (2.1%): | ||||||||
123,667 | Dollar Tree, Inc.* | 6,935,246 | ||||||
32,487 | Sears Holdings Corp.* | 2,395,916 | ||||||
9,331,162 | ||||||||
Oil, Gas & Consumable Fuels (3.8%): | ||||||||
153,119 | Range Resources Corp. | 6,887,293 | ||||||
222,738 | Ultra Petroleum Corp.* | 10,640,194 | ||||||
17,527,487 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Personal Products (3.8%): | ||||||||
170,608 | Mead Johnson Nutrition Co., Class A | $ | 10,620,348 | |||||
230,275 | Natura Cosmeticos SA | 6,618,906 | ||||||
17,239,254 | ||||||||
Professional Services (5.8%): | ||||||||
86,105 | IHS, Inc., Class A* | 6,921,981 | ||||||
320,886 | Intertek Group plc | 8,884,270 | ||||||
305,820 | Verisk Analytics, Inc., Class A* | 10,422,345 | ||||||
26,228,596 | ||||||||
Semiconductors & Semiconductor Equipment (0.9%): | ||||||||
206,859 | ARM Holdings plc, SP ADR | 4,292,324 | ||||||
Software (11.5%): | ||||||||
151,628 | Autodesk, Inc.* | 5,792,190 | ||||||
56,791 | Citrix Systems, Inc.* | 3,885,072 | ||||||
74,292 | FactSet Research Systems, Inc. | 6,965,618 | ||||||
183,663 | Red Hat, Inc.* | 8,384,216 | ||||||
82,748 | Rovi Corp.* | 5,131,203 | ||||||
89,685 | Salesforce.com, Inc.* | 11,838,420 | ||||||
206,371 | Solera Holdings, Inc. | 10,590,960 | ||||||
52,587,679 | ||||||||
Textiles, Apparel & Luxury Goods (1.2%): | ||||||||
82,712 | Lululemon Athletica, Inc.* | 5,659,155 | ||||||
Trading Companies & Distributors (1.4%): | ||||||||
106,391 | Fastenal Co. | 6,373,885 | ||||||
Wireless Telecommunication Services (1.4%): | ||||||||
64,206 | Millicom International Cellular SA | 6,138,094 | ||||||
Total Common Stocks (Cost $331,004,850) | 448,208,456 | |||||||
Preferred Stock (0.4%): | ||||||||
Health Care Equipment of Supplies (0.4%): | ||||||||
162,545 | Ironwood Pharmaceuticals, Inc.* | 1,682,341 | ||||||
Total Preferred Stock (Cost $1,950,540) | 1,682,341 | |||||||
Private Placement (0.5%): | ||||||||
Transportation Infrastructure (0.5%): | ||||||||
682,027 | Better Place LLC(a)(b) | 2,046,081 | ||||||
Total Private Placement (Cost $2,046,081) | 2,046,081 | |||||||
Investment Company (1.0%): | ||||||||
4,728,051 | Dreyfus Treasury Prime Cash Management, 0.00%(c) | 4,728,051 | ||||||
Total Investment Company (Cost $4,728,051) | 4,728,051 | |||||||
Total Investment Securities (Cost $339,729,522)(d) — 100.1% | 456,664,929 | |||||||
Net other assets (liabilities) — (0.1)% | (241,867 | ) | ||||||
Net Assets — 100.0% | $ | 456,423,062 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
LLC—Limited Liability Company
plc — Public Limited Company
SP ADR—Sponsored American Depositary Receipt
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2010, these securities represent 1.18% of the net assets of the Fund. | |
(b) | Security was valued in good faith pursuant to the procedures approved by the Board of Trustees as of December 31, 2010. The total of such securities represents 1.18% of the net assets of the Fund. | |
(c) | The rate represents the effective yield at December 31, 2010. | |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Schedule of Portfolio Investments, continued
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | ||||
Australia | 0 | .8% | |||
Brazil | 2 | .2 | |||
Canada | 4 | .6 | |||
Cayman Islands | 3 | .8 | |||
China | 0 | .9 | |||
France | 2 | .6 | |||
Luxembourg | 1 | .3 | |||
South Africa | 2 | .0 | |||
Switzerland | 2 | .0 | |||
United Kingdom | 3 | .2 | |||
United States | 76 | .6 | |||
100 | .0% | ||||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Morgan Stanley | ||||
Mid Cap | ||||
Growth Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 339,729,522 | ||
Investment securities, at value | $ | 456,664,929 | ||
Dividends receivable | 143,854 | |||
Foreign currency, at value (cost $34,889) | 34,889 | |||
Receivable for capital shares issued | 57,020 | |||
Receivable for expenses paid indirectly | 1,310 | |||
Prepaid expenses | 5,789 | |||
Total Assets | 456,907,791 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 7,809 | |||
Manager fees payable | 293,062 | |||
Administration fees payable | 17,067 | |||
Distribution fees payable | 96,272 | |||
Custodian fees payable | 8,238 | |||
Administrative and compliance services fees payable | 3,426 | |||
Trustee fees payable | 387 | |||
Other accrued liabilities | 58,468 | |||
Total Liabilities | 484,729 | |||
Net Assets | $ | 456,423,062 | ||
Net Assets Consist of: | ||||
Capital | $ | 381,298,783 | ||
Accumulated net investment income/(loss) | 54,127 | |||
Accumulated net realized gains/(losses) from investment transactions | (41,865,285 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 116,935,437 | |||
Net Assets | $ | 456,423,062 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 31,886,719 | |||
Net Asset Value (offering and redemption price per share) | $ | 14.31 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
Morgan Stanley | ||||
Mid Cap | ||||
Growth Fund | ||||
Investment Income: | ||||
Dividends | $ | 4,534,882 | ||
Foreign withholding tax | (123,088 | ) | ||
Total Investment Income | 4,411,794 | |||
Expenses: | ||||
Manager fees | 3,077,370 | |||
Administration fees | 170,248 | |||
Distribution fees | 956,407 | |||
Custodian fees | 41,697 | |||
Administrative and compliance services fees | 14,773 | |||
Trustees’ fees | 29,525 | |||
Professional fees | 45,478 | |||
Shareholder reports | 34,304 | |||
Other expenses | 17,302 | |||
Total expenses before reductions | 4,387,104 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (158,145 | ) | ||
Less expenses paid indirectly | (74,007 | ) | ||
Net expenses | 4,154,952 | |||
Net Investment Income/(Loss) | 256,842 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 21,107,601 | |||
Net realized gains/(losses) on forward foreign currency contracts | 188,225 | |||
Change in unrealized appreciation/(depreciation) on investments | 88,337,195 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 109,633,021 | |||
Change in Net Assets Resulting From Operations | $ | 109,889,863 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Statements of Changes in Net Assets
AZL Morgan Stanley | ||||||||
Mid Cap Growth Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 256,842 | $ | (519,735 | ) | |||
Net realized gains/(losses) on investment transactions | 21,295,826 | (3,835,608 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 88,337,195 | 133,599,248 | ||||||
Change in net assets resulting from operations | 109,889,863 | 129,243,905 | ||||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 76,301,285 | 59,094,846 | ||||||
Value of shares redeemed | (84,614,394 | ) | (63,139,630 | ) | ||||
Change in net assets resulting from capital transactions | (8,313,109 | ) | (4,044,784 | ) | ||||
Change in net assets | 101,576,754 | 125,199,121 | ||||||
Net Assets: | ||||||||
Beginning of period | 354,846,308 | 229,647,187 | ||||||
End of period | $ | 456,423,062 | $ | 354,846,308 | ||||
Accumulated net investment income/(loss) | $ | 54,127 | $ | (19,699 | ) | |||
Share Transactions: | ||||||||
Shares issued | 6,298,666 | 7,070,544 | ||||||
Shares redeemed | (7,270,899 | ) | (7,758,560 | ) | ||||
Change in shares | (972,233 | ) | (688,016 | ) | ||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.80 | $ | 6.85 | $ | 15.59 | $ | 13.48 | $ | 12.75 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.01 | (0.02 | ) | — | (a) | 0.03 | — | (a) | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.50 | 3.97 | (7.01 | ) | 2.89 | 1.14 | ||||||||||||||
Total from Investment Activities | 3.51 | 3.95 | (7.01 | ) | 2.92 | 1.14 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | — | — | (0.03 | ) | — | (a) | — | |||||||||||||
Net Realized Gains | — | — | (1.69 | ) | (0.81 | ) | (0.41 | ) | ||||||||||||
Return of Capital | — | — | (0.01 | ) | — | — | ||||||||||||||
Total Dividends | — | — | (1.73 | ) | (0.81 | ) | (0.41 | ) | ||||||||||||
Net Asset Value, End of Period | $ | 14.31 | $ | 10.80 | $ | 6.85 | $ | 15.59 | $ | 13.48 | ||||||||||
Total Return(b) | 32.50 | % | 57.66 | % | (48.52 | )% | 22.19 | % | 9.21 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 456,423 | $ | 354,846 | $ | 229,647 | $ | 559,566 | $ | 305,006 | ||||||||||
Net Investment Income/(Loss) | 0.07 | % | (0.18 | )% | (0.07 | )% | 0.31 | % | 0.04 | % | ||||||||||
Expenses Before Reductions(c) | 1.15 | % | 1.17 | % | 1.15 | % | 1.18 | % | 1.21 | % | ||||||||||
Expenses Net of Reductions | 1.09 | % | 1.11 | % | 1.10 | % | 1.12 | % | 1.16 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.10 | % | 1.13 | % | 1.11 | % | 1.14 | % | 1.18 | % | ||||||||||
Portfolio Turnover Rate | 41.95 | % | 39.79 | % | 41.17 | % | 72.41 | % | 70.25 | % |
(a) | Represents less than $0.005. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(d) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Morgan Stanley Mid Cap Growth Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. The monthly average amount for these contracts was $0.6 million for the year ended December 31, 2010.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 188,225 | $ | — |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective June 1, 2010 between the Manager and Morgan Stanley Investment Management, Inc. (“MSIM”), MSIM provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to June 1, 2010 the Fund was subadvised by Van Kampen Asset Management. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.30%.
The fees payable to the Manager are based on a tiered structure for various net assets levels as follows: the first $100 million in assets at 0.85%, the next $150 million in assets at 0.80%, the next $250 million in assets at 0.775% and assets above $500 million at 0.75%. The Manager voluntarily reduced the management fees as follows: the first $100 million of assets at 0.80% and assets above $100 million at 0.75%. The Manager reserves the right to stop reducing the management fee at any time.
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion,
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $10,983 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the period, the Fund paid approximately $4,791 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Hotels, Restaurants & Leisure | $ | 31,505,576 | $ | 13,222,817 | $ | — | $ | 44,728,393 | ||||||||
Internet & Catalog Retail | 26,198,659 | — | 3,356,374 | 29,555,033 | ||||||||||||
Internet Software & Services | 5,501,180 | 4,220,977 | — | 9,722,157 | ||||||||||||
Machinery | — | 9,121,551 | — | 9,121,551 | ||||||||||||
Media | 14,676,453 | 9,088,317 | — | 23,764,770 | ||||||||||||
Metals & Mining | 6,656,261 | 3,608,569 | — | 10,264,830 | ||||||||||||
Professional Services | 17,344,326 | 8,884,270 | — | 26,228,596 | ||||||||||||
All Other Common Stocks+ | 294,823,126 | — | — | 294,823,126 | ||||||||||||
Preferred Stock | — | 1,682,341 | — | 1,682,341 | ||||||||||||
Private Placement | — | — | 2,046,081 | 2,046,081 | ||||||||||||
Investment Company | 4,728,051 | — | — | 4,728,051 | ||||||||||||
Total Investment Securities | $ | 401,433,632 | $ | 49,828,842 | $ | 5,402,455 | $ | 456,664,929 | ||||||||
+ | For detailed Industry descriptions, see the accompanying Schedule of Portfolio Investments. |
As of December 31, 2010, the Fund held securities that were valued in good faith pursuant to procedures approved by the Board of Trustees and represented 1.18% of the net assets of the Fund. The Better Place LLC private placement and the Groupon, Inc. common stocks were valued at original cost.
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a reconciliation of Level 3 investments based on the inputs used to determine fair value:
Change in | ||||||||||||||||||||||||
Balance as of | Net Realized | unrealized | Transfers | Balance as of | ||||||||||||||||||||
December 31, | gains/ | appreciation/ | Net | in/(out) of | December 31, | |||||||||||||||||||
2009 | (losses) | (depreciation) | purchases/(sales) | Level 3 | 2010 | |||||||||||||||||||
Investment Securities: | ||||||||||||||||||||||||
Common Stocks: | ||||||||||||||||||||||||
Health Care Equipments & Supplies | $ | 3,575,990 | $ | — | $ | (1,893,649 | ) | $ | — | $ | (1,682,341 | ) | $ | — | ||||||||||
Internet & Catalog Retail | — | — | — | 3,356,374 | — | 3,356,374 | ||||||||||||||||||
Private Placement: | ||||||||||||||||||||||||
Transportation Infrastructure | — | — | — | 2,046,081 | — | 2,046,081 | ||||||||||||||||||
Total Investment Securities | $ | 3,575,990 | $ | — | $ | (1,893,649 | ) | $ | 5,402,455 | $ | (1,682,341 | ) | $ | 5,402,455 | ||||||||||
There is no net change in unrealized appreciation/(depreciation) attributable to Level 3 investments held at December 31, 2010.
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 156,928,938 | $ | 164,927,457 |
6. Restricted Securities
A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933 (the “1933 Act”) or pursuant to the resale limitations provided by Rule 144A under the 1933 Act, or an exemption from the registration requirements of the 1933 Act. Whether a restricted security is illiquid is determined pursuant to guidelines established by the Board of Trustees. Not all restricted securities are
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Morgan Stanley Mid Cap Growth Fund
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
considered illiquid. At December 31, 2010, the Fund held restricted securities representing 1.2% of net assets all of which have been deemed illiquid. The restricted illiquid securities held as of December 31, 2010 are identified below:
Acquisition | Acquisition | Fair | ||||||||||||||
Security | Date | Cost | Shares | Value | ||||||||||||
Better Place LLC | 1/25/10 | $ | 2,046,081 | 682,027 | $ | 2,046,081 | ||||||||||
Groupon, Inc. | 12/16/10 | $ | 3,356,374 | 106,248 | $ | 3,356,374 |
7. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $343,833,765. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 126,375,680 | ||
Unrealized depreciation | (13,544,516 | ) | ||
Net unrealized appreciation | $ | 112,831,164 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 451,500 | $ | 38,209,083 |
During the year ended December 31, 2010, the Fund utilized $21,352,763 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $609,427 of deferred post October capital and currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 1,563,095 | $ | (39,270,010 | ) | $ | 112,831,194 | $ | 75,124,279 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
19
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Morgan Stanley Mid Cap Growth Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (”Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
22
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
23
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
24
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
26
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
27
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® NFJ International Value Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 7
Page 7
Statement of Operations
Page 8
Page 8
Statement of Changes in Net Assets
Page 9
Page 9
Financial Highlights
Page 10
Page 10
Notes to the Financial Statements
Page 11
Page 11
Report of Independent Registered Public Accounting Firm
Page 18
Page 18
Other Federal Income Tax Information
Page 19
Page 19
Other Information
Page 20
Page 20
Approval of Investment Advisory and Subadvisory Agreements
Page 21
Page 21
Information about the Board of Trustees and Officers
Page 25
Page 25
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® NFJ International Value Fund
Allianz Investment Management LLC serves as the Manager for the AZL® NFJ International Value Fund and NFJ Investment Group LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010 the AZL® NFJ International Value Fund returned 9.67%. That compared to a 8.21% and 11.60% total return for its benchmark’s, the MSCI EAFE Index1 and the MSCI AC World ex US Index2.
Global markets performed well for calendar year 2010. Financial markets responded vigorously to the U.S. Federal Reserve’s second round of quantitative easing, a measured approach of U.S. Treasury bond purchases aimed at keeping interest rates low. At the onset of 2010, the primary concern was protecting the economy’s nascent recovery. But the year was surprisingly good for the world economy: change in Gross Domestic Product3 was positive, China appeared to successfully implement tightening measures, and the U.S. did not enter a “double-dip” recession.
Emerging markets equities (18.6%) widely outpaced developed markets (7.7%). Investors poured money into emerging markets in search of yield and growth potential. Emerging markets currencies rose as well, boosting stock performance in these countries for U.S. investors.
Stock selection helped the Fund’s performance relative to its MSCI EAFE index. The portfolio’s holdings in the utilities sector were the most significant cause of outperformance against the MSCI EAFE Index. An underweight position in the financials sector also contributed to relative gains. Stock selection in Japan added value, despite the portfolio’s notable underweight in the country. The majority of the Fund’s outperformance for 2010 occurred during months in which global markets posted negative performance.*
Sector allocation was a net detractor from relative performance. In particular, an underweight position in the consumer discretionary sector detracted from relative performance. Moreover, the Fund’s materials holdings, especially those in the steel industry, lagged the benchmark’s shares in that sector. That dynamic reduced the Fund’s relative return.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
To provide a more accurate representation of benchmark performance the Fund changed its benchmark index from the MSCI AC World ex U.S. Index to the MSCI EAFE Index. | ||
1 | The Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. Investors cannot invest directly in an index. | |
2 | The Morgan Stanley Capital International All Country (“MSCI AC”) World ex US Index is a market capitalization-weighted index designed to measure equity market performance in 47 global developed and emerging markets, excluding the U.S. | |
Investors cannot invest directly in an index. | ||
3 | Gross Domestic Product (“GDP”) is the measure of the market value of the goods and services produced by labor and property in the United States. |
1
Table of Contents
AZL® NFJ International Value Fund Review
Fund Objective
The Fund’s investment objective is long-term growth of capital and income. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 65% of its net assets, plus any borrowings for investment purposes, in equity securities of non-U.S. companies with market capitalizations greater than $1 billion.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||
1 | Inception | |||||||
Year | (5/1/09) | |||||||
AZL® NFJ International Value Fund | 9.67 | % | 27.18 | % | ||||
MSCI AC World Index ex US (gross of withholding taxes) | 11.60 | % | 30.53 | % | ||||
MSCI AC World Index ex US (net of withholding taxes) | 11.15 | % | 30.00 | % | ||||
MSCI EAFE Index (gross of withholding taxes) | 8.21 | % | 26.16 | % | ||||
MSCI EAFE Index (net of withholding taxes) | 7.75 | % | 25.63 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® NFJ International Value Fund | 1.33 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager has voluntarily reduced the management fee to 0.80%. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.45% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
To provide a more accurate representation of benchmark performance the Fund changed it’s current benchmark from the Morgan Stanley Capital International All Country (“MCSI AC”) World ex US Index to the Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) Index. The Fund’s performance is measured against the MSCI AC World ex US Index and the MSCI EAFE Index, which are unmanaged indices. The MSCI AC World ex US Index is a market capitalization-weighted index designed to measure equity market performance in 47 global developed and emerging markets, excluding the U.S.. The MSCI EAFE Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. Indices noted as “gross of withholding taxes” do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. Indices noted as “net of withholding taxes” reflect the reinvestment of dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to nonresident institutional investors who do not benefit from double taxation treaties. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL NFJ International Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL NFJ International Value Fund | $ | 1,000.00 | $ | 1,223.50 | $ | 6.16 | 1.10 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL NFJ International Value Fund | $ | 1,000.00 | $ | 1,019.66 | $ | 5.60 | 1.10 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL NFJ International Value Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 1.7 | % | ||
Airlines | 0.9 | |||
Automobiles | 1.2 | |||
Beverages | 3.7 | |||
Building Products | 1.1 | |||
Chemicals | 4.7 | |||
Commercial Banks | 9.1 | |||
Communications Equipment | 0.9 | |||
Computers & Peripherals | 0.8 | |||
Diversified Telecommunication Services | 4.5 | |||
Electric Utilities | 3.0 | |||
Food & Staples Retailing | 2.6 | |||
Food Products | 1.9 | |||
Health Care Equipment & Supplies | 2.1 | |||
Hotels, Restaurants & Leisure | 2.0 | |||
Independent Power Producers & Energy Traders | 0.9 | |||
Industrial Conglomerates | 2.1 | |||
Insurance | 7.5 | |||
Marine | 1.0 | |||
Media | 1.7 | |||
Metals & Mining | 4.8 | |||
Multiline Retail | 0.9 | |||
Oil, Gas & Consumable Fuels | 15.5 | |||
Paper & Forest Products | 2.0 | |||
Pharmaceuticals | 6.0 | |||
Semiconductors & Semiconductor Equipment | 1.1 | |||
Software | 0.9 | |||
Tobacco | 1.9 | |||
Trading Companies & Distributors | 1.9 | |||
Water Utilities | 4.2 | |||
Wireless Telecommunication Services | 2.8 | |||
Investment Company | 4.4 | |||
99.8 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (95.4%): | ||||||||
Aerospace & Defense (1.7%): | ||||||||
133,050 | BAE Systems plc, SP ADR | $ | 2,774,093 | |||||
Airlines (0.9%): | ||||||||
26,900 | Copa Holdings SA, Class A | 1,582,796 | ||||||
Automobiles (1.2%): | ||||||||
26,500 | Fuji Heavy Industries, Ltd., ADR | 2,067,000 | ||||||
Beverages (3.7%): | ||||||||
38,100 | Coca-Cola Femsa S.A.B. de C.V., SP ADR | 3,140,583 | ||||||
40,400 | Diageo plc, SP ADR | 3,002,932 | ||||||
6,143,515 | ||||||||
Building Products (1.1%): | ||||||||
158,000 | Asahi Glass Co., Ltd., ADR | 1,840,700 | ||||||
Chemicals (4.7%): | ||||||||
45,100 | Agrium, Inc. | 4,137,925 | ||||||
77,000 | Nitto Denko Corp., ADR | 3,655,960 | ||||||
7,793,885 | ||||||||
Commercial Banks (9.1%): | ||||||||
133,500 | Australia And New Zealand Banking Group, Ltd., SP ADR | 3,209,340 | ||||||
153,100 | Banco Bradesco SA, SP ADR | 3,106,399 | ||||||
84,200 | Barclays plc, SP ADR | 1,390,984 | ||||||
39,600 | Toronto-Dominion Bank | 2,942,676 | ||||||
101,600 | United Overseas Bank, Ltd., SP ADR | 2,881,376 | ||||||
42,200 | Woori Finance Holdings Co., Ltd., ADR | 1,753,410 | ||||||
15,284,185 | ||||||||
Communications Equipment (0.9%): | ||||||||
144,650 | Nokia OYJ, SP ADR | 1,492,788 | ||||||
Computers & Peripherals (0.8%): | ||||||||
40,400 | Fujitsu, Ltd., SP ADR | 1,414,808 | ||||||
Diversified Telecommunication Services (4.5%): | ||||||||
201,700 | France Telecom SA, SP ADR | 4,251,836 | ||||||
224,700 | Telstra Corp., Ltd., SP ADR | 3,224,445 | ||||||
7,476,281 | ||||||||
Electric Utilities (3.0%): | ||||||||
201,600 | CIA Paranaense de Energia, SP ADR | 5,074,272 | ||||||
Food & Staples Retailing (2.6%): | ||||||||
59,700 | Delhaize Group, SP ADR | 4,400,487 | ||||||
Food Products (1.9%): | ||||||||
100,400 | Unilever plc, SP ADR | 3,100,352 | ||||||
Health Care Equipment & Supplies (2.1%): | ||||||||
75,200 | Covidien plc | 3,433,632 | ||||||
Hotels, Restaurants & Leisure (2.0%): | ||||||||
351,500 | Compass Group plc, SP ADR | 3,275,980 | ||||||
Independent Power Producers & Energy Traders (0.9%): | ||||||||
70,400 | Huaneng Power International, Inc., SP ADR | 1,505,152 | ||||||
Industrial Conglomerates (2.1%): | ||||||||
28,100 | Siemens AG, SP ADR | 3,491,425 | ||||||
Insurance (7.5%): | ||||||||
88,700 | Axis Capital Holdings, Ltd. | 3,182,556 | ||||||
73,000 | RenaissanceRe Holdings, Ltd. | 4,649,370 | ||||||
182,400 | Zurich Financial Services AG, SP ADR | 4,722,336 | ||||||
12,554,262 | ||||||||
Marine (1.0%): | ||||||||
185,400 | Nippon Yusen Kabushiki Kaisha, SP ADR | 1,624,104 | ||||||
Media (1.7%): | ||||||||
184,100 | Pearson plc, SP ADR | 2,925,349 | ||||||
Metals & Mining (4.8%): | ||||||||
25,700 | POSCO, SP ADR | 2,767,633 | ||||||
26,800 | Rio Tinto plc SP, SP ADR | 1,920,488 | ||||||
261,800 | Yamana Gold, Inc. | 3,351,040 | ||||||
8,039,161 | ||||||||
Multiline Retail (0.9%): | ||||||||
125,850 | Marks & Spencer Group plc, SP ADR | 1,447,275 | ||||||
Oil, Gas & Consumable Fuels (15.5%): | ||||||||
49,500 | Frontline, Ltd. | 1,255,815 | ||||||
139,600 | Nexen, Inc. | 3,196,840 | ||||||
77,100 | Petroleo Brasileiro SA, SP ADR | 2,917,464 | ||||||
72,100 | Royal Dutch Shell plc, SP ADR | 4,814,838 | ||||||
101,700 | Sasol, Ltd., SP ADR | 5,293,485 | ||||||
209,100 | Statoil ASA, SP ADR | 4,970,307 | ||||||
38,400 | TransCanada Corp. | 1,460,736 | ||||||
64,700 | Yanzhou Coal Mining Co., Ltd., SP ADR | 1,979,820 | ||||||
25,889,305 | ||||||||
Paper & Forest Products (2.0%): | ||||||||
209,600 | Svenska Cellulosa AB, SP ADR | 3,290,720 | ||||||
Pharmaceuticals (6.0%): | ||||||||
89,900 | AstraZeneca plc, SP ADR | 4,152,481 | ||||||
115,400 | GlaxoSmithKline plc, SP ADR | 4,525,988 | ||||||
27,500 | Teva Pharmaceutical Industries, Ltd., SP ADR | 1,433,575 | ||||||
10,112,044 | ||||||||
Semiconductors & Semiconductor Equipment (1.1%): | ||||||||
140,100 | Taiwan Semiconductor Manufacturing Co., Ltd., SP ADR | 1,756,854 | ||||||
Software (0.9%): | ||||||||
89,700 | Sage Group plc (The), ADR | 1,543,737 | ||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Tobacco (1.9%): | ||||||||
41,300 | British American Tobacco plc, SP ADR | $ | 3,209,010 | |||||
Trading Companies & Distributors (1.9%): | ||||||||
9,900 | Mitsui & Co., Ltd., SP ADR | 3,248,685 | ||||||
Water Utilities (4.2%): | ||||||||
131,400 | Companhia de Saneamento Basico do Estado de Sao Paulo, SP ADR | 6,948,432 | ||||||
Wireless Telecommunication Services (2.8%): | ||||||||
167,300 | SK Telecom Co., Ltd., SP ADR | 3,116,799 | ||||||
88,750 | Turkcell Iletisim Hizmetleri AS, SP ADR | 1,520,287 | ||||||
4,637,086 | ||||||||
Total Common Stocks (Cost $133,160,843) | 159,377,375 | |||||||
Investment Company (4.4%): | ||||||||
7,406,179 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 7,406,179 | ||||||
Total Investment Company (Cost $7,406,179) | 7,406,179 | |||||||
Total Investment Securities (Cost $140,567,022)(b) — 99.8% | 166,783,554 | |||||||
Net other assets (liabilities) — 0.2% | 391,163 | |||||||
Net Assets — 100.0% | $ | 167,174,717 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
plc — Public Limited Company
SP ADR—Sponsored American Depositary Receipt
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Australia | 3.9 | % | ||
Belgium | 2.6 | |||
Bermuda | 5.4 | |||
Brazil | 10.8 | |||
Canada | 9.0 | |||
China | 0.9 | |||
Finland | 0.9 | |||
France | 2.5 | |||
Germany | 2.1 | |||
Ireland (Republic of) | 2.1 | |||
Israel | 0.9 | |||
Japan | 8.3 | |||
Mexico | 1.9 | |||
Norway | 3.0 | % | ||
Panama | 0.9 | |||
Republic of Korea (South) | 4.6 | |||
Singapore | 1.7 | |||
South Africa | 3.2 | |||
Sweden | 2.0 | |||
Switzerland | 2.8 | |||
Taiwan | �� | 1.1 | ||
Turkey | 0.9 | |||
United Kingdom | 22.9 | |||
United States | 5.6 | |||
100.0 | % | |||
6
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Statement of Assets and Liabilities
December 31, 2010
AZL NFJ | ||||
International | ||||
Value Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 140,567,022 | ||
Investment securities, at value | $ | 166,783,554 | ||
Dividends receivable | 450,194 | |||
Receivable for capital shares issued | 60,720 | |||
Reclaims receivable | 75,588 | |||
Prepaid expenses | 2,357 | |||
Total Assets | 167,372,413 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 27,331 | |||
Manager fees payable | 109,625 | |||
Administration fees payable | 6,075 | |||
Distribution fees payable | 34,258 | |||
Custodian fees payable | 895 | |||
Administrative and compliance services fees payable | 1,088 | |||
Trustee fees payable | 79 | |||
Other accrued liabilities | 18,345 | |||
Total Liabilities | 197,696 | |||
Net Assets | $ | 167,174,717 | ||
Net Assets Consist of: | ||||
Capital | $ | 135,823,729 | ||
Accumulated net investment income/(loss) | 2,475,944 | |||
Accumulated net realized gains/(losses) from investment transactions | 2,658,332 | |||
Net unrealized appreciation/(depreciation) on investments | 26,216,712 | |||
Net Assets | $ | 167,174,717 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 11,411,757 | |||
Net Asset Value (offering and redemption price per share) | $ | 14.65 | ||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL NFJ | ||||
International | ||||
Value Fund | ||||
Investment Income: | ||||
Dividends | $ | 3,826,303 | ||
Total Investment Income | 3,826,303 | |||
Expenses: | ||||
Manager fees | 1,109,462 | |||
Administration fees | 53,642 | |||
Distribution fees | 308,184 | |||
Custodian fees | 2,101 | |||
Administrative and compliance services fees | 2,287 | |||
Trustees’ fees | 3,497 | |||
Professional fees | 4,708 | |||
Shareholder reports | 4,012 | |||
Other expenses | 2,798 | |||
Total expenses before reductions | 1,490,691 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (123,273 | ) | ||
Less expenses paid indirectly | (17,180 | ) | ||
Net expenses | 1,350,238 | |||
Net Investment Income/(Loss) | 2,476,065 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 2,658,222 | |||
Change in unrealized appreciation/(depreciation) on investments | 9,202,936 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 11,861,158 | |||
Change in Net Assets Resulting From Operations | $ | 14,337,223 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Statements of Changes in Net Assets
AZL NFJ International Value Fund | ||||||||
For the | ||||||||
Year Ended | May 1, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 2,476,065 | $ | 905,439 | ||||
Net realized gains/(losses) on investment transactions | 2,658,222 | 2,746,004 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 9,202,936 | 17,013,776 | ||||||
Change in net assets resulting from operations | 14,337,223 | 20,665,219 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (927,757 | ) | — | |||||
From net realized gains on investments | (2,756,613 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (3,684,370 | ) | — | |||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 88,419,038 | 64,532,965 | ||||||
Proceeds from dividends reinvested | 3,684,370 | — | ||||||
Value of shares redeemed | (13,889,193 | ) | (6,890,535 | ) | ||||
Change in net assets resulting from capital transactions | 78,214,215 | 57,642,430 | ||||||
Change in net assets | 88,867,068 | 78,307,649 | ||||||
Net Assets: | ||||||||
Beginning of period | 78,307,649 | — | ||||||
End of period | $ | 167,174,717 | $ | 78,307,649 | ||||
Accumulated net investment income/(loss) | $ | 2,475,944 | $ | 927,750 | ||||
Share Transactions: | ||||||||
Shares issued | 6,469,520 | 6,276,615 | ||||||
Dividends reinvested | 274,953 | — | ||||||
Shares redeemed | (1,047,201 | ) | (562,130 | ) | ||||
Change in shares | 5,697,272 | 5,714,485 | ||||||
(a) | Period from commencement of operations. |
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended | May 1, 2009 to | |||||||
December 31, | December 31, | |||||||
2010 | 2009(a) | |||||||
Net Asset Value, Beginning of Period | $ | 13.70 | $ | 10.00 | ||||
Investment Activities: | ||||||||
Net Investment Income/(Loss) | 0.15 | 0.16 | ||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.15 | 3.54 | ||||||
Total from Investment Activities | 1.30 | 3.70 | ||||||
Dividends to Shareholders From: | ||||||||
Net Investment Income | (0.09 | ) | — | |||||
Net Realized Gains | (0.26 | ) | — | |||||
Total Dividends | (0.35 | ) | — | |||||
Net Asset Value, End of Period | $ | 14.65 | $ | 13.70 | ||||
Total Return(b)(c) | 9.67 | % | 37.00 | % | ||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||
Net Assets, End of Period ($000’s) | $ | 167,175 | $ | 78,308 | ||||
Net Investment Income/(Loss)(d) | 2.01 | % | 2.01 | % | ||||
Expenses Before Reductions(d)(e) | 1.21 | % | 1.33 | % | ||||
Expenses Net of Reductions(d) | 1.10 | % | 1.20 | % | ||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d)(f) | 1.11 | % | 1.23 | % | ||||
Portfolio Turnover Rate(c) | 28.58 | % | 25.28 | % |
(a) | Period from commencement of operations. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(f) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL NFJ International Value Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
11
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an affiliated money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and NFJ Investment Group LLC (“NFJ”), NFJ provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.45%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL NFJ International Value Fund | 0.90 | % | 1.45 | % |
* | The Manager voluntarily reduced the management fee to 0.80%. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements, continued
December 31, 2010
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $3,300 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 159,377,375 | $ | — | $ | — | $ | 159,377,375 | ||||||||
Investment Company | 7,406,179 | — | — | 7,406,179 | ||||||||||||
Total Investment Securities | $ | 166,783,554 | $ | — | $ | — | $ | 166,783,554 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL NFJ International Value Fund | $ | 105,703,255 | $ | 33,078,714 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $140,567,022. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 27,664,744 | ||
Unrealized depreciation | (1,448,212 | ) | ||
Net unrealized appreciation | $ | 26,216,532 | ||
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $1,125,817 of deferred post October capital losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL NFJ International Value Fund
AZL NFJ International Value Fund
Notes to the Financial Statements, continued
December 31, 2010
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL NFJ International Value Fund | $ | 3,684,370 | $ | — | $ | 3,684,370 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||||||
Undistributed | Undistributed | Accumulated | Accumulated | |||||||||||||||||
Ordinary | Long-Term | Capital and | Unrealized | Earnings | ||||||||||||||||
Income | Capital Gains | Other Losses | Appreciation(a) | (Deficit) | ||||||||||||||||
AZL NFJ International Value Fund | $ | 3,185,718 | $ | 3,074,375 | $ | (1,125,817 | ) | $ | 26,216,712 | $ | 31,350,988 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
17
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL NFJ International Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 5.12% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $2,756,613.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
21
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
22
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
23
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
25
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
26
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Russell 1000 Growth Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 14
Page 14
Statement of Operations
Page 15
Page 15
Statements of Changes in Net Assets
Page 16
Page 16
Financial Highlights
Page 17
Page 17
Notes to the Financial Statements
Page 18
Page 18
Report of Independent Registered Public Accounting Firm
Page 26
Page 26
Other Information
Page 27
Page 27
Approval of Investment Advisory Agreement
Page 28
Page 28
Information about the Board of Trustees and Officers
Page 32
Page 32
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Russell 1000 Growth Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Russell 1000 Growth Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance from its inception on April 30, 2010 through the period ended December 31, 2010?
From its inception on April 30, 2010 through the period ended December 31, 2010, the AZL® Russell 1000 Growth Index Fund returned
9.50%1. That compared to a 10.30% total return for its benchmark, the Russell 1000® Growth Index1.
9.50%1. That compared to a 10.30% total return for its benchmark, the Russell 1000® Growth Index1.
The Fund attempts to replicate the performance of the Russell 1000® Growth Index of large-cap growth U.S. stocks. These stocks performed well early in the 12-month period, as investors were encouraged by early signs of job growth and strong corporate earnings. Investor optimism waned, however, as job growth stalled and the European sovereign debt crisis ushered in a double-digit correction midway through the period. The “flash crash” in May further unnerved investors, and fears of a “double-dip” recession grew.
A return to job growth later in the year helped those fears recede, as did the Federal Reserve’s announcement of a second round of quantitative easing. Midterm elections results seen as friendly to capital markets also contributed to growth stocks finishing the 12-month period with strong returns.
Growth stocks outperformed value stocks by 1.2 percentage points during the period, with the consumer discretionary, industrials and materials sectors representing the strongest performers in the growth index. While health care and information technology sectors produced positive returns, they were some of the weakest sectors. Utilities was the only sector to detract from the index’s performance, posting a loss of 3.7% for the period.*
The underperformance of the Fund against its benchmark was the result of Fund expenses that are not reflected in the Index.
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Russell 1000 Growth Index Fund Review
Fund Objective
The Fund’s investment objective is to match the total return of the Russell 1000® Growth Index (the “Index”). This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in all stocks in the Index in proportion to their weighting in the Index.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Returns on growth stocks may not move in tandem with returns on other categories of stocks or the market as a whole. Growth stocks may be susceptible to rapid price savings or to adverse developments in certain sectors of the market.
The Fund does not attempt to manage market volatility or reduce the effects of poor stock performance. In addition, factors such as Fund expenses, selection of a representative portfolio, changes in the composition of the index, or the timing of purchases or redemptions of Fund shares may affect the correlation between the performance of the index and the Fund’s performance.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Aggregate Returns as of December 31, 2010
Since | ||||||||
6 | Inception | |||||||
Month | (4/30/10) | |||||||
AZL® Russell 1000 Growth Index Fund | 25.72 | % | 9.50 | % | ||||
Russell 1000® Growth Index | 26.37 | % | 10.30 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Russell 1000 Growth Index Fund | 0.84 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.84% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Russell 1000 Growth Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that applyto the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,000.00 | $ | 1,257.20 | $ | 4.78 | 0.84 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,000.00 | $ | 1,020.97 | $ | 4.28 | 0.84 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Russell 1000 Growth Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 2.9 | % | ||
Air Freight & Logistics | 1.4 | |||
Airlines | 0.3 | |||
Auto Components | 0.8 | |||
Automobiles | 0.9 | |||
Beverages | 2.6 | |||
Biotechnology | 1.6 | |||
Building Products | 0.1 | |||
Capital Markets | 1.6 | |||
Chemicals | 2.7 | |||
Commercial Banks | — | ^ | ||
Commercial Services & Supplies | 0.3 | |||
Communications Equipment | 3.5 | |||
Computers & Peripherals | 10.2 | |||
Construction & Engineering | 0.1 | |||
Construction Materials | 0.1 | |||
Consumer Finance | 0.7 | |||
Containers & Packaging | 0.1 | |||
Distributors | — | ^ | ||
Diversified Consumer Services | 0.3 | |||
Diversified Financial Services | 0.3 | |||
Diversified Telecommunication Services | 0.2 | |||
Electric Utilities | — | ^ | ||
Electrical Equipment | 1.3 | |||
Electronic Equipment, Instruments & Components | 0.7 | |||
Energy Equipment & Services | 2.7 | |||
Food & Staples Retailing | 2.3 | |||
Food Products | 0.8 | |||
Gas Utilities | 0.1 | |||
Health Care Equipment & Supplies | 3.1 | |||
Health Care Providers & Services | 1.9 | |||
Health Care Technology | 0.2 | |||
Hotels, Restaurants & Leisure | 3.1 | |||
Household Durables | 0.3 | |||
Household Products | 1.1 | |||
Independent Power Producers & Energy Traders | — | %^ | ||
Industrial Conglomerates | 1.7 | |||
Insurance | 0.9 | |||
Internet & Catalog Retail | 1.3 | |||
Internet Software & Services | 2.8 | |||
IT Services | 2.7 | |||
Leisure Equipment & Products | 0.2 | |||
Life Sciences Tools & Services | 0.5 | |||
Machinery | 3.8 | |||
Marine | — | ^ | ||
Media | 1.6 | |||
Metals & Mining | 1.9 | |||
Multiline Retail | 1.2 | |||
Office Electronics | — | ^ | ||
Oil, Gas & Consumable Fuels | 7.6 | |||
Paper & Forest Products | 0.1 | |||
Personal Products | 0.4 | |||
Pharmaceuticals | 2.0 | |||
Professional Services | 0.3 | |||
Real Estate Investment Trusts (REITs) | 0.8 | |||
Real Estate Management & Development | 0.2 | |||
Road & Rail | 0.3 | |||
Semiconductors & Semiconductor Equipment | 3.8 | |||
Software | 5.9 | |||
Specialty Retail | 3.4 | |||
Textiles, Apparel & Luxury Goods | 0.9 | |||
Thrifts & Mortgage Finance | — | ^ | ||
Tobacco | 1.8 | |||
Trading Companies & Distributors | 0.3 | |||
Wireless Telecommunication Services | 0.7 | |||
Exchange Traded Fund | 0.9 | |||
Investment Company | 3.3 | |||
99.6 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
^ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (95.4%): | ||||||||
Aerospace & Defense (2.9%): | ||||||||
477 | Alliant Techsystems, Inc.* | $ | 35,503 | |||||
9,414 | Boeing Co. (The) | 614,358 | ||||||
525 | Goodrich Corp. | 46,237 | ||||||
11,732 | Honeywell International, Inc. | 623,673 | ||||||
3,715 | Lockheed Martin Corp. | 259,716 | ||||||
2,177 | Precision Castparts Corp. | 303,060 | ||||||
1,285 | Rockwell Collins, Inc. | 74,864 | ||||||
284 | Spirit AeroSystems Holdings, Inc., Class A* | 5,910 | ||||||
768 | TransDigm Group, Inc.* | 55,304 | ||||||
13,059 | United Technologies Corp. | 1,028,004 | ||||||
3,046,629 | ||||||||
Air Freight & Logistics (1.4%): | ||||||||
2,540 | C.H. Robinson Worldwide, Inc. | 203,683 | ||||||
3,259 | Expeditors International of Washington, Inc. | 177,941 | ||||||
3,098 | FedEx Corp. | 288,145 | ||||||
10,935 | United Parcel Service, Inc., Class B | 793,662 | ||||||
1,261 | UTI Worldwide, Inc. | 26,733 | ||||||
1,490,164 | ||||||||
Airlines (0.3%): | ||||||||
1,669 | AMR Corp.* | 13,001 | ||||||
294 | Copa Holdings SA, Class A | 17,299 | ||||||
12,091 | Delta Air Lines, Inc.* | 152,346 | ||||||
1,470 | Southwest Airlines Co. | 19,081 | ||||||
4,174 | United Continental Holdings, Inc.* | 99,425 | ||||||
301,152 | ||||||||
Auto Components (0.8%): | ||||||||
451 | Autoliv, Inc. | 35,602 | ||||||
1,671 | BorgWarner, Inc.* | 120,913 | ||||||
98 | Federal-Mogul Corp.* | 2,024 | ||||||
2,149 | Gentex Corp. | 63,524 | ||||||
3,687 | Goodyear Tire & Rubber Co.* | 43,691 | ||||||
9,713 | Johnson Controls, Inc. | 371,037 | ||||||
236 | Lear Corp.* | 23,295 | ||||||
2,114 | O’Reilly Automotive, Inc.* | 127,728 | ||||||
160 | Tesla Motors, Inc.* | 4,261 | ||||||
820 | TRW Automotive Holdings Corp.* | 43,214 | ||||||
975 | WABCO Holdings, Inc.* | 59,407 | ||||||
894,696 | ||||||||
Automobiles (0.9%): | ||||||||
51,067 | Ford Motor Co.* | 857,415 | ||||||
3,604 | Harley-Davidson, Inc. | 124,951 | ||||||
494 | Thor Industries, Inc. | 16,776 | ||||||
999,142 | ||||||||
Beverages (2.6%): | ||||||||
1,236 | Brown-Forman Corp., Class B | 86,050 | ||||||
24,061 | Coca-Cola Co. (The) | 1,582,492 | ||||||
3,184 | Coca-Cola Enterprises, Inc. | 79,695 | ||||||
1,154 | Dr Pepper Snapple Group, Inc. | 40,575 | ||||||
853 | Hansen Natural Corp.* | 44,595 | ||||||
14,199 | PepsiCo, Inc. | 927,621 | ||||||
2,761,028 | ||||||||
Biotechnology (1.6%): | ||||||||
1,377 | Alexion Pharmaceuticals, Inc.* | 110,917 | ||||||
2,242 | Amylin Pharmaceuticals, Inc.* | 32,980 | ||||||
1,543 | BioMarin Pharmaceutical, Inc.* | 41,553 | ||||||
7,085 | Celgene Corp.* | 419,007 | ||||||
2,235 | Dendreon Corp.* | 78,046 | ||||||
3,109 | Genzyme Corp.* | 221,361 | ||||||
12,841 | Gilead Sciences, Inc.* | 465,358 | ||||||
2,867 | Human Genome Sciences, Inc.* | 68,492 | ||||||
1,385 | Myriad Genetics, Inc.* | 31,633 | ||||||
1,036 | Regeneron Pharmaceuticals, Inc.* | 34,012 | ||||||
743 | Talecris Biotherapeutics Holdings Corp.* | 17,312 | ||||||
758 | United Therapeutics Corp.* | 47,921 | ||||||
3,095 | Vertex Pharmaceuticals, Inc.* | 108,418 | ||||||
1,677,010 | ||||||||
Building Products (0.1%): | ||||||||
23 | Armstrong World Industries, Inc. | 989 | ||||||
722 | Lennox International, Inc. | 34,143 | ||||||
1,603 | Masco Corp. | 20,294 | ||||||
995 | Owens Corning, Inc.* | 30,994 | ||||||
436 | USG Corp.* | 7,338 | ||||||
93,758 | ||||||||
Capital Markets (1.6%): | ||||||||
782 | Affiliated Managers Group, Inc.* | 77,590 | ||||||
784 | Ameriprise Financial, Inc. | 45,119 | ||||||
486 | BlackRock, Inc. | 92,622 | ||||||
15,148 | Charles Schwab Corp. | 259,182 | ||||||
1,824 | Eaton Vance Corp. | 55,140 | ||||||
896 | Federated Investors, Inc. | 23,448 | ||||||
2,276 | Franklin Resources, Inc. | 253,114 | ||||||
451 | Greenhill & Co., Inc. | 36,838 | ||||||
2,183 | Invesco, Ltd. | 52,523 | ||||||
151 | Janus Capital Group, Inc. | 1,959 | ||||||
1,435 | Lazard, Ltd., Class A | 56,668 | ||||||
56 | LPL Investment Holdings, Inc.* | 2,037 | ||||||
7,366 | Morgan Stanley | 200,429 | ||||||
1,496 | Northern Trust Corp. | 82,893 | ||||||
2,320 | SEI Investments Co. | 55,193 | ||||||
3,974 | T. Rowe Price Group, Inc. | 256,482 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
3,582 | TD AMERITRADE Holding Corp. | $ | 68,022 | |||||
1,329 | Waddell & Reed Financial, Inc., Class A | 46,900 | ||||||
1,666,159 | ||||||||
Chemicals (2.7%): | ||||||||
3,251 | Air Products & Chemicals, Inc. | 295,678 | ||||||
1,292 | Airgas, Inc. | 80,698 | ||||||
1,401 | Albemarle Corp. | 78,148 | ||||||
111 | Ashland, Inc. | 5,645 | ||||||
2,411 | Celanese Corp., Series A | 99,261 | ||||||
790 | CF Industries Holdings, Inc. | 106,768 | ||||||
4,786 | E.I. du Pont de Nemours & Co. | 238,726 | ||||||
220 | Eastman Chemical Co. | 18,498 | ||||||
3,573 | Ecolab, Inc. | 180,151 | ||||||
747 | FMC Corp. | 59,678 | ||||||
1,217 | International Flavor & Fragrances, Inc. | 67,653 | ||||||
56 | KAR Auction Services, Inc.* | 773 | ||||||
1,044 | Lubrizol Corp. | 111,583 | ||||||
8,353 | Monsanto Co. | 581,703 | ||||||
2,421 | Mosaic Co. (The) | 184,868 | ||||||
2,012 | Nalco Holding Co. | 64,263 | ||||||
422 | PPG Industries, Inc. | 35,478 | ||||||
4,684 | Praxair, Inc. | 447,181 | ||||||
964 | RPM International, Inc. | 21,304 | ||||||
686 | Scotts Miracle-Gro Co. (The), Class A | 34,828 | ||||||
1,716 | Sigma Aldrich Corp. | 114,217 | ||||||
163 | Valspar Corp. (The) | 5,620 | ||||||
2,832,722 | ||||||||
Commercial Banks (0.0%): | ||||||||
228 | Bank of Hawaii Corp. | 10,764 | ||||||
Commercial Services & Supplies (0.3%): | ||||||||
64 | Avery Dennison Corp. | 2,710 | ||||||
1,077 | Copart, Inc.* | 40,226 | ||||||
312 | Corrections Corp. of America* | 7,819 | ||||||
148 | Covanta Holding Corp. | 2,544 | ||||||
2,803 | Iron Mountain, Inc. | 70,103 | ||||||
2,251 | Pitney Bowes, Inc. | 54,429 | ||||||
107 | R.R. Donnelley & Sons Co. | 1,869 | ||||||
1,468 | Republic Services, Inc. | 43,834 | ||||||
1,303 | Stericycle, Inc.* | 105,439 | ||||||
1,435 | Waste Connections, Inc. | 39,506 | ||||||
368,479 | ||||||||
Communications Equipment (3.5%): | ||||||||
1,334 | Ciena Corp.* | 28,081 | ||||||
87,453 | Cisco Systems, Inc.* | 1,769,174 | ||||||
1,227 | F5 Networks, Inc.* | 159,706 | ||||||
2,007 | Harris Corp. | 90,917 | ||||||
3,234 | JDS Uniphase Corp.* | 46,828 | ||||||
8,055 | Juniper Networks, Inc.* | 297,391 | ||||||
1,305 | Polycom, Inc.* | 50,869 | ||||||
25,118 | QUALCOMM, Inc. | 1,243,090 | ||||||
3,686,056 | ||||||||
Computers & Peripherals (10.2%): | ||||||||
13,933 | Apple Computer, Inc.* | 4,494,228 | ||||||
26,053 | Dell, Inc.* | 353,018 | ||||||
235 | Diebold, Inc. | 7,532 | ||||||
31,475 | EMC Corp.* | 720,778 | ||||||
35,909 | Hewlett-Packard Co. | 1,511,769 | ||||||
19,636 | International Business Machines Corp. | 2,881,779 | ||||||
2,505 | NCR Corp.* | 38,502 | ||||||
5,277 | NetApp, Inc.* | 290,024 | ||||||
1,662 | QLogic Corp.* | 28,287 | ||||||
3,521 | SanDisk Corp.* | 175,557 | ||||||
5,472 | Seagate Technology plc* | 82,244 | ||||||
2,560 | Teradata Corp.* | 105,370 | ||||||
824 | Western Digital Corp.* | 27,934 | ||||||
10,717,022 | ||||||||
Construction & Engineering (0.1%): | ||||||||
479 | Aecom Technology Corp.* | 13,398 | ||||||
655 | Chicago Bridge & Iron Co. NV, NYS* | 21,549 | ||||||
165 | Fluor Corp. | 10,933 | ||||||
1,146 | Jacobs Engineering Group, Inc.* | 52,544 | ||||||
163 | KBR, Inc. | 4,967 | ||||||
708 | Shaw Group, Inc.* | 24,235 | ||||||
127,626 | ||||||||
Construction Materials (0.1%): | ||||||||
716 | Eagle Materials, Inc. | 20,227 | ||||||
682 | Martin Marietta Materials, Inc. | 62,908 | ||||||
83,135 | ||||||||
Consumer Finance (0.7%): | ||||||||
16,058 | American Express Co. | 689,209 | ||||||
Containers & Packaging (0.1%): | ||||||||
282 | Ball Corp. | 19,190 | ||||||
2,479 | Crown Holdings, Inc.* | 82,749 | ||||||
732 | Owens-Illinois, Inc.* | 22,473 | ||||||
310 | Temple-Inland, Inc. | 6,584 | ||||||
130,996 | ||||||||
Distributors (0.0%): | ||||||||
2,154 | LKQ Corp.* | 48,939 | ||||||
Diversified Consumer Services (0.3%): | ||||||||
1,981 | Apollo Group, Inc., Class A* | 78,230 | ||||||
161 | Booz Allen Hamilton Holding Corp.* | 3,128 | ||||||
958 | Career Education Corp.* | 19,859 | ||||||
968 | DeVry, Inc. | 46,445 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Diversified Consumer Services, continued | ||||||||
376 | Education Management Corp.* | $ | 6,806 | |||||
1,913 | H&R Block, Inc. | 22,784 | ||||||
897 | Hillenbrand, Inc. | 18,666 | ||||||
501 | ITT Educational Services, Inc.* | 31,909 | ||||||
204 | Strayer Education, Inc. | 31,053 | ||||||
488 | Weight Watchers International, Inc. | 18,295 | ||||||
277,175 | ||||||||
Diversified Financial Services (0.3%): | ||||||||
82 | CBOE Holdings, Inc. | 1,874 | ||||||
58 | Green Dot Corp., Class A* | 3,291 | ||||||
190 | Interactive Brokers Group, Inc., Class A | 3,386 | ||||||
1,132 | Intercontinental Exchange, Inc.* | 134,878 | ||||||
3,166 | Moody’s Corp. | 84,026 | ||||||
1,685 | MSCI, Inc., Class A* | 65,648 | ||||||
244 | NASDAQ OMX Group, Inc. (The)* | 5,785 | ||||||
824 | NYSE Euronext | 24,703 | ||||||
323,591 | ||||||||
Diversified Telecommunication Services (0.2%): | ||||||||
1,704 | Clearwire Corp., Class A* | 8,775 | ||||||
5,794 | Frontier Communications Corp. | 56,376 | ||||||
9,501 | Level 3 Communications, Inc.* | 9,311 | ||||||
2,377 | TW Telecom, Inc.* | 40,528 | ||||||
3,072 | Windstream Corp. | 42,824 | ||||||
157,814 | ||||||||
Electric Utilities (0.0%): | ||||||||
673 | ITC Holdings Corp. | 41,713 | ||||||
Electrical Equipment (1.3%): | ||||||||
2,459 | AMETEK, Inc. | 96,496 | ||||||
2,564 | Cooper Industries plc | 149,456 | ||||||
11,532 | Emerson Electric Co. | 659,284 | ||||||
849 | First Solar, Inc.* | 110,489 | ||||||
284 | General Cable Corp.* | 9,966 | ||||||
351 | Hubbell, Inc., Class B | 21,106 | ||||||
500 | Regal-Beloit Corp. | 33,380 | ||||||
2,183 | Rockwell Automation, Inc. | 156,543 | ||||||
1,443 | Roper Industries, Inc. | 110,288 | ||||||
628 | SunPower Corp., Class A* | 8,057 | ||||||
157 | Thomas & Betts Corp.* | 7,583 | ||||||
1,362,648 | ||||||||
Electronic Equipment, Instruments & Components (0.7%): | ||||||||
5,330 | Agilent Technologies, Inc.* | 220,822 | ||||||
2,657 | Amphenol Corp., Class A | 140,236 | ||||||
235 | Arrow Electronics, Inc.* | 8,049 | ||||||
51 | AVX Corp. | 787 | ||||||
2,994 | Corning, Inc. | 57,844 | ||||||
821 | Dolby Laboratories, Inc., Class A* | 54,761 | ||||||
2,346 | FLIR Systems, Inc.* | 69,794 | ||||||
180 | Ingram Micro, Inc., Class A* | 3,436 | ||||||
582 | Itron, Inc.* | 32,272 | ||||||
1,978 | Jabil Circuit, Inc. | 39,738 | ||||||
917 | National Instruments Corp. | 34,516 | ||||||
1,823 | Trimble Navigation, Ltd.* | 72,792 | ||||||
1,141 | Tyco International, Ltd. | 47,283 | ||||||
782,330 | ||||||||
Energy Equipment & Services (2.7%): | ||||||||
201 | Atwood Oceanics, Inc.* | 7,511 | ||||||
1,811 | Baker Hughes, Inc. | 103,535 | ||||||
2,143 | Cameron International Corp.* | 108,714 | ||||||
676 | Core Laboratories NV | 60,198 | ||||||
360 | Diamond Offshore Drilling, Inc. | 24,073 | ||||||
1,132 | Dresser-Rand Group, Inc.* | 48,212 | ||||||
61 | Exterran Holdings, Inc.* | 1,461 | ||||||
1,861 | FMC Technologies, Inc.* | 165,461 | ||||||
13,913 | Halliburton Co. | 568,068 | ||||||
1,785 | Nabors Industries, Ltd.* | 41,876 | ||||||
62 | Oil States International, Inc.* | 3,974 | ||||||
1,090 | Pride International, Inc.* | 35,970 | ||||||
246 | Rowan Cos., Inc.* | 8,588 | ||||||
18,260 | Schlumberger, Ltd. | 1,524,710 | ||||||
118 | Superior Energy Services, Inc.* | 4,129 | ||||||
4,566 | Weatherford International, Ltd.* | 104,105 | ||||||
2,810,585 | ||||||||
Food & Staples Retailing (2.3%): | ||||||||
85 | BJ’s Wholesale Club, Inc.* | 4,072 | ||||||
6,745 | Costco Wholesale Corp. | 487,056 | ||||||
2,350 | CVS Caremark Corp. | 81,709 | ||||||
545 | Kroger Co. (The) | 12,186 | ||||||
9,057 | SYSCO Corp. | 266,276 | ||||||
17,945 | Wal-Mart Stores, Inc. | 967,774 | ||||||
12,931 | Walgreen Co. | 503,792 | ||||||
2,157 | Whole Foods Market, Inc.* | 109,123 | ||||||
2,431,988 | ||||||||
Food Products (0.8%): | ||||||||
1,687 | Campbell Soup Co. | 58,623 | ||||||
653 | ConAgra Foods, Inc. | 14,745 | ||||||
444 | Flowers Foods, Inc. | 11,948 | ||||||
6,045 | General Mills, Inc. | 215,142 | ||||||
1,691 | Green Mountain Coffee Roasters, Inc.* | 55,566 | ||||||
1,996 | H.J. Heinz Co. | 98,722 | ||||||
1,353 | Hershey Co. | 63,794 | ||||||
3,527 | Kellogg Co. | 180,159 | ||||||
984 | McCormick & Co. | 45,786 | ||||||
7,218 | Sara Lee Corp. | 126,387 | ||||||
870,872 | ||||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities (0.1%): | ||||||||
2,140 | EQT Corp. | $ | 95,958 | |||||
Health Care Equipment & Supplies (3.1%): | ||||||||
1,061 | Alcon, Inc. | 173,367 | ||||||
383 | Alere, Inc.* | 14,018 | ||||||
1,456 | Bard (C.R.), Inc. | 133,617 | ||||||
7,607 | Baxter International, Inc. | 385,066 | ||||||
3,572 | Becton Dickinson & Co. | 301,905 | ||||||
576 | CareFusion Corp.* | 14,803 | ||||||
138 | Cooper Companies, Inc. | 7,775 | ||||||
7,675 | Covidien plc | 350,441 | ||||||
2,240 | DENTSPLY International, Inc. | 76,541 | ||||||
1,734 | Edwards Lifesciences Corp.* | 140,177 | ||||||
738 | Gen-Probe, Inc.* | 43,062 | ||||||
829 | Hill-Rom Holdings, Inc. | 32,638 | ||||||
2,539 | Hospira, Inc.* | 141,397 | ||||||
891 | IDEXX Laboratories, Inc.* | 61,675 | ||||||
599 | Intuitive Surgical, Inc.* | 154,392 | ||||||
57 | Kinetic Concepts, Inc.* | 2,387 | ||||||
12,970 | Medtronic, Inc. | 481,057 | ||||||
2,356 | ResMed, Inc.* | 81,612 | ||||||
5,059 | St. Jude Medical, Inc.* | 216,272 | ||||||
4,822 | Stryker Corp. | 258,941 | ||||||
107 | Teleflex, Inc. | 5,758 | ||||||
834 | Thoratec Corp.* | 23,619 | ||||||
1,891 | Varian Medical Systems, Inc.* | 131,009 | ||||||
3,231,529 | ||||||||
Health Care Providers & Services (1.9%): | ||||||||
4,325 | AmerisourceBergen Corp. | 147,569 | ||||||
211 | Brookdale Senior Living, Inc.* | 4,517 | ||||||
1,909 | Cardinal Health, Inc. | 73,134 | ||||||
1,013 | Community Health Systems, Inc.* | 37,856 | ||||||
1,490 | DaVita, Inc.* | 103,540 | ||||||
421 | Emdeon, Inc., Class A* | 5,700 | ||||||
475 | Emergency Medical Services Corp., Series A* | 30,690 | ||||||
8,392 | Express Scripts, Inc.* | 453,588 | ||||||
3,733 | Health Management Associates, Inc., Class A* | 35,613 | ||||||
1,414 | Henry Schein, Inc.* | 86,805 | ||||||
1,597 | Laboratory Corp. of America Holdings* | 140,408 | ||||||
1,481 | Lincare Holdings, Inc. | 39,735 | ||||||
1,676 | McKesson HBOC, Inc. | 117,957 | ||||||
6,640 | Medco Health Solutions, Inc.* | 406,833 | ||||||
668 | MEDNAX, Inc.* | 44,950 | ||||||
131 | Omnicare, Inc. | 3,326 | ||||||
1,579 | Patterson Companies, Inc. | 48,365 | ||||||
1,882 | Quest Diagnostics, Inc. | 101,572 | ||||||
5,610 | Tenet Healthcare Corp.* | 37,531 | ||||||
94 | Universal Health Services, Inc., Class B | 4,081 | ||||||
1,331 | VCA Antech, Inc.* | 30,999 | ||||||
1,954,769 | ||||||||
Health Care Technology (0.2%): | ||||||||
1,743 | Allscripts-Misys Healthcare Solutions, Inc.* | 33,587 | ||||||
1,062 | Cerner Corp.* | 100,614 | ||||||
908 | SXC Health Solutions Corp.* | 38,917 | ||||||
173,118 | ||||||||
Hotels, Restaurants & Leisure (3.1%): | ||||||||
851 | Bally Technologies, Inc.* | 35,904 | ||||||
1,310 | Brinker International, Inc. | 27,353 | ||||||
2,506 | Carnival Corp. | 115,552 | ||||||
481 | Chipotle Mexican Grill, Inc., Class A* | 102,289 | ||||||
4 | Choice Hotels International, Inc. | 153 | ||||||
2,159 | Darden Restaurants, Inc. | 100,264 | ||||||
4,625 | International Game Technology | 81,816 | ||||||
173 | International Speedway Corp., Class A | 4,527 | ||||||
4,843 | Las Vegas Sands Corp.* | 222,536 | ||||||
306 | Madison Square Garden, Inc., Class A* | 7,889 | ||||||
4,154 | Marriott International, Inc., Class A | 172,557 | ||||||
16,473 | McDonald’s Corp. | 1,264,467 | ||||||
723 | MGM Resorts International* | 10,737 | ||||||
459 | Panera Bread Co., Class A* | 46,455 | ||||||
800 | Royal Caribbean Cruises, Ltd.* | 37,600 | ||||||
11,408 | Starbucks Corp. | 366,539 | ||||||
2,901 | Starwood Hotels & Resorts Worldwide, Inc. | 176,323 | ||||||
2,022 | Wendy’s/Arby’s Group, Inc. | 9,342 | ||||||
877 | WMS Industries, Inc.* | 39,675 | ||||||
1,155 | Wynn Resorts, Ltd. | 119,935 | ||||||
7,157 | Yum! Brands, Inc. | 351,051 | ||||||
3,292,964 | ||||||||
Household Durables (0.3%): | ||||||||
272 | Fortune Brands, Inc. | 16,388 | ||||||
118 | Garmin, Ltd. | 3,657 | ||||||
498 | Harman International Industries, Inc.* | 23,057 | ||||||
1,392 | Leggett & Platt, Inc. | 31,682 | ||||||
108 | Mohawk Industries, Inc.* | 6,130 | ||||||
90 | NVR, Inc.* | 62,192 | ||||||
1,129 | Tempur-Pedic International, Inc.* | 45,228 | ||||||
973 | Tupperware Brands Corp. | 46,383 | ||||||
501 | Whirlpool Corp. | 44,504 | ||||||
279,221 | ||||||||
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Household Products (1.1%): | ||||||||
632 | Aaron’s, Inc. | $ | 12,886 | |||||
1,086 | Church & Dwight Co., Inc. | 74,956 | ||||||
2,031 | Clorox Co. (The) | 128,521 | ||||||
6,286 | Colgate-Palmolive Co. | 505,206 | ||||||
5,020 | Kimberly-Clark Corp. | 316,461 | ||||||
2,645 | Procter & Gamble Co. (The) | 170,153 | ||||||
1,208,183 | ||||||||
Independent Power Producers & Energy Traders (0.0%): | ||||||||
2,539 | Calpine Corp.* | 33,870 | ||||||
112 | Ormat Technologies, Inc. | 3,313 | ||||||
37,183 | ||||||||
Industrial Conglomerates (1.7%): | ||||||||
10,919 | 3M Co. | 942,310 | ||||||
40 | Carlisle Cos., Inc. | 1,590 | ||||||
37,927 | General Electric Co. | 693,685 | ||||||
2,795 | McDermott International, Inc.* | 57,828 | ||||||
2,153 | Textron, Inc. | 50,897 | ||||||
1,746,310 | ||||||||
Insurance (0.9%): | ||||||||
793 | ACE, Ltd. | 49,364 | ||||||
6,794 | AFLAC, Inc. | 383,385 | ||||||
891 | Aon Corp. | 40,995 | ||||||
51 | Arch Capital Group, Ltd.* | 4,491 | ||||||
407 | Arthur J. Gallagher & Co. | 11,836 | ||||||
533 | Axis Capital Holdings, Ltd. | 19,124 | ||||||
897 | Brown & Brown, Inc. | 21,474 | ||||||
49 | Endurance Specialty Holdings, Ltd. | 2,258 | ||||||
330 | Erie Indemnity Co., Class A | 21,605 | ||||||
1,334 | Genworth Financial, Inc.* | 17,529 | ||||||
547 | Hartford Financial Services Group, Inc. | 14,490 | ||||||
7,640 | Marsh & McLennan Cos., Inc. | 208,878 | ||||||
3,119 | MetLife, Inc. | 138,608 | ||||||
854 | Travelers Cos., Inc. (The) | 47,576 | ||||||
92 | Validus Holdings, Ltd. | 2,816 | ||||||
984,429 | ||||||||
Internet & Catalog Retail (1.3%): | ||||||||
5,357 | Amazon.com, Inc.* | 964,260 | ||||||
1,323 | Expedia, Inc. | 33,194 | ||||||
611 | Netflix, Inc.* | 107,353 | ||||||
726 | Priceline.com, Inc.* | 290,073 | ||||||
1,394,880 | ||||||||
Internet Software & Services (2.8%): | ||||||||
2,780 | Akamai Technologies, Inc.* | 130,799 | ||||||
6,691 | eBay, Inc.* | 186,211 | ||||||
693 | Equinix, Inc.* | 56,313 | ||||||
3,730 | Google, Inc., Class A* | 2,215,508 | ||||||
536 | IAC/InterActiveCorp* | 15,383 | ||||||
2,637 | VeriSign, Inc. | 86,151 | ||||||
645 | VistaPrint NV* | 29,670 | ||||||
915 | WebMD Health Corp., Class A* | 46,720 | ||||||
8,434 | Yahoo!, Inc.* | 140,257 | ||||||
2,907,012 | ||||||||
IT Services (2.7%): | ||||||||
9,360 | Accenture plc, Class A | 453,867 | ||||||
804 | Alliance Data Systems Corp.* | 57,108 | ||||||
923 | Amdocs, Ltd.* | 25,355 | ||||||
7,701 | Automatic Data Processing, Inc. | 356,402 | ||||||
1,805 | Broadridge Financial Solutions, Inc. | 39,584 | ||||||
4,584 | Cognizant Technology Solutions Corp., Class A* | 335,961 | ||||||
569 | DST Systems, Inc. | 25,235 | ||||||
1,572 | Fiserv, Inc.* | 92,056 | ||||||
1,126 | Gartner, Inc.* | 37,383 | ||||||
919 | Genpact, Ltd.* | 13,969 | ||||||
1,240 | Global Payments, Inc. | 57,301 | ||||||
1,410 | Lender Processing Services, Inc. | 41,623 | ||||||
1,490 | MasterCard, Inc., Class A | 333,924 | ||||||
1,050 | NeuStar, Inc., Class A* | 27,353 | ||||||
4,941 | Paychex, Inc. | 152,726 | ||||||
4,734 | SAIC, Inc.* | 75,081 | ||||||
7,149 | Visa, Inc., Class A | 503,147 | ||||||
10,290 | Western Union Co. | 191,085 | ||||||
2,819,160 | ||||||||
Leisure Equipment & Products (0.2%): | ||||||||
1,873 | Hasbro, Inc. | 88,368 | ||||||
3,238 | Mattel, Inc. | 82,342 | ||||||
170,710 | ||||||||
Life Sciences Tools & Services (0.5%): | ||||||||
255 | Charles River Laboratories International, Inc.* | 9,063 | ||||||
995 | Covance, Inc.* | 51,153 | ||||||
1,864 | Illumina, Inc.* | 118,066 | ||||||
1,987 | Life Technologies Corp.* | 110,278 | ||||||
514 | Mettler-Toledo International, Inc.* | 77,722 | ||||||
776 | PerkinElmer, Inc. | 20,036 | ||||||
1,635 | Pharmaceutical Product Development, Inc. | 44,374 | ||||||
561 | Techne Corp. | 36,841 | ||||||
1,423 | Waters Corp.* | 110,581 | ||||||
578,114 | ||||||||
Machinery (3.8%): | ||||||||
1,432 | Babcock & Wilcox Co.* | 36,645 | ||||||
1,151 | Bucyrus International, Inc., Class A | 102,899 | ||||||
9,619 | Caterpillar, Inc. | 900,915 | ||||||
89 | CNH Global NV, NYS* | 4,249 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
3,071 | Cummins, Inc. | $ | 337,841 | |||||
7,539 | Danaher Corp. | 355,615 | ||||||
6,141 | Deere & Co. | 510,010 | ||||||
1,180 | Donaldson Co., Inc. | 68,770 | ||||||
1,816 | Dover Corp. | 106,145 | ||||||
658 | Eaton Corp. | 66,794 | ||||||
741 | Flowserve Corp. | 88,342 | ||||||
759 | Gardner Denver, Inc. | 52,234 | ||||||
938 | Graco, Inc. | 37,004 | ||||||
53 | Harsco Corp. | 1,501 | ||||||
1,027 | IDEX Corp. | 40,176 | ||||||
6,747 | Illinois Tool Works, Inc. | 360,290 | ||||||
1,576 | Joy Global, Inc. | 136,718 | ||||||
947 | Kennametal, Inc. | 37,369 | ||||||
662 | Lincoln Electric Holdings, Inc. | 43,209 | ||||||
1,892 | Manitowoc Co., Inc. (The) | 24,804 | ||||||
1,088 | Navistar International Corp.* | 63,006 | ||||||
1,388 | Oshkosh Truck Corp.* | 48,913 | ||||||
5,587 | PACCAR, Inc. | 320,805 | ||||||
1,789 | Pall Corp. | 88,699 | ||||||
697 | Parker Hannifin Corp. | 60,151 | ||||||
808 | Pentair, Inc. | 29,500 | ||||||
147 | SPX Corp. | 10,509 | ||||||
972 | Timken Co. | 46,394 | ||||||
470 | Toro Co. | 28,971 | ||||||
347 | Valmont Industries, Inc. | 30,789 | ||||||
131 | Wabtec Corp. | 6,929 | ||||||
4,046,196 | ||||||||
Marine (0.0%): | ||||||||
30 | Kirby Corp.* | 1,322 | ||||||
Media (1.6%): | ||||||||
1,173 | CBS Corp. | 22,346 | ||||||
12,476 | DIRECTV Group, Inc. (The), Class A* | 498,167 | ||||||
3,181 | Discovery Communications, Inc., Class A* | 132,648 | ||||||
1,119 | DreamWorks Animation SKG, Inc., Class A* | 32,977 | ||||||
7,489 | Interpublic Group of Cos., Inc. (The)* | 79,533 | ||||||
666 | John Wiley & Sons, Inc. | 30,130 | ||||||
196 | Lamar Advertising Co.* | 7,808 | ||||||
3,390 | McGraw-Hill Cos., Inc. (The) | 123,430 | ||||||
234 | Meredith Corp. | 8,108 | ||||||
335 | Morningstar, Inc. | 17,782 | ||||||
7,327 | News Corp. | 106,681 | ||||||
3,788 | Omnicom Group, Inc. | 173,490 | ||||||
204 | Regal Entertainment Group, Class A | 2,395 | ||||||
1,371 | Scripps Networks Interactive, Class A | 70,949 | ||||||
59,481 | Sirius XM Radio, Inc.* | 97,549 | ||||||
1,855 | Thomson Reuters Corp. | 69,136 | ||||||
3,594 | Time Warner, Inc. | 115,619 | ||||||
1,838 | Viacom, Inc., Class B | 72,803 | ||||||
1,661,551 | ||||||||
Metals & Mining (1.9%): | ||||||||
282 | AK Steel Holding Corp. | 4,616 | ||||||
2,306 | Alcoa, Inc. | 35,489 | ||||||
1,508 | Allegheny Technologies, Inc. | 83,212 | ||||||
698 | Carpenter Technology Corp. | 28,088 | ||||||
2,073 | Cliffs Natural Resources, Inc. | 161,715 | ||||||
490 | Compass Minerals International, Inc. | 43,742 | ||||||
7,197 | Freeport-McMoRan Copper & Gold, Inc. | 864,288 | ||||||
7,284 | Newmont Mining Corp. | 447,456 | ||||||
2,098 | Nucor Corp. | 91,934 | ||||||
134 | Reliance Steel & Aluminum Co. | 6,847 | ||||||
133 | Royal Gold, Inc. | 7,266 | ||||||
88 | Schnitzer Steel Industries, Inc. | 5,842 | ||||||
2,589 | Southern Copper Corp. | 126,188 | ||||||
1,366 | Titanium Metals Corp.* | 23,468 | ||||||
390 | United States Steel Corp. | 22,784 | ||||||
635 | Walter Energy, Inc. | 81,178 | ||||||
2,034,113 | ||||||||
Multiline Retail (1.2%): | ||||||||
1,134 | Big Lots, Inc.* | 34,542 | ||||||
1,075 | Dollar General Corp.* | 32,970 | ||||||
1,951 | Dollar Tree, Inc.* | 109,412 | ||||||
1,938 | Family Dollar Stores, Inc. | 96,338 | ||||||
1,190 | J.C. Penney Co., Inc. | 38,449 | ||||||
3,478 | Kohl’s Corp.* | 188,994 | ||||||
618 | Macy’s, Inc. | 15,635 | ||||||
2,565 | Nordstrom, Inc. | 108,705 | ||||||
11,277 | Target Corp. | 678,086 | ||||||
1,303,131 | ||||||||
Office Electronics (0.0%): | ||||||||
500 | Zebra Technologies Corp., Class A* | 18,995 | ||||||
Oil, Gas & Consumable Fuels (7.6%): | ||||||||
243 | Alpha Natural Resources, Inc.* | 14,587 | ||||||
1,762 | Arch Coal, Inc. | 61,776 | ||||||
876 | Atlas Energy, Inc.* | 38,518 | ||||||
1,630 | Chevron Corp. | 148,738 | ||||||
1,288 | Cimarex Energy Co. | 114,027 | ||||||
1,576 | Concho Resources, Inc.* | 138,168 | ||||||
8,728 | ConocoPhillips | 594,377 | ||||||
1,585 | Consol Energy, Inc. | 77,253 | ||||||
448 | Continental Resources, Inc.* | 26,365 | ||||||
1,888 | El Paso Corp. | 25,979 | ||||||
3,876 | EOG Resources, Inc. | 354,305 | ||||||
2,246 | EXCO Resources, Inc. | 43,617 |
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
71,722 | Exxon Mobil Corp. | $ | 5,244,313 | |||||
1,111 | Forest Oil Corp.* | 42,185 | ||||||
609 | Frontline, Ltd. | 15,450 | ||||||
467 | Holly Corp. | 19,040 | ||||||
2,910 | Marathon Oil Corp. | 107,757 | ||||||
364 | Murphy Oil Corp. | 27,136 | ||||||
2,524 | Occidental Petroleum Corp. | 247,604 | ||||||
3,309 | Petrohawk Energy Corp.* | 60,389 | ||||||
37 | Quicksilver Resources, Inc.* | 545 | ||||||
2,454 | Range Resources Corp. | 110,381 | ||||||
3,458 | SandRidge Energy, Inc.* | 25,313 | ||||||
656 | SM Energy Co. | 38,658 | ||||||
5,300 | Southwestern Energy Co.* | 198,379 | ||||||
2,337 | Ultra Petroleum Corp.* | 111,638 | ||||||
59 | Whiting Petroleum Corp.* | 6,914 | ||||||
3,684 | Williams Cos., Inc. (The) | 91,068 | ||||||
7,984,480 | ||||||||
Paper & Forest Products (0.1%): | ||||||||
5,200 | International Paper Co. | 141,648 | ||||||
Personal Products (0.4%): | ||||||||
301 | Alberto-Culver Co. | 11,149 | ||||||
6,559 | Avon Products, Inc. | 190,605 | ||||||
1,688 | Estee Lauder Co., Inc. (The), Class A | 136,222 | ||||||
928 | Herbalife, Ltd. | 63,447 | ||||||
444 | Mead Johnson Nutrition Co., Class A | 27,639 | ||||||
429,062 | ||||||||
Pharmaceuticals (2.0%): | ||||||||
21,319 | Abbott Laboratories | 1,021,393 | ||||||
4,656 | Allergan, Inc. | 319,728 | ||||||
3,581 | Eli Lilly & Co. | 125,478 | ||||||
6,334 | Johnson & Johnson Co. | 391,758 | ||||||
5,619 | Mylan, Inc.* | 118,730 | ||||||
1,216 | Perrigo Co. | 77,009 | ||||||
1,327 | Warner Chilcott plc, Class A | 29,937 | ||||||
2,084,033 | ||||||||
Professional Services (0.3%): | ||||||||
771 | Dun & Bradstreet Corp. | 63,291 | ||||||
563 | FTI Consulting, Inc.* | 20,989 | ||||||
734 | IHS, Inc., Class A* | 59,006 | ||||||
953 | Monster Worldwide, Inc.* | 22,519 | ||||||
2,296 | Robert Half International, Inc. | 70,258 | ||||||
108 | Towers Watson & Co., Class A | 5,623 | ||||||
1,605 | Verisk Analytics, Inc., Class A* | 54,698 | ||||||
296,384 | ||||||||
Real Estate Investment Trusts (REITs) (0.8%): | ||||||||
246 | AMB Property Corp. | 7,801 | ||||||
833 | Apartment Investment & Management Co., Class A | 21,525 | ||||||
1,284 | Digital Realty Trust, Inc. | 66,177 | ||||||
268 | Equity Residential Property Trust | 13,922 | ||||||
169 | Essex Property Trust, Inc. | 19,303 | ||||||
576 | Federal Realty Investment Trust | 44,888 | ||||||
5,033 | General Growth Properties, Inc. | 77,911 | ||||||
1,035 | Plum Creek Timber Co., Inc. | 38,761 | ||||||
480 | ProLogis Trust | 6,931 | ||||||
1,948 | Public Storage, Inc. | 197,566 | ||||||
357 | Rayonier, Inc. | 18,750 | ||||||
3,101 | Simon Property Group, Inc. | 308,518 | ||||||
188 | UDR, Inc. | 4,422 | ||||||
652 | Ventas, Inc. | 34,217 | ||||||
210 | Vornado Realty Trust | 17,499 | ||||||
878,191 | ||||||||
Real Estate Management & Development (0.2%): | ||||||||
4,407 | CB Richard Ellis Group, Inc., Class A* | 90,255 | ||||||
368 | Howard Hughes Corp. (The)* | 20,027 | ||||||
643 | Jones Lang LaSalle, Inc. | 53,961 | ||||||
1,337 | St. Joe Co. (The)* | 29,213 | ||||||
193,456 | ||||||||
Road & Rail (0.3%): | ||||||||
35 | Con-way, Inc. | 1,280 | ||||||
2,565 | Hertz Global Holdings, Inc.* | 37,167 | ||||||
1,409 | J.B. Hunt Transport Services, Inc. | 57,501 | ||||||
908 | Kansas City Southern Industries, Inc.* | 43,457 | ||||||
793 | Landstar System, Inc. | 32,466 | ||||||
405 | Ryder System, Inc. | 21,319 | ||||||
976 | Union Pacific Corp. | 90,436 | ||||||
283,626 | ||||||||
Semiconductors & Semiconductor Equipment (3.8%): | ||||||||
3,356 | Advanced Micro Devices, Inc.* | 27,452 | ||||||
4,618 | Altera Corp. | 164,308 | ||||||
4,562 | Analog Devices, Inc. | 171,851 | ||||||
20,566 | Applied Materials, Inc. | 288,952 | ||||||
1,073 | Atheros Communications* | 38,542 | ||||||
6,423 | Atmel Corp.* | 79,131 | ||||||
1,651 | Avago Technologies, Ltd. | 47,004 | ||||||
7,600 | Broadcom Corp., Class A | 330,980 | ||||||
1,654 | Cree, Inc.* | 108,982 | ||||||
2,516 | Cypress Semiconductor Corp.* | 46,747 | ||||||
58,276 | Intel Corp. | 1,225,544 | ||||||
722 | Intersil Corp., Class A | 11,025 | ||||||
154 | KLA-Tencor Corp. | 5,951 | ||||||
1,948 | Lam Research Corp.* | 100,867 | ||||||
3,431 | Linear Technology Corp. | 118,678 | ||||||
8,288 | Marvell Technology Group, Ltd.* | 153,742 | ||||||
4,647 | Maxim Integrated Products, Inc. | 109,762 |
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
1,406 | MEMC Electronic Materials, Inc.* | $ | 15,832 | |||||
2,841 | Microchip Technology, Inc. | 97,191 | ||||||
3,230 | National Semiconductor Corp. | 44,445 | ||||||
1,303 | Novellus Systems, Inc.* | 42,113 | ||||||
8,759 | NVIDIA Corp.* | 134,889 | ||||||
6,584 | ON Semiconductor Corp.* | 65,050 | ||||||
266 | PMC-Sierra, Inc.* | 2,285 | ||||||
1,561 | Rambus, Inc.* | 31,969 | ||||||
714 | Silicon Laboratories, Inc.* | 32,858 | ||||||
2,660 | Skyworks Solutions, Inc.* | 76,156 | ||||||
2,674 | Teradyne, Inc.* | 37,543 | ||||||
8,477 | Texas Instruments, Inc. | 275,503 | ||||||
1,167 | Varian Semiconductor Equipment Associates, Inc.* | 43,144 | ||||||
3,965 | Xilinx, Inc. | 114,906 | ||||||
4,043,402 | ||||||||
Software (5.9%): | ||||||||
2,051 | Activision Blizzard, Inc. | 25,514 | ||||||
8,059 | Adobe Systems, Inc.* | 248,056 | ||||||
1,385 | Ansys, Inc.* | 72,117 | ||||||
3,509 | Autodesk, Inc.* | 134,044 | ||||||
2,779 | BMC Software, Inc.* | 131,002 | ||||||
4,848 | CA, Inc. | 118,485 | ||||||
4,172 | Cadence Design Systems, Inc.* | 34,461 | ||||||
2,844 | Citrix Systems, Inc.* | 194,558 | ||||||
1,850 | Compuware Corp.* | 21,589 | ||||||
4,823 | Electronic Arts, Inc.* | 79,001 | ||||||
714 | FactSet Research Systems, Inc. | 66,945 | ||||||
1,405 | Informatica Corp.* | 61,862 | ||||||
4,294 | Intuit, Inc.* | 211,694 | ||||||
2,388 | McAfee, Inc.* | 110,588 | ||||||
1,230 | Micros Systems, Inc.* | 53,948 | ||||||
78,466 | Microsoft Corp. | 2,190,771 | ||||||
3,480 | Nuance Communications, Inc.* | 63,266 | ||||||
58,333 | Oracle Corp. | 1,825,823 | ||||||
2,888 | Red Hat, Inc.* | 131,837 | ||||||
1,578 | Rovi Corp.* | 97,852 | ||||||
1,754 | Salesforce.com, Inc.* | 231,528 | ||||||
1,071 | Solera Holdings, Inc. | 54,964 | ||||||
1,090 | Symantec Corp.* | 18,246 | ||||||
93 | Synopsys, Inc.* | 2,503 | ||||||
1,125 | VMware, Inc., Class A* | 100,024 | ||||||
6,280,678 | ||||||||
Specialty Retail (3.4%): | ||||||||
1,009 | Abercrombie & Fitch Co., Class A | 58,149 | ||||||
1,358 | Advance Auto Parts, Inc. | 89,832 | ||||||
1,465 | Aeropostale, Inc.* | 36,098 | ||||||
793 | American Eagle Outfitters, Inc. | 11,602 | ||||||
360 | AutoNation, Inc.* | 10,152 | ||||||
406 | AutoZone, Inc.* | 110,672 | ||||||
4,030 | Bed Bath & Beyond, Inc.* | 198,074 | ||||||
4,976 | Best Buy Co., Inc. | 170,627 | ||||||
3,424 | CarMax, Inc.* | 109,157 | ||||||
2,823 | Chico’s FAS, Inc. | 33,961 | ||||||
1,340 | Dick’s Sporting Goods, Inc.* | 50,250 | ||||||
5,801 | Gap, Inc. (The) | 128,434 | ||||||
982 | Guess?, Inc. | 46,468 | ||||||
25,929 | Home Depot, Inc. | 909,071 | ||||||
834 | J. Crew Group, Inc.* | 35,979 | ||||||
4,089 | Limited Brands, Inc. | 125,655 | ||||||
16,836 | Lowe’s Cos., Inc. | 422,247 | ||||||
221 | Office Depot, Inc.* | 1,193 | ||||||
1,781 | PetSmart, Inc. | 70,919 | ||||||
1,873 | Ross Stores, Inc. | 118,467 | ||||||
870 | Sherwin Williams Co. | 72,862 | ||||||
11,175 | Staples, Inc. | 254,455 | ||||||
1,935 | Tiffany & Co. | 120,492 | ||||||
6,246 | TJX Cos., Inc. | 277,260 | ||||||
1,117 | Tractor Supply Co. | 54,163 | ||||||
1,866 | Urban Outfitters, Inc.* | 66,821 | ||||||
1,511 | Williams-Sonoma, Inc. | 53,928 | ||||||
3,636,988 | ||||||||
Textiles, Apparel & Luxury Goods (0.9%): | ||||||||
4,671 | Coach, Inc. | 258,353 | ||||||
793 | Fossil, Inc.* | 55,891 | ||||||
1,463 | Hanesbrands, Inc.* | 37,160 | ||||||
5,511 | Nike, Inc., Class B | 470,749 | ||||||
872 | Phillips-Van Heusen Corp. | 54,945 | ||||||
861 | Polo Ralph Lauren Corp. | 95,502 | ||||||
972,600 | ||||||||
Thrifts & Mortgage Finance (0.0%): | ||||||||
43 | Capitol Federal Financial, Inc. | 512 | ||||||
608 | Hudson City Bancorp, Inc. | 7,746 | ||||||
8,258 | ||||||||
Tobacco (1.8%): | ||||||||
18,590 | Altria Group, Inc. | 457,686 | ||||||
23,876 | Philip Morris International, Inc. | 1,397,462 | ||||||
1,855,148 | ||||||||
Trading Companies & Distributors (0.3%): | ||||||||
2,027 | Fastenal Co. | 121,437 | ||||||
220 | GATX Corp. | 7,761 | ||||||
685 | MSC Industrial Direct Co., Inc., Class A | 44,313 | ||||||
897 | W.W. Grainger, Inc. | 123,885 | ||||||
225 | WESCO International, Inc.* | 11,880 | ||||||
309,276 | ||||||||
Wireless Telecommunication Services (0.7%): | ||||||||
6,177 | American Tower Corp., Class A* | 318,980 | ||||||
4,446 | Crown Castle International Corp.* | 194,868 |
12
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Wireless Telecommunication Services, continued | ||||||||
1,785 | MetroPCS Communications, Inc.* | $ | 22,545 | |||||
2,023 | NII Holdings, Inc.* | 90,347 | ||||||
1,791 | SBA Communications Corp., Class A* | 73,324 | ||||||
700,064 | ||||||||
Total Common Stocks (Cost $90,320,910) | 100,719,544 | |||||||
Exchange Traded Fund (0.9%): | ||||||||
7,712 | SPDR S&P 500 ETF Trust, Series 1 | 970,015 | ||||||
Total Exchange Traded Fund (Cost $856,061) | 970,015 | |||||||
Investment Company (3.3%): | ||||||||
3,486,034 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 3,486,034 | ||||||
Total Investment Company (Cost $3,486,034) | 3,486,034 | |||||||
Total Investment Securities (Cost $94,663,005)(b) — 99.6% | 105,175,593 | |||||||
Net other assets (liabilities) — 0.4% | 401,329 | |||||||
Net Assets — 100.0% | $ | 105,576,922 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
NYS—New York Shares
plc — Public Limited Company
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $350,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2010:
Unrealized | ||||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/18/11 | 44 | $ | 2,756,600 | $ | 48,417 | |||||||||||||
NASDAQ-100 Index E-Mini March Futures | Long | 3/18/11 | 25 | 1,108,000 | 5,113 | |||||||||||||||
Total | $ | 53,530 | ||||||||||||||||||
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Bermuda | 0.3 | % | ||
British Virgin Islands | — | ^ | ||
Canada | 0.2 | |||
Cayman Islands | 0.1 | |||
Guernsey | — | ^ | ||
Ireland (Republic of) | 1.0 | |||
Liberia | — | ^ | ||
Netherlands | 1.5 | % | ||
Panama | 0.2 | |||
Singapore | — | ^ | ||
Switzerland | 0.4 | |||
United States | 96.3 | |||
100.0 | % | |||
^ | Represents less than 0.05%. |
See accompanying notes to the financial statements.
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Russell | ||||
1000 Growth | ||||
Index Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 94,663,005 | ||
Investment securities, at value | $ | 105,175,593 | ||
Segregated cash for collateral | 350,000 | |||
Dividends receivable | 88,392 | |||
Receivable for capital shares issued | 62,589 | |||
Prepaid expenses | 1,604 | |||
Total Assets | 105,678,178 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 17,570 | |||
Payable for variation margin on futures contracts | 7,477 | |||
Manager fees payable | 22,804 | |||
Administration fees payable | 4,800 | |||
Distribution fees payable | 22,048 | |||
Custodian fees payable | 3,175 | |||
Administrative and compliance services fees payable | 800 | |||
Trustee fees payable | 160 | |||
Other accrued liabilities | 22,422 | |||
Total Liabilities | 101,256 | |||
Net Assets | $ | 105,576,922 | ||
Net Assets Consist of: | ||||
Capital | $ | 96,079,724 | ||
Accumulated net investment income/(loss) | 570,127 | |||
Accumulated net realized gains/(losses) from investment transactions | (1,639,047 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 10,566,118 | |||
Net Assets | $ | 105,576,922 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 9,640,634 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.95 | ||
14
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Statement of Operations
For the Period Ended December 31, 2010
AZL Russell | ||||
1000 Growth | ||||
Index Fund(a) | ||||
Investment Income: | ||||
Interest | $ | 75 | ||
Dividends | 1,023,672 | |||
Foreign withholding tax | (227 | ) | ||
Total Investment Income | 1,023,520 | |||
Expenses: | ||||
Manager fees | 263,261 | |||
Administration fees | 35,434 | |||
Distribution fees | 149,580 | |||
Custodian fees | 20,080 | |||
Administrative and compliance services fees | 2,158 | |||
Trustees’ fees | 5,318 | |||
Professional fees | 7,462 | |||
Shareholder reports | 8,343 | |||
Other expenses | 27,026 | |||
Total expenses before reductions | 518,662 | |||
Less expenses contractually waived/reimbursed by the Manager | (16,000 | ) | ||
Net expenses | 502,662 | |||
Net Investment Income/(Loss) | 520,858 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | (1,937,299 | ) | ||
Net realized gains/(losses) on futures transactions | 298,252 | |||
Change in unrealized appreciation/(depreciation) on investments | 10,566,118 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 8,927,071 | |||
Change in Net Assets Resulting From Operations | $ | 9,447,929 | ||
(a) | For the period April 30, 2010 (commencement of operations) to December 31, 2010. |
15
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Statement of Changes in Net Assets
AZL Russell | ||||
1000 Growth | ||||
Index Fund | ||||
April 30, 2010 to | ||||
December 31, | ||||
2010(a) | ||||
Change in Net Assets: | ||||
Operations: | ||||
Net investment income/(loss) | $ | 520,858 | ||
Net realized gains/(losses) on investment transactions | (1,639,047 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 10,566,118 | |||
Change in net assets resulting from operations | 9,447,929 | |||
Capital Transactions: | ||||
Proceeds from shares issued | 106,628,727 | |||
Value of shares redeemed | (10,499,734 | ) | ||
Change in net assets resulting from capital transactions | 96,128,993 | |||
Change in net assets | 105,576,922 | |||
Net Assets: | ||||
Beginning of period | — | |||
End of period | $ | 105,576,922 | ||
Accumulated net investment income/(loss) | $ | 570,127 | ||
Share Transactions: | ||||
Shares issued | 10,718,989 | |||
Shares redeemed | (1,078,355 | ) | ||
Change in shares | 9,640,634 | |||
(a) | Period from commencement of operations. |
16
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the period indicated)
April 30, 2010 to | ||||
December 31, | ||||
2010(a) | ||||
Net Asset Value, Beginning of Period | $ | 10.00 | ||
Investment Activities: | ||||
Net Investment Income/(Loss) | 0.05 | |||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.90 | |||
Total from Investment Activities | 0.95 | |||
Net Asset Value, End of Period | $ | 10.95 | ||
Total Return(b)(c) | 9.50 | % | ||
Ratios to Average Net Assets/Supplemental Data: | ||||
Net Assets, End of Period ($000’s) | $ | 105,577 | ||
Net Investment Income/(Loss)(d) | 0.87 | % | ||
Expenses Before Reductions(d)(e) | 0.87 | % | ||
Expenses Net of Reductions(d) | 0.84 | % | ||
Portfolio Turnover Rate(c) | 28.90 | % |
(a) | Period from commencement of operations. | |
(b) | The return includes reinvested dividends and fund level expenses, but excludes insurance contract charges. If these charges were included, the return would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
17
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Russell 1000 Growth Index Fund (the “Fund”), which commenced operations on April 30, 2010. The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the period ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the period ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the period ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $3.8 million as of December 31, 2010. The monthly average notional amount for these contracts was $3.1 million for the period ended December 31, 2010.
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 53,530 | Payable for variation margin on futures contracts | $ | — |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the period ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | $ | 298,252 | $ | 53,530 |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective April 30, 2010, between the Manager and BlackRock Investment Management LLC (“BlackRock Investment”), BlackRock Investment provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.84%.
For the period ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Russell 1000 Growth Index Fund | 0.44 | % | 0.84 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | ||||
12/31/2013 | ||||
AZL Russell 1000 Growth Index Fund | $ | 16,000 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust- wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the period ended December 31, 2010, $1,318 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the period ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 100,719,544 | $ | — | $ | — | $ | 100,719,544 | ||||||||
Exchange Traded Fund | 970,015 | — | — | 970,015 | ||||||||||||
Investment Company | 3,486,034 | — | — | 3,486,034 | ||||||||||||
Total Investment Securities | 105,175,593 | — | — | 105,175,593 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 53,530 | — | 53,530 | |||||||||||||
Total Investments | $ | 105,229,123 | $ | — | $ | — | $ | 105,229,123 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the period ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Russell 1000 Growth Index Fund | $ | 118,173,579 | $ | 25,059,081 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $94,993,647. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 12,906,988 | ||
Unrealized depreciation | (2,725,042 | ) | ||
Net unrealized appreciation | $ | 10,181,946 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | ||||
12/31/2018 | ||||
AZL Russell 1000 Growth Index Fund | $ | 1,248,914 |
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Growth Index Fund
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 564,166 | $ | (1,248,914 | ) | $ | 10,181,946 | $ | 9,497,198 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
25
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Russell 1000 Growth Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statements of operations and changes in net assets, and the financial highlights for the period April 30, 2010 to December 31, 2010. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 the Fund as of December 31, 2010, the results of its operations, the changes in its net assets, and the financial highlights for the period April 30, 2010 to December 31, 2010, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
28
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
29
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
30
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
31
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
32
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
33
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Russell 1000 Value Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 15
Page 15
Statement of Operations
Page 16
Page 16
Statements of Changes in Net Assets
Page 17
Page 17
Financial Highlights
Page 18
Page 18
Notes to the Financial Statements
Page 19
Page 19
Report of Independent Registered Public Accounting Firm
Page 27
Page 27
Other Information
Page 28
Page 28
Approval of Investment Advisory Agreement
Page 29
Page 29
Information about the Board of Trustees and Officers
Page 33
Page 33
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Russell 1000 Value Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Russell 1000 Value Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance from its inception on April 30, 2010 through the period ended December 31, 2010?
From its inception on April 30, 2010 through the period ended December 31, 2010, the AZL® Russell 1000 Value Index Fund returned 4.90%. That compared to a 5.44% total return for its benchmark, Russell 1000® Value Index1.
The Fund attempts to replicate the performance of the Russell 1000® Value Index of large-cap value U.S. stocks. Early in the period, such stocks performed well as investors drew encouragement from signs of job growth and strong corporate earnings. The Greek sovereign debt crisis and stalled U.S. job growth ushered in a double-digit correction midway through the period. The “flash crash” in May also unnerved many investors.
Nevertheless, stocks recovered later in the year as job growth restarted and the Federal Reserve announced a second round of quantitative easing. Midterm elections results seen as friendly to capital markets also contributed to stocks finishing the 12-month period with strong returns.
Consumer discretionary was the strongest-performing sector in the period, followed closely by the energy and materials sectors. The health care and utilities sectors generated positive returns, but were the weakest sectors. Interestingly, the financial sector included both the strongest performer and the top detractor for the period.*
The underperformance of the Fund against its benchmark was primarily the result of Fund expenses that are not reflected in the Index.
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Russell 1000 Value Index Fund Review
Fund Objective
The Fund’s investment objective is to match the total return of the Russell 1000® Value Index (the “Index”). This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in all stocks in the Index in proportion to their weighting in the Index.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
The Fund does not attempt to manage market volatility or reduce the effects of poor stock performance. In addition, factors such as Fund expenses, selection of a representative portfolio, changes in the composition of the index, or the timing of purchases or redemptions of Fund shares may affect the correlation between the performance of the index and the Fund’s performance.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Aggregate Returns as of December 31, 2010
Since | ||||||||
6 | Inception | |||||||
Month | (4/30/10) | |||||||
AZL® Russell 1000 Value Index Fund | 21.27 | % | 4.90 | % | ||||
Russell 1000® Value Index | 21.74 | % | 5.44 | % | ||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Russell 1000 Value Index Fund | 0.84 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.84% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 1000® Value Index, an unmanaged index that measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Russell 1000 Value Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 1,000.00 | $ | 1,212.70 | $ | 4.63 | 0.83 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 1,000.00 | $ | 1,021.02 | $ | 4.23 | 0.83 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Russell 1000 Value Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 1.7 | % | ||
Air Freight & Logistics | 0.2 | |||
Airlines | 0.2 | |||
Auto Components | 0.2 | |||
Beverages | 1.5 | |||
Biotechnology | 1.1 | |||
Building Products | 0.1 | |||
Capital Markets | 3.5 | |||
Chemicals | 1.6 | |||
Commercial Banks | 5.3 | |||
Commercial Services & Supplies | 0.6 | |||
Communications Equipment | 0.4 | |||
Computers & Peripherals | 0.2 | |||
Construction & Engineering | 0.4 | |||
Construction Materials | 0.1 | |||
Consumer Finance | 0.5 | |||
Containers & Packaging | 0.4 | |||
Distributors | 0.1 | |||
Diversified Consumer Services | 0.1 | |||
Diversified Financial Services | 6.6 | |||
Diversified Telecommunication Services | 4.6 | |||
Electric Utilities | 3.2 | |||
Electrical Equipment | 0.1 | |||
Electronic Equipment, Instruments & Components | 1.0 | |||
Energy Equipment & Services | 1.7 | |||
Food & Staples Retailing | 1.7 | |||
Food Products | 2.2 | |||
Gas Utilities | 0.5 | |||
Health Care Equipment & Supplies | 0.9 | |||
Health Care Providers & Services | 2.0 | |||
Hotels, Restaurants & Leisure | 0.5 | |||
Household Durables | 0.6 | |||
Household Products | 2.8 | |||
Independent Power Producers & Energy Traders | 0.4 | |||
Industrial Conglomerates | 2.3 | |||
Insurance | 6.7 | |||
Internet & Catalog Retail | 0.2 | |||
Internet Software & Services | 0.5 | |||
IT Services | 0.4 | |||
Leisure Equipment & Products | 0.1 | |||
Life Sciences Tools & Services | 0.5 | |||
Machinery | 1.3 | |||
Marine | 0.1 | |||
Media | 4.6 | |||
Metals & Mining | 0.6 | |||
Multi-Utilities | 2.4 | |||
Multiline Retail | 0.3 | |||
Office Electronics | 0.2 | |||
Oil, Gas & Consumable Fuels | 10.0 | |||
Paper & Forest Products | 0.3 | |||
Personal Products | 0.2 | |||
Pharmaceuticals | 7.4 | |||
Professional Services | 0.2 | |||
Real Estate Investment Trusts (REITs) | 3.1 | |||
Real Estate Management & Development | — | ^ | ||
Road & Rail | 1.4 | |||
Semiconductors & Semiconductor Equipment | 1.3 | |||
Software | 1.4 | |||
Specialty Retail | 0.4 | |||
Textiles, Apparel & Luxury Goods | 0.1 | |||
Thrifts & Mortgage Finance | 0.4 | |||
Tobacco | 0.9 | |||
Trading Companies & Distributors | — | ^ | ||
Water Utilities | 0.1 | |||
Wireless Telecommunication Services | 0.3 | |||
Exchange Traded Fund | 1.8 | |||
Investment Company | 3.2 | |||
99.7 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
^ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (94.7%): | ||||||||
Aerospace & Defense (1.7%): | ||||||||
71 | Alliant Techsystems, Inc.* | $ | 5,285 | |||||
2,378 | BE Aerospace, Inc.* | 88,057 | ||||||
3,571 | Boeing Co. (The) | 233,043 | ||||||
8,562 | General Dynamics Corp. | 607,559 | ||||||
2,228 | Goodrich Corp. | 196,220 | ||||||
4,543 | ITT Industries, Inc. | 236,736 | ||||||
2,866 | L-3 Communications Holdings, Inc. | 202,024 | ||||||
1,644 | Lockheed Martin Corp. | 114,932 | ||||||
7,461 | Northrop Grumman Corp. | 483,324 | ||||||
9,439 | Raytheon Co. | 437,403 | ||||||
1,846 | Rockwell Collins, Inc. | 107,548 | ||||||
2,270 | Spirit AeroSystems Holdings, Inc., Class A* | 47,239 | ||||||
1,986 | United Technologies Corp. | 156,338 | ||||||
2,915,708 | ||||||||
Air Freight & Logistics (0.2%): | ||||||||
2,745 | FedEx Corp. | 255,312 | ||||||
450 | UTI Worldwide, Inc. | 9,540 | ||||||
264,852 | ||||||||
Airlines (0.2%): | ||||||||
5,702 | AMR Corp.* | 44,419 | ||||||
267 | Copa Holdings SA, Class A | 15,710 | ||||||
15,981 | Southwest Airlines Co. | 207,433 | ||||||
1,068 | United Continental Holdings, Inc.* | 25,440 | ||||||
293,002 | ||||||||
Auto Components (0.2%): | ||||||||
1,384 | Autoliv, Inc. | 109,253 | ||||||
225 | BorgWarner, Inc.* | 16,281 | ||||||
375 | Federal-Mogul Corp.* | 7,744 | ||||||
948 | Johnson Controls, Inc. | 36,213 | ||||||
848 | Lear Corp.* | 83,706 | ||||||
111 | Tesla Motors, Inc.* | 2,956 | ||||||
641 | TRW Automotive Holdings Corp.* | 33,781 | ||||||
289,934 | ||||||||
Beverages (1.5%): | ||||||||
677 | Brown-Forman Corp., Class B | 47,133 | ||||||
1,797 | Central European Distribution Corp.* | 41,151 | ||||||
13,255 | Coca-Cola Co. (The) | 871,781 | ||||||
3,050 | Coca-Cola Enterprises, Inc. | 76,342 | ||||||
4,522 | Constellation Brands, Inc.* | 100,162 | ||||||
3,906 | Dr Pepper Snapple Group, Inc. | 137,335 | ||||||
252 | Hansen Natural Corp.* | 13,175 | ||||||
3,262 | Molson Coors Brewing Co. | 163,720 | ||||||
16,982 | PepsiCo, Inc. | 1,109,434 | ||||||
2,560,233 | ||||||||
Biotechnology (1.1%): | ||||||||
23,735 | Amgen, Inc.* | 1,303,051 | ||||||
5,992 | Biogen, Inc.* | 401,764 | ||||||
1,861 | Cephalon, Inc.* | 114,861 | ||||||
1,578 | Genzyme Corp.* | 112,354 | ||||||
1,932,030 | ||||||||
Building Products (0.1%): | ||||||||
440 | Armstrong World Industries, Inc. | 18,920 | ||||||
6,206 | Masco Corp. | 78,568 | ||||||
1,311 | Owens Corning, Inc.* | 40,838 | ||||||
904 | USG Corp.* | 15,214 | ||||||
153,540 | ||||||||
Capital Markets (3.5%): | ||||||||
5,095 | Ameriprise Financial, Inc. | 293,217 | ||||||
4,739 | Ares Capital Corp. | 78,099 | ||||||
30,051 | Bank of New York Mellon Corp. | 907,540 | ||||||
1,527 | BlackRock, Inc. | 291,016 | ||||||
5,485 | E*TRADE Financial Corp.* | 87,760 | ||||||
676 | Federated Investors, Inc. | 17,691 | ||||||
12,756 | Goldman Sachs Group, Inc. | 2,145,049 | ||||||
8,077 | Invesco, Ltd. | 194,333 | ||||||
4,237 | Janus Capital Group, Inc. | 54,954 | ||||||
2,882 | Jefferies Group, Inc. | 76,748 | ||||||
3,827 | Legg Mason, Inc. | 138,805 | ||||||
336 | LPL Investment Holdings, Inc.* | 12,220 | ||||||
25,563 | Morgan Stanley | 695,569 | ||||||
3,598 | Northern Trust Corp. | 199,365 | ||||||
2,479 | Raymond James Financial, Inc. | 81,063 | ||||||
12,429 | State Street Corp. | 575,960 | ||||||
5,849,389 | ||||||||
Chemicals (1.6%): | ||||||||
1,788 | Ashland, Inc. | 90,938 | ||||||
1,622 | Cabot Corp. | 61,068 | ||||||
493 | CF Industries Holdings, Inc. | 66,629 | ||||||
1,218 | Cytec Industries, Inc. | 64,627 | ||||||
28,613 | Dow Chemical Co. (The) | 976,848 | ||||||
14,702 | E.I. du Pont de Nemours & Co. | 733,336 | ||||||
1,427 | Eastman Chemical Co. | 119,982 | ||||||
567 | FMC Corp. | 45,298 | ||||||
4,742 | Huntsman Corp. | 74,023 | ||||||
1,113 | Intrepid Potash, Inc.* | 41,504 | ||||||
614 | KAR Auction Services, Inc.* | 8,473 | ||||||
3,443 | PPG Industries, Inc. | 289,453 | ||||||
1,670 | RPM International, Inc. | 36,907 | ||||||
227 | Sigma Aldrich Corp. | 15,109 | ||||||
2,224 | Valspar Corp. (The) | 76,683 | ||||||
2,700,878 | ||||||||
Commercial Banks (5.3%): | ||||||||
4,271 | Associated Banc-Corp. | 64,706 | ||||||
2,060 | BancorpSouth, Inc. | 32,857 | ||||||
787 | Bank of Hawaii Corp. | 37,154 | ||||||
17,143 | BB&T Corp. | 450,689 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Commercial Banks, continued | ||||||||
628 | BOK Financial Corp. | $ | 33,535 | |||||
8,125 | CapitalSource, Inc. | 57,687 | ||||||
1,127 | City National Corp. | 69,153 | ||||||
4,365 | Comerica, Inc. | 184,378 | ||||||
1,883 | Commerce Bancshares, Inc. | 74,798 | ||||||
1,308 | Cullen/Frost Bankers, Inc. | 79,945 | ||||||
3,673 | East West Bancorp, Inc. | 71,807 | ||||||
19,681 | Fifth Third Bancorp | 288,917 | ||||||
134 | First Citizens BancShares, Inc., Class A | 25,333 | ||||||
5,844 | First Horizon National Corp.* | 68,843 | ||||||
4,749 | Fulton Financial Corp. | 49,105 | ||||||
17,727 | Huntington Bancshares, Inc. | 121,784 | ||||||
21,763 | KeyCorp | 192,603 | ||||||
1,821 | M&T Bank Corp. | 158,518 | ||||||
13,150 | Marshall & Ilsley Corp. | 90,998 | ||||||
13,036 | PNC Financial Services Group, Inc. | 791,546 | ||||||
25,564 | Popular, Inc.* | 80,271 | ||||||
31,090 | Regions Financial Corp. | 217,630 | ||||||
12,380 | SunTrust Banks, Inc. | 365,334 | ||||||
19,405 | Synovus Financial Corp. | 51,229 | ||||||
3,524 | TCF Financial Corp. | 52,190 | ||||||
47,494 | U.S. Bancorp | 1,280,913 | ||||||
3,975 | Valley National Bancorp | 56,842 | ||||||
120,582 | Wells Fargo & Co. | 3,736,836 | ||||||
2,287 | Wilmington Trust Corp. | 9,926 | ||||||
4,286 | Zions Bancorp | 103,850 | ||||||
8,899,377 | ||||||||
Commercial Services & Supplies (0.6%): | ||||||||
2,577 | Avery Dennison Corp. | 109,110 | ||||||
3,285 | Cintas Corp. | 91,849 | ||||||
2,347 | Corrections Corp. of America* | 58,816 | ||||||
3,079 | Covanta Holding Corp. | 52,928 | ||||||
1,458 | Pitney Bowes, Inc. | 35,254 | ||||||
4,830 | R.R. Donnelley & Sons Co. | 84,380 | ||||||
5,638 | Republic Services, Inc. | 168,351 | ||||||
636 | Waste Connections, Inc. | 17,509 | ||||||
11,964 | Waste Management, Inc. | 441,113 | ||||||
1,059,310 | ||||||||
Communications Equipment (0.4%): | ||||||||
10,743 | Brocade Communications Systems, Inc.* | 56,830 | ||||||
2,335 | CommScope, Inc.* | 72,899 | ||||||
955 | EchoStar Corp., Class A* | 23,846 | ||||||
57,569 | Motorola, Inc.* | 522,151 | ||||||
9,627 | Tellabs, Inc. | 65,271 | ||||||
740,997 | ||||||||
Computers & Peripherals (0.2%): | ||||||||
1,328 | Diebold, Inc. | 42,562 | ||||||
1,940 | Lexmark International, Inc.* | 67,551 | ||||||
3,372 | Seagate Technology plc* | 50,681 | ||||||
4,373 | Western Digital Corp.* | 148,245 | ||||||
309,039 | ||||||||
Construction & Engineering (0.4%): | ||||||||
1,774 | Aecom Technology Corp.* | 49,619 | ||||||
1,524 | Chicago Bridge & Iron Co. NV, NYS* | 50,140 | ||||||
4,160 | Fluor Corp. | 275,642 | ||||||
1,245 | Jacobs Engineering Group, Inc.* | 57,083 | ||||||
3,525 | KBR, Inc. | 107,407 | ||||||
5,201 | Quanta Services, Inc.* | 103,604 | ||||||
893 | Shaw Group, Inc.* | 30,567 | ||||||
2,048 | URS Corp.* | 85,217 | ||||||
759,279 | ||||||||
Construction Materials (0.1%): | ||||||||
3,173 | Vulcan Materials Co. | 140,754 | ||||||
Consumer Finance (0.5%): | ||||||||
11,308 | Capital One Financial Corp. | 481,268 | ||||||
13,467 | Discover Financial Services | 249,544 | ||||||
12,022 | SLM Corp.* | 151,357 | ||||||
882,169 | ||||||||
Containers & Packaging (0.4%): | ||||||||
1,683 | AptarGroup, Inc. | 80,060 | ||||||
1,822 | Ball Corp. | 123,987 | ||||||
2,675 | Bemis Co., Inc. | 87,366 | ||||||
862 | Greif, Inc., Class A | 53,358 | ||||||
2,818 | Owens-Illinois, Inc.* | 86,513 | ||||||
2,514 | Packaging Corp. of America | 64,962 | ||||||
3,987 | Sealed Air Corp. | 101,469 | ||||||
2,457 | Sonoco Products Co. | 82,727 | ||||||
2,105 | Temple-Inland, Inc. | 44,710 | ||||||
725,152 | ||||||||
Distributors (0.1%): | ||||||||
3,931 | Genuine Parts Co. | 201,818 | ||||||
Diversified Consumer Services (0.1%): | ||||||||
87 | Booz Allen Hamilton Holding Corp.* | 1,690 | ||||||
482 | Education Management Corp.* | 8,724 | ||||||
4,527 | H&R Block, Inc. | 53,917 | ||||||
6,405 | Service Corp. International | 52,841 | ||||||
117,172 | ||||||||
Diversified Financial Services (6.6%): | ||||||||
248,620 | Bank of America Corp. | 3,316,591 | ||||||
190 | CBOE Holdings, Inc. | 4,343 | ||||||
4,953 | CIT Group, Inc.* | 233,286 | ||||||
524,195 | Citigroup, Inc.* | 2,479,442 | ||||||
1,628 | CME Group, Inc. | 523,809 | ||||||
32 | Green Dot Corp., Class A* | 1,816 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Diversified Financial Services, continued | ||||||||
755 | Interactive Brokers Group, Inc., Class A | $ | 13,454 | |||||
98,589 | JPMorgan Chase & Co. | 4,182,145 | ||||||
4,842 | Leucadia National Corp. | 141,290 | ||||||
2,987 | NASDAQ OMX Group, Inc. (The)* | 70,822 | ||||||
5,064 | NYSE Euronext | 151,819 | ||||||
11,118,817 | ||||||||
Diversified Telecommunication Services (4.6%): | ||||||||
146,421 | AT&T, Inc. | 4,301,849 | ||||||
7,440 | CenturyTel, Inc. | 343,505 | ||||||
944 | Clearwire Corp., Class A* | 4,862 | ||||||
15,034 | Frontier Communications Corp. | 146,281 | ||||||
25,171 | Level 3 Communications, Inc.* | 24,667 | ||||||
42,999 | Qwest Communications International, Inc. | 327,222 | ||||||
70,042 | Verizon Communications, Inc. | 2,506,103 | ||||||
7,006 | Windstream Corp. | 97,664 | ||||||
7,752,153 | ||||||||
Electric Utilities (3.2%): | ||||||||
4,189 | Allegheny Energy, Inc. | 101,541 | ||||||
11,862 | American Electric Power Co., Inc. | 426,795 | ||||||
2,941 | DPL, Inc. | 75,613 | ||||||
32,530 | Duke Energy Corp. | 579,359 | ||||||
8,069 | Edison International | 311,463 | ||||||
4,689 | Entergy Corp. | 332,122 | ||||||
16,365 | Exelon Corp. | 681,439 | ||||||
7,549 | FirstEnergy Corp. | 279,464 | ||||||
3,350 | Great Plains Energy, Inc. | 64,957 | ||||||
2,301 | Hawaiian Electric Industries, Inc. | 52,440 | ||||||
155 | ITC Holdings Corp. | 9,607 | ||||||
10,272 | NextEra Energy, Inc. | 534,041 | ||||||
4,367 | Northeast Utilities | 139,220 | ||||||
5,809 | NV Energy, Inc. | 81,617 | ||||||
5,490 | Pepco Holdings, Inc. | 100,193 | ||||||
2,683 | Pinnacle West Capital Corp. | 111,210 | ||||||
11,942 | PPL Corp. | 314,313 | ||||||
7,112 | Progress Energy, Inc. | 309,230 | ||||||
20,428 | Southern Co. | 780,962 | ||||||
2,762 | Westar Energy, Inc. | 69,492 | ||||||
5,355,078 | ||||||||
Electrical Equipment (0.1%): | ||||||||
843 | General Cable Corp.* | 29,581 | ||||||
904 | Hubbell, Inc., Class B | 54,357 | ||||||
157 | Regal-Beloit Corp. | 10,481 | ||||||
1,384 | SunPower Corp., Class A* | 17,757 | ||||||
1,099 | Thomas & Betts Corp.* | 53,082 | ||||||
165,258 | ||||||||
Electronic Equipment, Instruments & Components (1.0%): | ||||||||
2,672 | Arrow Electronics, Inc.* | 91,516 | ||||||
3,726 | Avnet, Inc.* | 123,070 | ||||||
1,236 | AVX Corp. | 19,071 | ||||||
33,832 | Corning, Inc. | 653,634 | ||||||
3,703 | Ingram Micro, Inc., Class A* | 70,690 | ||||||
63 | Itron, Inc.* | 3,493 | ||||||
1,347 | Jabil Circuit, Inc. | 27,061 | ||||||
3,348 | Molex, Inc. | 76,067 | ||||||
1,216 | Tech Data Corp.* | 53,528 | ||||||
10,813 | Tyco International, Ltd. | 448,091 | ||||||
3,773 | Vishay Intertechnology, Inc.* | 55,388 | ||||||
278 | Vishay Precision Group, Inc.* | 5,238 | ||||||
1,626,847 | ||||||||
Energy Equipment & Services (1.7%): | ||||||||
1,106 | Atwood Oceanics, Inc.* | 41,331 | ||||||
7,715 | Baker Hughes, Inc. | 441,067 | ||||||
2,592 | Cameron International Corp.* | 131,492 | ||||||
1,152 | Diamond Offshore Drilling, Inc. | 77,034 | ||||||
212 | Dresser-Rand Group, Inc.* | 9,029 | ||||||
1,396 | Exterran Holdings, Inc.* | 33,434 | ||||||
2,324 | Helmerich & Payne, Inc. | 112,668 | ||||||
4,240 | Nabors Industries, Ltd.* | 99,470 | ||||||
10,381 | National-Oilwell Varco, Inc. | 698,122 | ||||||
1,364 | Oceaneering International, Inc.* | 100,431 | ||||||
1,161 | Oil States International, Inc.* | 74,409 | ||||||
3,748 | Patterson-UTI Energy, Inc. | 80,769 | ||||||
2,639 | Pride International, Inc.* | 87,087 | ||||||
2,734 | Rowan Cos., Inc.* | 95,444 | ||||||
4,296 | Schlumberger, Ltd. | 358,716 | ||||||
519 | Seacor Holdings, Inc. | 52,466 | ||||||
1,810 | Superior Energy Services, Inc.* | 63,332 | ||||||
1,282 | Tidewater, Inc. | 69,023 | ||||||
972 | Unit Corp.* | 45,179 | ||||||
10,943 | Weatherford International, Ltd.* | 249,500 | ||||||
2,920,003 | ||||||||
Food & Staples Retailing (1.7%): | ||||||||
1,220 | BJ’s Wholesale Club, Inc.* | 58,438 | ||||||
29,974 | CVS Caremark Corp. | 1,042,196 | ||||||
15,061 | Kroger Co. (The) | 336,764 | ||||||
9,622 | Safeway, Inc. | 216,399 | ||||||
5,240 | Supervalu, Inc. | 50,461 | ||||||
19,019 | Wal-Mart Stores, Inc. | 1,025,694 | ||||||
2,153 | Walgreen Co. | 83,881 | ||||||
2,813,833 | ||||||||
Food Products (2.2%): | ||||||||
15,929 | Archer-Daniels Midland Co. | 479,144 | ||||||
3,569 | Bunge, Ltd. | 233,841 | ||||||
1,819 | Campbell Soup Co. | 63,210 | ||||||
9,918 | ConAgra Foods, Inc. | 223,948 | ||||||
1,870 | Corn Products International, Inc. | 86,020 |
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
4,557 | Dean Foods Co.* | $ | 40,284 | |||||
4,956 | Del Monte Foods Co. | 93,173 | ||||||
1,185 | Flowers Foods, Inc. | 31,888 | ||||||
6,655 | General Mills, Inc. | 236,852 | ||||||
4,620 | H.J. Heinz Co. | 228,505 | ||||||
1,579 | Hershey Co. | 74,450 | ||||||
1,709 | Hormel Foods Corp. | 87,603 | ||||||
2,949 | J.M. Smucker Co. (The) | 193,602 | ||||||
673 | Kellogg Co. | 34,377 | ||||||
39,742 | Kraft Foods, Inc., Class A | 1,252,270 | ||||||
1,641 | McCormick & Co. | 76,356 | ||||||
1,348 | Ralcorp Holdings, Inc.* | 87,634 | ||||||
4,691 | Sara Lee Corp. | 82,139 | ||||||
3,444 | Smithfield Foods, Inc.* | 71,050 | ||||||
7,431 | Tyson Foods, Inc., Class A | 127,962 | ||||||
3,804,308 | ||||||||
Gas Utilities (0.5%): | ||||||||
1,924 | AGL Resources, Inc. | 68,975 | ||||||
2,302 | Atmos Energy Corp. | 71,822 | ||||||
1,761 | Energen Corp. | 84,986 | ||||||
249 | EQT Corp. | 11,165 | ||||||
1,801 | National Fuel Gas Co. | 118,182 | ||||||
2,637 | ONEOK, Inc. | 146,274 | ||||||
4,334 | QEP Resources, Inc. | 157,368 | ||||||
4,339 | Questar Corp. | 75,542 | ||||||
2,700 | UGI Corp. | 85,266 | ||||||
819,580 | ||||||||
Health Care Equipment & Supplies (0.9%): | ||||||||
1,514 | Alere, Inc.* | 55,413 | ||||||
2,465 | Baxter International, Inc. | 124,778 | ||||||
1,735 | Beckman Coulter, Inc. | 130,524 | ||||||
37,548 | Boston Scientific Corp.* | 284,239 | ||||||
3,467 | CareFusion Corp.* | 89,102 | ||||||
895 | Cooper Companies, Inc. | 50,424 | ||||||
241 | Hill-Rom Holdings, Inc. | 9,488 | ||||||
6,402 | Hologic, Inc.* | 120,486 | ||||||
1,424 | Kinetic Concepts, Inc.* | 59,637 | ||||||
6,300 | Medtronic, Inc. | 233,667 | ||||||
851 | Teleflex, Inc. | 45,792 | ||||||
5,022 | Zimmer Holdings, Inc.* | 269,581 | ||||||
1,473,131 | ||||||||
Health Care Providers & Services (2.0%): | ||||||||
9,917 | Aetna, Inc. | 302,568 | ||||||
1,822 | Brookdale Senior Living, Inc.* | 39,009 | ||||||
5,881 | Cardinal Health, Inc. | 225,301 | ||||||
6,851 | CIGNA Corp. | 251,158 | ||||||
735 | Community Health Systems, Inc.* | 27,467 | ||||||
3,659 | Coventry Health Care, Inc.* | 96,598 | ||||||
52 | Emdeon, Inc., Class A* | 704 | ||||||
2,465 | Health Net, Inc.* | 67,270 | ||||||
4,214 | Humana, Inc.* | 230,674 | ||||||
1,387 | LifePoint Hospitals, Inc.* | 50,972 | ||||||
3,563 | McKesson HBOC, Inc. | 250,764 | ||||||
79 | MEDNAX, Inc.* | 5,316 | ||||||
2,648 | Omnicare, Inc. | 67,233 | ||||||
463 | Quest Diagnostics, Inc. | 24,988 | ||||||
3,293 | Tenet Healthcare Corp.* | 22,030 | ||||||
28,163 | UnitedHealth Group, Inc. | 1,016,966 | ||||||
2,060 | Universal Health Services, Inc., Class B | 89,445 | ||||||
9,903 | WellPoint, Inc.* | 563,084 | ||||||
3,331,547 | ||||||||
Hotels, Restaurants & Leisure (0.5%): | ||||||||
371 | Brinker International, Inc. | 7,746 | ||||||
6,778 | Carnival Corp. | 312,534 | ||||||
669 | Choice Hotels International, Inc. | 25,603 | ||||||
1,108 | Hyatt Hotels Corp., Class A* | 50,702 | ||||||
483 | International Speedway Corp., Class A | 12,640 | ||||||
1,044 | Madison Square Garden, Inc., Class A* | 26,914 | ||||||
6,255 | MGM Resorts International* | 92,887 | ||||||
1,709 | Penn National Gaming, Inc.* | 60,071 | ||||||
1,991 | Royal Caribbean Cruises, Ltd.* | 93,577 | ||||||
5,113 | Wendy’s/Arby’s Group, Inc. | 23,622 | ||||||
4,454 | Wyndham Worldwide Corp. | 133,442 | ||||||
839,738 | ||||||||
Household Durables (0.6%): | ||||||||
6,913 | D. R. Horton, Inc. | 82,472 | ||||||
3,315 | Fortune Brands, Inc. | 199,729 | ||||||
2,608 | Garmin, Ltd. | 80,822 | ||||||
899 | Harman International Industries, Inc.* | 41,624 | ||||||
2,279 | Jarden Corp. | 70,353 | ||||||
2,010 | KB Home | 27,115 | ||||||
1,488 | Leggett & Platt, Inc. | 33,867 | ||||||
3,934 | Lennar Corp. | 73,762 | ||||||
967 | M.D.C. Holdings, Inc. | 27,820 | ||||||
1,218 | Mohawk Industries, Inc.* | 69,134 | ||||||
7,195 | Newell Rubbermaid, Inc. | 130,805 | ||||||
8,377 | Pulte Group, Inc.* | 62,995 | ||||||
3,571 | Toll Brothers, Inc.* | 67,849 | ||||||
1,062 | Whirlpool Corp. | 94,337 | ||||||
1,062,684 | ||||||||
Household Products (2.8%): | ||||||||
761 | Aaron’s, Inc. | 15,517 | ||||||
235 | Clorox Co. (The) | 14,871 | ||||||
1,979 | Colgate-Palmolive Co. | 159,052 | ||||||
1,733 | Energizer Holdings, Inc.* | 126,336 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Household Products, continued | ||||||||
2,131 | Kimberly-Clark Corp. | $ | 134,338 | |||||
67,080 | Procter & Gamble Co. (The) | 4,315,256 | ||||||
4,765,370 | ||||||||
Independent Power Producers & Energy Traders (0.4%): | ||||||||
16,579 | AES Corp. (The)* | 201,932 | ||||||
4,550 | Calpine Corp.* | 60,697 | ||||||
4,572 | Constellation Energy Group, Inc. | 140,040 | ||||||
19,369 | GenOn Energy, Inc.* | 73,796 | ||||||
6,318 | NRG Energy, Inc.* | 123,454 | ||||||
251 | Ormat Technologies, Inc. | 7,425 | ||||||
607,344 | ||||||||
Industrial Conglomerates (2.3%): | ||||||||
1,431 | Carlisle Cos., Inc. | 56,868 | ||||||
203,177 | General Electric Co. | 3,716,107 | ||||||
1,248 | McDermott International, Inc.* | 25,821 | ||||||
3,328 | Textron, Inc. | 78,674 | ||||||
3,877,470 | ||||||||
Insurance (6.7%): | ||||||||
7,114 | ACE, Ltd. | 442,846 | ||||||
640 | AFLAC, Inc. | 36,115 | ||||||
166 | Alleghany Corp.* | 50,857 | ||||||
1,027 | Allied World Assurance Co. Holdings, Ltd. | 61,045 | ||||||
13,323 | Allstate Corp. (The) | 424,737 | ||||||
2,122 | American Financial Group, Inc. | 68,519 | ||||||
2,994 | American International Group, Inc.* | 172,514 | ||||||
171 | American National Insurance Co. | 14,641 | ||||||
6,673 | Aon Corp. | 307,025 | ||||||
1,148 | Arch Capital Group, Ltd.* | 101,081 | ||||||
1,935 | Arthur J. Gallagher & Co. | 56,270 | ||||||
1,910 | Aspen Insurance Holdings, Ltd. | 54,664 | ||||||
2,771 | Assurant, Inc. | 106,739 | ||||||
4,558 | Assured Guaranty, Ltd. | 80,677 | ||||||
2,134 | Axis Capital Holdings, Ltd. | 76,568 | ||||||
42,855 | Berkshire Hathaway, Inc., Class B* | 3,433,114 | ||||||
1,323 | Brown & Brown, Inc. | 31,673 | ||||||
7,552 | Chubb Corp. (The) | 450,401 | ||||||
3,616 | Cincinnati Financial Corp. | 114,591 | ||||||
620 | CNA Financial Corp.* | 16,771 | ||||||
2,886 | CoreLogic, Inc. | 53,449 | ||||||
1,042 | Endurance Specialty Holdings, Ltd. | 48,005 | ||||||
233 | Erie Indemnity Co., Class A | 15,255 | ||||||
1,363 | Everest Re Group, Ltd. | 115,610 | ||||||
5,679 | Fidelity National Financial, Inc., Class A | 77,689 | ||||||
9,862 | Genworth Financial, Inc.* | 129,587 | ||||||
1,117 | Hanover Insurance Group, Inc. (The) | 52,186 | ||||||
10,073 | Hartford Financial Services Group, Inc. | 266,834 | ||||||
2,842 | HCC Insurance Holdings, Inc. | 82,247 | ||||||
7,488 | Lincoln National Corp. | 208,241 | ||||||
7,794 | Loews Corp. | 303,265 | ||||||
240 | Markel Corp.* | 90,751 | ||||||
1,073 | Marsh & McLennan Cos., Inc. | 29,336 | ||||||
3,798 | MBIA, Inc.* | 45,538 | ||||||
660 | Mercury General Corp. | 28,387 | ||||||
11,078 | MetLife, Inc. | 492,306 | ||||||
6,481 | Old Republic International Corp. | 88,336 | ||||||
561 | OneBeacon Insurance Group, Ltd., Class A | 8,505 | ||||||
1,937 | PartnerRe, Ltd. | 155,638 | ||||||
7,917 | Principal Financial Group, Inc. | 257,778 | ||||||
16,605 | Progressive Corp. (The) | 329,941 | ||||||
2,140 | Protective Life Corp. | 57,010 | ||||||
11,498 | Prudential Financial, Inc. | 675,048 | ||||||
1,809 | Reinsurance Group of America, Inc. | 97,161 | ||||||
1,357 | RenaissanceRe Holdings, Ltd. | 86,427 | ||||||
1,197 | StanCorp Financial Group, Inc. | 54,033 | ||||||
2,042 | Torchmark Corp. | 121,989 | ||||||
1,590 | Transatlantic Holdings, Inc. | 82,076 | ||||||
10,292 | Travelers Cos., Inc. (The) | 573,367 | ||||||
1,260 | Unitrin, Inc. | 30,920 | ||||||
8,239 | UnumProvident Corp. | 199,549 | ||||||
1,612 | Validus Holdings, Ltd. | 49,343 | ||||||
3,135 | W.R. Berkley Corp. | 85,836 | ||||||
31 | Wesco Financial Corp. | 11,421 | ||||||
189 | White Mountains Insurance Group, Ltd. | 63,428 | ||||||
8,011 | XL Group plc | 174,800 | ||||||
11,342,140 | ||||||||
Internet & Catalog Retail (0.2%): | ||||||||
2,981 | Expedia, Inc. | 74,793 | ||||||
14,791 | Liberty Media Corp. — Capital, Series A* | 233,254 | ||||||
308,047 | ||||||||
Internet Software & Services (0.5%): | ||||||||
17,664 | eBay, Inc.* | 491,589 | ||||||
1,251 | IAC/InterActiveCorp* | 35,904 | ||||||
18,674 | Yahoo!, Inc.* | 310,548 | ||||||
838,041 | ||||||||
IT Services (0.4%): | ||||||||
3,676 | Amdocs, Ltd.* | 100,980 | ||||||
323 | Broadridge Financial Solutions, Inc. | 7,083 | ||||||
3,818 | Computer Sciences Corp. | 189,373 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
2,481 | Convergys Corp.* | $ | 32,675 | |||||
6,535 | Fidelity National Information Services, Inc. | 178,994 | ||||||
1,256 | Fiserv, Inc.* | 73,551 | ||||||
4,021 | Total System Services, Inc. | 61,843 | ||||||
644,499 | ||||||||
Leisure Equipment & Products (0.1%): | ||||||||
3,789 | Mattel, Inc. | 96,354 | ||||||
Life Sciences Tools & Services (0.5%): | ||||||||
494 | Bio-Rad Laboratories, Inc., Class A* | 51,302 | ||||||
1,287 | Charles River Laboratories International, Inc.* | 45,740 | ||||||
1,342 | Life Technologies Corp.* | 74,481 | ||||||
1,579 | PerkinElmer, Inc. | 40,770 | ||||||
10,167 | Thermo Fisher Scientific, Inc.* | 562,845 | ||||||
775,138 | ||||||||
Machinery (1.3%): | ||||||||
2,301 | AGCO Corp.* | 116,569 | ||||||
555 | Babcock & Wilcox Co.* | 14,202 | ||||||
510 | CNH Global NV, NYS* | 24,347 | ||||||
1,244 | Crane Co. | 51,091 | ||||||
1,006 | Danaher Corp. | 47,453 | ||||||
605 | Deere & Co. | 50,245 | ||||||
1,700 | Dover Corp. | 99,365 | ||||||
3,068 | Eaton Corp. | 311,433 | ||||||
196 | Flowserve Corp. | 23,367 | ||||||
88 | Gardner Denver, Inc. | 6,056 | ||||||
1,879 | Harsco Corp. | 53,213 | ||||||
407 | IDEX Corp. | 15,922 | ||||||
7,973 | Ingersoll-Rand plc | 375,449 | ||||||
582 | Kennametal, Inc. | 22,966 | ||||||
2,859 | Parker Hannifin Corp. | 246,732 | ||||||
1,143 | Pentair, Inc. | 41,731 | ||||||
1,448 | Snap-On, Inc. | 81,928 | ||||||
994 | SPX Corp. | 71,061 | ||||||
3,972 | Stanley Black & Decker, Inc. | 265,608 | ||||||
2,704 | Terex Corp.* | 83,932 | ||||||
581 | Timken Co. | 27,731 | ||||||
1,907 | Trinity Industries, Inc. | 50,745 | ||||||
1,018 | Wabtec Corp. | 53,842 | ||||||
2,134,988 | ||||||||
Marine (0.1%): | ||||||||
1,014 | Alexander & Baldwin, Inc. | 40,591 | ||||||
1,264 | Kirby Corp.* | 55,679 | ||||||
96,270 | ||||||||
Media (4.6%): | ||||||||
2,637 | AOL, Inc.* | 62,523 | ||||||
5,828 | Cablevision Systems Corp., Class A | 197,220 | ||||||
14,834 | CBS Corp. | 282,588 | ||||||
954 | Central European Media Enterprises, Ltd., Class A* | 19,414 | ||||||
947 | Clear Channel Outdoor Holdings, Inc., Class A* | 13,296 | ||||||
69,702 | Comcast Corp., Class A | 1,531,353 | ||||||
1,891 | Discovery Communications, Inc., Class A* | 78,855 | ||||||
4,970 | DISH Network Corp., Class A* | 97,710 | ||||||
5,889 | Gannett Co., Inc. | 88,865 | ||||||
102 | John Wiley & Sons, Inc. | 4,614 | ||||||
1,117 | Lamar Advertising Co.* | 44,501 | ||||||
5,858 | Liberty Global, Inc., Class A* | 207,256 | ||||||
1,818 | Liberty Media Corp. — Capital, Series A* | 113,734 | ||||||
1,264 | Liberty Media-Starz, Series A* | 84,031 | ||||||
2,325 | McGraw-Hill Cos., Inc. (The) | 84,653 | ||||||
568 | Meredith Corp. | 19,681 | ||||||
3,367 | New York Times Co., Class A* | 32,997 | ||||||
44,781 | News Corp. | 652,011 | ||||||
1,462 | Omnicom Group, Inc. | 66,960 | ||||||
1,436 | Regal Entertainment Group, Class A | 16,859 | ||||||
6,260 | Thomson Reuters Corp. | 233,310 | ||||||
8,782 | Time Warner Cable, Inc. | 579,875 | ||||||
22,419 | Time Warner, Inc. | 721,219 | ||||||
12,081 | Viacom, Inc., Class B | 478,528 | ||||||
8,219 | Virgin Media, Inc. | 223,886 | ||||||
48,529 | Walt Disney Co. (The) | 1,820,323 | ||||||
141 | Washington Post Co. (The), Class B | 61,970 | ||||||
7,818,232 | ||||||||
Metals & Mining (0.6%): | ||||||||
2,293 | AK Steel Holding Corp. | 37,536 | ||||||
21,619 | Alcoa, Inc. | 332,716 | ||||||
2,764 | Commercial Metals Co. | 45,855 | ||||||
4,454 | Nucor Corp. | 195,174 | ||||||
1,627 | Reliance Steel & Aluminum Co. | 83,140 | ||||||
1,118 | Royal Gold, Inc. | 61,076 | ||||||
409 | Schnitzer Steel Industries, Inc. | 27,154 | ||||||
5,320 | Steel Dynamics, Inc. | 97,356 | ||||||
2,882 | United States Steel Corp. | 168,367 | ||||||
293 | Walter Energy, Inc. | 37,457 | ||||||
1,085,831 | ||||||||
Multi-Utilities (2.4%): | ||||||||
2,740 | Alliant Energy Corp. | 100,750 | ||||||
5,899 | Ameren Corp. | 166,293 | ||||||
10,413 | Centerpoint Energy, Inc. | 163,692 | ||||||
6,062 | CMS Energy Corp. | 112,753 | ||||||
6,984 | Consolidated Edison, Inc. | 346,197 | ||||||
14,766 | Dominion Resources, Inc. | 630,803 | ||||||
4,169 | DTE Energy Co. | 188,939 |
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Multi-Utilities, continued | ||||||||
1,905 | Integrys Energy Group, Inc. | $ | 92,412 | |||||
4,614 | MDU Resources Group, Inc. | 93,526 | ||||||
6,857 | NiSource, Inc. | 120,820 | ||||||
2,643 | NSTAR | 111,508 | ||||||
2,405 | OGE Energy Corp. | 109,524 | ||||||
9,717 | PG&E Corp. | 464,861 | ||||||
12,532 | Public Service Enterprise Group, Inc. | 398,643 | ||||||
2,793 | SCANA Corp. | 113,396 | ||||||
6,131 | Sempra Energy | 321,755 | ||||||
5,331 | TECO Energy, Inc. | 94,892 | ||||||
2,011 | Vectren Corp. | 51,039 | ||||||
2,894 | Wisconsin Energy Corp. | 170,341 | ||||||
11,381 | Xcel Energy, Inc. | 268,022 | ||||||
4,120,166 | ||||||||
Multiline Retail (0.3%): | ||||||||
3,947 | J.C. Penney Co., Inc. | 127,528 | ||||||
1,992 | Kohl’s Corp.* | 108,245 | ||||||
9,417 | Macy’s, Inc. | 238,250 | ||||||
1,117 | Sears Holdings Corp.* | 82,379 | ||||||
556,402 | ||||||||
Office Electronics (0.2%): | ||||||||
34,158 | Xerox Corp. | 393,500 | ||||||
585 | Zebra Technologies Corp., Class A* | 22,224 | ||||||
415,724 | ||||||||
Oil, Gas & Consumable Fuels (10.0%): | ||||||||
2,598 | Alpha Natural Resources, Inc.* | 155,958 | ||||||
12,257 | Anadarko Petroleum Corp. | 933,493 | ||||||
9,461 | Apache Corp. | 1,128,035 | ||||||
1,179 | Arch Coal, Inc. | 41,336 | ||||||
500 | Atlas Energy, Inc.* | 21,985 | ||||||
2,549 | Cabot Oil & Gas Corp. | 96,480 | ||||||
16,122 | Chesapeake Energy Corp. | 417,721 | ||||||
47,135 | Chevron Corp. | 4,301,069 | ||||||
1,768 | Cobalt International Energy, Inc.* | 21,587 | ||||||
1,172 | Comstock Resources, Inc.* | 28,784 | ||||||
22,753 | ConocoPhillips | 1,549,479 | ||||||
3,022 | Consol Energy, Inc. | 147,292 | ||||||
84 | Continental Resources, Inc.* | 4,943 | ||||||
9,884 | Denbury Resources, Inc.* | 188,686 | ||||||
11,072 | Devon Energy Corp. | 869,263 | ||||||
14,217 | El Paso Corp. | 195,626 | ||||||
10,227 | Exxon Mobil Corp. | 747,798 | ||||||
991 | Forest Oil Corp.* | 37,628 | ||||||
2,610 | Frontier Oil Corp.* | 47,006 | ||||||
259 | Frontline, Ltd. | 6,571 | ||||||
7,397 | Hess Corp. | 566,166 | ||||||
357 | Holly Corp. | 14,555 | ||||||
12,882 | Marathon Oil Corp. | 477,020 | ||||||
2,524 | Massey Energy Co. | 135,413 | ||||||
4,183 | Murphy Oil Corp. | 311,843 | ||||||
3,303 | Newfield Exploration Co.* | 238,179 | ||||||
4,325 | Noble Energy, Inc. | 372,296 | ||||||
16,038 | Occidental Petroleum Corp. | 1,573,328 | ||||||
6,658 | Peabody Energy Corp. | 425,979 | ||||||
2,162 | Petrohawk Energy Corp.* | 39,457 | ||||||
2,871 | Pioneer Natural Resources Co. | 249,260 | ||||||
3,466 | Plains Exploration & Production Co.* | 111,397 | ||||||
2,731 | Quicksilver Resources, Inc.* | 40,255 | ||||||
3,813 | SandRidge Energy, Inc.* | 27,911 | ||||||
511 | SM Energy Co. | 30,113 | ||||||
3,077 | Southern Union Co. | 74,063 | ||||||
16,050 | Spectra Energy Corp. | 401,090 | ||||||
2,997 | Sunoco, Inc. | 120,809 | ||||||
1,046 | Teekay Shipping Corp. | 34,602 | ||||||
3,569 | Tesoro Corp.* | 66,169 | ||||||
14,004 | Valero Energy Corp. | 323,773 | ||||||
1,347 | Whiting Petroleum Corp.* | 157,855 | ||||||
8,506 | Williams Cos., Inc. (The) | 210,268 | ||||||
16,942,541 | ||||||||
Paper & Forest Products (0.3%): | ||||||||
1,053 | Domtar Corp. | 79,944 | ||||||
2,381 | International Paper Co. | 64,859 | ||||||
4,227 | MeadWestvaco Corp. | 110,578 | ||||||
13,256 | Weyerhaeuser Co. | 250,936 | ||||||
506,317 | ||||||||
Personal Products (0.2%): | ||||||||
1,660 | Alberto-Culver Co. | 61,486 | ||||||
4,371 | Mead Johnson Nutrition Co., Class A | 272,095 | ||||||
333,581 | ||||||||
Pharmaceuticals (7.4%): | ||||||||
3,745 | Abbott Laboratories | 179,423 | ||||||
42,607 | Bristol-Myers Squibb Co. | 1,128,233 | ||||||
19,401 | Eli Lilly & Co. | 679,811 | ||||||
2,902 | Endo Pharmaceuticals Holdings, Inc.* | 103,630 | ||||||
7,070 | Forest Laboratories, Inc.* | 226,099 | ||||||
58,091 | Johnson & Johnson Co. | 3,592,928 | ||||||
5,975 | King Pharmaceuticals, Inc.* | 83,949 | ||||||
77,266 | Merck & Co., Inc. | 2,784,667 | ||||||
1,704 | Mylan, Inc.* | 36,006 | ||||||
199,871 | Pfizer, Inc. | 3,499,741 | ||||||
862 | Symetra Financial Corp. | 11,809 | ||||||
2,765 | Watson Pharmaceuticals, Inc.* | 142,812 | ||||||
12,469,108 | ||||||||
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Professional Services (0.2%): | ||||||||
3,157 | Equifax, Inc. | $ | 112,389 | |||||
224 | FTI Consulting, Inc.* | 8,351 | ||||||
2,008 | Manpower, Inc. | 126,022 | ||||||
1,593 | Monster Worldwide, Inc.* | 37,643 | ||||||
919 | Towers Watson & Co., Class A | 47,843 | ||||||
332,248 | ||||||||
Real Estate Investment Trusts (REITs) (3.1%): | ||||||||
1,356 | Alexandria Real Estate Equities, Inc. | 99,341 | ||||||
3,774 | AMB Property Corp. | 119,674 | ||||||
15,349 | Annaly Capital Management, Inc. | 275,054 | ||||||
1,455 | Apartment Investment & Management Co., Class A | 37,597 | ||||||
2,055 | Avalonbay Communities, Inc. | 231,290 | ||||||
3,443 | Boston Properties, Inc. | 296,442 | ||||||
3,351 | Brandywine Realty Trust | 39,039 | ||||||
1,594 | BRE Properties, Inc. | 69,339 | ||||||
1,622 | Camden Property Trust | 87,556 | ||||||
24,988 | Chimera Investment Corp. | 102,701 | ||||||
1,827 | CommonWealth REIT | 46,607 | ||||||
1,460 | Corporate Office Properties Trust | 51,027 | ||||||
4,889 | Developers Diversified Realty Corp. | 68,886 | ||||||
112 | Digital Realty Trust, Inc. | 5,772 | ||||||
3,052 | Douglas Emmett, Inc. | 50,663 | ||||||
6,284 | Duke Realty Corp. | 78,299 | ||||||
6,559 | Equity Residential Property Trust | 340,740 | ||||||
460 | Essex Property Trust, Inc. | 52,541 | ||||||
619 | Federal Realty Investment Trust | 48,239 | ||||||
1,067 | General Growth Properties, Inc. | 16,517 | ||||||
7,678 | HCP, Inc. | 282,474 | ||||||
3,631 | Health Care REIT, Inc. | 172,981 | ||||||
3,050 | Hospitality Properties Trust | 70,272 | ||||||
16,300 | Host Hotels & Resorts, Inc. | 291,281 | ||||||
10,041 | Kimco Realty Corp. | 181,140 | ||||||
2,800 | Liberty Property Trust | 89,376 | ||||||
3,211 | Macerich Co. (The) | 152,105 | ||||||
1,959 | Mack-Cali Realty Corp. | 64,765 | ||||||
2,964 | Nationwide Health Properties, Inc. | 107,830 | ||||||
1,330 | Piedmont Office Realty Trust, Inc., Class A | 26,786 | ||||||
2,285 | Plum Creek Timber Co., Inc. | 85,573 | ||||||
13,229 | ProLogis Trust | 191,027 | ||||||
323 | Public Storage, Inc. | 32,759 | ||||||
1,395 | Rayonier, Inc. | 73,265 | ||||||
2,738 | Realty Income Corp. | 93,640 | ||||||
2,008 | Regency Centers Corp. | 84,818 | ||||||
3,516 | Senior Housing Properties Trust | 77,141 | ||||||
2,233 | Simon Property Group, Inc. | 222,161 | ||||||
1,932 | SL Green Realty Corp. | 130,429 | ||||||
1,355 | Taubman Centers, Inc. | 68,400 | ||||||
4,202 | UDR, Inc. | 98,831 | ||||||
2,826 | Ventas, Inc. | 148,308 | ||||||
3,641 | Vornado Realty Trust | 303,404 | ||||||
3,016 | Weingarten Realty Investors | 71,660 | ||||||
5,237,750 | ||||||||
Real Estate Management & Development (0.0%): | ||||||||
3,221 | Forest City Enterprises, Inc., Class A* | 53,759 | ||||||
105 | Howard Hughes Corp. (The)* | 5,714 | ||||||
260 | St. Joe Co. (The)* | 5,681 | ||||||
65,154 | ||||||||
Road & Rail (1.4%): | ||||||||
1,222 | Con-way, Inc. | 44,689 | ||||||
9,642 | CSX Corp. | 622,970 | ||||||
697 | Hertz Global Holdings, Inc.* | 10,099 | ||||||
1,022 | Kansas City Southern Industries, Inc.* | 48,913 | ||||||
9,167 | Norfolk Southern Corp. | 575,871 | ||||||
619 | Ryder System, Inc. | 32,584 | ||||||
10,972 | Union Pacific Corp. | 1,016,665 | ||||||
2,351,791 | ||||||||
Semiconductors & Semiconductor Equipment (1.3%): | ||||||||
9,160 | Advanced Micro Devices, Inc.* | 74,929 | ||||||
1,154 | Atmel Corp.* | 14,217 | ||||||
3,102 | Fairchild Semiconductor | |||||||
International, Inc.* | 48,422 | |||||||
43,561 | Intel Corp. | 916,088 | ||||||
1,745 | International Rectifier Corp.* | 51,809 | ||||||
2,067 | Intersil Corp., Class A | 31,563 | ||||||
3,976 | KLA-Tencor Corp. | 153,633 | ||||||
16,159 | LSI Logic Corp.* | 96,792 | ||||||
3,397 | MEMC Electronic Materials, Inc.* | 38,250 | ||||||
21,179 | Micron Technology, Inc.* | 169,856 | ||||||
558 | National Semiconductor Corp. | 7,678 | ||||||
274 | Novellus Systems, Inc.* | 8,856 | ||||||
5,191 | PMC-Sierra, Inc.* | 44,591 | ||||||
16,562 | Texas Instruments, Inc. | 538,265 | ||||||
2,194,949 | ||||||||
Software (1.4%): | ||||||||
9,438 | Activision Blizzard, Inc. | 117,409 | ||||||
1,766 | CA, Inc. | 43,161 | ||||||
2,496 | Compuware Corp.* | 29,128 | ||||||
512 | Electronic Arts, Inc.* | 8,387 | ||||||
62,819 | Microsoft Corp. | 1,753,906 | ||||||
8,696 | Novell, Inc.* | 51,480 | ||||||
17,925 | Symantec Corp.* | 300,065 | ||||||
3,475 | Synopsys, Inc.* | 93,512 | ||||||
2,397,048 | ||||||||
12
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail (0.4%): | ||||||||
532 | Abercrombie & Fitch Co., Class A | $ | 30,659 | |||||
3,689 | American Eagle Outfitters, Inc. | 53,970 | ||||||
1,085 | AutoNation, Inc.* | 30,597 | ||||||
3,874 | Foot Locker, Inc. | 76,008 | ||||||
3,779 | GameStop Corp., Class A* | 86,464 | ||||||
1,271 | Gap, Inc. (The) | 28,140 | ||||||
8,503 | Lowe’s Cos., Inc. | 213,255 | ||||||
6,378 | Office Depot, Inc.* | 34,441 | ||||||
2,745 | RadioShack Corp. | 50,755 | ||||||
889 | Sherwin Williams Co. | 74,454 | ||||||
2,138 | Signet Jewelers, Ltd.* | 92,789 | ||||||
771,532 | ||||||||
Textiles, Apparel & Luxury Goods (0.1%): | ||||||||
2,181 | V.F. Corp. | 187,959 | ||||||
Thrifts & Mortgage Finance (0.4%): | ||||||||
998 | Capitol Federal Financial, Inc. | 11,890 | ||||||
5,166 | First Niagara Financial Group, Inc. | 72,221 | ||||||
10,706 | Hudson City Bancorp, Inc. | 136,394 | ||||||
10,780 | New York Community Bancorp, Inc. | 203,203 | ||||||
9,294 | People’s United Financial, Inc. | 130,209 | ||||||
2,013 | TFS Financial Corp. | 18,157 | ||||||
2,839 | Washington Federal, Inc. | 48,036 | ||||||
620,110 | ||||||||
Tobacco (0.9%): | ||||||||
21,513 | Altria Group, Inc. | 529,650 | ||||||
3,786 | Lorillard, Inc. | 310,679 | ||||||
7,248 | Philip Morris International, Inc. | 424,225 | ||||||
8,314 | Reynolds American, Inc. | 271,203 | ||||||
1,535,757 | ||||||||
Trading Companies & Distributors (0.0%): | ||||||||
850 | GATX Corp. | 29,988 | ||||||
712 | WESCO International, Inc.* | 37,594 | ||||||
67,582 | ||||||||
Water Utilities (0.1%): | ||||||||
4,360 | American Water Works Co., Inc. | 110,265 | ||||||
3,386 | Aqua America, Inc. | 76,117 | ||||||
186,382 | ||||||||
Wireless Telecommunication Services (0.3%): | ||||||||
1,417 | Leap Wireless International, Inc.* | 17,372 | ||||||
3,238 | MetroPCS Communications, Inc.* | 40,896 | ||||||
866 | NII Holdings, Inc.* | 38,676 | ||||||
72,938 | Sprint Nextel Corp.* | 308,528 | ||||||
2,097 | Telephone and Data Systems, Inc. | 76,645 | ||||||
399 | United States Cellular Corp.* | 19,926 | ||||||
502,043 | ||||||||
Total Common Stocks (Cost $149,857,673) | 160,061,478 | |||||||
Fair | ||||||||
Shares | Value | |||||||
Exchange Traded Fund (1.8%): | ||||||||
24,457 | SPDR S&P 500 ETF Trust, Series 1 | $ | 3,076,201 | |||||
Total Exchange Traded Fund (Cost $2,857,880) | 3,076,201 | |||||||
Investment Company (3.2%): | ||||||||
5,360,767 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 5,360,767 | ||||||
Total Investment Company (Cost $5,360,767) | 5,360,767 | |||||||
Total Investment Securities (Cost $158,076,320)(b) — 99.7% | 168,498,446 | |||||||
Net other assets (liabilities) — 0.3% | 576,082 | |||||||
Net Assets — 100.0% | $ | 169,074,528 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security |
NYS—New York Shares
plc — Public Limited Company
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
13
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Futures Contracts
Cash of $512,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2010:
Unrealized | ||||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/18/11 | 95 | $ | 5,951,750 | $ | 107,656 |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Bermuda | 0.7 | % | ||
British Virgin Islands | — | ^ | ||
Canada | 0.1 | |||
Greece | — | ^ | ||
Guernsey | 0.1 | |||
Ireland (Republic of) | 0.4 | |||
Liberia | 0.1 | |||
Netherlands | 0.3 | |||
Panama | 0.2 | |||
Switzerland | 0.7 | |||
United Kingdom | 0.1 | |||
United States | 97.3 | |||
100.0 | % | |||
^ | Represents less than 0.05%. |
14
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Russell | ||||
1000 Value | ||||
Index Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 158,076,320 | ||
Investment securities, at value | $ | 168,498,446 | ||
Dividends receivable | 254,101 | |||
Segregated cash for collateral | 512,000 | |||
Receivable for capital shares issued | 97,306 | |||
Reclaims receivable | 170 | |||
Prepaid expenses | 2,510 | |||
Total Assets | 169,364,533 | |||
Liabilities: | ||||
Cash overdraft | 115,000 | |||
Payable for capital shares redeemed | 25,379 | |||
Payable for variation margin on futures contracts | 6,980 | |||
Manager fees payable | 61,355 | |||
Administration fees payable | 6,982 | |||
Distribution fees payable | 34,861 | |||
Custodian fees payable | 3,272 | |||
Administrative and compliance services fees payable | 1,445 | |||
Trustee fees payable | 289 | |||
Other accrued liabilities | 34,442 | |||
Total Liabilities | 290,005 | |||
Net Assets | $ | 169,074,528 | ||
Net Assets Consist of: | ||||
Capital | $ | 160,168,679 | ||
Accumulated net investment income/(loss) | 1,681,349 | |||
Accumulated net realized gains/(losses) from investment transactions | (3,305,282 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 10,529,782 | |||
Net Assets | $ | 169,074,528 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 16,114,151 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.49 | ||
15
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Statement of Operations
For the Period Ended December 31, 2010
AZL Russell | ||||
1000 Value | ||||
Index Fund(a) | ||||
Investment Income: | ||||
Interest | $ | 111 | ||
Dividends | 2,400,548 | |||
Foreign withholding tax | (514 | ) | ||
Total Investment Income | 2,400,145 | |||
Expenses: | ||||
Manager fees | 420,155 | |||
Administration fees | 50,558 | |||
Distribution fees | 238,724 | |||
Custodian fees | 20,039 | |||
Administrative and compliance services fees | 3,482 | |||
Trustees’ fees | 8,590 | |||
Professional fees | 14,908 | |||
Shareholder reports | 13,440 | |||
Other expenses | 28,335 | |||
Total expenses | 798,231 | |||
Net Investment Income/(Loss) | 1,601,914 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | (3,709,858 | ) | ||
Net realized gains/(losses) on futures transactions | 404,576 | |||
Change in unrealized appreciation/(depreciation) on investments | 10,529,782 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 7,224,500 | |||
Change in Net Assets Resulting From Operations | $ | 8,826,414 | ||
(a) | For the period April 30, 2010 (commencement of operations) to December 31, 2010. |
16
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Statement of Changes in Net Assets
AZL Russell 1000 | ||||
Value Index Fund | ||||
April 30, 2010 to | ||||
December 31, | ||||
2010(a) | ||||
Change in Net Assets: | ||||
Operations: | ||||
Net investment income/(loss) | $ | 1,601,914 | ||
Net realized gains/(losses) on investment transactions | (3,305,282 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | 10,529,782 | |||
Change in net assets resulting from operations | 8,826,414 | |||
Capital Transactions: | ||||
Proceeds from shares issued | 171,771,753 | |||
Value of shares redeemed | (11,523,639 | ) | ||
Change in net assets resulting from capital transactions | 160,248,114 | |||
Change in net assets | 169,074,528 | |||
Net Assets: | ||||
Beginning of period | — | |||
End of period | $ | 169,074,528 | ||
Accumulated net investment income/(loss) | $ | 1,681,349 | ||
Share Transactions: | ||||
Shares issued | 17,340,982 | |||
Shares redeemed | (1,226,831 | ) | ||
Change in shares | 16,114,151 | |||
(a) | Period from commencement of operations. |
17
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the period indicated)
April 30, 2010 to | ||||
December 31, | ||||
2010(a) | ||||
Net Asset Value, Beginning of Period | $ | 10.00 | ||
Investment Activities: | ||||
Net Investment Income/(Loss) | 0.10 | |||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.39 | |||
Total from Investment Activities | 0.49 | |||
Net Asset Value, End of Period | $ | 10.49 | ||
Total Return(b)(c) | 4.90 | % | ||
Ratios to Average Net Assets/Supplemental Data: | ||||
Net Assets, End of Period ($000’s) | $ | 169,075 | ||
Net Investment Income/(Loss)(d) | 1.68 | % | ||
Expenses Before Reductions(d)(e) | 0.84 | % | ||
Expenses Net of Reductions(d) | 0.84 | % | ||
Portfolio Turnover Rate(c) | 24.70 | % |
(a) | Period from commencement of operations. | |
(b) | The return includes reinvested dividends and fund level expenses, but excludes insurance contract charges. If these charges were included, the return would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
18
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Russell 1000 Value Index Fund (the “Fund”), which commenced operations on April 30, 2010. The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the period ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the period ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the period ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $5.8 million as of December 31, 2010. The monthly average notional amount for these contracts was $4.6 million for the period ended December 31, 2010.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 107,656 | Payable for variation margin on futures contracts | $ | — |
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the period ended December 31, 2010:
Realized Gain/ | Change in Unrealized | |||||||||
(Loss) on | Appreciation/ | |||||||||
Location of Gain/(Loss) | Derivatives | (Depreciation) on | ||||||||
on Derivatives | Recognized | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | $ | 404,576 | $ | 107,656 |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective April 30, 2010, between the Manager and BlackRock Investment Management LLC (“BlackRock Investment”), BlackRock Investment provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.84%.
For the period ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Russell 1000 Value Index Fund | 0.44 | % | 0.84 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations. During the period ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the period ended December 31, 2010, $2,106 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the period ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the period ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 160,061,478 | $ | — | $ | — | $ | 160,061,478 | ||||||||
Exchange Traded Fund | 3,076,201 | — | — | 3,076,201 | ||||||||||||
Investment Company | 5,360,767 | — | — | 5,360,767 | ||||||||||||
Total Investment Securities | 168,498,446 | — | — | 168,498,446 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 107,656 | — | — | 107,656 | ||||||||||||
Total Investments | $ | 168,606,102 | $ | — | $ | — | $ | 168,606,102 | ||||||||
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the period April 30, 2010 through December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Russell 1000 Value Index Fund | $ | 190,646,606 | $ | 34,221,029 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $158,332,644. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 13,460,116 | ||
Unrealized depreciation | (3,294,314 | ) | ||
Net unrealized appreciation | $ | 10,165,802 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | ||||
12/31/2018 | ||||
AZL Russell 1000 Value Index Fund | $ | 2,893,450 |
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
25
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Russell 1000 Value Index Fund
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||||
AZL Russell 1000 Value Index Fund | $ | 1,633,497 | $ | (2,893,450 | ) | $ | 10,165,802 | $ | 8,905,849 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
26
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Russell 1000 Value Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statements of operations and changes in net assets, and the financial highlights for the period April 30, 2010 to December 31, 2010. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 the Fund as of December 31, 2010, the results of its operations, the changes in its net assets, and the financial highlights for the period April 30, 2010 to December 31, 2010, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
29
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
30
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
31
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
32
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
33
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
34
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® S&P 500 Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 13
Page 13
Statement of Operations
Page 14
Page 14
Statements of Changes in Net Assets
Page 15
Page 15
Financial Highlights
Page 16
Page 16
Notes to the Financial Statements
Page 18
Page 18
Report of Independent Registered Public Accounting Firm
Page 26
Page 26
Other Federal Income Tax Information
Page 27
Page 27
Other Information
Page 28
Page 28
Approval of Investment Advisory and Subadvisory Agreements
Page 29
Page 29
Information about the Board of Trustees and Officers
Page 33
Page 33
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® S&P 500 Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® S&P 500 Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® S&P 500 Index Fund (Class 2 Shares) returned 14.57%. That compared to a 15.06% total return for its benchmark, the S&P 500® Index1.
The Fund attempts to replicate the performance of the S&P 500® Index of large-cap U.S. stocks. The 12-month period began with U.S. stocks performing well, aided by preliminary signs of improvement in U.S. unemployment figures and strong corporate earnings. Stocks suffered a setback midway through the period, however, due in large part to fallout from the European sovereign debt crisis and a stalled job market in the U.S. Those factors led to fears of a “double-dip” recession.
Those fears receded later in the period as the U.S. job market started growing and the midterm election results were seen by investors as good news for the capital markets. Equities rebounded in that environment and finished the 12-month period with strong returns.
The strongest-performing sectors during the period included consumer discretionary, industrials and materials. The health care sector was the weakest performing sector during the period, but still managed to contribute positive returns. Other relatively weak-performing sectors included utilities and information technology.*
The underperformance of the Fund against its benchmark was the result of Fund expenses that are not reflected in the Index.
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Standard & Poor’s 500® Index (“S&P 500® Index”) is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® S&P 500 Index Fund Review
Fund Objective
The Fund’s investment objective is to seek to match the total return of the Standard & Poor’s 500 Composite Stock Price Index (the “Index”). This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in all 500 stocks in the Index in proportion to their weighting in the Index.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
The Fund does not attempt to manage market volatility or reduce the effects of poor stock performance. In addition, factors such as Fund expenses, selection of a representative portfolio, changes in the composition of the index, or the timing of purchases or redemptions of Fund shares may affect the correlation between the performance of the index and the Fund’s performance.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Inception | 1 | 3 | Since | |||||||||||||
Date | Year | Year | Inception | |||||||||||||
AZL® S&P 500 Index Fund (Class 1 Shares) | 5/14/07 | 14.75 | % | -3.38 | % | -3.19 | % | |||||||||
AZL® S&P 500 Index Fund (Class 2 Shares) | 5/1/07 | 14.57 | % | -3.60 | % | -3.01 | % | |||||||||
S&P 500® Index | 5/1/07 | 15.06 | % | -2.86 | % | -2.31 | % | |||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® S&P 500 Index Fund (Class 1 Shares) | 0.29 | % | ||
AZL® S&P 500 Index Fund (Class 2 Shares) | 0.54 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.24% for Class 1 Shares and 0.49% for Class 2 Shares through April 30, 2011 and 0.46% for Class 1 Shares and 0.71% for Class 2 Shares effective May 1, 2011 through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Standard & Poor’s 500® Index (“S&P 500® Index”), which is an unmanaged index that is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL S&P 500 Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||||
AZL S&P 500 Index Fund | Class 1 | $ | 1,000.00 | $ | 1,230.50 | $ | 1.35 | 0.24% | ||||||||||
Class 2 | 1,000.00 | 1,230.70 | 2.76 | 0.49% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||||
AZL S&P 500 Index Fund | Class 1 | $ | 1,000.00 | $ | 1,024.00 | $ | 1.22 | 0.24% | ||||||||||
Class 2 | 1,000.00 | 1,022.74 | 2.50 | 0.49% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL S&P 500 Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 2.6 | % | ||
Air Freight & Logistics | 1.1 | |||
Airlines | 0.1 | |||
Auto Components | 0.3 | |||
Automobiles | 0.6 | |||
Beverages | 2.5 | |||
Biotechnology | 1.3 | |||
Building Products | — | ^ | ||
Capital Markets | 2.5 | |||
Chemicals | 2.0 | |||
Commercial Banks | 2.9 | |||
Commercial Services & Supplies | 0.5 | |||
Communications Equipment | 2.2 | |||
Computers & Peripherals | 5.9 | |||
Construction & Engineering | 0.2 | |||
Construction Materials | — | ^ | ||
Consumer Finance | 0.7 | |||
Containers & Packaging | 0.2 | |||
Distributors | 0.1 | |||
Diversified Consumer Services | 0.1 | |||
Diversified Financial Services | 4.2 | |||
Diversified Telecommunication Services | 2.7 | |||
Electric Utilities | 1.7 | |||
Electrical Equipment | 0.6 | |||
Electronic Equipment, Instruments & Components | 0.7 | |||
Energy Equipment & Services | 2.1 | |||
Food & Staples Retailing | 2.3 | |||
Food Products | 1.6 | |||
Gas Utilities | 0.2 | |||
Health Care Equipment & Supplies | 1.6 | |||
Health Care Providers & Services | 1.9 | |||
Health Care Technology | 0.1 | |||
Hotels, Restaurants & Leisure | 1.7 | |||
Household Durables | 0.3 | |||
Household Products | 2.2 | |||
Independent Power Producers & Energy Traders | 0.2 | |||
Industrial Conglomerates | 2.2 | |||
Insurance | 3.8 | |||
Internet & Catalog Retail | 0.8 | |||
Internet Software & Services | 1.8 | |||
IT Services | 1.3 | |||
Leisure Equipment & Products | 0.1 | |||
Life Sciences Tools & Services | 0.4 | |||
Machinery | 2.3 | |||
Media | 3.0 | |||
Metals & Mining | 1.2 | |||
Multi-Utilities | 1.2 | |||
Multiline Retail | 0.8 | |||
Office Electronics | 0.1 | |||
Oil, Gas & Consumable Fuels | 9.5 | |||
Paper & Forest Products | 0.2 | |||
Personal Products | 0.3 | |||
Pharmaceuticals | 5.3 | |||
Professional Services | 0.1 | |||
Real Estate Investment Trusts (REITs) | 1.3 | |||
Real Estate Management & Development | 0.1 | |||
Road & Rail | 0.8 | |||
Semiconductors & Semiconductor Equipment | 2.4 | |||
Software | 3.9 | |||
Specialty Retail | 1.9 | |||
Textiles, Apparel & Luxury Goods | 0.5 | |||
Thrifts & Mortgage Finance | 0.1 | |||
Tobacco | 1.5 | |||
Trading Companies & Distributors | 0.1 | |||
Wireless Telecommunication Services | 0.3 | |||
Investment Company | 2.5 | |||
99.7 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
^ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (97.2%): | ||||||||
Aerospace & Defense (2.6%): | ||||||||
38,044 | Boeing Co. (The) | $ | 2,482,752 | |||||
19,589 | General Dynamics Corp. | 1,390,035 | ||||||
6,500 | Goodrich Corp. | 572,455 | ||||||
40,460 | Honeywell International, Inc. | 2,150,854 | ||||||
9,518 | ITT Industries, Inc. | 495,983 | ||||||
5,882 | L-3 Communications Holdings, Inc. | 414,622 | ||||||
15,313 | Lockheed Martin Corp. | 1,070,532 | ||||||
15,141 | Northrop Grumman Corp. | 980,834 | ||||||
7,396 | Precision Castparts Corp. | 1,029,597 | ||||||
18,992 | Raytheon Co. | 880,089 | ||||||
8,131 | Rockwell Collins, Inc. | 473,712 | ||||||
47,890 | United Technologies Corp. | 3,769,901 | ||||||
15,711,366 | ||||||||
Air Freight & Logistics (1.1%): | ||||||||
8,608 | C.H. Robinson Worldwide, Inc. | 690,276 | ||||||
11,010 | Expeditors International of Washington, Inc. | 601,146 | ||||||
16,317 | FedEx Corp. | 1,517,644 | ||||||
51,288 | United Parcel Service, Inc., Class B | 3,722,483 | ||||||
6,531,549 | ||||||||
Airlines (0.1%): | ||||||||
38,732 | Southwest Airlines Co. | 502,741 | ||||||
Auto Components (0.3%): | ||||||||
12,615 | Goodyear Tire & Rubber Co.* | 149,488 | ||||||
34,971 | Johnson Controls, Inc. | 1,335,892 | ||||||
7,239 | O’Reilly Automotive, Inc.* | 437,380 | ||||||
1,922,760 | ||||||||
Automobiles (0.6%): | ||||||||
194,307 | Ford Motor Co.* | 3,262,414 | ||||||
12,210 | Harley-Davidson, Inc. | 423,321 | ||||||
3,685,735 | ||||||||
Beverages (2.5%): | ||||||||
5,380 | Brown-Forman Corp., Class B | 374,556 | ||||||
120,428 | Coca-Cola Co. (The) | 7,920,549 | ||||||
17,563 | Coca-Cola Enterprises, Inc. | 439,602 | ||||||
9,285 | Constellation Brands, Inc.* | 205,663 | ||||||
11,935 | Dr Pepper Snapple Group, Inc. | 419,635 | ||||||
8,201 | Molson Coors Brewing Co. | 411,608 | ||||||
82,194 | PepsiCo, Inc. | 5,369,734 | ||||||
15,141,347 | ||||||||
Biotechnology (1.3%): | ||||||||
48,999 | Amgen, Inc.* | 2,690,045 | ||||||
12,356 | Biogen, Inc.* | 828,470 | ||||||
24,406 | Celgene Corp.* | 1,443,371 | ||||||
3,899 | Cephalon, Inc.* | 240,646 | ||||||
13,430 | Genzyme Corp.* | 956,216 | ||||||
42,261 | Gilead Sciences, Inc.* | 1,531,539 | ||||||
7,690,287 | ||||||||
Building Products (0.0%): | ||||||||
18,647 | Masco Corp. | 236,071 | ||||||
Capital Markets (2.5%): | ||||||||
12,857 | Ameriprise Financial, Inc. | 739,920 | ||||||
64,329 | Bank of New York Mellon Corp. | 1,942,736 | ||||||
51,423 | Charles Schwab Corp. | 879,848 | ||||||
10,308 | E*TRADE Financial Corp.* | 164,928 | ||||||
4,743 | Federated Investors, Inc. | 124,124 | ||||||
7,550 | Franklin Resources, Inc. | 839,636 | ||||||
26,515 | Goldman Sachs Group, Inc. | 4,458,762 | ||||||
23,985 | Invesco, Ltd. | 577,079 | ||||||
9,441 | Janus Capital Group, Inc. | 122,450 | ||||||
7,980 | Legg Mason, Inc. | 289,435 | ||||||
78,457 | Morgan Stanley | 2,134,815 | ||||||
12,558 | Northern Trust Corp. | 695,839 | ||||||
26,033 | State Street Corp. | 1,206,369 | ||||||
13,297 | T. Rowe Price Group, Inc. | 858,188 | ||||||
15,034,129 | ||||||||
Chemicals (2.0%): | ||||||||
11,112 | Air Products & Chemicals, Inc. | 1,010,637 | ||||||
3,878 | Airgas, Inc. | 242,220 | ||||||
3,688 | CF Industries Holdings, Inc. | 498,433 | ||||||
60,194 | Dow Chemical Co. (The) | 2,055,023 | ||||||
47,343 | E.I. du Pont de Nemours & Co. | 2,361,469 | ||||||
3,738 | Eastman Chemical Co. | 314,291 | ||||||
12,036 | Ecolab, Inc. | 606,855 | ||||||
3,760 | FMC Corp. | 300,386 | ||||||
4,156 | International Flavor & Fragrances, Inc. | 231,032 | ||||||
27,817 | Monsanto Co. | 1,937,176 | ||||||
8,452 | PPG Industries, Inc. | 710,560 | ||||||
15,889 | Praxair, Inc. | 1,516,923 | ||||||
6,288 | Sigma Aldrich Corp. | 418,529 | ||||||
12,203,534 | ||||||||
Commercial Banks (2.9%): | ||||||||
35,972 | BB&T Corp. | 945,704 | ||||||
9,149 | Comerica, Inc. | 386,454 | ||||||
41,284 | Fifth Third Bancorp | 606,049 | ||||||
12,376 | First Horizon National Corp.* | 145,789 | ||||||
44,770 | Huntington Bancshares, Inc. | 307,570 | ||||||
45,641 | KeyCorp | 403,923 | ||||||
6,189 | M&T Bank Corp. | 538,752 | ||||||
27,046 | Marshall & Ilsley Corp. | 187,158 | ||||||
27,267 | PNC Financial Services Group, Inc. | 1,655,652 | ||||||
65,113 | Regions Financial Corp. | 455,791 | ||||||
25,922 | SunTrust Banks, Inc. | 764,958 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Commercial Banks, continued | ||||||||
99,484 | U.S. Bancorp | $ | 2,683,083 | |||||
272,218 | Wells Fargo & Co. | 8,436,036 | ||||||
9,221 | Zions Bancorp | 223,425 | ||||||
17,740,344 | ||||||||
Commercial Services & Supplies (0.5%): | ||||||||
5,591 | Avery Dennison Corp. | 236,723 | ||||||
6,358 | Cintas Corp. | 177,770 | ||||||
10,437 | Iron Mountain, Inc. | 261,029 | ||||||
10,491 | Pitney Bowes, Inc. | 253,672 | ||||||
10,802 | R.R. Donnelley & Sons Co. | 188,711 | ||||||
15,936 | Republic Services, Inc. | 475,849 | ||||||
4,433 | Stericycle, Inc.* | 358,718 | ||||||
24,672 | Waste Management, Inc. | 909,657 | ||||||
2,862,129 | ||||||||
Communications Equipment (2.2%): | ||||||||
287,769 | Cisco Systems, Inc.*† | 5,821,567 | ||||||
4,192 | F5 Networks, Inc.* | 545,631 | ||||||
6,657 | Harris Corp. | 301,562 | ||||||
11,664 | JDS Uniphase Corp.* | 168,895 | ||||||
27,130 | Juniper Networks, Inc.* | 1,001,639 | ||||||
121,827 | Motorola, Inc.* | 1,104,971 | ||||||
83,898 | QUALCOMM, Inc. | 4,152,112 | ||||||
19,148 | Tellabs, Inc. | 129,823 | ||||||
13,226,200 | ||||||||
Computers & Peripherals (5.9%): | ||||||||
47,576 | Apple Computer, Inc.* | 15,346,114 | ||||||
87,084 | Dell, Inc.* | 1,179,988 | ||||||
106,853 | EMC Corp.* | 2,446,934 | ||||||
117,611 | Hewlett-Packard Co. | 4,951,423 | ||||||
64,434 | International Business Machines Corp. | 9,456,334 | ||||||
4,030 | Lexmark International, Inc.* | 140,325 | ||||||
18,741 | NetApp, Inc.* | 1,030,005 | ||||||
5,529 | QLogic Corp.* | 94,104 | ||||||
12,158 | SanDisk Corp.* | 606,198 | ||||||
8,683 | Teradata Corp.* | 357,392 | ||||||
11,912 | Western Digital Corp.* | 403,817 | ||||||
36,012,634 | ||||||||
Construction & Engineering (0.2%): | ||||||||
9,270 | Fluor Corp. | 614,230 | ||||||
6,535 | Jacobs Engineering Group, Inc.* | 299,630 | ||||||
11,167 | Quanta Services, Inc.* | 222,447 | ||||||
1,136,307 | ||||||||
Construction Materials (0.0%): | ||||||||
6,655 | Vulcan Materials Co. | 295,216 | ||||||
Consumer Finance (0.7%): | ||||||||
54,312 | American Express Co. | 2,331,071 | ||||||
23,693 | Capital One Financial Corp. | 1,008,374 | ||||||
28,234 | Discover Financial Services | 523,176 | ||||||
25,168 | SLM Corp.* | 316,865 | ||||||
4,179,486 | ||||||||
Containers & Packaging (0.2%): | ||||||||
4,647 | Ball Corp. | 316,228 | ||||||
5,584 | Bemis Co., Inc. | 182,373 | ||||||
8,480 | Owens-Illinois, Inc.* | 260,336 | ||||||
8,341 | Sealed Air Corp. | 212,279 | ||||||
971,216 | ||||||||
Distributors (0.1%): | ||||||||
8,167 | Genuine Parts Co. | 419,294 | ||||||
Diversified Consumer Services (0.1%): | ||||||||
6,587 | Apollo Group, Inc., Class A* | 260,121 | ||||||
3,232 | DeVry, Inc. | 155,071 | ||||||
16,035 | H&R Block, Inc. | 190,977 | ||||||
606,169 | ||||||||
Diversified Financial Services (4.2%): | ||||||||
523,046 | Bank of America Corp. | 6,977,434 | ||||||
1,506,630 | Citigroup, Inc.* | 7,126,360 | ||||||
3,476 | CME Group, Inc. | 1,118,403 | ||||||
3,802 | Intercontinental Exchange, Inc.* | 453,008 | ||||||
202,743 | JPMorgan Chase & Co. | 8,600,358 | ||||||
10,215 | Leucadia National Corp. | 298,074 | ||||||
10,560 | Moody’s Corp. | 280,262 | ||||||
7,387 | NASDAQ OMX Group, Inc. (The)* | 175,146 | ||||||
13,530 | NYSE Euronext | 405,629 | ||||||
25,434,674 | ||||||||
Diversified Telecommunication Services (2.7%): | ||||||||
306,513 | AT&T, Inc. | 9,005,352 | ||||||
15,723 | CenturyTel, Inc. | 725,931 | ||||||
51,526 | Frontier Communications Corp. | 501,348 | ||||||
112 | Nortel Networks Corp., SP ADR* | 2 | ||||||
90,358 | Qwest Communications International, Inc. | 687,624 | ||||||
146,604 | Verizon Communications, Inc. | 5,245,491 | ||||||
25,073 | Windstream Corp. | 349,518 | ||||||
16,515,266 | ||||||||
Electric Utilities (1.7%): | ||||||||
8,850 | Allegheny Energy, Inc. | 214,524 | ||||||
24,904 | American Electric Power Co., Inc. | 896,046 | ||||||
68,686 | Duke Energy Corp. | 1,223,298 | ||||||
16,893 | Edison International | 652,070 | ||||||
9,300 | Entergy Corp. | 658,719 | ||||||
34,299 | Exelon Corp. | 1,428,210 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
15,805 | FirstEnergy Corp. | $ | 585,101 | |||||
21,564 | NextEra Energy, Inc. | 1,121,112 | ||||||
9,138 | Northeast Utilities | 291,319 | ||||||
11,650 | Pepco Holdings, Inc. | 212,613 | ||||||
5,636 | Pinnacle West Capital Corp. | 233,612 | ||||||
25,058 | PPL Corp. | 659,527 | ||||||
15,189 | Progress Energy, Inc. | 660,418 | ||||||
43,492 | Southern Co. | 1,662,699 | ||||||
10,499,268 | ||||||||
Electrical Equipment (0.6%): | ||||||||
39,033 | Emerson Electric Co. | 2,231,517 | ||||||
2,800 | First Solar, Inc.* | 364,392 | ||||||
7,351 | Rockwell Automation, Inc. | 527,140 | ||||||
4,908 | Roper Industries, Inc. | 375,118 | ||||||
3,498,167 | ||||||||
Electronic Equipment, Instruments & Components (0.7%): | ||||||||
17,959 | Agilent Technologies, Inc.* | 744,041 | ||||||
9,052 | Amphenol Corp., Class A | 477,765 | ||||||
81,047 | Corning, Inc. | 1,565,828 | ||||||
8,218 | FLIR Systems, Inc.* | 244,486 | ||||||
10,049 | Jabil Circuit, Inc. | 201,884 | ||||||
7,079 | Molex, Inc. | 160,835 | ||||||
25,385 | Tyco International, Ltd. | 1,051,954 | ||||||
4,446,793 | ||||||||
Energy Equipment & Services (2.1%): | ||||||||
24,949 | Baker Hughes, Inc. | 1,426,334 | ||||||
12,577 | Cameron International Corp.* | 638,031 | ||||||
3,607 | Diamond Offshore Drilling, Inc. | 241,200 | ||||||
6,207 | FMC Technologies, Inc.* | 551,864 | ||||||
47,168 | Halliburton Co. | 1,925,870 | ||||||
5,493 | Helmerich & Payne, Inc. | 266,301 | ||||||
14,793 | Nabors Industries, Ltd.* | 347,044 | ||||||
21,761 | National-Oilwell Varco, Inc. | 1,463,427 | ||||||
6,540 | Rowan Cos., Inc.* | 228,311 | ||||||
70,760 | Schlumberger, Ltd. | 5,908,460 | ||||||
12,996,842 | ||||||||
Food & Staples Retailing (2.3%): | ||||||||
22,420 | Costco Wholesale Corp. | 1,618,948 | ||||||
70,468 | CVS Caremark Corp. | 2,450,172 | ||||||
33,066 | Kroger Co. (The) | 739,356 | ||||||
19,369 | Safeway, Inc. | 435,609 | ||||||
10,733 | Supervalu, Inc. | 103,359 | ||||||
30,338 | SYSCO Corp. | 891,937 | ||||||
101,639 | Wal-Mart Stores, Inc. | 5,481,391 | ||||||
48,169 | Walgreen Co. | 1,876,664 | ||||||
7,621 | Whole Foods Market, Inc.* | 385,547 | ||||||
13,982,983 | ||||||||
Food Products (1.6%): | ||||||||
33,129 | Archer-Daniels Midland Co. | 996,520 | ||||||
9,966 | Campbell Soup Co. | 346,319 | ||||||
22,797 | ConAgra Foods, Inc. | 514,756 | ||||||
9,304 | Dean Foods Co.* | 82,247 | ||||||
33,203 | General Mills, Inc. | 1,181,695 | ||||||
16,631 | H.J. Heinz Co. | 822,569 | ||||||
8,018 | Hershey Co. | 378,049 | ||||||
3,588 | Hormel Foods Corp. | 183,921 | ||||||
6,195 | J.M. Smucker Co. (The) | 406,702 | ||||||
13,232 | Kellogg Co. | 675,891 | ||||||
90,589 | Kraft Foods, Inc., Class A | 2,854,459 | ||||||
6,891 | McCormick & Co. | 320,638 | ||||||
32,798 | Sara Lee Corp. | 574,293 | ||||||
15,445 | Tyson Foods, Inc., Class A | 265,963 | ||||||
9,604,022 | ||||||||
Gas Utilities (0.2%): | ||||||||
7,731 | EQT Corp. | 346,658 | ||||||
2,396 | NICOR, Inc. | 119,608 | ||||||
5,519 | ONEOK, Inc. | 306,139 | ||||||
9,103 | QEP Resources, Inc. | 330,530 | ||||||
1,102,935 | ||||||||
Health Care Equipment & Supplies (1.6%): | ||||||||
4,817 | Bard (C.R.), Inc. | 442,056 | ||||||
30,219 | Baxter International, Inc. | 1,529,686 | ||||||
11,924 | Becton Dickinson & Co. | 1,007,816 | ||||||
78,810 | Boston Scientific Corp.* | 596,592 | ||||||
11,555 | CareFusion Corp.* | 296,964 | ||||||
7,323 | DENTSPLY International, Inc. | 250,227 | ||||||
8,662 | Hospira, Inc.* | 482,387 | ||||||
2,038 | Intuitive Surgical, Inc.* | 525,294 | ||||||
56,002 | Medtronic, Inc. | 2,077,114 | ||||||
17,776 | St. Jude Medical, Inc.* | 759,924 | ||||||
17,709 | Stryker Corp. | 950,973 | ||||||
6,173 | Varian Medical Systems, Inc.* | 427,665 | ||||||
10,201 | Zimmer Holdings, Inc.* | 547,590 | ||||||
9,894,288 | ||||||||
Health Care Providers & Services (1.9%): | ||||||||
20,944 | Aetna, Inc. | 639,002 | ||||||
14,327 | AmerisourceBergen Corp. | 488,837 | ||||||
18,093 | Cardinal Health, Inc. | 693,143 | ||||||
14,046 | CIGNA Corp. | 514,926 | ||||||
7,622 | Coventry Health Care, Inc.* | 201,221 | ||||||
5,125 | DaVita, Inc.* | 356,136 | ||||||
27,442 | Express Scripts, Inc.* | 1,483,240 | ||||||
8,726 | Humana, Inc.* | 477,661 | ||||||
5,275 | Laboratory Corp. of America Holdings* | 463,778 | ||||||
13,040 | McKesson HBOC, Inc. | 917,755 | ||||||
22,015 | Medco Health Solutions, Inc.* | 1,348,859 | ||||||
4,980 | Patterson Companies, Inc. | 152,537 | ||||||
7,227 | Quest Diagnostics, Inc. | 390,041 |
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
25,152 | Tenet Healthcare Corp.* | $ | 168,267 | |||||
57,078 | UnitedHealth Group, Inc. | 2,061,087 | ||||||
20,411 | WellPoint, Inc.* | 1,160,570 | ||||||
11,517,060 | ||||||||
Health Care Technology (0.1%): | ||||||||
3,694 | Cerner Corp.* | 349,970 | ||||||
Hotels, Restaurants & Leisure (1.7%): | ||||||||
22,332 | Carnival Corp. | 1,029,729 | ||||||
7,175 | Darden Restaurants, Inc. | 333,207 | ||||||
15,454 | International Game Technology | 273,381 | ||||||
14,919 | Marriott International, Inc., Class A | 619,735 | ||||||
54,793 | McDonald’s Corp. | 4,205,911 | ||||||
38,431 | Starbucks Corp. | 1,234,788 | ||||||
9,885 | Starwood Hotels & Resorts Worldwide, Inc. | 600,810 | ||||||
9,065 | Wyndham Worldwide Corp. | 271,587 | ||||||
3,920 | Wynn Resorts, Ltd. | 407,053 | ||||||
24,299 | Yum! Brands, Inc. | 1,191,866 | ||||||
10,168,067 | ||||||||
Household Durables (0.3%): | ||||||||
14,383 | D. R. Horton, Inc. | 171,589 | ||||||
7,910 | Fortune Brands, Inc. | 476,577 | ||||||
3,642 | Harman International Industries, Inc.* | 168,625 | ||||||
7,514 | Leggett & Platt, Inc. | 171,019 | ||||||
8,228 | Lennar Corp. | 154,275 | ||||||
15,385 | Newell Rubbermaid, Inc. | 279,699 | ||||||
17,351 | Pulte Group, Inc.* | 130,480 | ||||||
3,941 | Whirlpool Corp. | 350,079 | ||||||
1,902,343 | ||||||||
Household Products (2.2%): | ||||||||
7,229 | Clorox Co. (The) | 457,451 | ||||||
25,032 | Colgate-Palmolive Co. | 2,011,822 | ||||||
21,147 | Kimberly-Clark Corp. | 1,333,107 | ||||||
145,176 | Procter & Gamble Co. (The) | 9,339,172 | ||||||
13,141,552 | ||||||||
Independent Power Producers & Energy Traders (0.2%): | ||||||||
34,317 | AES Corp. (The)* | 417,981 | ||||||
10,426 | Constellation Energy Group, Inc. | 319,348 | ||||||
35 | Dynegy, Inc.* | 197 | ||||||
12,849 | NRG Energy, Inc.* | 251,070 | ||||||
988,596 | ||||||||
Industrial Conglomerates (2.2%): | ||||||||
37,074 | 3M Co. | 3,199,486 | ||||||
552,591 | General Electric Co. | 10,106,890 | ||||||
14,249 | Textron, Inc. | 336,846 | ||||||
13,643,222 | ||||||||
Insurance (3.8%): | ||||||||
17,599 | ACE, Ltd. | 1,095,538 | ||||||
24,438 | AFLAC, Inc. | 1,379,036 | ||||||
27,906 | Allstate Corp. (The) | 889,643 | ||||||
7,258 | American International Group, Inc.* | 418,206 | ||||||
17,106 | Aon Corp. | 787,047 | ||||||
5,533 | Assurant, Inc. | 213,131 | ||||||
89,745 | Berkshire Hathaway, Inc., Class B* | 7,189,472 | ||||||
15,718 | Chubb Corp. (The) | 937,421 | ||||||
8,434 | Cincinnati Financial Corp. | 267,273 | ||||||
25,377 | Genworth Financial, Inc.* | 333,454 | ||||||
23,048 | Hartford Financial Services Group, Inc. | 610,542 | ||||||
16,422 | Lincoln National Corp. | 456,696 | ||||||
16,401 | Loews Corp. | 638,163 | ||||||
28,178 | Marsh & McLennan Cos., Inc. | 770,387 | ||||||
47,000 | MetLife, Inc. | 2,088,680 | ||||||
16,609 | Principal Financial Group, Inc. | 540,789 | ||||||
34,402 | Progressive Corp. (The) | 683,568 | ||||||
25,169 | Prudential Financial, Inc. | 1,477,672 | ||||||
4,185 | Torchmark Corp. | 250,012 | ||||||
23,860 | Travelers Cos., Inc. (The) | 1,329,241 | ||||||
16,586 | UnumProvident Corp. | 401,713 | ||||||
17,359 | XL Group plc | 378,773 | ||||||
23,136,457 | ||||||||
Internet & Catalog Retail (0.8%): | ||||||||
18,390 | Amazon.com, Inc.* | 3,310,200 | ||||||
10,540 | Expedia, Inc. | 264,449 | ||||||
2,249 | Netflix, Inc.* | 395,149 | ||||||
2,546 | Priceline.com, Inc.* | 1,017,254 | ||||||
4,987,052 | ||||||||
Internet Software & Services (1.8%): | ||||||||
9,453 | Akamai Technologies, Inc.* | 444,764 | ||||||
59,497 | eBay, Inc.* | 1,655,801 | ||||||
12,936 | Google, Inc., Class A* | 7,683,596 | ||||||
8,984 | VeriSign, Inc. | 293,507 | ||||||
67,960 | Yahoo!, Inc.* | 1,130,175 | ||||||
11,207,843 | ||||||||
IT Services (1.3%): | ||||||||
25,576 | Automatic Data Processing, Inc. | 1,183,657 | ||||||
15,737 | Cognizant Technology Solutions Corp., Class A* | 1,153,365 | ||||||
8,008 | Computer Sciences Corp. | 397,197 | ||||||
13,729 | Fidelity National Information Services, Inc. | 376,037 | ||||||
7,710 | Fiserv, Inc.* | 451,498 | ||||||
5,023 | MasterCard, Inc., Class A | 1,125,704 | ||||||
�� | 16,688 | Paychex, Inc. | 515,826 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
15,224 | SAIC, Inc.* | $ | 241,453 | |||||
8,556 | Total System Services, Inc. | 131,591 | ||||||
25,306 | Visa, Inc., Class A | 1,781,036 | ||||||
34,005 | Western Union Co. | 631,473 | ||||||
7,988,837 | ||||||||
Leisure Equipment & Products (0.1%): | ||||||||
7,097 | Hasbro, Inc. | 334,837 | ||||||
18,603 | Mattel, Inc. | 473,074 | ||||||
807,911 | ||||||||
Life Sciences Tools & Services (0.4%): | ||||||||
9,681 | Life Technologies Corp.* | 537,296 | ||||||
6,128 | PerkinElmer, Inc. | 158,225 | ||||||
20,684 | Thermo Fisher Scientific, Inc.* | 1,145,066 | ||||||
4,735 | Waters Corp.* | 367,957 | ||||||
2,208,544 | ||||||||
Machinery (2.3%): | ||||||||
32,917 | Caterpillar, Inc. | 3,083,006 | ||||||
10,258 | Cummins, Inc. | 1,128,483 | ||||||
27,808 | Danaher Corp. | 1,311,703 | ||||||
21,981 | Deere & Co. | 1,825,522 | ||||||
9,684 | Dover Corp. | 566,030 | ||||||
8,727 | Eaton Corp. | 885,878 | ||||||
2,894 | Flowserve Corp. | 345,023 | ||||||
25,717 | Illinois Tool Works, Inc. | 1,373,288 | ||||||
16,800 | Ingersoll-Rand plc | 791,112 | ||||||
18,912 | PACCAR, Inc. | 1,085,927 | ||||||
5,920 | Pall Corp. | 293,514 | ||||||
8,365 | Parker Hannifin Corp. | 721,899 | ||||||
3,013 | Snap-On, Inc. | 170,475 | ||||||
8,602 | Stanley Black & Decker, Inc. | 575,216 | ||||||
14,157,076 | ||||||||
Media (3.0%): | ||||||||
12,444 | Cablevision Systems Corp., Class A | 421,105 | ||||||
35,303 | CBS Corp. | 672,522 | ||||||
144,699 | Comcast Corp., Class A | 3,179,037 | ||||||
43,388 | DIRECTV Group, Inc. (The), Class A* | 1,732,483 | ||||||
14,741 | Discovery Communications, Inc., Class A* | 614,700 | ||||||
12,262 | Gannett Co., Inc. | 185,033 | ||||||
25,330 | Interpublic Group of Cos., Inc. (The)* | 269,005 | ||||||
15,917 | McGraw-Hill Cos., Inc. (The) | 579,538 | ||||||
1,934 | Meredith Corp. | 67,013 | ||||||
118,428 | News Corp. | 1,724,312 | ||||||
15,619 | Omnicom Group, Inc. | 715,350 | ||||||
4,668 | Scripps Networks Interactive, Class A | 241,569 | ||||||
18,447 | Time Warner Cable, Inc. | 1,218,055 | ||||||
57,527 | Time Warner, Inc. | 1,850,644 | ||||||
31,349 | Viacom, Inc., Class B | 1,241,734 | ||||||
98,204 | Walt Disney Co. (The) | 3,683,632 | ||||||
298 | Washington Post Co. (The), Class B | 130,971 | ||||||
18,526,703 | ||||||||
Metals & Mining (1.2%): | ||||||||
5,674 | AK Steel Holding Corp. | 92,883 | ||||||
52,963 | Alcoa, Inc. | 815,101 | ||||||
5,110 | Allegheny Technologies, Inc. | 281,970 | ||||||
7,023 | Cliffs Natural Resources, Inc. | 547,864 | ||||||
24,421 | Freeport-McMoRan Copper & Gold, Inc. | 2,932,718 | ||||||
25,569 | Newmont Mining Corp. | 1,570,704 | ||||||
16,371 | Nucor Corp. | 717,377 | ||||||
4,763 | Titanium Metals Corp.* | 81,828 | ||||||
7,445 | United States Steel Corp. | 434,937 | ||||||
7,475,382 | ||||||||
Multi-Utilities (1.2%): | ||||||||
12,432 | Ameren Corp. | 350,458 | ||||||
21,936 | Centerpoint Energy, Inc. | 344,834 | ||||||
12,674 | CMS Energy Corp. | 235,736 | ||||||
15,064 | Consolidated Edison, Inc. | 746,723 | ||||||
30,103 | Dominion Resources, Inc. | 1,286,000 | ||||||
8,767 | DTE Energy Co. | 397,321 | ||||||
4,030 | Integrys Energy Group, Inc. | 195,495 | ||||||
14,423 | NiSource, Inc. | 254,133 | ||||||
20,330 | PG&E Corp. | 972,587 | ||||||
26,234 | Public Service Enterprise Group, Inc. | 834,504 | ||||||
5,870 | SCANA Corp. | 238,322 | ||||||
12,338 | Sempra Energy | 647,498 | ||||||
11,229 | TECO Energy, Inc. | 199,876 | ||||||
6,059 | Wisconsin Energy Corp. | 356,633 | ||||||
23,855 | Xcel Energy, Inc. | 561,785 | ||||||
7,621,905 | ||||||||
Multiline Retail (0.8%): | ||||||||
3,851 | Big Lots, Inc.* | 117,301 | ||||||
6,584 | Family Dollar Stores, Inc. | 327,290 | ||||||
12,257 | J.C. Penney Co., Inc. | 396,024 | ||||||
15,970 | Kohl’s Corp.* | 867,810 | ||||||
21,956 | Macy’s, Inc. | 555,487 | ||||||
8,725 | Nordstrom, Inc. | 369,765 | ||||||
2,269 | Sears Holdings Corp.* | 167,339 | ||||||
36,721 | Target Corp. | 2,208,034 | ||||||
5,009,050 | ||||||||
Office Electronics (0.1%): | ||||||||
71,929 | Xerox Corp. | 828,622 | ||||||
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels (9.5%): | ||||||||
25,701 | Anadarko Petroleum Corp. | $ | 1,957,388 | |||||
19,820 | Apache Corp. | 2,363,139 | ||||||
5,387 | Cabot Oil & Gas Corp. | 203,898 | ||||||
33,906 | Chesapeake Energy Corp. | 878,504 | ||||||
104,372 | Chevron Corp. | 9,523,945 | ||||||
76,198 | ConocoPhillips | 5,189,084 | ||||||
11,709 | Consol Energy, Inc. | 570,697 | ||||||
20,718 | Denbury Resources, Inc.* | 395,507 | ||||||
22,398 | Devon Energy Corp. | 1,758,467 | ||||||
36,505 | El Paso Corp. | 502,309 | ||||||
13,173 | EOG Resources, Inc. | 1,204,144 | ||||||
261,527 | Exxon Mobil Corp. | 19,122,854 | ||||||
15,558 | Hess Corp. | 1,190,809 | ||||||
36,814 | Marathon Oil Corp. | 1,363,222 | ||||||
5,293 | Massey Energy Co. | 283,969 | ||||||
9,974 | Murphy Oil Corp. | 743,562 | ||||||
6,941 | Newfield Exploration Co.* | 500,516 | ||||||
9,079 | Noble Energy, Inc. | 781,520 | ||||||
42,143 | Occidental Petroleum Corp. | 4,134,228 | ||||||
13,981 | Peabody Energy Corp. | 894,504 | ||||||
6,019 | Pioneer Natural Resources Co. | 522,570 | ||||||
8,297 | Range Resources Corp. | 373,199 | ||||||
17,980 | Southwestern Energy Co.* | 672,991 | ||||||
33,612 | Spectra Energy Corp. | 839,964 | ||||||
6,249 | Sunoco, Inc. | 251,897 | ||||||
7,477 | Tesoro Corp.* | 138,624 | ||||||
29,357 | Valero Energy Corp. | 678,734 | ||||||
30,321 | Williams Cos., Inc. (The) | 749,535 | ||||||
57,789,780 | ||||||||
Paper & Forest Products (0.2%): | ||||||||
22,681 | International Paper Co. | 617,830 | ||||||
8,674 | MeadWestvaco Corp. | 226,912 | ||||||
27,785 | Weyerhaeuser Co. | 525,970 | ||||||
1,370,712 | ||||||||
Personal Products (0.3%): | ||||||||
22,252 | Avon Products, Inc. | 646,643 | ||||||
5,887 | Estee Lauder Co., Inc. (The), Class A | 475,081 | ||||||
10,607 | Mead Johnson Nutrition Co., Class A | 660,286 | ||||||
1,782,010 | ||||||||
Pharmaceuticals (5.3%): | ||||||||
80,169 | Abbott Laboratories | 3,840,897 | ||||||
15,946 | Allergan, Inc. | 1,095,012 | ||||||
88,768 | Bristol-Myers Squibb Co. | 2,350,577 | ||||||
52,625 | Eli Lilly & Co. | 1,843,980 | ||||||
14,807 | Forest Laboratories, Inc.* | 473,528 | ||||||
142,430 | Johnson & Johnson Co. | 8,809,295 | ||||||
12,611 | King Pharmaceuticals, Inc.* | 177,184 | ||||||
159,783 | Merck & Co., Inc. | 5,758,579 | ||||||
22,563 | Mylan, Inc.* | 476,756 | ||||||
415,421 | Pfizer, Inc. | 7,274,022 | ||||||
6,495 | Watson Pharmaceuticals, Inc.* | 335,467 | ||||||
32,435,297 | ||||||||
Professional Services (0.1%): | ||||||||
2,553 | Dun & Bradstreet Corp. | 209,576 | ||||||
6,344 | Equifax, Inc. | 225,846 | ||||||
6,736 | Monster Worldwide, Inc.* | 159,172 | ||||||
7,625 | Robert Half International, Inc. | 233,325 | ||||||
827,919 | ||||||||
Real Estate Investment Trusts (REITs) (1.3%): | ||||||||
6,093 | Apartment Investment & Management Co., Class A | 157,443 | ||||||
4,422 | Avalonbay Communities, Inc. | 497,696 | ||||||
7,264 | Boston Properties, Inc. | 625,430 | ||||||
14,749 | Equity Residential Property Trust | 766,210 | ||||||
18,897 | HCP, Inc. | 695,221 | ||||||
7,523 | Health Care REIT, Inc. | 358,396 | ||||||
34,527 | Host Hotels & Resorts, Inc. | 616,997 | ||||||
21,042 | Kimco Realty Corp. | 379,598 | ||||||
8,376 | Plum Creek Timber Co., Inc. | 313,681 | ||||||
29,498 | ProLogis Trust | 425,951 | ||||||
7,242 | Public Storage, Inc. | 734,484 | ||||||
15,190 | Simon Property Group, Inc. | 1,511,253 | ||||||
8,144 | Ventas, Inc. | 427,397 | ||||||
8,429 | Vornado Realty Trust | 702,389 | ||||||
8,212,146 | ||||||||
Real Estate Management & Development (0.1%): | ||||||||
15,062 | CB Richard Ellis Group, Inc., Class A* | 308,470 | ||||||
Road & Rail (0.8%): | ||||||||
19,404 | CSX Corp. | 1,253,692 | ||||||
18,843 | Norfolk Southern Corp. | 1,183,717 | ||||||
2,647 | Ryder System, Inc. | 139,338 | ||||||
25,575 | Union Pacific Corp. | 2,369,780 | ||||||
4,946,527 | ||||||||
Semiconductors & Semiconductor Equipment (2.4%): | ||||||||
29,677 | Advanced Micro Devices, Inc.* | 242,758 | ||||||
16,205 | Altera Corp. | 576,574 | ||||||
15,484 | Analog Devices, Inc. | 583,282 | ||||||
69,280 | Applied Materials, Inc. | 973,384 | ||||||
23,615 | Broadcom Corp., Class A | 1,028,433 | ||||||
289,291 | Intel Corp. | 6,083,790 | ||||||
8,660 | KLA-Tencor Corp. | 334,622 | ||||||
11,685 | Linear Technology Corp. | 404,184 | ||||||
32,070 | LSI Logic Corp.* | 192,099 | ||||||
11,922 | MEMC Electronic Materials, Inc.* | 134,242 | ||||||
9,684 | Microchip Technology, Inc. | 331,290 | ||||||
44,411 | Micron Technology, Inc.* | 356,176 |
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
12,259 | National Semiconductor Corp. | $ | 168,684 | |||||
4,727 | Novellus Systems, Inc.* | 152,777 | ||||||
30,119 | NVIDIA Corp.* | 463,833 | ||||||
9,400 | Teradyne, Inc.* | 131,976 | ||||||
60,891 | Texas Instruments, Inc. | 1,978,957 | ||||||
13,432 | Xilinx, Inc. | 389,259 | ||||||
14,526,320 | ||||||||
Software (3.9%): | ||||||||
26,179 | Adobe Systems, Inc.* | 805,790 | ||||||
11,789 | Autodesk, Inc.* | 450,340 | ||||||
9,211 | BMC Software, Inc.* | 434,206 | ||||||
19,893 | CA, Inc. | 486,185 | ||||||
9,736 | Citrix Systems, Inc.* | 666,040 | ||||||
11,476 | Compuware Corp.* | 133,925 | ||||||
17,198 | Electronic Arts, Inc.* | 281,703 | ||||||
14,495 | Intuit, Inc.* | 714,603 | ||||||
7,990 | McAfee, Inc.* | 370,017 | ||||||
390,474 | Microsoft Corp. | 10,902,034 | ||||||
18,375 | Novell, Inc.* | 108,780 | ||||||
200,755 | Oracle Corp. | 6,283,631 | ||||||
9,880 | Red Hat, Inc.* | 451,022 | ||||||
6,133 | Salesforce.com, Inc.* | 809,556 | ||||||
40,359 | Symantec Corp.* | 675,610 | ||||||
23,573,442 | ||||||||
Specialty Retail (1.9%): | ||||||||
4,593 | Abercrombie & Fitch Co., Class A | 264,695 | ||||||
3,308 | AutoNation, Inc.* | 93,286 | ||||||
1,424 | AutoZone, Inc.* | 388,168 | ||||||
13,395 | Bed Bath & Beyond, Inc.* | 658,364 | ||||||
17,295 | Best Buy Co., Inc. | 593,046 | ||||||
11,656 | CarMax, Inc.* | 371,593 | ||||||
7,858 | GameStop Corp., Class A* | 179,791 | ||||||
22,780 | Gap, Inc. (The) | 504,349 | ||||||
84,991 | Home Depot, Inc. | 2,979,785 | ||||||
13,711 | Limited Brands, Inc. | 421,339 | ||||||
71,565 | Lowe’s Cos., Inc. | 1,794,850 | ||||||
5,588 | RadioShack Corp. | 103,322 | ||||||
6,244 | Ross Stores, Inc. | 394,933 | ||||||
4,644 | Sherwin Williams Co. | 388,935 | ||||||
37,499 | Staples, Inc. | 853,852 | ||||||
6,553 | Tiffany & Co. | 408,055 | ||||||
20,524 | TJX Cos., Inc. | 911,060 | ||||||
6,719 | Urban Outfitters, Inc.* | 240,608 | ||||||
11,550,031 | ||||||||
Textiles, Apparel & Luxury Goods (0.5%): | ||||||||
15,368 | Coach, Inc. | 850,004 | ||||||
19,826 | Nike, Inc., Class B | 1,693,537 | ||||||
3,354 | Polo Ralph Lauren Corp. | 372,026 | ||||||
4,499 | V.F. Corp. | 387,724 | ||||||
3,303,291 | ||||||||
Thrifts & Mortgage Finance (0.1%): | ||||||||
27,296 | Hudson City Bancorp, Inc. | 347,751 | ||||||
19,192 | People’s United Financial, Inc. | 268,880 | ||||||
616,631 | ||||||||
Tobacco (1.5%): | ||||||||
108,276 | Altria Group, Inc. | 2,665,755 | ||||||
7,763 | Lorillard, Inc. | 637,032 | ||||||
94,099 | Philip Morris International, Inc. | 5,507,615 | ||||||
17,533 | Reynolds American, Inc. | 571,926 | ||||||
9,382,328 | ||||||||
Trading Companies & Distributors (0.1%): | ||||||||
7,643 | Fastenal Co. | 457,892 | ||||||
3,026 | W.W. Grainger, Inc. | 417,921 | ||||||
875,813 | ||||||||
Wireless Telecommunication Services (0.3%): | ||||||||
20,694 | American Tower Corp., Class A* | 1,068,638 | ||||||
13,481 | MetroPCS Communications, Inc.* | 170,265 | ||||||
154,874 | Sprint Nextel Corp.* | 655,117 | ||||||
1,894,020 | ||||||||
Total Common Stocks (Cost $466,033,254) | 593,144,681 | |||||||
Investment Company (2.5%): | ||||||||
15,097,879 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 15,097,879 | ||||||
Total Investment Company (Cost $15,097,879) | 15,097,879 | |||||||
Total Investment Securities (Cost $481,131,133) (b) — 99.7% | 608,242,560 | |||||||
Net other assets (liabilities) — 0.3% | 1,613,369 | |||||||
Net Assets — 100.0% | $ | 609,855,929 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security | |
† | A Portion of the investment security is segregated as collateral for futures contracts, the aggregate fair value of the segregated security is $1,274,490. |
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
plc — Public Limited Company
SP ADR—Sponsored American Depositary Receipt
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $360,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2010:
Unrealized | ||||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/18/11 | 259 | $ | 16,226,350 | $ | 287,616 |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Bermuda | 0.1 | % | ||
Canada | — | ^ | ||
Ireland (Republic of) | 0.2 | |||
Netherlands | 1.0 | |||
Panama | 0.2 | |||
Switzerland | 0.4 | |||
United States | 98.1 | |||
100.0 | % | |||
^ | Represents less than 0.05%. |
See accompanying notes to the financial statements.
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL S&P | ||||
500 Index | ||||
Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 481,131,133 | ||
Investment securities, at value | $ | 608,242,560 | ||
Segregated cash for collateral | 360,000 | |||
Dividends receivable | 688,437 | |||
Receivable for capital shares issued | 967,559 | |||
Reclaims receivable | 347 | |||
Receivable for variation margin on futures contracts | 1,230 | |||
Prepaid expenses | 7,305 | |||
Total Assets | 610,267,438 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 19,971 | |||
Payable for variation margin on futures contracts | 19,285 | |||
Manager fees payable | 57,982 | |||
Administration fees payable | 24,408 | |||
Distribution fees payable | 122,806 | |||
Custodian fees payable | 8,417 | |||
Administrative and compliance services fees payable | 7,321 | |||
Trustee fees payable | 1,367 | |||
Other accrued liabilities | 149,952 | |||
Total Liabilities | 411,509 | |||
Net Assets | $ | 609,855,929 | ||
Net Assets Consist of: | ||||
Capital | $ | 583,042,732 | ||
Accumulated net investment income/(loss) | 8,925,533 | |||
Accumulated net realized gains/(losses) from investment transactions | (109,511,379 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 127,399,043 | |||
Net Assets | $ | 609,855,929 | ||
Class 1 | ||||
Net Assets | $ | 15,506,109 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 1,785,765 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.68 | ||
Class 2 | ||||
Net Assets | $ | 594,349,820 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 68,722,387 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.65 | ||
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL S&P | ||||
500 Index | ||||
Fund | ||||
Investment Income: | ||||
Interest | $ | 130 | ||
Dividends | 11,781,238 | |||
Total Investment Income | 11,781,368 | |||
Expenses: | ||||
Manager fees | 1,002,928 | |||
Administration fees | 268,332 | |||
Distribution fees — Class 2 | 1,438,682 | |||
Custodian fees | 37,795 | |||
Administrative and compliance services fees | 25,472 | |||
Trustees’ fees | 50,735 | |||
Professional fees | 75,971 | |||
Shareholder reports | 95,013 | |||
Other expenses | 130,349 | |||
Total expenses before reductions | 3,125,277 | |||
Less expenses contractually waived/reimbursed by the Manager | (270,682 | ) | ||
Net expenses | 2,854,595 | |||
Net Investment Income/(Loss) | 8,926,773 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 19,808,714 | |||
Net realized gains/(losses) on futures transactions | 2,519,474 | |||
Change in unrealized appreciation/(depreciation) on investments | 59,768,667 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 82,096,855 | |||
Change in Net Assets Resulting From Operations | $ | 91,023,628 | ||
14
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Statements of Changes in Net Assets
AZL S&P 500 Index Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 8,926,773 | $ | 7,485,824 | ||||
Net realized gains/(losses) on investment transactions | 22,328,188 | 6,111,858 | ||||||
Change in unrealized appreciation/(depreciation) on investments | 59,768,667 | 101,915,204 | ||||||
Change in net assets resulting from operations | 91,023,628 | 115,512,886 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income: | ||||||||
Class 1 | (233,712 | ) | (55,759 | ) | ||||
Class 2 | (7,287,633 | ) | (1,767,810 | ) | ||||
From net realized gains: | ||||||||
Class 1 | (32,194 | ) | — | |||||
Class 2 | (1,143,990 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (8,697,529 | ) | (1,823,569 | ) | ||||
Change in net assets from capital transactions | (194,380,358 | ) | 351,410,824 | |||||
Change in net assets | (112,054,259 | ) | 465,100,141 | |||||
Net Assets: | ||||||||
Beginning of period | 721,910,188 | 256,810,047 | ||||||
End of period | $ | 609,855,929 | $ | 721,910,188 | ||||
Accumulated net investment income/(loss) | $ | 8,925,533 | $ | 7,521,333 | ||||
Capital Transactions: | ||||||||
Class 1 | ||||||||
Proceeds from shares issued | 1,034,951 | 2,906,222 | ||||||
Dividends reinvested | 265,906 | 55,759 | ||||||
Value of shares redeemed | (1,843,192 | ) | (2,454,528 | ) | ||||
Total Class 1 | (542,335 | ) | 507,453 | |||||
Class 2 | ||||||||
Proceeds from shares issued | 148,132,517 | 297,215,605 | ||||||
Proceeds from shares issued in merger | — | 162,916,800 | ||||||
Dividends reinvested | 8,431,623 | 1,767,810 | ||||||
Value of shares redeemed | (350,402,163 | ) | (110,996,844 | ) | ||||
Total Class 2 | (193,838,023 | ) | 350,903,371 | |||||
Change in net assets from capital transactions | (194,380,358 | ) | 351,410,824 | |||||
Share Transactions: | ||||||||
Class 1 | ||||||||
Issued | 129,504 | 429,748 | ||||||
Reinvested | 34,533 | 7,681 | ||||||
Redeemed | (253,373 | ) | (374,015 | ) | ||||
Total Class 1 Shares | (89,336 | ) | 63,414 | |||||
Class 2 | ||||||||
Issued | 18,843,220 | 46,234,649 | ||||||
Issued in merger | — | 21,928,494 | ||||||
Reinvested | 1,097,868 | 244,510 | ||||||
Redeemed | (43,283,246 | ) | (16,297,445 | ) | ||||
Total Class 2 Shares | (23,342,158 | ) | 52,110,208 | |||||
Change in shares | (23,431,494 | ) | 52,173,622 | |||||
15
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 14, 2007 to | ||||||||||||||||
Year Ended December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2008 | 2007(a) | |||||||||||||
Class 1 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.71 | $ | 6.16 | $ | 9.86 | $ | 10.14 | ||||||||
Investment Activities: | ||||||||||||||||
Net Investment Income | 0.14 | (b) | 0.13 | (b) | 0.18 | (b) | 0.11 | |||||||||
Net Realized and Unrealized Gains (Losses) on Investments | 0.98 | 1.45 | (3.87 | ) | (0.26 | ) | ||||||||||
Total from Investment Activities | 1.12 | 1.58 | (3.69 | ) | (0.15 | ) | ||||||||||
Dividends to Shareholders From: | ||||||||||||||||
Net Investment Income | (0.13 | ) | (0.03 | ) | (0.01 | ) | (0.11 | ) | ||||||||
Net Realized Gains | (0.02 | ) | — | — | (c) | (0.02 | ) | |||||||||
Total Dividends | (0.15 | ) | (0.03 | ) | (0.01 | ) | (0.13 | ) | ||||||||
Net Asset Value, End of Period | $ | 8.68 | $ | 7.71 | $ | 6.16 | $ | 9.86 | ||||||||
Total Return(d)(e) | 14.75 | % | 25.69 | % | (37.46 | )% | (1.48 | )% | ||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 15,506 | $ | 14,462 | $ | 11,158 | $ | 411 | ||||||||
Net Investment Income(f) | 1.79 | % | 2.06 | % | 2.67 | % | 1.81 | % | ||||||||
Expenses Before Reductions(f)(g) | 0.29 | % | 0.30 | % | 0.37 | % | 0.53 | % | ||||||||
Expenses Net of Reductions(f) | 0.24 | % | 0.24 | % | 0.26 | % | 0.24 | % | ||||||||
Portfolio Turnover Rate(e)(h) | 13.71 | % | 16.19 | %(i) | 81.71 | % | 15.95 | % |
(a) | Period from commencement of operations. | |
(b) | Average shares method used in calculation. | |
(c) | Represents less than $0.005. | |
(d) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(e) | Not annualized for periods less than one year. | |
(f) | Annualized for periods less than one year. | |
(g) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(h) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. | |
(i) | Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after a fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 36.67%. |
16
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Financial Highlights, continued
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 1, 2007 to | ||||||||||||||||
Year Ended December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2008 | 2007(a) | |||||||||||||
Class 2 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.68 | $ | 6.15 | $ | 9.86 | $ | 10.00 | ||||||||
Investment Activities: | ||||||||||||||||
Net Investment Income | 0.12 | (b) | 0.12 | (b) | 0.16 | (b) | 0.09 | |||||||||
Net Realized and Unrealized Gains (Losses) on Investments | 0.98 | 1.44 | (3.87 | ) | (0.12 | ) | ||||||||||
Total from Investment Activities | 1.10 | 1.56 | (3.71 | ) | (0.03 | ) | ||||||||||
Dividends to Shareholders From: | ||||||||||||||||
Net Investment Income | (0.11 | ) | (0.03 | ) | — | (c) | (0.09 | ) | ||||||||
Net Realized Gains | (0.02 | ) | — | — | (c) | (0.02 | ) | |||||||||
Total Dividends | (0.13 | ) | (0.03 | ) | — | (c) | (0.11 | ) | ||||||||
Net Asset Value, End of Period | $ | 8.65 | $ | 7.68 | $ | 6.15 | $ | 9.86 | ||||||||
Total Return(d)(e) | 14.57 | % | 25.36 | % | (37.62 | )% | (0.25 | )% | ||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 594,350 | $ | 707,448 | $ | 245,652 | $ | 27,614 | ||||||||
Net Investment Income(f) | 1.51 | % | 1.78 | % | 2.29 | % | 1.60 | % | ||||||||
Expenses Before Reductions(f)(g) | 0.54 | % | 0.54 | % | 0.65 | % | 0.73 | % | ||||||||
Expenses Net of Reductions(f) | 0.49 | % | 0.49 | % | 0.51 | % | 0.49 | % | ||||||||
Portfolio Turnover Rate(d)(h) | 13.71 | % | 16.19 | %(i) | 81.71 | % | 15.95 | % |
(a) | Period from commencement of operations. | |
(b) | Average shares method used in calculation. | |
(c) | Represents less than $0.005. | |
(d) | Not annualized for periods less than one year. | |
(e) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(f) | Annualized for periods less than one year. | |
(g) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(h) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. | |
(i) | Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after a fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 36.67%. |
17
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL S&P 500 Index Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
information becomes available. In addition, income and realized and unrealized gains and losses are allocated to each class of shares based on its relative net assets on a daily basis.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Each class of shares bears its pro-rata portion of expenses attributable to its series, except that each class separately bears expenses related specifically to that class, such as distribution fees. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $15.9 million as of December 31, 2010. The monthly average notional amount for these contracts was $13.0 million for the year ended December 31, 2010.
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation | $ | 287,616 | Payable for variation | $ | — | ||||||
margin on futures contracts | margin on futures contracts |
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | $ | 2,519,474 | $ | 153,990 |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and BlackRock Investment Management LLC (“BlackRock Investment”), BlackRock Investment provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of Class 1 and Class 2 is 0.24% and 0.49% respectively through April 30, 2011 and 0.46% and 0.71% respectively effective May 1, 2011 through April 30, 2012.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL S&P 500 Index Fund Class 1 | 0.17 | % | 0.24 | % | ||||
AZL S&P 500 Index Fund Class 2 | 0.17 | % | 0.49 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | Expires | ||||||||||
12/31/2011 | 12/31/2012 | 12/31/2013 | ||||||||||
AZL S&P 500 Index Fund | $ | 109,374 | $ | 222,765 | $ | 270,682 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets of Class 2 shares. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $18,225 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 593,144,681 | $ | — | $ | — | $ | 593,144,681 | ||||||||
Investment Company | 15,097,879 | — | — | 15,097,879 | ||||||||||||
Total Investment Securities | 608,242,560 | — | — | 608,242,560 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 287,616 | — | — | 287,616 | ||||||||||||
Total Investments | $ | 608,530,176 | $ | — | $ | — | $ | 608,530,176 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL S&P 500 Index Fund | $ | 80,062,709 | $ | 270,335,441 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $493,168,787. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 130,141,436 | ||
Unrealized depreciation | (15,067,663 | ) | ||
Net unrealized appreciation | $ | 115,073,773 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2015 | 12/31/2016 | |||||||
AZL S&P 500 Index Fund | $ | 2,166,424 | $ | 94,912,086 |
During the year ended December 31, 2010, the Fund utilized $4,370,081 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL S&P 500 Index Fund
AZL S&P 500 Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL S&P 500 Index Fund | $ | 8,697,529 | $ | — | $ | 8,697,529 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL S&P 500 Index Fund | $ | 1,823,569 | $ | — | $ | 1,823,569 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Total | ||||||||||||||||
Undistributed | Accumulated | Accumulated | ||||||||||||||
Ordinary | Capital and | Unrealized | Earnings | |||||||||||||
Income | Other Losses | Appreciation(a) | (Deficit) | |||||||||||||
AZL S&P 500 Index Fund | $ | 8,817,934 | $ | (97,078,510 | ) | $ | 115,073,773 | $ | 26,813,197 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
7. Acquisitions of Funds
On October 23, 2009, the Fund acquired all of the net assets of the AZL First Trust Target Double Play Fund, AZL TargetPLUS Equity Fund and AZL PIMCO Fundamental IndexPLUS Total Return Fund (the “Acquired Funds”), open-end investment companies, pursuant to a plan of reorganization approved by the Acquired Funds shareholders on October 21, 2009. The purpose of the transaction was to combine four funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 17,825,766 shares of the Fund, valued at $132,423,434, for 12,010,548 shares of the AZL First Trust Target Double Play Fund and 11,072,773 shares of the AZL TargetPLUS Equity Fund outstanding on October 23, 2009, and, a taxable exchange of 4,102,728 shares of the Fund, valued at $30,493,366, for 4,633,083 shares of the AZL PIMCO Fundamental IndexPLUS Total Return Fund outstanding on October 23, 2009.
25
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL S&P 500 Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the four-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
During the year ended December 31, 2010, the Fund declared net short-term capital gain distributions of $1,176,138.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
29
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
30
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
31
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
32
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
33
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
34
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Schroder Emerging Markets Equity Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 9
Page 9
Statement of Operations
Page 10
Page 10
Statements of Changes in Net Assets
Page 11
Page 11
Financial Highlights
Page 12
Page 12
Notes to the Financial Statements
Page 14
Page 14
Report of Independent Registered Public Accounting Firm
Page 22
Page 22
Other Federal Income Tax Information
Page 23
Page 23
Other Information
Page 24
Page 24
Approval of Investment Advisory and Subadvisory Agreements
Page 25
Page 25
Information about the Board of Trustees and Officers
Page 29
Page 29
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Schroder Emerging Markets Equity Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Schroder Emerging Markets Equity Fund and Schroder Investment Management North America Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Schroder Emerging Markets Equity Fund (Class 2 Shares) returned 12.40% compared to a 19.20% total return for its benchmark, the MSCI Emerging Markets Index1.
Emerging markets experienced strong growth over the period, in contrast to the debt-laden developed world. The MSCI Emerging Markets Index outperformed the MSCI World Index2 during the period under review.
The strongest performing emerging markets included Asian markets such as Thailand, Malaysia and the Philippines. Latin American markets such as Peru and Chile also performed strongly.
The Fund lagged the benchmark over the period. Country allocation had a slightly negative effect on relative performance, while stock selection was particularly weak due to extremely unusual market conditions. First, the market exhibited a high degree of volatility due to the highly uncertain global economic background. In addition, emerging market investors focused on the potential growth driven by domestic demand, pushing these stocks to bubble-like valuations. As a result, cheap stocks became cheaper and expensive stocks became more expensive.*
Such a market environment was challenging for our long-term fundamentally driven approach. However, during the fourth quarter greater clarity in the developed growth outlook led market performance to broaden. As a result, portfolio performance strongly improved towards the end of 2010.*
The Fund’s underweight positions in South Africa, Chile and Mexico detracted from relative returns, as these markets performed well, driven by strong commodity prices, domestic consumption and receding fears of a “double-dip” recession in the U.S. This underperformance was partially offset by an overweight position in Thailand, which outperformed due to a strong economic recovery.*
Stock selection hurt relative performance in Taiwan, Korea, South Africa, Indonesia, China and Russia due to poor selection in the financials, construction and technology sectors. This was partially offset by positive stock selection in India, where individual holdings in the financial and technology sectors performed strongly, and Turkey, where a drink distributor and an oil refiner experienced strong gains.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Morgan Stanley Capital International (“MSCI”) Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity performance of emerging markets. | |
2 | The Morgan Stanley Capital International (“MSCI”) World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. | |
Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Schroder Emerging Markets Equity Fund Review
Fund Objective
The Fund’s investment objective is to seek capital appreciation. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies the Fund’s subadviser believes to be “emerging market” issuers.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Inception | 1 | 3 | Since | |||||||||||||
Date | Year | Year | Inception | |||||||||||||
AZL® Schroder Emerging Markets Equity Fund (Class 1 Shares) | 5/6/07 | 12.61 | % | -2.19 | % | 3.04 | % | |||||||||
AZL® Schroder Emerging Markets Equity Fund (Class 2 Shares) | 5/1/06 | 12.40 | % | -2.43 | % | 5.42 | % | |||||||||
MSCI Emerging Markets Index (gross of withholding taxes) | 5/1/06 | 19.20 | % | -0.03 | % | 9.62 | % | |||||||||
MSCI Emerging Markets Index (net of withholding taxes) | 5/1/06 | 18.88 | % | -0.32 | % | 9.30 | % | |||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Schroder Emerging Markets Equity Fund (Class 1 Shares) | 1.54 | % | ||
AZL® Schroder Emerging Markets Equity Fund (Class 2 Shares) | 1.79 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager has voluntarily reduced the management fee to 0.95%. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 1.08%. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.40% for Class 1 Shares and 1.65% for Class 2 Shares through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 The hypothetical $10,000 investment for the MSCI Emerging Markets Index is calculated from 4/30/06.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Morgan Stanley Capital International (“MSCI”) Emerging Markets Index, an unmanaged free float-adjusted market capitalization index that is designed to measure equity performance of emerging markets. The index noted as “gross of withholding taxes” does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The index noted as “net of withholding taxes” reflects the reinvestment of dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Schroder Emerging Markets Equity Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||||||
AZL Schroder Emerging Markets Equity Fund | Class 1 | $ | 1,000.00 | $ | 1,245.20 | $ | 6.68 | 1.18 | % | |||||||||||
Class 2 | 1,000.00 | 1,243.30 | 8.09 | 1.43 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||||||
AZL Schroder Emerging Markets Equity Fund | Class 1 | $ | 1,000.00 | $ | 1,019.26 | $ | 6.01 | 1.18 | % | |||||||||||
Class 2 | 1,000.00 | 1,018.00 | 7.27 | 1.43 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Schroder Emerging Markets Equity Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Auto Components | 0.9 | % | ||
Automobiles | 2.3 | |||
Beverages | 0.9 | |||
Capital Markets | 0.3 | |||
Chemicals | 1.7 | |||
Commercial Banks | 21.9 | |||
Computers & Peripherals | 2.1 | |||
Construction & Engineering | 2.7 | |||
Construction Materials | 1.5 | |||
Diversified Consumer Services | 0.1 | |||
Diversified Financial Services | 1.0 | |||
Diversified Telecommunication Services | 2.3 | |||
Electric Utilities | 1.0 | |||
Electrical Equipment | 0.5 | |||
Electronic Equipment, Instruments & Components | 1.7 | |||
Energy Equipment & Services | 0.2 | |||
Food & Staples Retailing | 0.9 | |||
Food Products | 0.4 | |||
Household Durables | 0.7 | |||
Household Products | 0.6 | |||
Independent Power Producers & Energy Traders | 0.6 | |||
Industrial Conglomerates | 1.4 | |||
Insurance | 3.4 | |||
Internet Software & Services | 0.4 | |||
IT Services | 1.9 | |||
Machinery | 1.6 | |||
Media | 0.7 | |||
Metals & Mining | 10.5 | |||
Multiline Retail | 2.1 | |||
Oil, Gas & Consumable Fuels | 18.0 | |||
Pharmaceuticals | 0.2 | |||
Real Estate Management & Development | 1.5 | |||
Semiconductors & Semiconductor Equipment | 7.3 | |||
Software | 0.1 | |||
Specialty Retail | 0.9 | |||
Transportation Infrastructure | 0.9 | |||
Wireless Telecommunication Services | 3.3 | |||
Warrants | 0.5 | |||
Investment Company | 0.6 | |||
99.6 | % | |||
* | Investments are shown as a percentage of net assets, not total invesments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (96.0%): | ||||||||
Auto Components (0.9%): | ||||||||
8,652 | Hyundai Mobis Co., Ltd.* | $ | 2,166,401 | |||||
319,368 | TAV Havalimanlari Holding A/S* | 1,551,197 | ||||||
3,717,598 | ||||||||
Automobiles (2.3%): | ||||||||
53,852 | Hyundai Motor Co.* | 8,227,121 | ||||||
212,500 | PT Astra International Tbk | 1,286,039 | ||||||
9,513,160 | ||||||||
Beverages (0.4%): | ||||||||
104,247 | Anadolu Efes Biracilik ve Malt Sanayii AS | 1,584,519 | ||||||
Capital Markets (0.3%): | ||||||||
848,852 | Turkiye Sinai Kalkinma Bankasi AS | 1,439,264 | ||||||
Chemicals (1.7%): | ||||||||
19,683 | Industries Qatar Q.S.C. | 745,772 | ||||||
15,560 | LG Chem, Ltd.* | 5,358,694 | ||||||
34,600 | Uralkali, SP | 1,271,335 | ||||||
7,375,801 | ||||||||
Commercial Banks (21.9%): | ||||||||
287,003 | Banco Bradesco SA, SP ADR | 5,823,291 | ||||||
816,700 | Bangkok Bank Public Co., Ltd. | 4,130,872 | ||||||
2,439,000 | Bank of Communications Co., Ltd., Class H | 2,453,695 | ||||||
8,938,832 | China Construction Bank | 8,002,949 | ||||||
6,510,312 | Chinatrust Financial Holding Co., Ltd. | 4,784,015 | ||||||
151,188 | Commercial International Bank | 1,234,707 | ||||||
17,573 | Credicorp, Ltd. | 2,089,605 | ||||||
184,590 | Daegu Bank* | 2,536,671 | ||||||
68,965 | HDFC Bank, Ltd. | 3,624,990 | ||||||
84,525 | ICICI Bank, Ltd. | 2,161,867 | ||||||
10,714,385 | Industrial & Commercial Bank of China | 7,969,611 | ||||||
477,043 | Itau Unibanco Banco Multiplo SA, SP ADR | 11,453,803 | ||||||
1,106,800 | Kasikornbank Public Co., Ltd. | 4,604,235 | ||||||
6,166 | Komercni Banka AS | 1,461,982 | ||||||
200,908 | OTP Bank Nyrt.* | 4,862,739 | ||||||
261,283 | PKO Bank Polski SA | 3,832,671 | ||||||
3,422,500 | PT Bank Mandiri Tbk | 2,468,353 | ||||||
1,506,980 | Sberbank | 5,134,322 | ||||||
132,190 | Shinhan Financial Group Co., Ltd.* | 6,162,016 | ||||||
753,998 | Turkiye Garanti Bankasi AG | 3,833,326 | ||||||
196,143 | Turkiye Halk Bankasi AS | 1,669,706 | ||||||
808,036 | Turkiye Is Bankasi, Class C | 2,888,674 | ||||||
93,184,100 | ||||||||
Computers & Peripherals (2.1%): | ||||||||
1,311,144 | Acer, Inc. | 4,055,861 | ||||||
334,250 | Asustek Computer, Inc. | 3,179,177 | ||||||
44,000 | HTC Corp. | 1,359,479 | ||||||
315,721 | Pegatron Corp.* | 455,348 | ||||||
9,049,865 | ||||||||
Construction & Engineering (2.7%): | ||||||||
35,578 | GS Engineering & Construction Corp.* | 3,636,960 | ||||||
26,390 | Hyundai Engineering & Construction Co., Ltd.* | 1,680,048 | ||||||
439,900 | Jaiprakash Associates, Ltd. | 1,045,481 | ||||||
35,708 | Larsen & Toubro, Ltd. | 1,580,382 | ||||||
224,640 | Raubex Group, Ltd. | 797,536 | ||||||
76,430 | Samsung Heavy Industries Co., Ltd.* | 2,815,256 | ||||||
11,555,663 | ||||||||
Construction Materials (1.5%): | ||||||||
520,000 | China National Building Material Co., Ltd., Class H | 1,191,525 | ||||||
1,139,500 | PT Indocement Tunggal Prakarsa Tbk | 2,016,725 | ||||||
2,928,427 | Taiwan Cement Corp. | 3,298,698 | ||||||
6,506,948 | ||||||||
Diversified Consumer Services (0.1%): | ||||||||
30,670 | Estacio Participacoes SA | 498,966 | ||||||
Diversified Financial Services (1.0%): | ||||||||
240,942 | BM&FBOVESPA SA | 1,906,658 | ||||||
825,706 | FirstRand, Ltd. | 2,448,890 | ||||||
4,355,548 | ||||||||
Diversified Telecommunication Services (2.3%): | ||||||||
157,600 | Chunghwa Telecom Co., Ltd., ADR | 3,982,552 | ||||||
50,120 | KT Corp.* | 2,055,381 | ||||||
12,654 | KT Corp., SP ADR* | 263,203 | ||||||
1,116,000 | PT Telekomunikasi Indonesia Tbk | 987,901 | ||||||
571,652 | Turk Telekomunikasyon AS | 2,415,240 | ||||||
9,704,277 | ||||||||
Electric Utilities (1.0%): | ||||||||
118,023 | Companhia Energetica de Minas Gerais SA, SP ADR | 1,958,002 | ||||||
79,101 | Companhia Energetica de Minas Gerais, Preferred Shares | 1,290,967 | ||||||
48,100 | Intergeneration JSC* | — | ||||||
20,255 | KEPCO Plant Service & Engineering Co., Ltd.* | 934,638 | ||||||
13,200 | Sibenergyholding JSC* | — | ||||||
4,183,607 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Electrical Equipment (0.5%): | ||||||||
43,894 | Bharat Heavy Electricals, Ltd. | $ | 2,281,023 | |||||
Electronic Equipment, Instruments & Components (1.7%): | ||||||||
439,601 | Hon Hai Precision Industry Co., Ltd. | 3,549,478 | ||||||
373,936 | Hon Hai Precision Industry Co., Ltd. | 1,506,986 | ||||||
52,350 | Hon Hai Precision Industry Co., Ltd., GDR, Registered Shares | 418,800 | ||||||
848,000 | WPG Holdings, Ltd. | 1,639,210 | ||||||
7,114,474 | ||||||||
Energy Equipment & Services (0.2%): | ||||||||
2,312,000 | China Suntien Green Energy Corp., Class H* | 651,195 | ||||||
Food & Staples Retailing (0.9%): | ||||||||
65,400 | Companhia Brasileira de Distribuicao Grupo Pao De Acucar, SP ADR | 2,745,492 | ||||||
69,446 | Shoprite Holdings, Ltd. | 1,051,984 | ||||||
3,797,476 | ||||||||
Food Products (0.4%): | ||||||||
685,000 | China Mengniu Dairy Co., Ltd. | 1,814,995 | ||||||
Household Durables (0.7%): | ||||||||
218,621 | Cyrela Brazil Realty SA | 2,879,508 | ||||||
Household Products (0.6%): | ||||||||
6,867 | LG Household & Health Care, Ltd.* | 2,359,244 | ||||||
Independent Power Producers & Energy Traders (0.6%): | ||||||||
87,800 | Banpu Public Co., Ltd. | 2,306,463 | ||||||
Industrial Conglomerates (1.4%): | ||||||||
258,500 | Beijing Enterprises Holdings, Ltd. | 1,602,602 | ||||||
1,173,940 | Far Eastern Textile, Ltd. | 1,991,324 | ||||||
2,476,000 | Poly Hong Kong Investment, Ltd. | 2,420,248 | ||||||
6,014,174 | ||||||||
Insurance (3.4%): | ||||||||
1,012,975 | Cathay Financial Holding Co., Ltd. | 1,798,301 | ||||||
691,000 | Ping An Insurance Group Co. of China | 7,723,030 | ||||||
25,253 | Samsung Fire & Marine Insurance Co., Ltd. | 5,005,397 | ||||||
14,526,728 | ||||||||
Internet Software & Services (0.4%): | ||||||||
74,600 | Tencent Holdings, Ltd. | 1,620,585 | ||||||
IT Services (1.9%): | ||||||||
76,075 | Infosys Technologies, Ltd. | 5,852,328 | ||||||
88,113 | Tata Consultancy Services, Ltd. | 2,288,629 | ||||||
8,140,957 | ||||||||
Machinery (1.6%): | ||||||||
575,800 | Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd., Class H* | 1,300,858 | ||||||
4,327 | Hyundai Heavy Industries Co., Ltd.* | 1,687,758 | ||||||
82,000 | Iochpe-Maxion SA | 1,190,903 | ||||||
972,000 | PT United Tractors Tbk | 2,566,805 | ||||||
6,746,324 | ||||||||
Media (0.7%): | ||||||||
150,230 | Cheil Worldwide, Inc.* | 1,832,938 | ||||||
43,900 | CTC Media, Inc. | 1,028,577 | ||||||
2,861,515 | ||||||||
Metals & Mining (8.5%): | ||||||||
24,385 | African Rainbow Minerals, Ltd. | 778,783 | ||||||
53,000 | Bradespar SA, Preferred Shares | 1,384,118 | ||||||
97,300 | Cherepovets MK Severstal | 1,640,969 | ||||||
3,542,380 | China Steel Corp. | 4,071,838 | ||||||
31,267 | Compania de Minas Buenaventura SA, SP ADR | 1,530,832 | ||||||
191,800 | Gerdau SA, SP ADR | 2,683,282 | ||||||
74,069 | Gold Fields, Ltd. | 1,358,249 | ||||||
1,719,000 | Hidili Industry International Development, Ltd. | 1,449,717 | ||||||
57,596 | Impala Platinum Holdings, Ltd. | 2,039,233 | ||||||
11,619 | KGHM Polska Miedz SA | 681,145 | ||||||
62,503 | Mechel, SP ADR | 1,826,962 | ||||||
120,624 | Mining & Metallurgical Co. Norilsk Nickel, SP ADR | 2,899,801 | ||||||
6,250 | POSCO | 2,677,159 | ||||||
73,600 | Southern Copper Corp. | 3,587,264 | ||||||
128,118 | Tata Steel, Ltd. | 1,945,098 | ||||||
161,800 | Vale SA, SP ADR | 5,593,426 | ||||||
36,147,876 | ||||||||
Multiline Retail (2.1%): | ||||||||
836,000 | Golden Eagle Retail Group, Ltd. | 2,059,339 | ||||||
18,623 | Hyundai Dept. Store* | 2,288,765 | ||||||
61,400 | Lojas Renner SA | 2,086,934 | ||||||
1,575,000 | Parkson Retail Group, Ltd. | 2,425,578 | ||||||
8,860,616 | ||||||||
Oil, Gas & Consumable Fuels (18.0%): | ||||||||
782,000 | China Shenhua Energy Co., Ltd. | 3,278,811 | ||||||
3,873,000 | CNOOC, Ltd. | 9,215,571 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
28,467 | Eurasia Drilling Co., Ltd., GDR Registered Shares | $ | 926,495 | |||||
74,150 | LUKOIL, SP ADR | 4,242,863 | ||||||
40,956 | MOL Hungarian Oil & Gas Nyrt.* | 4,097,463 | ||||||
14,150 | Novatek Oao | 1,689,168 | ||||||
523,791 | OAO Gazprom, SP ADR | 13,325,243 | ||||||
93,600 | OGX Petroleo e Gas Participacoes SA* | 1,128,030 | ||||||
2,316,000 | PetroChina Co., Ltd. | 3,042,707 | ||||||
170,852 | Petroleo Brasileiro SA, SP ADR, Class A | 5,838,013 | ||||||
155,701 | Petroleo Brasileiro SA, SP ADR | 5,891,726 | ||||||
96,799 | Polski Koncern Naftowy Orlen SA* | 1,500,497 | ||||||
455,500 | PTT PCL | 4,834,636 | ||||||
156,302 | Reliance Industries, Ltd. | 3,700,743 | ||||||
361,250 | Rosneft Oil Co. | 2,588,524 | ||||||
9,839 | Sasol, Ltd. | 517,883 | ||||||
20,055 | SK Energy Co., Ltd.* | 3,419,853 | ||||||
1,185,500 | Thai Oil Public Co., Ltd. | 3,072,307 | ||||||
83,387 | Turkish Petroleum Refineries Corp. | 2,091,100 | ||||||
19,156 | Ultrapar Participacoes SA, Preferred Shares | 1,225,142 | ||||||
12,700 | Ultrapar Participacoes SA, SP ADR | 820,674 | ||||||
76,447,449 | ||||||||
Pharmaceuticals (0.2%): | ||||||||
121,152 | Glenmark Pharmaceuticals, Ltd. | 981,055 | ||||||
Real Estate Management & Development (1.5%): | ||||||||
186,000 | BR Malls Participacoes SA | 1,917,155 | ||||||
126,400 | BR Properties SA | 1,383,124 | ||||||
7,768,420 | Franshion Properties China, Ltd. | 2,336,611 | ||||||
584,899 | Talaat Moustafa Group* | 869,664 | ||||||
6,506,554 | ||||||||
Semiconductors & Semiconductor Equipment (7.3%): | ||||||||
23,730 | Hynix Semiconductor, Inc.* | 507,818 | ||||||
22,238 | Samsung Electronics Co., Ltd. | 18,586,836 | ||||||
4,886,110 | Taiwan Semiconductor Manufacturing Co., Ltd. | 11,912,296 | ||||||
31,006,950 | ||||||||
Software (0.1%): | ||||||||
22,900 | AsiaInfo Holdings, Inc.* | 379,453 | ||||||
Specialty Retail (0.9%): | ||||||||
1,449,000 | Belle International Holdings, Ltd. | 2,448,905 | ||||||
104,621 | Foschini, Ltd. | 1,432,067 | ||||||
3,880,972 | ||||||||
Transportation Infrastructure (0.9%): | ||||||||
112,964 | Companhia de Concessoes Rodoviarias | 3,193,010 | ||||||
40,894 | Globaltrans Investment plc, SP GDR, Registered Shares | 695,227 | ||||||
3,888,237 | ||||||||
Wireless Telecommunication Services (3.3%): | ||||||||
864,000 | China Mobile, Ltd. | 8,576,570 | ||||||
68,973 | Mobile TeleSystems, SP ADR | 1,439,467 | ||||||
46,916 | MTN Group, Ltd. | 958,645 | ||||||
48,312 | Vivo Participacoes SA, SP ADR | 1,574,488 | �� | |||||
347,600 | ZTE Corp., Class H | 1,381,426 | ||||||
13,930,596 | ||||||||
Total Common Stocks (Cost $308,254,123) | 407,813,735 | |||||||
Preferred Stocks (2.5%): | ||||||||
Beverages (0.5%): | ||||||||
66,000 | Companhia de Bebidas das Americas, SP ADR, Preferred Shares | 2,047,980 | ||||||
Metals & Mining (2.0%): | ||||||||
279,500 | Vale SA, SP ADR, Preferred Shares | 8,446,490 | ||||||
Total Preferred Stocks (Cost $5,034,309) | 10,494,470 | |||||||
Warrant (0.5%): | ||||||||
Diversified Financial Services (0.5%): | ||||||||
703,008 | Sberbank*(a) | 2,397,257 | ||||||
Total Warrant (Cost $1,621,695) | 2,397,257 | |||||||
Investment Company (0.6%): | ||||||||
2,398,762 | Dreyfus Treasury Prime Cash Management, 0.00%(b) | 2,398,762 | ||||||
Total Investment Company (Cost $2,398,762) | 2,398,762 | |||||||
Total Investment Securities (Cost $317,308,889)(c) — 99.6% | 423,104,224 | |||||||
Net other assets (liabilities) — 0.4% | 1,682,618 | |||||||
Net Assets — 100.0% | $ | 424,786,842 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
GDR—Global Depositary Receipt
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments, continued
December 31, 2010
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investor. The sub-adviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. | |
(b) | The rate represents the effective yield at December 31, 2010. | |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. | |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010: |
Country | Percentage | |||
Belize | 0.3 | % | ||
Bermuda | 0.5 | |||
Brazil | 17.2 | |||
Cayman Islands | 0.6 | |||
China | 7.1 | |||
Cyprus | 0.2 | |||
Czech Republic | 0.3 | |||
Egypt | 0.5 | |||
Hong Kong | 9.7 | |||
Hungary | 2.1 | |||
India | 6.0 | |||
Indonesia | 2.2 | |||
Peru | 0.4 | |||
Poland | 1.4 | |||
Qatar | 0.2 | |||
Republic of Korea (South) | 17.6 | |||
Russian Federation | 8.5 | |||
Saudi Arabia | — | ^ | ||
South Africa | 2.7 | |||
Taiwan | 11.3 | |||
Thailand | 4.5 | |||
Tokelau | 0.4 | |||
Turkey | 3.8 | |||
United Kingdom | 0.6 | |||
United States | 1.9 | |||
100.0 | % | |||
^ | Represents less than 0.05%. |
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Schroder | ||||
Emerging Markets | ||||
Equity Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 317,308,889 | ||
Investment securities, at value | $ | 423,104,224 | ||
Dividends receivable | 266,845 | |||
Foreign currency, at value (cost $1,691,378) | 1,747,113 | |||
Receivable for capital shares issued | 247,992 | |||
Receivable for investments sold | 75,368 | |||
Reclaims receivable | 22,468 | |||
Prepaid expenses | 5,193 | |||
Total Assets | 425,469,203 | |||
Liabilities: | ||||
Payable for investments purchased | 69,749 | |||
Payable for capital shares redeemed | 38,922 | |||
Manager fees payable | 333,984 | |||
Administration fees payable | 17,949 | |||
Distribution fees payable | 77,884 | |||
Custodian fees payable | 82,770 | |||
Administrative and compliance services fees payable | 3,316 | |||
Trustee fees payable | 599 | |||
Other accrued liabilities | 57,188 | |||
Total Liabilities | 682,361 | |||
Net Assets | $ | 424,786,842 | ||
Net Assets Consist of: | ||||
Capital | $ | 322,956,489 | ||
Accumulated net investment income/(loss) | 1,195,169 | |||
Accumulated net realized gains/(losses) from investment transactions | (5,216,098 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 105,851,282 | |||
Net Assets | $ | 424,786,842 | ||
Class 1 | ||||
Net Assets | $ | 47,961,636 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 5,474,193 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.76 | ||
Class 2 | ||||
Net Assets | $ | 376,825,206 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 43,115,997 | |||
Net Asset Value (offering and redemption price per share) | $ | 8.74 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Schroder | ||||
Emerging Markets | ||||
Equity Fund | ||||
Investment Income: | ||||
Dividends | $ | 9,709,477 | ||
Foreign withholding tax | (746,982 | ) | ||
Total Investment Income | 8,962,495 | |||
Expenses: | ||||
Manager fees | 4,724,071 | |||
Administration fees | 195,523 | |||
Distribution fees — Class 2 | 846,809 | |||
Custodian fees | 468,556 | |||
Administrative and compliance services fees | 15,013 | |||
Trustees’ fees | 30,770 | |||
Professional fees | 44,979 | |||
Shareholder reports | 70,806 | |||
Other expenses | 18,534 | |||
Total expenses before reductions | 6,415,061 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (1,067,884 | ) | ||
Net expenses | 5,347,177 | |||
Net Investment Income/(Loss) | 3,615,318 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities and foreign currency transactions | 58,763,821 | |||
Net realized gains/(losses) on forward foreign currency contracts | 30,221 | |||
Net realized gains/(losses) on futures transactions | (189,543 | ) | ||
Change in unrealized appreciation/(depreciation) on investments | (19,584,987 | ) | ||
Net Realized/Unrealized Gains/(Losses) on Investments | 39,019,512 | |||
Change in Net Assets Resulting From Operations | $ | 42,634,830 | ||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Statements of Changes in Net Assets
AZL Schroder Emerging | ||||||||
Markets Equity Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 3,615,318 | $ | 2,242,291 | ||||
Net realized gains/(losses) on investment transactions | 58,604,499 | 2,262,190 | ||||||
Change in unrealized appreciation/(depreciation) on investments | (19,584,987 | ) | 163,737,182 | |||||
Change in net assets resulting from operations | 42,634,830 | 168,241,663 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income: | ||||||||
Class 1 | (354,482 | ) | (143,222 | ) | ||||
Class 2 | (1,824,654 | ) | (552,019 | ) | ||||
Change in net assets resulting from dividends to shareholders | (2,179,136 | ) | (695,241 | ) | ||||
Change in net assets from capital transactions | (38,601,981 | ) | 34,209,934 | |||||
Change in net assets | 1,853,713 | 201,756,356 | ||||||
Net Assets: | ||||||||
Beginning of period | 422,933,129 | 221,176,773 | ||||||
End of period | $ | 424,786,842 | $ | 422,933,129 | ||||
Accumulated net investment income/(loss) | $ | 1,195,169 | $ | 940,085 | ||||
Capital Transactions: | ||||||||
Class 1 | ||||||||
Proceeds from shares issued | 410,603 | 680,945 | ||||||
Dividends reinvested | 354,482 | 143,222 | ||||||
Value of shares redeemed | (7,286,367 | ) | (7,463,134 | ) | ||||
Total Class 1 | (6,521,282 | ) | (6,638,967 | ) | ||||
Class 2 | ||||||||
Proceeds from shares issued | 81,555,078 | 95,905,490 | ||||||
Dividends reinvested | 1,824,654 | 552,019 | ||||||
Value of shares redeemed | (115,460,431 | ) | (55,608,608 | ) | ||||
Total Class 2 | (32,080,699 | ) | 40,848,901 | |||||
Change in net assets from capital transactions | (38,601,981 | ) | 34,209,934 | |||||
Share Transactions: | ||||||||
Class 1 | ||||||||
Issued | 52,657 | 95,110 | ||||||
Reinvested | 44,645 | 20,201 | ||||||
Redeemed | (924,092 | ) | (1,296,945 | ) | ||||
Total Class 1 Shares | (826,790 | ) | (1,181,634 | ) | ||||
Class 2 | ||||||||
Issued | 10,206,763 | 16,632,395 | ||||||
Reinvested | 230,095 | 77,969 | ||||||
Redeemed | (15,071,012 | ) | (10,024,679 | ) | ||||
Total Class 2 Shares | (4,634,154 | ) | 6,685,685 | |||||
Change in shares | (5,460,944 | ) | 5,504,051 | |||||
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 6, 2007 | ||||||||||||||||
Year Ended December 31, | to December 31, | |||||||||||||||
2010 | 2009 | 2008 | 2007(a) | |||||||||||||
Class 1 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.84 | $ | 4.56 | $ | 13.77 | $ | 11.64 | ||||||||
Investment Activities: | ||||||||||||||||
Net Investment Income | 0.10 | 0.06 | (b) | 0.03 | 0.04 | |||||||||||
Net Realized and Unrealized Gains (Losses) on Investments | 0.88 | 3.24 | (6.38 | ) | 2.10 | |||||||||||
Total from Investment Activities | 0.98 | 3.30 | (6.35 | ) | 2.14 | |||||||||||
Dividends to Shareholders From: | ||||||||||||||||
Net Investment Income | (0.06 | ) | (0.02 | ) | (0.04 | ) | (0.01 | ) | ||||||||
Net Realized Gains | — | — | (2.82 | ) | — | |||||||||||
Total Dividends | (0.06 | ) | (0.02 | ) | (2.86 | ) | (0.01 | ) | ||||||||
Net Asset Value, End of Period | $ | 8.76 | $ | 7.84 | $ | 4.56 | $ | 13.77 | ||||||||
Total Return(c)(d) | 12.61 | % | 72.46 | % | (51.82 | )% | 19.23 | % | ||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 47,962 | $ | 49,392 | $ | 34,118 | $ | 359 | ||||||||
Net Investment Income(e) | 1.19 | % | 0.99 | % | 0.78 | % | 0.32 | % | ||||||||
Expenses Before Reductions(e)(f) | 1.45 | % | 1.54 | % | 1.70 | % | 1.69 | % | ||||||||
Expenses Net of Reductions(e) | 1.17 | % | 1.26 | % | 1.41 | % | 1.40 | % | ||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e)(g) | 1.17 | % | 1.26 | % | 1.42 | % | 1.40 | % | ||||||||
Portfolio Turnover Rate(c)(h) | 101.09 | % | 99.85 | % | 158.76 | % | 192.53 | % |
(a) | Period from commencement of operations. | |
(b) | Average shares method used in calculation. | |
(c) | Not annualized for periods less than one year. | |
(d) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(e) | Annualized for periods less than one year. | |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(g) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. | |
(h) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
12
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Financial Highlights, continued
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 1, 2006 | ||||||||||||||||||||
Year Ended December 31, | to December 31, | |||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006(a) | ||||||||||||||||
Class 2 | ||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.82 | $ | 4.56 | $ | 13.76 | $ | 10.56 | $ | 10.00 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income | 0.08 | 0.04 | (b) | 0.02 | 0.03 | 0.02 | ||||||||||||||
Net Realized and Unrealized Gains (Losses) on Investments | 0.89 | 3.23 | (6.38 | ) | 3.17 | 0.55 | ||||||||||||||
Total from Investment Activities | 0.97 | 3.27 | (6.36 | ) | 3.20 | 0.57 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.05 | ) | (0.01 | ) | (0.02 | ) | — | (c) | (0.01 | ) | ||||||||||
Net Realized Gains | — | — | (2.82 | ) | — | — | ||||||||||||||
Total Dividends | (0.05 | ) | (0.01 | ) | (2.84 | ) | — | (c) | (0.01 | ) | ||||||||||
Net Asset Value, End of Period | $ | 8.74 | $ | 7.82 | $ | 4.56 | $ | 13.76 | $ | 10.56 | ||||||||||
Total Return(d)(e) | 12.40 | % | 71.78 | % | (51.89 | )% | 30.32 | % | 5.70 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 376,825 | $ | 373,541 | $ | 187,058 | $ | 249,236 | $ | 93,712 | ||||||||||
Net Investment Income(f) | 0.91 | % | 0.68 | % | 0.86 | % | 0.40 | % | 0.32 | % | ||||||||||
Expenses Before Reductions(f)(g) | 1.70 | % | 1.79 | % | 1.95 | % | 1.96 | % | 2.53 | % | ||||||||||
Expenses Net of Reductions(f) | 1.42 | % | 1.51 | % | 1.66 | % | 1.65 | % | 1.55 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(f)(h) | 1.42 | % | 1.51 | % | 1.67 | % | 1.65 | % | 1.55 | % | ||||||||||
Portfolio Turnover Rate(e)(i) | 101.09 | % | 99.85 | % | 158.76 | % | 192.53 | % | 36.16 | % |
(a) | Period from commencement of operations. | |
(b) | Average shares method used in calculation. | |
(c) | Represents less than $0.005. | |
(d) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(e) | Not annualized for periods less than one year. | |
(f) | Annualized for periods less than one year. | |
(g) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(h) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. | |
(i) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Schroder Emerging Markets Equity Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available. In addition, income and realized and unrealized gains and losses are allocated to each class of shares based on its relative net assets on a daily basis.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Each class of shares bears its pro-rata portion of expenses attributable to its series, except that each class separately bears expenses related specifically to that class, such as distribution fees. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment,
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund entered into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. As of December 31, 2010, the Fund did not hold any foreign currency exchange contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. As of December 31, 2010, the Fund did not hold any futures contracts. During the year ended December 31, 2010, the Fund had limited activity in these transactions.
Summary of Derivative Instruments
There were no open derivative positions as of December 31, 2010.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Change in Unrealized | ||||||||||
Appreciation/ | ||||||||||
Location of Gain/(Loss) | Realized Gain/(Loss) | (Depreciation) on | ||||||||
on Derivatives | on Derivatives | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | Recognized in Income | in Income | |||||||
Foreign Exchange Contracts | Net realized gains/(losses) on forward foreign currency contracts/change in unrealized appreciation/(depreciation) on investments | $ | 30,221 | $ | — | |||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | (189,543 | ) | — |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and Schroder Investment Management North America Inc., (“Schroder”), Schroder provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Schroder Investment Management North America Ltd. (Schroder Ltd.), an affiliate of Schroder, serves as the Sub-subadviser to the Fund and is responsible for day-to-day management of the Fund’s assets. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. For its services the Sub-subadviser is entitled to a fee payable by the Subadviser. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expenses (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of Class 1 is 1.40% and for Class 2 is 1.65%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL Schroder Emerging Markets Equity Fund Class 1 | 1.23 | % | 1.40 | % | ||||
AZL Schroder Emerging Markets Equity Fund Class 2 | 1.23 | % | 1.65 | % |
* | The Manager voluntarily reduced the management fee to 0.95%. Beginning May 1, 2011, the Manager expects to voluntarily reduce the management fee to 1.08% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets of Class 2 shares. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $11,457 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks: | ||||||||||||||||
Commercial Banks | $ | 19,366,699 | $ | 73,817,401 | $ | — | $ | 93,184,100 | ||||||||
Diversified Consumer Services | 498,966 | — | — | 498,966 | ||||||||||||
Diversified Financial Services | 1,906,658 | 2,448,890 | — | 4,355,548 | ||||||||||||
Diversified Telecommunication Services | 4,245,755 | 5,458,522 | — | 9,704,277 | ||||||||||||
Electric Utilities | 3,248,969 | 934,638 | — | 4,183,607 | ||||||||||||
Electric Equipment, Instruments & Components | 418,800 | 6,695,674 | — | 7,114,474 | ||||||||||||
Food & Staples Retailing | 2,745,492 | 1,051,984 | — | 3,797,476 | ||||||||||||
Household Durables | 2,879,508 | — | — | 2,879,508 | ||||||||||||
Machinery | 2,491,761 | 4,254,563 | — | 6,746,324 | ||||||||||||
Media | 1,028,577 | 1,832,938 | — | 2,861,515 | ||||||||||||
Metals & Mining | 19,505,685 | 16,642,191 | — | 36,147,876 | ||||||||||||
Multiline Retail | 2,086,934 | 6,773,682 | — | 8,860,616 | ||||||||||||
Oil, Gas & Consumable Fuels | 32,471,691 | 43,975,758 | — | 76,447,449 | ||||||||||||
Real Estate Management & Development | 3,300,279 | 3,206,275 | — | 6,506,554 | ||||||||||||
Software | 379,453 | — | — | 379,453 | ||||||||||||
Transportation Infrastructure | 3,193,010 | 695,227 | — | 3,888,237 | ||||||||||||
Wireless Telecommunication Services | 3,013,955 | 10,916,641 | — | 13,930,596 | ||||||||||||
All Other Common Stocks+ | — | 126,327,159 | — | 126,327,159 | ||||||||||||
Preferred Stocks | 10,494,470 | — | — | 10,494,470 | ||||||||||||
Warrant | — | 2,397,257 | — | 2,397,257 | ||||||||||||
Investment Company | 2,398,762 | — | — | 2,398,762 | ||||||||||||
Total Investment Securities | $ | 115,675,424 | $ | 307,428,800 | $ | — | $ | 423,104,224 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedules of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Schroder Emerging Markets Equity Fund | $ | 384,742,919 | $ | 425,550,209 |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Schroder Emerging Markets Equity Fund
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements, continued
December 31, 2010
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $328,049,747. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 109,378,862 | ||
Unrealized depreciation | (14,324,385 | ) | ||
Net unrealized appreciation | $ | 95,054,477 | ||
During the year ended December 31, 2010, the Fund utilized $53,929,002 in capital loss carryforwards to offset capital gains.
Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Fund had $359,720 of deferred post October currency losses, which will be treated as arising on the first business day of the fiscal year ending December 31, 2011.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Schroder Emerging Markets Equity Fund | $ | 2,179,136 | $ | — | $ | 2,179,136 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Schroder Emerging Markets Equity Fund | $ | 695,241 | $ | — | $ | 695,241 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Undistributed | Accumulated | Total | |||||||||||||||||
Ordinary | Long-Term | Capital and | Unrealized | Accumulated | ||||||||||||||||
Income | Capital Gains | Other Losses | Appreciation(a) | Earnings (Deficit) | ||||||||||||||||
AZL Schroder Emerging Markets Equity Fund | $ | 2,607,667 | $ | 4,471,982 | $ | (359,720 | ) | $ | 95,110,424 | $ | 101,830,353 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
21
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Schroder Emerging Markets Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 6.01% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
25
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
26
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
27
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
28
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
29
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
30
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Small Cap Stock Index Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 14
Page 14
Statement of Operations
Page 15
Page 15
Statements of Changes in Net Assets
Page 16
Page 16
Financial Highlights
Page 17
Page 17
Notes to the Financial Statements
Page 18
Page 18
Report of Independent Registered Public Accounting Firm
Page 26
Page 26
Other Federal Income Tax Information
Page 27
Page 27
Other Information
Page 28
Page 28
Approval of Investment Advisory and Subadvisory Agreements
Page 29
Page 29
Information about the Board of Trustees and Officers
Page 33
Page 33
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Small Cap Stock Index Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Small Cap Stock Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Small Cap Stock Index Fund returned 25.49%1. That compared to a 26.31% total return for its benchmark, the S&P SmallCap 600 Index2.
The Fund attempts to replicate the performance of the S&P SmallCap 600 index of U.S. stocks. As the 12-month period began, U.S. stocks performed well, aided by preliminary signs of improvement in U.S. unemployment figures and strong corporate earnings. However, stocks suffered a setback midway through the period, due in large part to fallout from the European sovereign debt crisis, a stalled job market in the U.S. and concerns related to the May “flash crash.” Those factors led to fears of a “double-dip” recession.
Those fears receded later in the period as the U.S. job market began to grow and the midterm election results were perceived as good news for the capital markets. Equities rebounded in that environment and finished the 12-month period with strong returns.
Among small-cap stock sectors, the period’s best performers were energy, consumer discretionary and industrials. While telecommunication services showed positive returns for the period, it was the weakest performing sector during the period, followed by utilities and materials.*
The underperformance of the Fund against its benchmark was the result of Fund expenses that are not reflected in the Index.
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. | |
2 | The S&P SmallCap 600 covers approximately 3% of the domestic equities market. Measuring the small cap segment of the market that is typically renowned for poor trading liquidity and financial instability, the index is designed to be an efficient portfolio of companies that meet specific inclusion criteria to ensure that they are investable and financially viable. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Small Cap Stock Index Fund Review
Fund Objective
The Fund’s investment objective is to seek to match the performance of the Standard & Poor’s SmallCap 600® Index (the “Index”). This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in a representative sample of stocks included in the Index and in futures whose performance is related to the index, rather than attempting to replicate the Index.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Smaller companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
The Fund does not attempt to manage market volatility or reduce the effects of poor stock performance. In addition, factors such as Fund expenses, selection of a representative portfolio, changes in the composition of the index, or the timing of purchases or redemptions of Fund shares may affect the correlation between the performance of the index and the Fund’s performance.
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||
1 | 3 | Inception | ||||||||||
Year | Year | (4/30/07) | ||||||||||
AZL® Small Cap Stock Index Fund | 25.49 | % | 2.66 | % | 0.51 | % | ||||||
S&P SmallCap 600 Index | 26.31 | % | 3.01 | % | 0.89 | % | ||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Small Cap Stock Index Fund | 0.67 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense) to 0.58% through April 30, 2011 and 0.71% effective May 1, 2011 through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the S&P SmallCap 600 Index, an unmanaged index which covers approximately 3% of the domestic equities market. Measuring the small cap segment of the market that is typically renowned for poor trading liquidity and financial instability, the index is designed to be an efficient portfolio of companies that meet specific inclusion criteria to ensure that they are investable and financially viable. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Small Cap Stock Index Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 1,000.00 | $ | 1,270.90 | $ | 3.32 | 0.58% |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 1,000.00 | $ | 1,022.28 | $ | 2.96 | 0.58% |
* | Expenses are actual to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Small Cap Stock Index Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 2.9 | % | ||
Air Freight & Logistics | 0.4 | |||
Airlines | 0.3 | |||
Auto Components | 0.3 | |||
Automobiles | 0.1 | |||
Beverages | 0.2 | |||
Biotechnology | 1.3 | |||
Building Products | 0.9 | |||
Capital Markets | 0.9 | |||
Chemicals | 1.8 | |||
Commercial Banks | 5.8 | |||
Commercial Services & Supplies | 2.3 | |||
Communications Equipment | 2.2 | |||
Computers & Peripherals | 0.9 | |||
Construction & Engineering | 0.9 | |||
Construction Materials | 0.6 | |||
Consumer Finance | 0.9 | |||
Containers & Packaging | 0.1 | |||
Distributors | — | ^ | ||
Diversified Consumer Services | 1.3 | |||
Diversified Financial Services | 0.4 | |||
Diversified Telecommunication Services | 0.4 | |||
Electric Utilities | 1.1 | |||
Electrical Equipment | 1.5 | |||
Electronic Equipment, Instruments & Components | 3.9 | |||
Energy Equipment & Services | 3.1 | |||
Food & Staples Retailing | 1.1 | |||
Food Products | 1.7 | |||
Gas Utilities | 1.8 | |||
Health Care Equipment & Supplies | 3.8 | |||
Health Care Providers & Services | 4.8 | |||
Health Care Technology | 0.5 | |||
Hotels, Restaurants & Leisure | 2.9 | |||
Household Durables | 1.0 | |||
Household Products | 0.2 | |||
Industrial Conglomerates | 0.3 | |||
Insurance | 2.4 | |||
Internet & Catalog Retail | 0.6 | |||
Internet Software & Services | 1.2 | |||
IT Services | 1.6 | |||
Leisure Equipment & Products | 1.0 | |||
Life Sciences Tools & Services | 0.9 | |||
Machinery | 4.0 | |||
Media | 0.9 | |||
Metals & Mining | 0.9 | |||
Multi-Utilities | 0.6 | |||
Multiline Retail | 0.1 | |||
Oil, Gas & Consumable Fuels | 2.2 | |||
Paper & Forest Products | 1.0 | |||
Personal Products | 0.1 | |||
Pharmaceuticals | 1.2 | |||
Professional Services | 0.9 | |||
Real Estate Investment Trusts (REITs) | 7.5 | |||
Real Estate Management & Development | 0.1 | |||
Road & Rail | 0.8 | |||
Semiconductors & Semiconductor Equipment | 5.8 | |||
Software | 3.6 | |||
Specialty Retail | 4.1 | |||
Textiles, Apparel & Luxury Goods | 2.6 | |||
Thrifts & Mortgage Finance | 0.5 | |||
Tobacco | 0.1 | |||
Trading Companies & Distributors | 0.4 | |||
Water Utilities | 0.1 | |||
Wireless Telecommunication Services | 0.2 | |||
Investment Company | 1.5 | |||
99.5 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. | |
^ | Represents less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (98.0%): | ||||||||
Aerospace & Defense (2.9%): | ||||||||
15,936 | AAR Corp.* | $ | 437,762 | |||||
6,104 | Aerovironment, Inc.* | 163,770 | ||||||
3,648 | American Science & Engineering, Inc. | 310,919 | ||||||
5,440 | Applied Signal Technology, Inc. | 206,122 | ||||||
10,108 | Ceradyne, Inc.* | 318,705 | ||||||
6,404 | Cubic Corp. | 301,949 | ||||||
18,709 | Curtiss-Wright Corp. | 621,139 | ||||||
12,206 | Esterline Technologies Corp.* | 837,210 | ||||||
23,967 | Gencorp, Inc.* | 123,909 | ||||||
18,428 | Moog, Inc., Class A* | 733,435 | ||||||
23,540 | Orbital Sciences Corp.* | 403,240 | ||||||
14,731 | Teledyne Technologies, Inc.* | 647,722 | ||||||
6,679 | Triumph Group, Inc. | 597,169 | ||||||
5,703,051 | ||||||||
Air Freight & Logistics (0.4%): | ||||||||
11,778 | Forward Air Corp. | 334,260 | ||||||
15,144 | HUB Group, Inc., Class A* | 532,160 | ||||||
866,420 | ||||||||
Airlines (0.3%): | ||||||||
6,096 | Allegiant Travel Co. | 300,167 | ||||||
22,341 | SkyWest, Inc. | 348,966 | ||||||
649,133 | ||||||||
Auto Components (0.3%): | ||||||||
7,763 | Drew Industries, Inc. | 176,376 | ||||||
13,246 | Spartan Motors, Inc. | 80,668 | ||||||
7,916 | Standard Motor Products, Inc. | 108,449 | ||||||
9,441 | Superior Industries International, Inc. | 200,338 | ||||||
565,831 | ||||||||
Automobiles (0.1%): | ||||||||
11,823 | Winnebago Industries, Inc.* | 179,710 | ||||||
Beverages (0.2%): | ||||||||
3,694 | Boston Beer Co., Inc. (The), Class A* | 351,262 | ||||||
Biotechnology (1.3%): | ||||||||
15,164 | ArQule, Inc.* | 89,013 | ||||||
24,067 | Cubist Pharmaceuticals, Inc.* | 515,034 | ||||||
8,741 | Emergent Biosolutions, Inc.* | 205,064 | ||||||
13,591 | Martek Biosciences Corp.* | 425,398 | ||||||
29,488 | Regeneron Pharmaceuticals, Inc.* | 968,091 | ||||||
28,519 | Savient Pharmaceuticals, Inc.* | 317,701 | ||||||
2,520,301 | ||||||||
Building Products (0.9%): | ||||||||
4,833 | AAON, Inc. | 136,339 | ||||||
11,415 | Apogee Enterprises, Inc. | 153,760 | ||||||
12,304 | Gibraltar Industries, Inc.* | 166,965 | ||||||
18,914 | Griffon Corp.* | 240,964 | ||||||
6,839 | NCI Building Systems, Inc.* | 95,678 | ||||||
15,268 | Quanex Building Products Corp. | 289,634 | ||||||
16,049 | Simpson Manufacturing Co., Inc. | 496,075 | ||||||
7,831 | Universal Forest Products, Inc. | 304,626 | ||||||
1,884,041 | ||||||||
Capital Markets (0.9%): | ||||||||
16,997 | Investment Technology Group, Inc.* | 278,241 | ||||||
14,643 | Labranche & Co., Inc.* | 52,715 | ||||||
17,254 | OptionsXpress Holdings, Inc. | 270,370 | ||||||
6,489 | Piper Jaffray Cos., Inc.* | 227,180 | ||||||
14,280 | Stifel Financial Corp.* | 885,931 | ||||||
11,937 | SWS Group, Inc. | 60,282 | ||||||
16,247 | Tradestation Group, Inc.* | 109,667 | ||||||
1,884,386 | ||||||||
Chemicals (1.8%): | ||||||||
8,709 | American Vanguard Corp. | 74,375 | ||||||
10,201 | Arch Chemicals, Inc. | 386,924 | ||||||
11,577 | Balchem Corp. | 391,418 | ||||||
22,860 | Calgon Carbon Corp.* | 345,643 | ||||||
19,879 | H.B. Fuller Co. | 407,917 | ||||||
6,599 | LSB Industries, Inc.* | 160,092 | ||||||
12,527 | OM Group, Inc.* | 482,415 | ||||||
4,633 | Penford Corp.* | 28,308 | ||||||
37,966 | PolyOne Corp.* | 474,195 | ||||||
4,619 | Quaker Chemical Corp. | 192,474 | ||||||
12,782 | Schulman, Inc. | 292,580 | ||||||
3,141 | Stepan Co. | 239,564 | ||||||
8,834 | Zep, Inc. | 175,620 | ||||||
3,651,525 | ||||||||
Commercial Banks (5.8%): | ||||||||
5,312 | Bank of the Ozarks, Inc. | 230,275 | ||||||
31,056 | Boston Private Financial Holdings, Inc. | 203,417 | ||||||
6,292 | City Holding Co. | 227,959 | ||||||
15,967 | Columbia Banking System, Inc. | 336,265 | ||||||
13,464 | Community Bank System, Inc. | 373,895 | ||||||
126,583 | First Bancorp* | 58,228 | ||||||
38,300 | First Commonwealth Financial Corp. | 271,164 | ||||||
23,564 | First Financial Bancorp | 435,463 | ||||||
8,464 | First Financial Bankshares, Inc. | 433,187 | ||||||
30,060 | First Midwest Bancorp, Inc. | 346,291 | ||||||
29,188 | Glacier Bancorp, Inc. | 441,031 | ||||||
11,978 | Hancock Holding Co. | 417,553 | ||||||
61,498 | Hanmi Financial Corp.* | 70,723 | ||||||
8,892 | Home Bancshares, Inc. | 195,891 | ||||||
8,609 | Independent Bank Corp. | 232,873 | ||||||
15,421 | Nara Bancorp, Inc.* | 151,434 | ||||||
51,180 | National Penn Bancshares, Inc. | 410,975 | ||||||
13,992 | NBT Bancorp, Inc. | 337,907 | ||||||
38,586 | Old National Bancorp | 458,788 |
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Commercial Banks, continued | ||||||||
13,670 | Pinnacle Financial Partners, Inc.* | $ | 185,639 | |||||
23,759 | PrivateBancorp, Inc. | 341,654 | ||||||
10,064 | S & T Bancorp, Inc. | 227,346 | ||||||
16,473 | Signature Bank* | 823,650 | ||||||
6,996 | Simmons First National Corp., Class A | 199,386 | ||||||
10,905 | Sterling Bancorp | 114,175 | ||||||
41,388 | Sterling Bancshares, Inc. | 290,544 | ||||||
52,679 | Susquehanna Bancshares, Inc. | 509,933 | ||||||
14,929 | Texas Capital Bancshares, Inc.* | 317,540 | ||||||
3,360 | Tompkins Financial Corp. | 131,578 | ||||||
12,135 | UMB Financial Corp. | 502,632 | ||||||
46,482 | Umpqua Holdings Corp. | 566,151 | ||||||
15,575 | United Bankshares, Inc. | 454,790 | ||||||
38,416 | United Community Banks, Inc.* | 74,911 | ||||||
39,225 | Whitney Holding Corp. | 555,034 | ||||||
37,154 | Wilmington Trust Corp. | 161,248 | ||||||
7,916 | Wilshire Bancorp, Inc. | 60,320 | ||||||
13,948 | Wintrust Financial Corp. | 460,702 | ||||||
11,610,552 | ||||||||
Commercial Services & Supplies (2.3%): | ||||||||
19,074 | ABM Industries, Inc. | 501,646 | ||||||
4,135 | Consolidated Graphics, Inc.* | 200,258 | ||||||
7,587 | G & K Services, Inc., Class A | 234,514 | ||||||
26,154 | Geo Group, Inc. (The)* | 644,958 | ||||||
26,748 | Healthcare Services Group, Inc. | 435,190 | ||||||
26,089 | Interface, Inc. | 408,293 | ||||||
14,790 | Mobile Mini, Inc.* | 291,215 | ||||||
4,793 | Standard Register Co. (The) | 16,344 | ||||||
16,545 | Sykes Enterprises, Inc.* | 335,202 | ||||||
25,064 | Tetra Tech, Inc.* | 628,104 | ||||||
9,395 | United Stationers, Inc.* | 599,495 | ||||||
8,198 | Viad Corp. | 208,803 | ||||||
4,504,022 | ||||||||
Communications Equipment (2.2%): | ||||||||
50,139 | Arris Group, Inc.* | 562,560 | ||||||
4,754 | Bel Fuse, Inc., Class B | 113,621 | ||||||
7,182 | Black Box Corp. | 274,999 | ||||||
17,528 | Blue Coat Systems, Inc.* | 523,561 | ||||||
11,224 | Comtech Telecommunications Corp. | 311,241 | ||||||
10,201 | Digi International, Inc.* | 113,231 | ||||||
6,220 | EMS Technologies, Inc.* | 123,032 | ||||||
39,531 | Harmonic, Inc.* | 338,781 | ||||||
14,544 | NETGEAR, Inc.* | 489,842 | ||||||
11,977 | Network Equipment Technologies, Inc.* | 55,453 | ||||||
7,835 | Oplink Communications, Inc.* | 144,712 | ||||||
7,442 | PC-Tel, Inc.* | 44,652 | ||||||
17,619 | Symmetricom, Inc.* | 124,919 | ||||||
27,840 | Tekelec* | 331,574 | ||||||
4,271 | Tollgrade Communications, Inc.* | 39,635 | ||||||
16,662 | ViaSat, Inc.* | 739,959 | ||||||
4,331,772 | ||||||||
Computers & Peripherals (0.9%): | ||||||||
11,768 | Avid Technology, Inc.* | 205,469 | ||||||
9,443 | Compellent Technologies, Inc.* | 260,532 | ||||||
9,569 | Hutchinson Technology, Inc.* | 35,501 | ||||||
19,527 | Intermec, Inc.* | 247,212 | ||||||
9,115 | Intevac, Inc.* | 127,701 | ||||||
3,210 | NCI, Inc., Class A* | 73,798 | ||||||
12,853 | Novatel Wireless, Inc.* | 122,746 | ||||||
8,386 | Stratasys, Inc.* | 273,719 | ||||||
10,195 | Super Micro Computer, Inc.* | 117,650 | ||||||
13,846 | Synaptics, Inc.* | 406,796 | ||||||
1,871,124 | ||||||||
Construction & Engineering (0.9%): | ||||||||
15,375 | Comfort Systems USA, Inc. | 202,489 | ||||||
14,264 | Dycom Industries, Inc.* | 210,394 | ||||||
26,967 | Emcor Group, Inc.* | 781,504 | ||||||
15,920 | Insituform Technologies, Inc.* | 422,039 | ||||||
10,924 | Orion Marine Group, Inc.* | 126,718 | ||||||
1,743,144 | ||||||||
Construction Materials (0.6%): | ||||||||
17,930 | Eagle Materials, Inc. | 506,522 | ||||||
24,575 | Headwaters, Inc.* | 112,554 | ||||||
11,286 | Texas Industries, Inc. | 516,673 | ||||||
1,135,749 | ||||||||
Consumer Finance (0.9%): | ||||||||
12,003 | Cash America International, Inc. | 443,271 | ||||||
20,213 | EZCORP, Inc., Class A* | 548,379 | ||||||
12,300 | First Cash Financial Services, Inc.* | 381,177 | ||||||
6,353 | World Acceptance Corp.* | 335,438 | ||||||
1,708,265 | ||||||||
Containers & Packaging (0.1%): | ||||||||
14,343 | Myers Industries, Inc. | 139,701 | ||||||
Distributors (0.0%): | ||||||||
7,651 | Audiovox Corp., Class A* | 66,028 | ||||||
Diversified Consumer Services (1.3%): | ||||||||
7,295 | American Public Education* | 271,666 | ||||||
6,713 | Capella Education Co.* | 446,951 | ||||||
12,853 | Coinstar, Inc.* | 725,423 | ||||||
34,271 | Corinthian Colleges, Inc.* | 178,552 | ||||||
25,278 | Hillenbrand, Inc. | 526,035 | ||||||
3,964 | Pre-paid Legal Services, Inc.* | 238,831 | ||||||
8,480 | Universal Technical Institute, Inc. | 186,730 | ||||||
2,574,188 | ||||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Diversified Financial Services (0.4%): | ||||||||
17,139 | Interactive Brokers Group, Inc., Class A | $ | 305,417 | |||||
6,925 | Portfolio Recovery Associates, Inc.* | 520,760 | ||||||
826,177 | ||||||||
Diversified Telecommunication Services (0.4%): | ||||||||
3,686 | Atlantic Tele-Network, Inc. | 141,321 | ||||||
12,518 | Cbeyond, Inc.* | 191,275 | ||||||
15,821 | General Communication, Inc., Class A* | 200,294 | ||||||
13,447 | Neutral Tandem, Inc.* | 194,175 | ||||||
727,065 | ||||||||
Electric Utilities (1.1%): | ||||||||
12,641 | ALLETE, Inc. | 471,004 | ||||||
5,326 | Central Vermont Public Service Corp. | 116,426 | ||||||
17,295 | El Paso Electric Co.* | 476,131 | ||||||
20,466 | UIL Holdings Corp. | 613,162 | ||||||
14,786 | Unisource Energy Corp. | 529,930 | ||||||
2,206,653 | ||||||||
Electrical Equipment (1.5%): | ||||||||
13,572 | A.O. Smith Corp. | 516,822 | ||||||
5,066 | AZZ, Inc. | 202,691 | ||||||
19,048 | Belden CDT, Inc. | 701,347 | ||||||
21,334 | Brady Corp., Class A | 695,702 | ||||||
7,729 | Encore Wire Corp. | 193,843 | ||||||
10,307 | II-VI, Inc.* | 477,832 | ||||||
3,603 | Powell Industries, Inc.* | 118,467 | ||||||
7,965 | Vicor Corp. | 130,626 | ||||||
3,037,330 | ||||||||
Electronic Equipment, Instruments & Components (3.9%): | ||||||||
8,101 | Agilysys, Inc.* | 45,609 | ||||||
11,433 | Anixter International, Inc. | 682,893 | ||||||
24,727 | Benchmark Electronics, Inc.* | 449,042 | ||||||
27,378 | Brightpoint, Inc.* | 239,010 | ||||||
16,094 | Checkpoint Systems, Inc.* | 330,732 | ||||||
16,248 | Cognex Corp. | 478,016 | ||||||
13,883 | CTS Corp. | 153,546 | ||||||
14,309 | Daktronics, Inc. | 227,799 | ||||||
6,957 | DTS, Inc.* | 341,241 | ||||||
9,692 | Electro Scientific Industries, Inc.* | 155,363 | ||||||
6,562 | Faro Technologies, Inc.* | 215,496 | ||||||
10,214 | Gerber Scientific, Inc.* | 80,384 | ||||||
18,786 | Insight Enterprises, Inc.* | 247,224 | ||||||
9,021 | Littlelfuse, Inc. | 424,528 | ||||||
7,326 | LoJack Corp.* | 47,326 | ||||||
9,889 | Mercury Computer Systems, Inc.* | 181,760 | ||||||
14,944 | Methode Electronics, Inc. | 193,824 | ||||||
6,159 | MTS Systems Corp. | 230,716 | ||||||
14,920 | Newport Corp.* | 259,160 | ||||||
7,575 | OSI Systems, Inc.* | 275,427 | ||||||
8,376 | Park Electrochemical Corp. | 251,280 | ||||||
16,429 | Plexus Corp.* | 508,313 | ||||||
16,870 | Pulse Electronics Corp. | 89,748 | ||||||
9,871 | RadiSys Corp.* | 87,852 | ||||||
11,526 | Rofin-Sinar Technologies, Inc.* | 408,482 | ||||||
6,425 | Rogers Corp.* | 245,756 | ||||||
10,847 | ScanSource, Inc.* | 346,019 | ||||||
9,582 | SYNNEX Corp.* | 298,959 | ||||||
17,553 | TTM Technologies, Inc.* | 261,715 | ||||||
7,757,220 | ||||||||
Energy Equipment & Services (3.1%): | ||||||||
9,383 | Basic Energy Services, Inc.* | 154,632 | ||||||
14,702 | Bristow Group, Inc.* | 696,140 | ||||||
7,690 | CARBO Ceramics, Inc. | 796,223 | ||||||
5,815 | Gulf Island Fabrication, Inc. | 163,867 | ||||||
9,451 | Hornbeck Offshore Services, Inc.* | 197,337 | ||||||
61,865 | ION Geophysical Corp.* | 524,615 | ||||||
12,198 | Lufkin Industries, Inc. | 761,033 | ||||||
10,725 | Matrix Service Co.* | 130,630 | ||||||
20,512 | Oil States International, Inc.* | 1,314,614 | ||||||
21,997 | Pioneer Drilling Co.* | 193,793 | ||||||
8,620 | Seacor Holdings, Inc. | 871,396 | ||||||
4,885 | Seahawk Drilling, Inc.* | 43,721 | ||||||
30,922 | TETRA Technologies, Inc.* | 367,044 | ||||||
6,215,045 | ||||||||
Food & Staples Retailing (1.1%): | ||||||||
7,470 | Andersons, Inc. (The) | 271,534 | ||||||
15,360 | Casey’s General Stores, Inc. | 652,954 | ||||||
4,941 | Nash Finch Co. | 210,042 | ||||||
3,720 | Seneca Foods Corp., Class A* | 100,366 | ||||||
9,189 | Spartan Stores, Inc. | 155,753 | ||||||
19,549 | United Natural Foods, Inc.* | 717,057 | ||||||
2,107,706 | ||||||||
Food Products (1.7%): | ||||||||
5,424 | Cal-Maine Foods, Inc. | 171,290 | ||||||
4,883 | Calavo Growers, Inc. | 112,553 | ||||||
33,469 | Darling International, Inc.* | 444,468 | ||||||
8,917 | Diamond Foods, Inc. | 474,206 | ||||||
17,393 | Hain Celestial Group, Inc.* | 470,655 | ||||||
5,787 | J & J Snack Foods Corp. | 279,165 | ||||||
7,846 | Sanderson Farms, Inc. | 307,171 | ||||||
18,758 | Snyders-Lance, Inc. | 439,687 | ||||||
14,367 | TreeHouse Foods, Inc.* | 734,010 | ||||||
3,433,205 | ||||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities (1.8%): | ||||||||
9,051 | Laclede Group, Inc. (The) | $ | 330,724 | |||||
16,740 | New Jersey Resources Corp. | 721,661 | ||||||
10,812 | Northwest Natural Gas Co. | 502,434 | ||||||
29,264 | Piedmont Natural Gas Co., Inc. | 818,221 | ||||||
12,124 | South Jersey Industries, Inc. | 640,390 | ||||||
18,484 | Southwest Gas Corp. | 677,808 | ||||||
3,691,238 | ||||||||
Health Care Equipment & Supplies (3.8%): | ||||||||
9,075 | Abaxis, Inc.* | 243,664 | ||||||
27,564 | Align Technology, Inc.* | 538,601 | ||||||
31,033 | American Medical Systems Holdings, Inc.* | 585,282 | ||||||
5,203 | Analogic Corp. | 257,600 | ||||||
5,192 | Cantel Medical Corp. | 121,493 | ||||||
11,416 | CONMED Corp.* | 301,725 | ||||||
18,530 | Cooper Companies, Inc. | 1,043,980 | ||||||
11,559 | CryoLife, Inc.* | 62,650 | ||||||
9,780 | Cyberonics, Inc.* | 303,376 | ||||||
9,450 | Greatbatch, Inc.* | 228,217 | ||||||
10,043 | Haemonetics Corp.* | 634,517 | ||||||
4,802 | ICU Medical, Inc.* | 175,273 | ||||||
8,258 | Integra LifeSciences Holdings* | 390,603 | ||||||
13,152 | Invacare Corp. | 396,664 | ||||||
3,384 | Kensey Nash Corp.* | 94,177 | ||||||
16,510 | Meridian Bioscience, Inc. | 382,372 | ||||||
11,498 | Merit Medical Systems, Inc.* | 182,013 | ||||||
11,740 | Natus Medical, Inc.* | 166,473 | ||||||
9,212 | Neogen Corp.* | 377,968 | ||||||
7,547 | Palomar Medical Technologies, Inc.* | 107,243 | ||||||
7,076 | Surmodics, Inc.* | 83,992 | ||||||
14,599 | Symmetry Medical, Inc.* | 135,041 | ||||||
13,514 | West Pharmaceutical Services, Inc. | 556,777 | ||||||
8,730 | ZOLL Medical Corp.* | 325,018 | ||||||
7,694,719 | ||||||||
Health Care Providers & Services (4.8%): | ||||||||
4,531 | Air Methods Corp.* | 254,959 | ||||||
3,341 | Almost Family, Inc.* | 128,361 | ||||||
11,783 | Amedisys, Inc.* | 394,731 | ||||||
20,117 | Amerigroup Corp.* | 883,539 | ||||||
15,890 | AMN Healthcare Services, Inc.* | 97,565 | ||||||
12,558 | AmSurg Corp.* | 263,090 | ||||||
9,942 | Bio-Reference Laboratories, Inc.* | 220,514 | ||||||
15,857 | Catalyst Health Solutions, Inc.* | 737,192 | ||||||
19,995 | Centene Corp.* | 506,673 | ||||||
9,250 | Chemed Corp. | 587,468 | ||||||
2,662 | CorVel Corp.* | 128,708 | ||||||
12,637 | Cross Country Healthcare, Inc.* | 107,035 | ||||||
7,152 | Genoptix, Inc.* | 136,031 | ||||||
12,127 | Gentiva Health Services, Inc.* | 322,578 | ||||||
13,185 | Hanger Orthopedic Group, Inc.* | 279,390 | ||||||
23,229 | Healthspring, Inc.* | 616,265 | ||||||
13,935 | Healthways, Inc.* | 155,515 | ||||||
11,185 | HMS Holdings Corp.* | 724,452 | ||||||
6,602 | IPC The Hospitalist Co.* | 257,544 | ||||||
3,817 | Landauer, Inc. | 228,905 | ||||||
7,412 | LCA-Vision, Inc.* | 42,619 | ||||||
6,371 | LHC Group, Inc.* | 191,130 | ||||||
13,614 | Magellan Health Services, Inc.* | 643,670 | ||||||
8,315 | MedCath Corp.* | 115,994 | ||||||
6,876 | Molina Healthcare, Inc.* | 191,497 | ||||||
5,056 | MWI Veterinary Supply, Inc.* | 319,286 | ||||||
11,847 | PharMerica Corp.* | 135,648 | ||||||
22,428 | PSS World Medical, Inc.* | 506,873 | ||||||
10,124 | RehabCare Group, Inc.* | 239,939 | ||||||
5,318 | The Ensign Group, Inc. | 132,259 | ||||||
9,549,430 | ||||||||
Health Care Technology (0.5%): | ||||||||
4,452 | Computer Programs & Systems, Inc. | 208,532 | ||||||
13,387 | Omnicell, Inc.* | 193,442 | ||||||
7,757 | Quality Systems, Inc. | 541,594 | ||||||
943,568 | ||||||||
Hotels, Restaurants & Leisure (2.9%): | ||||||||
582 | Biglari Holdings, Inc.* | 238,742 | ||||||
9,171 | BJ’s Restaurants, Inc.* | 324,929 | ||||||
7,384 | Buffalo Wild Wings, Inc.* | 323,788 | ||||||
9,980 | California Pizza Kitchen, Inc.* | 172,454 | ||||||
8,324 | CEC Entertainment, Inc.* | 323,221 | ||||||
9,473 | Cracker Barrel Old Country Store, Inc. | 518,836 | ||||||
6,292 | DineEquity, Inc.* | 310,699 | ||||||
16,452 | Interval Leisure Group, Inc.* | 265,535 | ||||||
21,472 | Jack in the Box, Inc.* | 453,703 | ||||||
8,785 | Marcus Corp. | 116,577 | ||||||
4,643 | Monarch Casino & Resort, Inc.* | 58,038 | ||||||
11,349 | Multimedia Games, Inc.* | 63,327 | ||||||
7,791 | O’Charley’s, Inc.* | 56,095 | ||||||
9,321 | P.F. Chang’s China Bistro, Inc. | 451,696 | ||||||
8,162 | Papa John’s International, Inc.* | 226,087 | ||||||
5,199 | Peet’s Coffee & Tea, Inc.* | 217,006 | ||||||
22,215 | Pinnacle Entertainment, Inc.* | 311,454 | ||||||
6,335 | Red Robin Gourmet Burgers* | 136,013 | ||||||
26,324 | Ruby Tuesday, Inc.* | 343,792 | ||||||
12,668 | Ruth’s Hospitality Group, Inc.* | 58,653 | ||||||
21,773 | Shuffle Master, Inc.* | 249,301 | ||||||
25,022 | Sonic Corp.* | 253,223 | ||||||
23,594 | Texas Roadhouse, Inc.* | 405,109 | ||||||
5,878,278 | ||||||||
Household Durables (1.0%): | ||||||||
2,208 | Blyth, Inc. | 76,132 | ||||||
11,664 | Ethan Allen Interiors, Inc. | 233,397 |
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Household Durables, continued | ||||||||
12,435 | Helen of Troy, Ltd.* | $ | 369,817 | |||||
8,758 | Kid Brands, Inc.* | 74,881 | ||||||
21,061 | La-Z-Boy, Inc.* | 189,970 | ||||||
7,526 | M/I Homes, Inc.* | 115,750 | ||||||
13,042 | Meritage Corp.* | 289,532 | ||||||
2,118 | National Presto Industries, Inc. | 275,361 | ||||||
2,803 | Skyline Corp. | 73,102 | ||||||
40,343 | Standard-Pacific Corp.* | 185,578 | ||||||
6,027 | Universal Electronics, Inc.* | 170,986 | ||||||
2,054,506 | ||||||||
Household Products (0.2%): | ||||||||
22,287 | Central Garden & Pet Co., Class A* | 220,196 | ||||||
6,793 | WD-40 Co. | 273,622 | ||||||
493,818 | ||||||||
Industrial Conglomerates (0.3%): | ||||||||
5,106 | Standex International Corp. | 152,720 | ||||||
16,785 | STR Holdings, Inc.* | 335,700 | ||||||
9,313 | Tredegar, Inc. | 180,486 | ||||||
668,906 | ||||||||
Insurance (2.4%): | ||||||||
7,488 | Amerisafe, Inc.* | 131,040 | ||||||
22,046 | Delphi Financial Group, Inc., Class A | 635,807 | ||||||
9,111 | eHealth, Inc.* | 129,285 | ||||||
15,821 | Employers Holdings, Inc. | 276,551 | ||||||
16,033 | Horace Mann Educators Corp. | 289,235 | ||||||
5,081 | Infinity Property & Casualty Corp. | 314,006 | ||||||
17,730 | National Financial Partners Corp.* | 237,582 | ||||||
5,057 | Navigators Group, Inc.* | 254,620 | ||||||
8,655 | Presidential Life Corp. | 85,944 | ||||||
12,468 | ProAssurance Corp.* | 755,561 | ||||||
6,718 | RLI Corp. | 353,165 | ||||||
6,105 | Safety Insurance Group, Inc. | 290,415 | ||||||
21,720 | Selective Insurance Group, Inc. | 394,218 | ||||||
7,468 | Stewart Information Services Corp. | 86,106 | ||||||
16,854 | Tower Group, Inc. | 431,125 | ||||||
8,628 | United Fire & Casualty Co. | 192,577 | ||||||
4,857,237 | ||||||||
Internet & Catalog Retail (0.6%): | ||||||||
5,840 | Blue Nile, Inc.* | 333,230 | ||||||
15,705 | HSN, Inc.* | 481,201 | ||||||
10,849 | Nutri/System, Inc. | 228,155 | ||||||
9,252 | PetMed Express, Inc. | 164,778 | ||||||
4,842 | Stamps.com, Inc. | 64,157 | ||||||
1,271,521 | ||||||||
Internet Software & Services (1.2%): | ||||||||
10,334 | comScore, Inc.* | 230,551 | ||||||
16,482 | DealerTrack Holdings, Inc.* | 330,794 | ||||||
14,680 | InfoSpace, Inc.* | 121,844 | ||||||
18,509 | J2 Global Communications, Inc.* | 535,836 | ||||||
12,427 | Knot, Inc. (The)* | 122,779 | ||||||
6,978 | Liquidity Services, Inc.* | 98,041 | ||||||
6,633 | LogMeIn, Inc.* | 294,107 | ||||||
12,071 | Perficient, Inc.* | 150,887 | ||||||
9,586 | RightNow Technologies, Inc.* | 226,901 | ||||||
34,902 | United Online, Inc. | 230,353 | ||||||
2,342,093 | ||||||||
IT Services (1.6%): | ||||||||
12,306 | CACI International, Inc., Class A* | 657,141 | ||||||
28,353 | CIBER, Inc.* | 132,692 | ||||||
13,838 | CSG Systems International, Inc.* | 262,092 | ||||||
5,919 | Forrester Research, Inc. | 208,882 | ||||||
15,519 | Heartland Payment Systems, Inc. | 239,303 | ||||||
11,793 | iGATE Corp. | 232,440 | ||||||
7,144 | Integral Systems, Inc.* | 70,797 | ||||||
6,985 | Maximus, Inc. | 458,076 | ||||||
4,960 | StarTek, Inc.* | 25,147 | ||||||
11,760 | TeleTech Holdings, Inc.* | 242,138 | ||||||
15,537 | Wright Express Corp.* | 714,702 | ||||||
3,243,410 | ||||||||
Leisure Equipment & Products (1.0%): | ||||||||
4,965 | Arctic Cat, Inc.* | 72,688 | ||||||
35,979 | Brunswick Corp. | 674,246 | ||||||
26,147 | Callaway Golf Co. | 211,006 | ||||||
11,212 | JAKKS Pacific, Inc.* | 204,283 | ||||||
20,173 | Pool Corp. | 454,699 | ||||||
8,789 | RC2 Corp.* | 191,337 | ||||||
7,646 | Sturm, Ruger & Co., Inc. | 116,907 | ||||||
1,925,166 | ||||||||
Life Sciences Tools & Services (0.9%): | ||||||||
28,691 | Affymetrix, Inc.* | 144,316 | ||||||
12,048 | Cambrex Corp.* | 62,288 | ||||||
7,070 | Dionex Corp.* | 834,331 | ||||||
13,934 | Enzo Biochem, Inc.* | 73,571 | ||||||
17,537 | eResearch Technology, Inc.* | 128,897 | ||||||
6,124 | Kendle International, Inc.* | 66,690 | ||||||
23,604 | PAREXEL International Corp.* | 501,113 | ||||||
1,811,206 | ||||||||
Machinery (4.0%): | ||||||||
27,661 | Actuant Corp., Class A | 736,336 | ||||||
11,255 | Albany International Corp., Class A | 266,631 | ||||||
8,082 | Astec Industries, Inc.* | 261,938 | ||||||
6,104 | Badger Meter, Inc. | 269,919 |
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
18,431 | Barnes Group, Inc. | $ | 380,969 | |||||
20,429 | Briggs & Stratton Corp. | 402,247 | ||||||
3,739 | Cascade Corp. | 176,780 | ||||||
6,942 | CIRCOR International, Inc. | 293,508 | ||||||
20,448 | CLARCOR, Inc. | 877,015 | ||||||
8,359 | Enpro Industries, Inc.* | 347,400 | ||||||
10,772 | ESCO Technologies, Inc. | 407,612 | ||||||
25,265 | Federal Signal Corp. | 173,318 | ||||||
11,464 | John Bean Technologies Corp. | 230,770 | ||||||
13,577 | Kaydon Corp. | 552,855 | ||||||
5,085 | Lindsay Corp. | 302,201 | ||||||
7,046 | Lydall, Inc.* | 56,720 | ||||||
15,356 | Mueller Industries, Inc. | 502,141 | ||||||
13,378 | Robbins & Myers, Inc. | 478,665 | ||||||
12,706 | Toro Co. | 783,198 | ||||||
11,874 | Watts Water Technologies, Inc., Class A | 434,470 | ||||||
7,934,693 | ||||||||
Media (0.9%): | ||||||||
10,934 | Arbitron, Inc. | 453,980 | ||||||
9,859 | DG FastChannel, Inc.* | 284,728 | ||||||
12,390 | Dolan Co. (The)* | 172,469 | ||||||
12,471 | E.W. Scripps Co. (The), Class A* | 126,580 | ||||||
60,577 | Live Nation, Inc.* | 691,789 | ||||||
1,729,546 | ||||||||
Metals & Mining (0.9%): | ||||||||
6,807 | A.M. Castle & Co.* | 125,317 | ||||||
10,230 | AMCOL International Corp. | 317,130 | ||||||
8,202 | Brush Engineered Materials, Inc.* | 316,925 | ||||||
22,963 | Century Aluminum Co.* | 356,615 | ||||||
6,007 | Kaiser Aluminum Corp. | 300,891 | ||||||
3,719 | Olympic Steel, Inc. | 106,661 | ||||||
12,226 | RTI International Metals, Inc.* | 329,858 | ||||||
1,853,397 | ||||||||
Multi-Utilities (0.6%): | ||||||||
22,965 | Avista Corp. | 517,172 | ||||||
6,424 | CH Energy Group, Inc. | 314,069 | ||||||
14,695 | NorthWestern Corp. | 423,657 | ||||||
1,254,898 | ||||||||
Multiline Retail (0.1%): | ||||||||
15,921 | Fred’s, Inc. | 219,073 | ||||||
14,869 | Tuesday Morning Corp.* | 78,508 | ||||||
297,581 | ||||||||
Oil, Gas & Consumable Fuels (2.2%): | ||||||||
5,215 | Contango Oil & Gas Co. | 302,105 | ||||||
12,843 | Gulfport Energy Corp.* | 278,051 | ||||||
17,923 | Holly Corp. | 730,721 | ||||||
18,487 | Penn Virginia Corp. | 310,951 | ||||||
9,503 | Petroleum Development Corp.* | 401,122 | ||||||
22,579 | PetroQuest Energy, Inc.* | 170,020 | ||||||
19,698 | Stone Energy Corp.* | 439,068 | ||||||
16,896 | Swift Energy Co.* | 661,478 | ||||||
28,042 | World Fuel Services Corp. | 1,013,999 | ||||||
4,307,515 | ||||||||
Paper & Forest Products (1.0%): | ||||||||
16,031 | Buckeye Technologies, Inc. | 336,811 | ||||||
4,660 | Clearwater Paper Corp.* | 364,878 | ||||||
4,361 | Deltic Timber Corp. | 245,699 | ||||||
15,504 | KapStone Paper and Packaging Corp.* | 237,211 | ||||||
5,996 | Neenah Paper, Inc. | 118,001 | ||||||
7,314 | Schweitzer-Mauduit International, Inc. | 460,197 | ||||||
19,909 | Wausau Paper Corp. | 171,417 | ||||||
1,934,214 | ||||||||
Personal Products (0.1%): | ||||||||
5,449 | Medifast, Inc.* | 157,367 | ||||||
Pharmaceuticals (1.2%): | ||||||||
4,142 | Hi-Tech Pharmacal Co., Inc.* | 103,343 | ||||||
14,446 | Par Pharmaceutical Cos., Inc.* | 556,315 | ||||||
23,511 | Salix Pharmaceuticals, Inc.* | 1,104,077 | ||||||
31,648 | ViroPharma, Inc.* | 548,143 | ||||||
2,311,878 | ||||||||
Professional Services (0.9%): | ||||||||
9,074 | Administaff, Inc. | 265,868 | ||||||
5,260 | CDI Corp. | 97,783 | ||||||
5,632 | Exponent, Inc.* | 211,369 | ||||||
7,121 | Heidrick & Struggles International, Inc. | 204,017 | ||||||
11,471 | Kelly Services, Inc., Class A* | 215,655 | ||||||
14,852 | On Assignment, Inc.* | 121,044 | ||||||
6,519 | School Specialty, Inc.* | 90,810 | ||||||
21,479 | SFN Group, Inc.* | 209,635 | ||||||
17,883 | Trueblue, Inc.* | 321,715 | ||||||
4,874 | Volt Information Sciences, Inc.* | 42,160 | ||||||
1,780,056 | ||||||||
Real Estate Investment Trusts (REITs) (7.5%): | ||||||||
16,341 | Acadia Realty Trust | 298,060 | ||||||
53,095 | BioMed Realty Trust, Inc. | 990,222 | ||||||
19,098 | Cedar Shopping Centers, Inc. | 120,126 | ||||||
34,083 | Colonial Properties Trust | 615,198 | ||||||
62,728 | DiamondRock Hospitality, Co.* | 752,736 | ||||||
10,951 | EastGroup Properties, Inc. | 463,446 | ||||||
18,884 | Entertainment Properties Trust | 873,385 | ||||||
35,529 | Extra Space Storage, Inc. | 618,205 | ||||||
28,193 | Franklin Street Properties Corp. | 401,750 | ||||||
26,147 | Healthcare Realty Trust, Inc. | 553,532 | ||||||
15,272 | Home Properties, Inc. | 847,443 | ||||||
30,756 | Inland Real Estate Corp. | 270,653 |
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Investment Trusts (REITs), continued | ||||||||
21,244 | Kilroy Realty Corp. | $ | 774,769 | |||||
25,727 | Kite Realty Group Trust | 139,183 | ||||||
29,649 | LaSalle Hotel Properties | 782,733 | ||||||
50,466 | Lexington Corporate Properties Trust | 401,205 | ||||||
10,647 | LTC Properties, Inc. | 298,968 | ||||||
45,160 | Medical Properties Trust, Inc. | 489,083 | ||||||
13,873 | Mid-America Apartment Communities, Inc. | 880,797 | ||||||
33,877 | National Retail Properties, Inc. | 897,740 | ||||||
8,904 | Parkway Properties, Inc. | 155,998 | ||||||
22,479 | Pennsylvania Real Estate Investment Trust | 326,620 | ||||||
19,793 | Post Properties, Inc. | 718,486 | ||||||
7,595 | PS Business Parks, Inc. | 423,193 | ||||||
4,652 | Saul Centers, Inc. | 220,272 | ||||||
11,222 | Sovran Self Storage, Inc. | 413,082 | ||||||
16,430 | Tanger Factory Outlet Centers, Inc. | 841,052 | ||||||
4,609 | Universal Health Realty Income Trust | 168,367 | ||||||
8,651 | Urstadt Biddle Properties, Inc., Class A | 168,262 | ||||||
14,904,566 | ||||||||
Real Estate Management & Development (0.1%): | ||||||||
14,383 | Forestar Group, Inc.* | 277,592 | ||||||
Road & Rail (0.8%): | ||||||||
10,278 | Arkansas Best Corp. | 281,823 | ||||||
20,614 | Heartland Express, Inc. | 330,236 | ||||||
25,126 | Knight Transportation, Inc. | 477,394 | ||||||
17,023 | Old Dominion Freight Line, Inc.* | 544,566 | ||||||
1,634,019 | ||||||||
Semiconductors & Semiconductor Equipment (5.8%): | ||||||||
15,654 | Advanced Energy Industries, Inc.* | 213,521 | ||||||
12,741 | ATMI, Inc.* | 254,056 | ||||||
26,504 | Brooks Automation, Inc.* | 240,391 | ||||||
9,311 | Cabot Microelectronics Corp.* | 385,941 | ||||||
8,935 | CEVA, Inc.* | 183,168 | ||||||
9,694 | Cohu, Inc. | 160,727 | ||||||
12,013 | Cymer, Inc.* | 541,426 | ||||||
67,300 | Cypress Semiconductor Corp.* | 1,250,434 | ||||||
14,589 | Diodes, Inc.* | 393,757 | ||||||
9,496 | DSP Group, Inc.* | 77,297 | ||||||
17,987 | Exar Corp.* | 125,549 | ||||||
15,517 | FEI Co.* | 409,804 | ||||||
10,004 | Hittite Microwave Corp.* | 610,644 | ||||||
26,353 | Kopin Corp.* | 109,629 | ||||||
28,595 | Kulicke & Soffa Industries, Inc.* | 205,884 | ||||||
20,170 | Micrel, Inc. | 262,008 | ||||||
33,900 | Microsemi Corp.* | 776,310 | ||||||
20,429 | MKS Instruments, Inc.* | 500,306 | ||||||
14,551 | Monolithic Power Systems, Inc.* | 240,383 | ||||||
10,115 | Pericom Semiconductor Corp.* | 111,063 | ||||||
11,344 | Power Integrations, Inc. | 455,348 | ||||||
12,757 | Rudolph Technologies, Inc.* | 104,990 | ||||||
11,214 | Sigma Designs, Inc.* | 158,902 | ||||||
9,192 | Standard Microsystems Corp.* | 265,005 | ||||||
5,291 | Supertex, Inc.* | 127,936 | ||||||
20,481 | Tessera Technologies, Inc.* | 453,654 | ||||||
64,550 | TriQuint Semiconductor, Inc.* | 754,590 | ||||||
9,916 | Ultratech, Inc.* | 197,130 | ||||||
30,029 | Varian Semiconductor Equipment Associates, Inc.* | 1,110,172 | ||||||
16,194 | Veeco Instruments, Inc.* | 695,694 | ||||||
10,909 | Volterra Semiconductor Corp.* | 252,652 | ||||||
11,628,371 | ||||||||
Software (3.6%): | ||||||||
17,813 | Blackbaud, Inc. | 461,357 | ||||||
13,113 | Bottomline Technologies, Inc.* | 284,683 | ||||||
17,477 | Commvault Systems, Inc.* | 500,192 | ||||||
14,119 | Ebix, Inc.* | 334,197 | ||||||
18,781 | Epicor Software Corp.* | 189,688 | ||||||
13,310 | Epiq Systems, Inc. | 182,746 | ||||||
5,426 | Interactive Intelligence, Inc.* | 141,944 | ||||||
17,762 | JDA Software Group, Inc.* | 497,336 | ||||||
8,895 | Manhattan Associates, Inc.* | 271,653 | ||||||
3,398 | MicroStrategy, Inc., Class A* | 290,427 | ||||||
14,191 | NetScout Systems, Inc.* | 326,535 | ||||||
17,566 | Progress Software Corp.* | 743,393 | ||||||
13,457 | Radiant Systems, Inc.* | 263,354 | ||||||
12,249 | Smith Micro Software, Inc.* | 192,799 | ||||||
19,818 | Sonic Solutions* | 297,270 | ||||||
11,370 | Sourcefire, Inc.* | 294,824 | ||||||
9,734 | Synchronoss Technologies, Inc.* | 259,995 | ||||||
34,491 | Take-Two Interactive Software, Inc.* | 422,170 | ||||||
16,424 | Taleo Corp., Class A, Class A* | 454,124 | ||||||
25,288 | THQ, Inc.* | 153,245 | ||||||
10,215 | Tyler Technologies, Inc.* | 212,063 | ||||||
16,951 | Websense, Inc.* | 343,258 | ||||||
7,117,253 | ||||||||
Specialty Retail (4.1%): | ||||||||
8,863 | Big 5 Sporting Goods Corp. | 135,338 | ||||||
17,808 | Brown Shoe Co., Inc. | 248,065 | ||||||
10,592 | Buckle, Inc. (The) | 400,060 | ||||||
16,262 | Cabela’s, Inc., Class A* | 353,698 | ||||||
11,965 | Cato Corp. | 327,961 | ||||||
10,529 | Children’s Place Retail Stores, Inc.* | 522,660 | ||||||
14,570 | Christopher & Banks Corp. | 89,605 | ||||||
24,423 | Coldwater Creek, Inc.* | 77,421 |
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
21,640 | Finish Line, Inc. (The), Class A | $ | 371,992 | |||||
9,761 | Genesco, Inc.* | 365,940 | ||||||
9,630 | Group 1 Automotive, Inc. | 402,149 | ||||||
7,544 | Haverty Furniture Co., Inc. | 97,921 | ||||||
11,344 | Hibbett Sports, Inc.* | 418,594 | ||||||
18,113 | HOT Topic, Inc. | 113,568 | ||||||
10,687 | Jo-Ann Stores, Inc.* | 643,571 | ||||||
11,211 | Jos. A. Bank Clothiers, Inc.* | 452,028 | ||||||
6,385 | Kirkland’s, Inc.* | 89,582 | ||||||
8,823 | Lithia Motors, Inc., Class A | 126,081 | ||||||
9,464 | Lumber Liquidators Holdings, Inc.* | 235,748 | ||||||
9,003 | MarineMax, Inc.* | 84,178 | ||||||
21,381 | Men’s Wearhouse, Inc. (The) | 534,097 | ||||||
5,775 | Midas, Inc.* | 46,835 | ||||||
12,260 | Monro Muffler Brake, Inc. | 424,056 | ||||||
34,507 | OfficeMax, Inc.* | 610,774 | ||||||
21,320 | Pep Boys-Manny, Moe & Jack | 286,328 | ||||||
14,347 | Sonic Automotive, Inc. | 189,954 | ||||||
14,859 | Stage Store, Inc. | 257,655 | ||||||
10,949 | Stein Mart, Inc. | 101,278 | ||||||
9,662 | Zale Corp.* | 41,160 | ||||||
8,447 | Zumiez, Inc.* | 226,971 | ||||||
8,275,268 | ||||||||
Textiles, Apparel & Luxury Goods (2.6%): | ||||||||
23,334 | Carter’s, Inc.* | 688,586 | ||||||
35,408 | Crocs, Inc.* | 606,185 | ||||||
29,433 | Iconix Brand Group, Inc.* | 568,351 | ||||||
11,028 | K-Swiss, Inc., Class A* | 137,519 | ||||||
38,353 | Liz Claiborne, Inc.* | 274,608 | ||||||
9,484 | Maidenform Brands, Inc.* | 225,435 | ||||||
7,029 | Movado Group, Inc.* | 113,448 | ||||||
5,651 | Oxford Industries, Inc. | 144,722 | ||||||
4,071 | Perry Ellis International, Inc.* | 111,830 | ||||||
52,578 | Quiksilver Resources, Inc.* | 266,571 | ||||||
13,727 | Skechers U.S.A., Inc., Class A* | 274,540 | ||||||
9,346 | Steven Madden, Ltd.* | 389,915 | ||||||
10,336 | True Religion Apparel, Inc.* | 230,079 | ||||||
5,956 | UniFirst Corp. | 327,878 | ||||||
6,940 | Volcom, Inc. | 130,958 | ||||||
19,817 | Wolverine World Wide, Inc. | 631,766 | ||||||
5,122,391 | ||||||||
Thrifts & Mortgage Finance (0.5%): | ||||||||
18,589 | Bank Mutual Corp. | 88,855 | ||||||
23,981 | Brookline Bancorp, Inc. | 260,194 | ||||||
11,235 | Dime Community Bancshares | 163,919 | ||||||
21,069 | Provident Financial Services, Inc. | 318,774 | ||||||
31,318 | TrustCo Bank Corp. | 198,556 | ||||||
1,030,298 | ||||||||
Tobacco (0.1%): | ||||||||
35,369 | Alliance One International, Inc.* | 149,965 | ||||||
Trading Companies & Distributors (0.4%): | ||||||||
15,326 | Applied Industrial Technologies, Inc. | 497,789 | ||||||
10,549 | Kaman Corp., Class A | 306,659 | ||||||
1,631 | Lawson Products, Inc. | 40,596 | ||||||
845,044 | ||||||||
Water Utilities (0.1%): | ||||||||
7,559 | American States Water Co. | 260,559 | ||||||
Wireless Telecommunication Services (0.2%): | ||||||||
12,027 | NTELOS Holdings Corp. | 229,114 | ||||||
8,961 | USA Mobility, Inc. | 159,237 | ||||||
388,351 | ||||||||
Total Common Stocks (Cost $157,717,999) | 195,870,524 | |||||||
Investment Company (1.5%): | ||||||||
3,088,873 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 3,088,873 | ||||||
Total Investment Company (Cost $3,088,873) | 3,088,873 | |||||||
Total Investment Securities (Cost $160,806,872)(b) — 99.5% | 198,959,397 | |||||||
Net other assets (liabilities) — 0.5% | 1,007,624 | |||||||
Net Assets — 100.0% | $ | 199,967,021 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
12
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Futures Contracts
Cash of $191,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2010:
Unrealized | ||||||||||||||||||
Expiration | Number of | Notional | Appreciation/ | |||||||||||||||
Description | Type | Date | Contracts | Value | (Depreciation) | |||||||||||||
Russell 2000 Index Mini March Futures | Long | 3/18/11 | 42 | $ | 3,285,660 | $ | 67,815 |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Bermuda | 0.2 | % | ||
Puerto Rico | — | ^ | ||
United States | 99.8 | |||
100.0 | % | |||
^ | Represents less than 0.05%. |
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Small | ||||
Cap Stock | ||||
Index Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 160,806,872 | ||
Investment securities, at value | $ | 198,959,397 | ||
Segregated cash for collateral | 191,000 | |||
Dividends receivable | 148,287 | |||
Receivable for capital shares issued | 871,941 | |||
Receivable for variation margin on futures contracts | 832 | |||
Prepaid expenses | 2,202 | |||
Total Assets | 200,173,659 | |||
Liabilities: | ||||
Cash overdraft | 317 | |||
Payable for investments purchased | 74,188 | |||
Payable for capital shares redeemed | 1,694 | |||
Payable for variation margin on futures contracts | 22,575 | |||
Manager fees payable | 8,668 | |||
Administration fees payable | 9,052 | |||
Distribution fees payable | 41,451 | |||
Custodian fees payable | 1,917 | |||
Administrative and compliance services fees payable | 1,680 | |||
Trustee fees payable | 404 | |||
Other accrued liabilities | 44,692 | |||
Total Liabilities | 206,638 | |||
Net Assets | $ | 199,967,021 | ||
Net Assets Consist of: | ||||
Capital | $ | 183,213,290 | ||
Accumulated net investment income/(loss) | 1,102,730 | |||
Accumulated net realized gains/(losses) from investment transactions | (22,569,339 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 38,220,340 | |||
Net Assets | $ | 199,967,021 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 20,191,226 | |||
Net Asset Value (offering and redemption price per share) | $ | 9.90 | ||
14
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Small | ||||
Cap Stock | ||||
Index Fund | ||||
Investment Income: | ||||
Interest | $ | 85 | ||
Dividends | 2,140,264 | |||
Total Investment Income | 2,140,349 | |||
Expenses: | ||||
Manager fees | 465,131 | |||
Administration fees | 95,980 | |||
Distribution fees | 447,240 | |||
Custodian fees | 24,568 | |||
Administrative and compliance services fees | 8,555 | |||
Trustees’ fees | 16,903 | |||
Professional fees | 25,112 | |||
Shareholder reports | 30,928 | |||
Other expenses | 48,092 | |||
Total expenses before reductions | 1,162,509 | |||
Less expenses contractually waived/reimbursed by the Manager | (124,909 | ) | ||
Net expenses | 1,037,600 | |||
Net Investment Income/(Loss) | 1,102,749 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 2,738,173 | |||
Net realized gains/(losses) on futures transactions | 1,184,428 | |||
Change in unrealized appreciation/(depreciation) on investments | 39,381,455 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 43,304,056 | |||
Change in Net Assets Resulting From Operations | $ | 44,406,805 | ||
15
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Statements of Changes in Net Assets
AZL Small Cap | ||||||||
Stock Index Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 1,102,749 | $ | 1,000,657 | ||||
Net realized gains/(losses) on investment transactions | 3,922,601 | (8,979,275 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 39,381,455 | 46,081,963 | ||||||
Change in net assets resulting from operations | 44,406,805 | 38,103,345 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (1,000,676 | ) | — | |||||
Change in net assets resulting from dividends to shareholders | (1,000,676 | ) | — | |||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 40,648,783 | 64,648,161 | ||||||
Proceeds from dividends reinvested | 1,000,676 | — | ||||||
Value of shares redeemed | (78,754,045 | ) | (28,351,373 | ) | ||||
Change in net assets resulting from capital transactions | (37,104,586 | ) | 36,296,788 | |||||
Change in net assets | 6,301,543 | 74,400,133 | ||||||
Net Assets: | ||||||||
Beginning of period | 193,665,478 | 119,265,345 | ||||||
End of period | $ | 199,967,021 | $ | 193,665,478 | ||||
Accumulated net investment income/(loss) | $ | 1,102,730 | $ | 1,000,657 | ||||
Share Transactions: | ||||||||
Shares issued | 4,704,877 | 10,051,646 | ||||||
Dividends reinvested | 121,589 | — | ||||||
Shares redeemed | (9,025,494 | ) | (4,426,433 | ) | ||||
Change in shares | (4,199,028 | ) | 5,625,213 | |||||
16
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
May 1, 2007 to | ||||||||||||||||
Year Ended December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2008 | 2007(a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 7.94 | $ | 6.36 | $ | 9.27 | $ | 10.00 | ||||||||
Investment Activities: | ||||||||||||||||
Net Investment Income/(Loss) | 0.07 | 0.04 | 0.03 | 0.04 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.94 | 1.54 | (2.90 | ) | (0.63 | ) | ||||||||||
Total from Investment Activities | 2.01 | 1.58 | (2.87 | ) | (0.59 | ) | ||||||||||
Dividends to Shareholders From: | ||||||||||||||||
Net Investment Income | (0.05 | ) | — | (0.03 | ) | (0.05 | ) | |||||||||
Net Realized Gains | — | — | (0.01 | ) | (0.09 | ) | ||||||||||
Total Dividends | (0.05 | ) | — | (0.04 | ) | (0.14 | ) | |||||||||
Net Asset Value, End of Period | $ | 9.90 | $ | 7.94 | $ | 6.36 | $ | 9.27 | ||||||||
Total Return(b)(c) | 25.49 | % | 24.84 | % | (30.94 | )% | (5.83 | )% | ||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 199,967 | $ | 193,665 | $ | 119,265 | $ | 22,061 | ||||||||
Net Investment Income/(Loss)(d) | 0.62 | % | 0.68 | % | 1.09 | % | 0.73 | % | ||||||||
Expenses Before Reductions(d)(e) | 0.65 | % | 0.67 | % | 0.77 | % | 0.87 | % | ||||||||
Expenses Net of Reductions(d) | 0.58 | % | 0.58 | % | 0.60 | % | 0.58 | % | ||||||||
Portfolio Turnover Rate(c) | 24.38 | % | 24.67 | % | 89.22 | % | 19.08 | % |
(a) | Period from commencement of operations. | |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(c) | Not annualized for periods less than one year. | |
(d) | Annualized for periods less than one year. | |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
17
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust���) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Small Cap Stock Index Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Schedule of Portfolio Investments. The following is a description of the derivative instruments utilized by the Fund, including the primary underlying risk exposures related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund used futures contracts to provide equity exposure on the Fund’s cash balances. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The notional amount of futures contracts outstanding was $3.2 million as of December 31, 2010. The monthly average notional amount for these contracts was $3.6 million for the year ended December 31, 2010.
Summary of Derivative Instruments
The following is a summary of the fair value of Derivative Instruments as of December 31, 2010:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of | Statement of | |||||||||||
Assets and | Total Fair | Assets and | Total Fair | |||||||||
Primary Risk Exposure | Liabilities Location | Value* | Liabilities Location | Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 67,815 | Payable for variation margin on futures contracts | $ | — |
* | Total Fair Value is presented by Primary Risk Exposure. For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation Margin on Futures Contracts. |
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
The following is a summary of the effect of Derivative Instruments on the Statement of Operations for the year ended December 31, 2010:
Realized Gain/ | Change in Unrealized | |||||||||
(Loss) on | Appreciation/ | |||||||||
Location of Gain/(Loss) | Derivatives | (Depreciation) on | ||||||||
on Derivatives | Recognized | Derivatives Recognized | ||||||||
Primary Risk Exposure | Recognized in Income | in Income | in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures transactions/change in unrealized appreciation/(depreciation) on investments | $ | 1,184,428 | $ | (3,427 | ) |
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and BlackRock Investment Management LLC (“BlackRock Investment”), BlackRock Investment provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 0.58% through April 30, 2011 and 0.71% effective May 1, 2011 through April 30, 2012.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Small Cap Stock Index Fund | 0.26 | % | 0.58 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, the contractual reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires | Expires | Expires | ||||||||||
12/31/2011 | 12/31/2012 | 12/31/2013 | ||||||||||
AZL Small Cap Stock Index Fund | $ | 81,134 | $ | 139,199 | $ | 124,909 |
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $5,330 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 195,870,524 | $ | — | $ | — | $ | 195,870,524 | ||||||||
Investment Company | 3,088,873 | — | — | 3,088,873 | ||||||||||||
Total Investment Securities | 198,959,397 | — | — | 198,959,397 | ||||||||||||
Other Financial Instruments:* | ||||||||||||||||
Futures Contracts | 67,815 | — | — | 67,815 | ||||||||||||
Total Investments | $ | 199,027,212 | $ | — | $ | — | $ | 199,027,212 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. | |
* | Other financial instruments would include any derivative instruments, such as futures and forwards. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Small Cap Stock Index Fund | $ | 42,938,248 | $ | 80,378,025 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010 is $170,704,995. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 43,542,463 | ||
Unrealized depreciation | (15,288,061 | ) | ||
Net unrealized appreciation | $ | 28,254,402 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Small Cap Stock Index Fund | $ | 3,055,631 | $ | 9,547,770 |
During the year ended December 31, 2010, the Fund utilized $4,090,332 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Small Cap Stock Index Fund | $ | 1,000,676 | $ | — | $ | 1,000,676 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Small Cap Stock Index Fund
AZL Small Cap Stock Index Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Accumulated | Total | |||||||||||||||
Accumulated | Capital and | Unrealized | Accumulated | |||||||||||||
Earnings | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 1,102,730 | $ | (12,603,401 | ) | $ | 28,254,402 | $ | 16,753,731 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
25
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Small Cap Stock Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods in the four-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
29
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
30
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
31
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
32
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
33
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
34
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Turner Quantitative Small Cap Growth Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 19
Page 19
Other Information
Page 20
Page 20
Approval of Investment Advisory and Subadvisory Agreements
Page 21
Page 21
Information about the Board of Trustees and Officers
Page 25
Page 25
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Turner Quantitative Small Cap Growth Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Turner Quantitative Small Cap Growth Fund and Turner Investment Partners, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Turner Quantitative Small Cap Growth Fund returned 28.83%1. That compared to a 29.09% total return for its benchmark, the Russell 2000® Growth Index2.
The Fund’s absolute return during the period benefitted from a positive environment for equities. The equity markets posted strong gains in 2010, as the Federal Reserve Board executed a second round of quantitative easing and corporate earnings rose. Small-cap stocks—and, in particular, small-cap growth stocks—performed especially well, outpacing both mid-cap and large-cap stocks. Growth stocks outperformed value stocks across the market cap spectrum as investors became more optimistic about the economic rebound and sought out companies with strong earnings prospects. For the year, all sectors within the Russell 2000® Growth Index except one (healthcare) posted double-digit gains.
The Fund underperformed its benchmark during the period. High beta3 stocks—those with relatively high levels of volatility—performed especially well during the period, but the Fund did not own many of the highest beta stocks that posted the biggest returns. In addition, the Fund’s stock selection within the consumer staples and financial sectors dampened relative returns. However, the Fund’s relative return benefitted from strong stock selection in six out of the nine sectors in which the Fund invests—most notably the energy, producer durables and materials/ processing sectors.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. | |
2 | The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index. | |
3 | Beta is a means of measuring the volatility of a security or portfolio of securities in comparison with the market as a whole. A beta of 1 indicates that the security will move with the market; greater than 1 indicates that it is more volatile than the market, and less than 1 indicates that it is less volatile than the market. |
1
Table of Contents
AZL® Turner Quantitative Small Cap Growth Fund Review
Fund Objective
The Fund’s investment objective is to seek long-term growth of capital. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets, plus any borrowings for investment purposes, in common stocks and other equity securities of U.S. companies with small market capitalizations.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Small- to mid-capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure.
Growth based investments can perform differently from the market as a whole and can be more volatile that other types of securities.
The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (4/29/05) | |||||||||||||
AZL® Turner Quantitative Small Cap Growth Fund | 28.83 | % | -1.39 | % | 2.52 | % | 4.32 | % | ||||||||
Russell 2000® Growth Index | 29.09 | % | 2.18 | % | 5.30 | % | 7.98 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Turner Quantitative Small Cap Growth Fund | 1.24 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.35% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the Russell 2000® Growth Index is calculated from 4/30/05. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 2000® Growth Index, an unmanaged index that measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Turner Quantitative Small Cap Growth Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Turner Quantitative Small Cap Growth Fund | $ | 1,000.00 | $ | 1,331.50 | $ | 7.17 | 1.22 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Turner Quantitative Small Cap Growth Fund | $ | 1,000.00 | $ | 1,019.06 | $ | 6.21 | 1.22 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Turner Quantitative Small Cap Growth Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | 1.1 | % | ||
Air Freight & Logistics | 0.5 | |||
Auto Components | 2.0 | |||
Beverages | 0.5 | |||
Biotechnology | 3.7 | |||
Building Products | 1.0 | |||
Capital Markets | 1.1 | |||
Chemicals | 2.2 | |||
Commercial Banks | 1.2 | |||
Commercial Services & Supplies | 4.7 | |||
Communications Equipment | 4.3 | |||
Computers & Peripherals | 1.3 | |||
Construction & Engineering | 0.5 | |||
Containers & Packaging | 0.4 | |||
Diversified Consumer Services | 2.0 | |||
Diversified Financial Services | 1.2 | |||
Electric Utilities | 0.5 | |||
Electrical Equipment | 1.0 | |||
Electronic Equipment, Instruments & Components | 3.6 | |||
Energy Equipment & Services | 1.6 | |||
Food & Staples Retailing | 0.6 | |||
Food Products | 0.5 | |||
Health Care Equipment & Supplies | 7.2 | |||
Health Care Providers & Services | 3.7 | |||
Health Care Technology | 1.6 | |||
Hotels, Restaurants & Leisure | 1.7 | % | ||
Household Durables | 1.2 | |||
Insurance | 1.1 | |||
Internet & Catalog Retail | 0.6 | |||
Internet Software & Services | 3.9 | |||
IT Services | 2.9 | |||
Life Sciences Tools & Services | 0.4 | |||
Machinery | 6.4 | |||
Media | 0.5 | |||
Metals & Mining | 2.3 | |||
Multi-Utilities | 0.6 | |||
Multiline Retail | 0.6 | |||
Oil, Gas & Consumable Fuels | 4.3 | |||
Personal Products | 1.0 | |||
Pharmaceuticals | 1.8 | |||
Professional Services | 2.3 | |||
Real Estate Investment Trusts (REITs) | 0.6 | |||
Road & Rail | 1.7 | |||
Semiconductors & Semiconductor Equipment | 3.6 | |||
Software | 6.0 | |||
Specialty Retail | 3.7 | |||
Textiles, Apparel & Luxury Goods | 2.1 | |||
Tobacco | 0.5 | |||
Trading Companies & Distributors | 0.6 | |||
Investment Company | 2.5 | |||
100.9 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (98.4%): | ||||||||
Aerospace & Defense (1.1%): | ||||||||
11,740 | Cubic Corp. | $ | 553,541 | |||||
13,600 | DigitalGlobe, Inc.* | 431,256 | ||||||
984,797 | ||||||||
Air Freight & Logistics (0.5%): | ||||||||
8,770 | Atlas Air Worldwide Holdings, Inc.* | 489,629 | ||||||
Auto Components (2.0%): | ||||||||
42,890 | Modine Manufacturing Co.* | 664,795 | ||||||
30,410 | Superior Industries International, Inc. | 645,300 | ||||||
13,040 | Tenneco, Inc.* | 536,727 | ||||||
1,846,822 | ||||||||
Beverages (0.5%): | ||||||||
5,000 | Boston Beer Co., Inc. (The), Class A* | 475,450 | ||||||
Biotechnology (3.7%): | ||||||||
20,040 | Acorda Therapeutics, Inc.* | 546,290 | ||||||
23,980 | Cubist Pharmaceuticals, Inc.* | 513,172 | ||||||
58,380 | ImmunoGen, Inc.* | 540,599 | ||||||
78,170 | MannKind Corp.* | 630,050 | ||||||
25,780 | Myriad Genetics, Inc.* | 588,815 | ||||||
16,370 | Onyx Pharmaceuticals, Inc.* | 603,562 | ||||||
3,422,488 | ||||||||
Building Products (1.0%): | ||||||||
4,570 | Ameron International Corp. | 349,011 | ||||||
12,170 | Armstrong World Industries, Inc. | 523,310 | ||||||
872,321 | ||||||||
Capital Markets (1.1%): | ||||||||
19,150 | Cohen & Steers, Inc. | 499,815 | ||||||
8,310 | Stifel Financial Corp.* | 515,552 | ||||||
1,015,367 | ||||||||
Chemicals (2.2%): | ||||||||
14,760 | Arch Chemicals, Inc. | 559,847 | ||||||
16,010 | Koppers Holdings, Inc. | 572,838 | ||||||
13,850 | OM Group, Inc.* | 533,364 | ||||||
16,230 | Solutia, Inc.* | 374,588 | ||||||
2,040,637 | ||||||||
Commercial Banks (1.2%): | ||||||||
54,420 | FNB Corp. | 534,404 | ||||||
10,800 | Signature Bank* | 540,000 | ||||||
1,074,404 | ||||||||
Commercial Services & Supplies (4.7%): | ||||||||
19,230 | Brink’s Co. (The) | 516,902 | ||||||
21,820 | Ennis, Inc. | 373,122 | ||||||
21,790 | G & K Services, Inc., Class A | 673,529 | ||||||
21,020 | Geo Group, Inc. (The)* | 518,353 | ||||||
28,195 | Rollins, Inc. | 556,851 | ||||||
65,250 | Steelcase, Inc., Class A | 689,693 | ||||||
20,250 | Tetra Tech, Inc.* | 507,465 | ||||||
6,900 | United Stationers, Inc.* | 440,289 | ||||||
4,276,204 | ||||||||
Communications Equipment (4.3%): | ||||||||
16,680 | ADTRAN, Inc. | 603,983 | ||||||
23,640 | Aruba Networks, Inc.* | 493,603 | ||||||
22,530 | Blue Coat Systems, Inc.* | 672,971 | ||||||
54,420 | Emulex Corp.* | 634,537 | ||||||
17,090 | InterDigital, Inc.* | 711,627 | ||||||
14,300 | NETGEAR, Inc.* | 481,624 | ||||||
10,380 | Riverbed Technology, Inc.* | 365,065 | ||||||
3,963,410 | ||||||||
Computers & Peripherals (1.3%): | ||||||||
22,200 | Compellent Technologies, Inc.* | 612,498 | ||||||
30,590 | STEC, Inc.* | 539,914 | ||||||
1,152,412 | ||||||||
Construction & Engineering (0.5%): | ||||||||
16,200 | Emcor Group, Inc.* | 469,476 | ||||||
Containers & Packaging (0.4%): | ||||||||
7,200 | Rock-Tenn Co., Class A | 388,440 | ||||||
Diversified Consumer Services (2.0%): | ||||||||
21,060 | Lincoln Educational Services Corp. | 326,641 | ||||||
12,940 | Matthews International Corp., Class A | 452,641 | ||||||
58,920 | Service Corp. International | 486,090 | ||||||
27,000 | Universal Technical Institute, Inc. | 594,540 | ||||||
1,859,912 | ||||||||
Diversified Financial Services (1.2%): | ||||||||
23,720 | PHH Corp.* | 549,118 | ||||||
6,940 | Portfolio Recovery Associates, Inc.* | 521,888 | ||||||
1,071,006 | ||||||||
Electric Utilities (0.5%): | ||||||||
34,090 | PNM Resources, Inc. | 443,852 | ||||||
Electrical Equipment (1.0%): | ||||||||
13,500 | American Superconductor Corp.* | 385,965 | ||||||
24,480 | GrafTech International, Ltd.* | 485,683 | ||||||
871,648 | ||||||||
Electronic Equipment, Instruments & Components (3.6%): | ||||||||
7,550 | Anixter International, Inc. | 450,961 | ||||||
25,050 | AVX Corp. | 386,521 | ||||||
44,520 | Brightpoint, Inc.* | 388,660 | ||||||
14,660 | Park Electrochemical Corp. | 439,800 | ||||||
18,750 | Rofin-Sinar Technologies, Inc.* | 664,500 | ||||||
40,210 | Sanmina-SCI Corp.* | 461,611 | ||||||
15,510 | SYNNEX Corp.* | 483,912 | ||||||
3,275,965 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services (1.6%): | ||||||||
4,630 | Dril-Quip, Inc.* | $ | 359,844 | |||||
58,140 | ION Geophysical Corp.* | 493,027 | ||||||
64,080 | Pioneer Drilling Co.* | 564,545 | ||||||
1,417,416 | ||||||||
Food & Staples Retailing (0.6%): | ||||||||
14,760 | United Natural Foods, Inc.* | 541,397 | ||||||
Food Products (0.5%): | ||||||||
15,820 | Cal-Maine Foods, Inc. | 499,596 | ||||||
Health Care Equipment & Supplies (7.2%): | ||||||||
29,400 | Align Technology, Inc.* | 574,476 | ||||||
27,380 | American Medical Systems Holdings, Inc.* | 516,387 | ||||||
12,430 | Analogic Corp. | 615,409 | ||||||
21,020 | Cyberonics, Inc.* | 652,041 | ||||||
6,880 | Haemonetics Corp.* | 434,678 | ||||||
16,940 | Masimo Corp. | 492,446 | ||||||
24,620 | Meridian Bioscience, Inc. | 570,199 | ||||||
15,070 | Sirona Dental Systems, Inc.* | 629,625 | ||||||
15,520 | STERIS Corp. | 565,859 | ||||||
15,990 | Thoratec Corp.* | 452,837 | ||||||
18,680 | Volcano Corp.* | 510,151 | ||||||
14,380 | ZOLL Medical Corp.* | 535,367 | ||||||
6,549,475 | ||||||||
Health Care Providers & Services (3.7%): | ||||||||
16,700 | Amedisys, Inc.* | 559,450 | ||||||
12,110 | Amerigroup Corp.* | 531,871 | ||||||
13,610 | Catalyst Health Solutions, Inc.* | 632,729 | ||||||
6,860 | Chemed Corp. | 435,679 | ||||||
8,060 | Emergency Medical Services Corp., Series A* | 520,756 | ||||||
5,510 | HMS Holdings Corp.* | 356,883 | ||||||
17,330 | PSS World Medical, Inc.* | 391,658 | ||||||
3,429,026 | ||||||||
Health Care Technology (1.6%): | ||||||||
9,150 | Athenahealth, Inc.* | 374,967 | ||||||
40,320 | Omnicell, Inc.* | 582,624 | ||||||
7,090 | Quality Systems, Inc. | 495,024 | ||||||
1,452,615 | ||||||||
Hotels, Restaurants & Leisure (1.7%): | ||||||||
49,500 | Boyd Gaming Corp.* | 524,700 | ||||||
22,530 | Jack in the Box, Inc.* | 476,059 | ||||||
32,010 | Texas Roadhouse, Inc.* | 549,612 | ||||||
1,550,371 | ||||||||
Household Durables (1.2%): | ||||||||
55,520 | La-Z-Boy, Inc.* | 500,790 | ||||||
128,600 | Standard-Pacific Corp.* | 591,560 | ||||||
1,092,350 | ||||||||
Insurance (1.1%): | ||||||||
73,790 | CNO Financial Group, Inc.* | 500,296 | ||||||
27,960 | Employers Holdings, Inc. | 488,741 | ||||||
989,037 | ||||||||
Internet & Catalog Retail (0.6%): | ||||||||
17,900 | Constant Contact, Inc.* | 554,721 | ||||||
Internet Software & Services (3.9%): | ||||||||
27,150 | DealerTrack Holdings, Inc.* | 544,900 | ||||||
18,080 | Digital River, Inc.* | 622,314 | ||||||
48,930 | EarthLink, Inc. | 420,798 | ||||||
22,180 | Rackspace Hosting, Inc.* | 696,674 | ||||||
51,200 | Terremark Worldwide, Inc.* | 663,040 | ||||||
39,360 | ValueClick, Inc.* | 630,941 | ||||||
3,578,667 | ||||||||
IT Services (2.9%): | ||||||||
22,380 | Acxiom Corp.* | 383,817 | ||||||
37,060 | Convergys Corp.* | 488,080 | ||||||
19,660 | NeuStar, Inc., Class A* | 512,143 | ||||||
14,640 | VeriFone Systems, Inc.* | 564,519 | ||||||
14,850 | Wright Express Corp.* | 683,100 | ||||||
2,631,659 | ||||||||
Life Sciences Tools & Services (0.4%): | ||||||||
17,720 | Luminex Corp.* | 323,922 | ||||||
Machinery (6.4%): | ||||||||
24,080 | Actuant Corp., Class A | 641,010 | ||||||
29,090 | ArvinMeritor, Inc.* | 596,927 | ||||||
22,340 | Barnes Group, Inc. | 461,768 | ||||||
13,180 | CIRCOR International, Inc. | 557,250 | ||||||
13,880 | Enpro Industries, Inc.* | 576,853 | ||||||
12,720 | Kaydon Corp. | 517,958 | ||||||
120,800 | Mueller Water Products, Inc., Class A | 503,736 | ||||||
6,930 | Nordson Corp. | 636,728 | ||||||
19,580 | Robbins & Myers, Inc. | 700,573 | ||||||
23,620 | Trinity Industries, Inc. | 628,528 | ||||||
5,821,331 | ||||||||
Media (0.5%): | ||||||||
23,380 | National CineMedia, Inc. | 465,496 | ||||||
Metals & Mining (2.3%): | ||||||||
37,340 | AK Steel Holding Corp. | 611,256 | ||||||
17,910 | Allied Nevada Gold Corp.* | 471,212 | ||||||
16,880 | AMCOL International Corp. | 523,280 | ||||||
8,100 | Schnitzer Steel Industries, Inc. | 537,759 | ||||||
2,143,507 | ||||||||
Multi-Utilities (0.6%): | ||||||||
11,080 | CH Energy Group, Inc. | 541,701 | ||||||
Multiline Retail (0.6%): | ||||||||
54,390 | Saks, Inc.* | 581,973 | ||||||
Oil, Gas & Consumable Fuels (4.3%): | ||||||||
8,320 | Alliance Resource Partners LP | 547,123 | ||||||
23,570 | Brigham Exploration Co.* | 642,047 |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
15,920 | Carrizo Oil & Gas, Inc.* | $ | 549,081 | |||||
12,390 | Overseas Shipholding Group, Inc. | 438,854 | ||||||
32,750 | Rex Energy Corp.* | 447,037 | ||||||
16,500 | Rosetta Resources, Inc.* | 621,060 | ||||||
20,190 | World Fuel Services Corp. | 730,070 | ||||||
3,975,272 | ||||||||
Personal Products (1.0%): | ||||||||
19,520 | Elizabeth Arden, Inc.* | 449,155 | ||||||
40,700 | Prestige Brands Holdings, Inc.* | 486,365 | ||||||
935,520 | ||||||||
Pharmaceuticals (1.8%): | ||||||||
19,930 | Medicis Pharmaceutical Corp., Class A | 533,925 | ||||||
14,280 | Par Pharmaceutical Cos., Inc.* | 549,923 | ||||||
11,810 | Salix Pharmaceuticals, Inc.* | 554,597 | ||||||
1,638,445 | ||||||||
Professional Services (2.3%): | ||||||||
17,570 | Administaff, Inc. | 514,801 | ||||||
8,280 | CoStar Group, Inc.* | 476,597 | ||||||
16,380 | Heidrick & Struggles International, Inc. | 469,287 | ||||||
33,860 | Resources Connection, Inc. | 629,457 | ||||||
2,090,142 | ||||||||
Real Estate Investment Trusts (REITs) (0.6%): | ||||||||
8,060 | Mid-America Apartment Communities, Inc. | 511,729 | ||||||
Road & Rail (1.7%): | ||||||||
6,300 | AMERCO* | 605,052 | ||||||
29,600 | Avis Budget Group, Inc.* | 460,576 | ||||||
9,320 | Genesee & Wyoming, Inc., Class A* | 493,494 | ||||||
1,559,122 | ||||||||
Semiconductors & Semiconductor Equipment (3.6%): | ||||||||
74,280 | Amkor Technology, Inc.* | 548,929 | ||||||
75,430 | ANADIGICS, Inc.* | 522,730 | ||||||
39,300 | Fairchild Semiconductor International, Inc.* | 613,473 | ||||||
43,220 | Micrel, Inc. | 561,428 | ||||||
25,590 | Semtech Corp.* | 579,358 | ||||||
22,100 | Tessera Technologies, Inc.* | 489,515 | ||||||
3,315,433 | ||||||||
Software (6.0%): | ||||||||
10,480 | Advent Software, Inc.* | 607,002 | ||||||
19,460 | Blackbaud, Inc. | 504,014 | ||||||
10,490 | Concur Technologies, Inc.* | 544,746 | ||||||
32,620 | Epiq Systems, Inc. | 447,873 | ||||||
16,210 | Jack Henry & Associates, Inc. | 472,521 | ||||||
39,120 | Lawson Software, Inc.* | 361,860 | ||||||
23,870 | Parametric Technology Corp.* | 537,791 | ||||||
29,770 | Solarwinds, Inc.* | 573,072 | ||||||
19,540 | SuccessFactors, Inc.* | 565,878 | ||||||
20,850 | Synchronoss Technologies, Inc.* | 556,903 | ||||||
16,360 | TIBCO Software, Inc.* | 322,456 | ||||||
5,494,116 | ||||||||
Specialty Retail (3.7%): | ||||||||
20,730 | Ann Taylor Stores Corp.* | 567,795 | ||||||
27,740 | Collective Brands, Inc.* | 585,314 | ||||||
9,630 | Jo-Ann Stores, Inc.* | 579,918 | ||||||
10,805 | Jos. A. Bank Clothiers, Inc.* | 435,658 | ||||||
108,450 | Office Depot, Inc.* | 585,630 | ||||||
45,850 | Pep Boys-Manny, Moe & Jack | 615,765 | ||||||
3,370,080 | ||||||||
Textiles, Apparel & Luxury Goods (2.1%): | ||||||||
16,080 | Carter’s, Inc.* | 474,521 | ||||||
8,150 | Deckers Outdoor Corp.* | 649,881 | ||||||
6,940 | Warnaco Group, Inc. (The)* | 382,186 | ||||||
13,740 | Wolverine World Wide, Inc. | 438,031 | ||||||
1,944,619 | ||||||||
Tobacco (0.5%): | ||||||||
25,956 | Vector Group, Ltd. | 449,558 | ||||||
Trading Companies & Distributors (0.6%): | ||||||||
22,760 | Interline Brands, Inc.* | 518,245 | ||||||
Total Common Stocks (Cost $69,750,943) | 89,960,781 | |||||||
Investment Company (2.5%): | ||||||||
2,292,058 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 2,292,058 | ||||||
Total Investment Company (Cost $2,292,058) | 2,292,058 | |||||||
Total Investment Securities (Cost $72,043,001)(b) — 100.9% | 92,252,839 | |||||||
Net other assets (liabilities) — (0.9)% | (780,050 | ) | ||||||
Net Assets — 100.0% | $ | 91,472,789 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
LP—Limited Partnership
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
7
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2010
AZL Turner | ||||
Quantitative Small | ||||
Cap Growth Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 72,043,001 | ||
Investment securities, at value | $ | 92,252,839 | ||
Dividends receivable | 22,930 | |||
Receivable for capital shares issued | 79,828 | |||
Receivable for investments sold | 2,796,289 | |||
Prepaid expenses | 1,019 | |||
Total Assets | 95,152,905 | |||
Liabilities: | ||||
Payable for investments purchased | 3,573,379 | |||
Payable for capital shares redeemed | 5,898 | |||
Manager fees payable | 63,570 | |||
Administration fees payable | 3,994 | |||
Distribution fees payable | 18,697 | |||
Custodian fees payable | 2,846 | |||
Administrative and compliance services fees payable | 654 | |||
Trustee fees payable | 131 | |||
Other accrued liabilities | 10,947 | |||
Total Liabilities | 3,680,116 | |||
Net Assets | $ | 91,472,789 | ||
Net Assets Consist of: | ||||
Capital | $ | 87,549,963 | ||
Accumulated net investment income/(loss) | 40,591 | |||
Accumulated net realized gains/(losses) from investment transactions | (16,327,603 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 20,209,838 | |||
Net Assets | $ | 91,472,789 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 9,221,599 | |||
Net Asset Value (offering and redemption price per share) | $ | 9.92 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL Turner | ||||
Quantitative Small | ||||
Cap Growth Fund | ||||
Investment Income: | ||||
Dividends | $ | 805,900 | ||
Total Investment Income | 805,900 | |||
Expenses: | ||||
Manager fees | 516,197 | |||
Administration fees | 34,675 | |||
Distribution fees | 151,822 | |||
Custodian fees | 14,287 | |||
Administrative and compliance services fees | 2,354 | |||
Trustees’ fees | 4,753 | |||
Professional fees | 6,811 | |||
Shareholder reports | 5,620 | |||
Other expenses | 2,679 | |||
Total expenses | 739,198 | |||
Net Investment Income/(Loss) | 66,702 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 7,342,804 | |||
Change in unrealized appreciation/(depreciation) on investments | 9,518,996 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 16,861,800 | |||
Change in Net Assets Resulting From Operations | $ | 16,928,502 | ||
See accompanying notes to the financial statements.
9
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Statements of Changes in Net Assets
AZL Turner Quantitative | ||||||||
Small Cap Growth Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 66,702 | $ | (94,074 | ) | |||
Net realized gains/(losses) on investment transactions | 7,342,804 | (1,628,992 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 9,518,996 | 14,174,293 | ||||||
Change in net assets resulting from operations | 16,928,502 | 12,451,227 | ||||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 40,728,439 | 19,666,213 | ||||||
Value of shares redeemed | (13,641,639 | ) | (20,896,901 | ) | ||||
Change in net assets resulting from capital transactions | 27,086,800 | (1,230,688 | ) | |||||
Change in net assets | 44,015,302 | 11,220,539 | ||||||
Net Assets: | ||||||||
Beginning of period | 47,457,487 | 36,236,948 | ||||||
End of period | $ | 91,472,789 | $ | 47,457,487 | ||||
Accumulated net investment income/(loss) | $ | 40,591 | $ | 6,005 | ||||
Share Transactions: | ||||||||
Shares issued | 4,744,521 | 3,277,892 | ||||||
Shares redeemed | (1,685,164 | ) | (3,302,925 | ) | ||||
Change in shares | 3,059,357 | (25,033 | ) | |||||
See accompanying notes to the financial statements.
10
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.70 | $ | 5.86 | $ | 12.90 | $ | 12.50 | $ | 11.23 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.01 | (0.02 | ) | (0.04 | ) | (0.08 | ) | (0.03 | ) | |||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.21 | 1.86 | (4.96 | ) | 0.83 | 1.30 | ||||||||||||||
Total from Investment Activities | 2.22 | 1.84 | (5.00 | ) | 0.75 | 1.27 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Realized Gains | — | — | (2.04 | ) | (0.35 | ) | — | |||||||||||||
Total Dividends | — | — | (2.04 | ) | (0.35 | ) | — | |||||||||||||
Net Asset Value, End of Period | $ | 9.92 | $ | 7.70 | $ | 5.86 | $ | 12.90 | $ | 12.50 | ||||||||||
Total Return(a) | 28.83 | % | 31.40 | % | (43.35 | )% | 6.07 | % | 11.31 | % | ||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 91,473 | $ | 47,457 | $ | 36,237 | $ | 62,425 | $ | 94,669 | ||||||||||
Net Investment Income/(Loss) | 0.11 | % | (0.23 | )% | (0.54 | )% | (0.47 | )% | (0.23 | )% | ||||||||||
Expenses Before Reductions(b) | 1.22 | % | 1.24 | % | 1.26 | % | 1.23 | % | 1.24 | % | ||||||||||
Expenses Net of Reductions | 1.22 | % | 1.24 | % | 1.26 | % | 1.23 | % | 1.23 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.22 | % | 1.24 | % | 1.26 | % | 1.23 | % | 1.24 | % | ||||||||||
Portfolio Turnover Rate | 97.13 | % | 172.64 | % | 225.56 | % | 239.53 | % | 94.34 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
11
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Turner Quantitative Small Cap Growth Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement between the Manager and Turner Investment Partners, Inc. (“Turner”), Turner provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.35%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Expense Limit | |||||||
AZL Turner Quantitative Small Cap Growth Fund | 0.85 | % | 1.35 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the year ended December 31, 2010, there were no voluntary waivers.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $1,655 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 89,960,781 | $ | — | $ | — | $ | 89,960,781 | ||||||||
Investment Company | 2,292,058 | — | — | 2,292,058 | ||||||||||||
Total Investment Securities | $ | 92,252,839 | $ | — | $ | — | $ | 92,252,839 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Turner Quantitative Small Cap Growth Fund | $ | 84,311,830 | $ | 57,968,833 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $72,104,144. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 20,298,025 | ||
Unrealized depreciation | (149,330 | ) | ||
Net unrealized appreciation | $ | 20,148,695 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Turner Quantitative Small Cap Growth Fund | $ | 9,115,391 | $ | 7,150,651 |
During the year ended December 31, 2010, the Fund utilized $7,343,772 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Turner Quantitative Small Cap Growth Fund
AZL Turner Quantitative Small Cap Growth Fund
Notes to the Financial Statements, continued
December 31, 2010
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Turner Quantitative Small Cap Growth Fund | $ | 40,173 | $ | (16,266,042 | ) | $ | 20,148,695 | $ | 3,922,826 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
18
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Turner Quantitative Small Cap Growth Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
21
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
22
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
23
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
24
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
25
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
26
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Van Kampen Equity and Income Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 14
Page 14
Statement of Operations
Page 15
Page 15
Statements of Changes in Net Assets
Page 16
Page 16
Financial Highlights
Page 17
Page 17
Notes to the Financial Statements
Page 18
Page 18
Report of Independent Registered Public Accounting Firm
Page 26
Page 26
Other Federal Income Tax Information
Page 27
Page 27
Other Information
Page 28
Page 28
Approval of Investment Advisory and Subadvisory Agreements
Page 29
Page 29
Information about the Board of Trustees and Officers
Page 33
Page 33
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Van Kampen Equity and Income Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Van Kampen Equity and Income Fund and Invesco Advisers, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period ended December 31, 2010, the AZL® Van Kampen Equity and Income Fund returned 11.74% compared to a 15.06% and 6.54% total return for its benchmarks, the S&P 500 Index1 and the Barclays Capital U.S. Aggregate Bond Index2, respectively.
Strong gains in the equity market, in particular from September through the rest of the year as economic news improved modestly, helped to drive the Fund’s positive absolute return.
The Fund’s overweight position in consumer discretionary shares, with an emphasis on media companies, boosted returns relative to its equity benchmark. These firms benefited from an increase in advertising revenue during the period. The Fund’s fixed income holdings also produced positive returns relative to its the Barclays Capital U.S. Aggregate Bond Index for the full period, despite a marked rise in interest rates late in the year, which sent bond prices down.
The Fund’s technology holdings underperformed during the period, which hurt performance relative to its equity benchmark. In particular, stock selection in hardware and equipment makers detracted from relative return, as investors fled one company on news that its CEO was leaving due to expense-related improprieties. The Fund’s relative performance also suffered due to its lack of exposure to real estate, which performed strongly during the period.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Standard & Poor’s 500 Index (“S&P 500 Index”) is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. | |
2 | The Barclays Capital U.S. Aggregate Bond Index is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Van Kampen Equity and Income Fund Review
Fund Objective
The Fund’s investment objective is to seek the highest possible income consistent with safety of principal, with long-term growth of capital as an important secondary objective. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 65% of its total assets in income-producing equity securities.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Bonds offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return.
The Fund is subject to the risk that principal value reacts in opposition to the movement of interest rates and that a rising interest rate environment increases the risk of loss of principal.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmarks, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (5/3/04) | |||||||||||||
AZL® Van Kampen Equity and Income Fund | 11.74 | % | 1.46 | % | 3.91 | % | 5.30 | % | ||||||||
S&P 500 Index | 15.06 | % | -2.86 | % | 2.29 | % | 3.89 | % | ||||||||
Barclays Capital U.S. Aggregate Bond Index | 6.54 | % | 5.90 | % | 5.80 | % | 5.37 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio2 | Gross | |||
AZL® Van Kampen Equity and Income Fund | 1.14 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.70% on the first $100 million of assets, 0.675% on the next $100 million, and 0.65% on assets above $200 million. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | The hypothetical $10,000 investment for the S&P 500 Index and the Barclays Capital U.S. Aggregate Bond Index is calculated from 4/30/04. | |
2 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and expenses the Fund’s gross ratio would be 1.13%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Standard & Poor’s 500 Index (“S&P 500 Index”) and the Barclays Capital U.S. Aggregate Bond Index. The S&P 500 Index is representative of 500 selected common stocks, most of which are listed on the New York Stock Exchange, and is a measure of the U.S. Stock market as a whole. The Barclays Capital U.S. Aggregate Bond Index is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. These indices are unmanaged and do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Van Kampen Equity and Income Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Van Kampen Equity and Income Fund | $ | 1,000.00 | $ | 1,173.80 | $ | 5.53 | 1.01 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Van Kampen Equity and Income Fund | $ | 1,000.00 | $ | 1,020.11 | $ | 5.14 | 1.01 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Van Kampen Equity and Income Fund, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Aerospace & Defense | — | %^ | ||
Air Freight & Logistics | 0.3 | |||
Airlines | 0.1 | |||
Auto Components | 0.5 | |||
Automobiles | 0.6 | |||
Beverages | 0.9 | |||
Biotechnology | 1.3 | |||
Building Products | — | ^ | ||
Capital Markets | 4.0 | |||
Chemicals | 1.5 | |||
Commercial Banks | 4.2 | |||
Commercial Services & Supplies | 1.2 | |||
Communications Equipment | 1.4 | |||
Computers & Peripherals | 2.5 | |||
Construction Materials | 0.5 | |||
Consumer Finance | 1.1 | |||
Diversified Financial Services | 7.1 | |||
Diversified Telecommunication Services | 1.2 | |||
Electric Utilities | 2.8 | |||
Electronic Equipment, Instruments & Components | 1.3 | |||
Energy Equipment & Services | 1.6 | |||
Food & Staples Retailing | 2.4 | |||
Food Products | 2.2 | |||
Health Care Equipment & Supplies | 1.5 | |||
Health Care Providers & Services | 2.5 | |||
Hotels, Restaurants & Leisure | 0.9 | |||
Household Durables | 0.7 | |||
Household Products | 1.2 | |||
Independent Power Producers & Energy Traders | — | ^ | ||
Industrial Conglomerates | 3.2 | % | ||
Insurance | 3.3 | |||
Internet & Catalog Retail | 0.7 | |||
Internet Software & Services | 2.3 | |||
IT Services | 1.3 | |||
Machinery | 1.4 | |||
Media | 6.0 | |||
Metals & Mining | 0.6 | |||
Multi-Utilities | 0.2 | |||
Multiline Retail | — | ^ | ||
Municipal Bonds | — | ^ | ||
Oil, Gas & Consumable Fuels | 8.9 | |||
Personal Products | 1.0 | |||
Pharmaceuticals | 4.7 | |||
Professional Services | 0.8 | |||
Real Estate Investment Trusts (REITs) | 0.1 | |||
Real Estate Management & Development | — | ^ | ||
Road & Rail | 0.3 | |||
Semiconductors & Semiconductor Equipment | 1.2 | |||
Software | 0.8 | |||
Sovereign Bond | — | ^ | ||
Specialty Retail | 1.5 | |||
Thrifts & Mortgage Finance | 0.2 | |||
U.S. Government Agency Mortgages | 0.6 | |||
U.S. Treasury Obligations | 8.0 | |||
Wireless Telecommunication Services | 1.4 | |||
Investment Company | 5.9 | |||
99.9 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about investments, please see the Schedule of Portfolio Investments. | |
^ | Represents amounts less than 0.05%. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (64.7%): | ||||||||
Air Freight & Logistics (0.3%): | ||||||||
13,091 | FedEx Corp. | $ | 1,217,594 | |||||
Auto Components (0.5%): | ||||||||
46,956 | General Motors Co.* | 1,730,798 | ||||||
Automobiles (0.6%): | ||||||||
126,139 | Ford Motor Co.* | 2,117,874 | ||||||
Beverages (0.8%): | ||||||||
26,987 | Coca-Cola Co. (The) | 1,774,935 | ||||||
45,568 | Coca-Cola Enterprises, Inc. | 1,140,567 | ||||||
2,915,502 | ||||||||
Capital Markets (2.7%): | ||||||||
200,262 | Charles Schwab Corp. | 3,426,483 | ||||||
7,063 | LPL Investment Holdings, Inc.* | 256,881 | ||||||
114,256 | Morgan Stanley | 3,108,906 | ||||||
55,695 | State Street Corp. | 2,580,906 | ||||||
9,373,176 | ||||||||
Chemicals (1.5%): | ||||||||
64,639 | Dow Chemical Co. (The) | 2,206,775 | ||||||
27,009 | LyondellBasell Industries NV, Class A* | 929,110 | ||||||
26,382 | PPG Industries, Inc. | 2,217,935 | ||||||
5,353,820 | ||||||||
Commercial Banks (3.0%): | ||||||||
48,986 | BB&T Corp. | 1,287,842 | ||||||
91,219 | Fifth Third Bancorp | 1,339,095 | ||||||
70,350 | PNC Financial Services Group, Inc. | 4,271,652 | ||||||
56,648 | U.S. Bancorp | 1,527,797 | ||||||
72,385 | Wells Fargo & Co. | 2,243,211 | ||||||
10,669,597 | ||||||||
Commercial Services & Supplies (1.0%): | ||||||||
54,159 | Avery Dennison Corp. | 2,293,092 | ||||||
43,056 | Cintas Corp. | 1,203,846 | ||||||
3,496,938 | ||||||||
Communications Equipment (0.7%): | ||||||||
119,097 | Cisco Systems, Inc.* | 2,409,332 | ||||||
Computers & Peripherals (1.8%): | ||||||||
208,288 | Dell, Inc.* | 2,822,302 | ||||||
80,239 | Hewlett-Packard Co. | 3,378,062 | ||||||
6,200,364 | ||||||||
Diversified Financial Services (5.3%): | ||||||||
334,474 | Bank of America Corp. | 4,461,883 | ||||||
656,322 | Citigroup, Inc.* | 3,104,403 | ||||||
256,986 | JPMorgan Chase & Co. | 10,901,346 | ||||||
18,467,632 | ||||||||
Diversified Telecommunication Services (0.7%): | ||||||||
72,769 | Verizon Communications, Inc. | 2,603,675 | ||||||
Electric Utilities (2.6%): | ||||||||
125,166 | American Electric Power Co., Inc. | 4,503,473 | ||||||
37,680 | Edison International | 1,454,448 | ||||||
19,921 | Entergy Corp. | 1,411,004 | ||||||
43,845 | FirstEnergy Corp. | 1,623,142 | ||||||
8,992,067 | ||||||||
Electronic Equipment, Instruments & Components (1.3%): | ||||||||
113,773 | Tyco International, Ltd. | 4,714,753 | ||||||
Energy Equipment & Services (1.4%): | ||||||||
17,974 | Cameron International Corp.* | 911,821 | ||||||
47,003 | Schlumberger, Ltd. | 3,924,751 | ||||||
4,836,572 | ||||||||
Food & Staples Retailing (2.3%): | ||||||||
72,313 | SYSCO Corp. | 2,126,002 | ||||||
42,825 | Wal-Mart Stores, Inc. | 2,309,552 | ||||||
90,665 | Walgreen Co. | 3,532,309 | ||||||
7,967,863 | ||||||||
Food Products (1.8%): | ||||||||
106,036 | Kraft Foods, Inc., Class A | 3,341,194 | ||||||
95,810 | Unilever NV, NYS | 3,008,434 | ||||||
6,349,628 | ||||||||
Health Care Equipment & Supplies (0.8%): | ||||||||
60,787 | Covidien plc | 2,775,534 | ||||||
Health Care Providers & Services (1.6%): | ||||||||
39,186 | Cardinal Health, Inc. | 1,501,216 | ||||||
116,881 | UnitedHealth Group, Inc. | 4,220,573 | ||||||
5,721,789 | ||||||||
Household Durables (0.7%): | ||||||||
72,104 | Sony Corp., SP ADR | 2,574,834 | ||||||
Household Products (1.2%): | ||||||||
67,591 | Procter & Gamble Co. (The) | 4,348,129 | ||||||
Industrial Conglomerates (2.6%): | ||||||||
496,507 | General Electric Co. | 9,081,113 | ||||||
Insurance (3.2%): | ||||||||
29,416 | Chubb Corp. (The) | 1,754,370 | ||||||
269,937 | Marsh & McLennan Cos., Inc. | 7,380,078 | ||||||
61,830 | Principal Financial Group, Inc. | 2,013,185 | ||||||
11,147,633 | ||||||||
Internet Software & Services (2.3%): | ||||||||
189,831 | eBay, Inc.* | 5,282,997 | ||||||
160,444 | Yahoo!, Inc.* | 2,668,183 | ||||||
7,951,180 | ||||||||
IT Services (1.3%): | ||||||||
74,808 | Amdocs, Ltd.* | 2,054,976 | ||||||
135,338 | Western Union Co. | 2,513,226 | ||||||
4,568,202 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Machinery (1.1%): | ||||||||
20,722 | Dover Corp. | $ | 1,211,201 | |||||
57,527 | Ingersoll-Rand plc | 2,708,946 | ||||||
3,920,147 | ||||||||
Media (5.0%): | ||||||||
187,505 | Comcast Corp., Class A | 4,119,485 | ||||||
45,638 | Time Warner Cable, Inc. | 3,013,477 | ||||||
122,785 | Time Warner, Inc. | 3,949,993 | ||||||
164,905 | Viacom, Inc., Class B | 6,531,887 | ||||||
17,614,842 | ||||||||
Oil, Gas & Consumable Fuels (8.1%): | ||||||||
70,343 | Anadarko Petroleum Corp. | 5,357,323 | ||||||
26,877 | ConocoPhillips | 1,830,324 | ||||||
30,292 | Devon Energy Corp. | 2,378,225 | ||||||
34,046 | Exxon Mobil Corp. | 2,489,444 | ||||||
53,360 | Hess Corp. | 4,084,174 | ||||||
14,557 | Noble Energy, Inc. | 1,253,067 | ||||||
58,671 | Occidental Petroleum Corp. | 5,755,625 | ||||||
66,917 | Royal Dutch Shell plc, SP ADR | 4,468,717 | ||||||
28,584 | Williams Cos., Inc. (The) | 706,596 | ||||||
28,323,495 | ||||||||
Personal Products (1.0%): | ||||||||
123,433 | Avon Products, Inc. | 3,586,963 | ||||||
Pharmaceuticals (3.9%): | ||||||||
30,822 | Abbott Laboratories | 1,476,682 | ||||||
140,357 | Bristol-Myers Squibb Co. | 3,716,653 | ||||||
58,147 | Merck & Co., Inc. | 2,095,618 | ||||||
240,937 | Pfizer, Inc. | 4,218,807 | ||||||
57,150 | Roche Holding AG, SP ADR | 2,094,548 | ||||||
13,602,308 | ||||||||
Professional Services (0.8%): | ||||||||
24,216 | Manpower, Inc. | 1,519,796 | ||||||
37,527 | Robert Half International, Inc. | 1,148,326 | ||||||
2,668,122 | ||||||||
Semiconductors & Semiconductor Equipment (0.6%): | ||||||||
93,727 | Intel Corp. | 1,971,079 | ||||||
Software (0.2%): | ||||||||
21,130 | Microsoft Corp. | 589,950 | ||||||
Specialty Retail (0.9%): | ||||||||
93,316 | Home Depot, Inc. | 3,271,659 | ||||||
Wireless Telecommunication Services (1.1%): | ||||||||
147,131 | Vodafone Group plc, SP ADR | 3,888,672 | ||||||
Total Common Stocks (Cost $183,457,695) | 227,022,836 | |||||||
Convertible Bonds (12.4%): | ||||||||
Biotechnology (1.3%): | ||||||||
1,051,000 | Cephalon, Inc., 2.50%, 5/1/14 | 1,191,571 | ||||||
1,898,000 | Gilead Sciences, Inc., Series D, 1.63%, 5/1/16(a) | 1,973,920 | ||||||
1,025,000 | Invitrogen Corp., 1.50%, 2/15/24 | 1,237,688 | ||||||
4,403,179 | ||||||||
Capital Markets (1.0%): | ||||||||
1,024,000 | Affiliated Managers Group, Inc., 3.95%, 8/15/38, Callable 8/15/13 @ 100 | 1,134,080 | ||||||
1,200,000 | Goldman Sachs Group, Inc., 1.00%, 3/15/17 (exchangeable for the cash value of a basket of equity securities)(a) | 1,186,740 | ||||||
594,000 | Janus Capital Group, Inc., 3.25%, 7/15/14 | 703,890 | ||||||
506,500 | Jefferies Group, Inc., 3.88%, 11/1/29, Callable 11/1/17 @ 100 | 531,192 | ||||||
3,555,902 | ||||||||
Communications Equipment (0.7%): | ||||||||
479,000 | Ciena Corp., 0.25%, 5/1/13 | 438,285 | ||||||
2,021,000 | Lucent Technologies Corp., 2.88%, 6/15/25 | 1,907,319 | ||||||
2,345,604 | ||||||||
Computers & Peripherals (0.7%): | ||||||||
2,448,000 | Sandisk Corp., 1.00%, 5/15/13 | 2,356,200 | ||||||
Construction Materials (0.5%): | ||||||||
1,700,000 | Cemex SAB de C.V., 4.88%, 3/15/15(a) | 1,857,250 | ||||||
Consumer Finance (0.9%): | ||||||||
1,537,000 | Ford Motor Co., 4.25%, 11/15/16 | 3,072,079 | ||||||
Diversified Financial Services (0.2%): | ||||||||
564,000 | NASDAQ OMX Group, Inc. (The), 2.50%, 8/15/13 | 558,360 | ||||||
Diversified Telecommunication Services (0.2%): | ||||||||
400,000 | JDS Uniphase Corp., 1.00%, 5/15/26(a) | 379,000 | ||||||
502,000 | JDS Uniphase Corp., 1.00%, 5/15/26, Callable 5/20/13 @ 100 | 475,645 | ||||||
854,645 | ||||||||
Energy Equipment & Services (0.2%): | ||||||||
653,000 | Helix Energy Solutions Group, Inc., 3.25%, 12/15/25, Callable 12/20/12 @ 100 | 630,145 | ||||||
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Convertible Bonds, continued | ||||||||
Health Care Equipment & Supplies (0.5%): | ||||||||
$ | 1,252,000 | LifePoint Hospitals, Inc., 3.50%, 5/15/14 | $ | 1,262,955 | ||||
432,000 | Teleflex, Inc., 3.88%, 8/1/17 | 453,600 | ||||||
1,716,555 | ||||||||
Health Care Providers & Services (0.2%): | ||||||||
416,000 | Omnicare, Inc., 3.75%, 12/15/25 | 463,840 | ||||||
307,000 | Omnicare, Inc., 3.25%, 12/15/35 | 281,672 | ||||||
745,512 | ||||||||
Hotels, Restaurants & Leisure (0.8%): | ||||||||
1,349,000 | International Game Technology, Inc., 3.25%, 5/1/14(a) | 1,556,409 | ||||||
1,144,000 | MGM Resorts International, 4.25%, 4/15/15(a) | 1,252,680 | ||||||
2,809,089 | ||||||||
Industrial Conglomerates (0.1%): | ||||||||
166,000 | Textron, Inc., Series TXT, 4.50%, 5/1/13 | 315,400 | ||||||
Internet & Catalog Retail (0.7%): | ||||||||
300,000 | Clearwire Corp., 8.25%, 12/1/40, Callable 12/1/17 @ 100(a) | 304,500 | ||||||
1,828,700 | Liberty Media Corp., 3.13%, 3/30/23 | 2,050,430 | ||||||
2,354,930 | ||||||||
Machinery (0.3%): | ||||||||
460,000 | Linear Technology Corp., 3.00%, 5/1/27(a) | 487,600 | ||||||
277,000 | Linear Technology Corp., Series A, 3.00%, 5/1/27, Callable 5/1/14 @ 100 | 293,620 | ||||||
315,000 | Navistar International Corp., 3.00%, 10/15/14 | 420,525 | ||||||
1,201,745 | ||||||||
Media (0.7%): | ||||||||
843,000 | Gaylord Entertainment Co., 3.75%, 10/1/14(a) | 1,228,672 | ||||||
568,000 | Interpublic Group of Cos., Inc., 4.75%, 3/15/23, Callable 3/15/13 @ 100 | 663,850 | ||||||
641,000 | Interpublic Group of Cos., Inc. (The), 4.25%, 3/15/23, Callable 3/15/12 @ 100 | 713,914 | ||||||
2,606,436 | ||||||||
Metals & Mining (0.3%): | ||||||||
813,000 | Allegheny Technologies, Inc., 4.25%, 6/1/14 | 1,226,614 | ||||||
Oil, Gas & Consumable Fuels (0.4%): | ||||||||
1,293,000 | Massey Energy Co., 3.25%, 8/1/15 | 1,262,291 | ||||||
Pharmaceuticals (0.7%): | ||||||||
821,000 | Endo Pharmaceuticals Holdings, Inc., 1.75%, 4/15/15 | 1,091,930 | ||||||
1,211,000 | Mylan, Inc., 1.25%, 3/15/12 | 1,282,146 | ||||||
2,374,076 | ||||||||
Semiconductors & Semiconductor Equipment (0.6%): | ||||||||
1,249,000 | Micron Technology, Inc., 1.88%, 6/1/14 | 1,180,305 | ||||||
512,000 | Xilinx, Inc., 3.13%, 3/15/37(a) | 532,480 | ||||||
354,000 | Xilinx, Inc., 3.13%, 3/15/37 | 368,160 | ||||||
2,080,945 | ||||||||
Software (0.6%): | ||||||||
580,000 | Cadence Design Systems, Inc., 1.50%, 12/15/13 | 545,200 | ||||||
1,443,000 | Symantec Corp., 1.00%, 6/15/13 | 1,639,609 | ||||||
2,184,809 | ||||||||
Specialty Retail (0.5%): | ||||||||
822,000 | BorgWarner, Inc., 3.50%, 4/15/12 | 1,838,197 | ||||||
Thrifts & Mortgage Finance (0.1%): | ||||||||
225,000 | MGIC Investment Corp., 5.00%, 5/1/17 | 258,469 | ||||||
Wireless Telecommunication Services (0.2%): | ||||||||
772,000 | SBA Communications Corp., 1.88%, 5/1/13 | 865,605 | ||||||
Total Convertible Bonds (Cost $37,893,669) | 43,474,037 | |||||||
Corporate Bonds (5.0%): | ||||||||
Aerospace & Defense (0.0%): | ||||||||
65,000 | Raytheon Co., 1.63%, 10/15/15 | 62,365 | ||||||
Air Freight & Logistics (0.0%): | ||||||||
10,000 | FedEx Corp., 7.25%, 2/15/11 | 10,071 | ||||||
Airlines (0.1%): | ||||||||
105,000 | Continental Airlines 2010-A, Class A, 4.75%, 1/12/21 | 104,874 | ||||||
90,000 | Delta Air Lines, Inc., 6.20%, 7/2/18 | 95,625 | ||||||
200,499 | ||||||||
7
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Automobiles (0.0%): | ||||||||
$ | 55,000 | Daimler Finance LLC, 7.30%, 1/15/12 | $ | 58,436 | ||||
Beverages (0.1%): | ||||||||
70,000 | Anheuser-Busch InBev NV Worldwide, Inc., 2.50%, 3/26/13 | 71,631 | ||||||
65,000 | Anheuser-Busch InBev NV Worldwide, Inc., 7.20%, 1/15/14(a) | 74,334 | ||||||
20,000 | Anheuser-Busch InBev NV Worldwide, Inc., 5.38%, 11/15/14(a) | 22,035 | ||||||
135,000 | Anheuser-Busch InBev NV Worldwide, Inc., 3.63%, 4/15/15 | 139,344 | ||||||
80,000 | FBG Finance, Ltd., 5.13%, 6/15/15(a) | 84,897 | ||||||
392,241 | ||||||||
Capital Markets (0.3%): | ||||||||
10,000 | Bear Stearns Co., Inc., 6.40%, 10/2/17 | 11,400 | ||||||
120,000 | Bear Stearns Co., Inc., 7.25%, 2/1/18 | 142,207 | ||||||
305,000 | Goldman Sachs Group, Inc., 6.15%, 4/1/18 | 335,864 | ||||||
140,000 | Goldman Sachs Group, Inc., 6.75%, 10/1/37 | 143,135 | ||||||
205,000 | Jefferies Group, Inc., 6.88%, 4/15/21 | 213,051 | ||||||
70,000 | Merrill Lynch & Co., 6.88%, 4/25/18 | 76,605 | ||||||
235,000 | Morgan Stanley, 4.00%, 7/24/15 | 236,219 | ||||||
1,158,481 | ||||||||
Commercial Banks (0.3%): | ||||||||
35,000 | Enterprise Products Operating LP, 5.25%, 1/31/20 | 36,406 | ||||||
75,000 | Enterprise Products Partners LP, 6.50%, 1/31/19 | 85,159 | ||||||
105,000 | HBOS plc, 6.75%, 5/21/18(a) | 98,316 | ||||||
50,000 | PNC Funding Corp., 6.70%, 6/10/19 | 57,567 | ||||||
185,000 | U.S. Bancorp, 2.00%, 6/14/13 | 187,759 | ||||||
250,000 | U.S. Bank NA, 3.78%, 4/29/20, Callable 4/29/15 @ 100(b) | 253,645 | ||||||
290,000 | Wells Fargo & Co., 5.63%, 12/11/17 | 321,083 | ||||||
1,039,935 | ||||||||
Commercial Services & Supplies (0.1%): | ||||||||
135,000 | Waste Management, Inc., 5.00%, 3/15/14 | 145,909 | ||||||
Consumer Finance (0.2%): | ||||||||
205,000 | American Express Co., 8.13%, 5/20/19 | 255,063 | ||||||
140,000 | Capital One Financial Corp., 6.75%, 9/15/17 | 161,331 | ||||||
200,000 | GMAC, Inc., 2.20%, 12/19/12 | 205,706 | ||||||
165,000 | Household Finance Corp., 6.38%, 10/15/11 | 172,014 | ||||||
35,000 | HSBC Finance Corp., 6.75%, 5/15/11 | 35,760 | ||||||
829,874 | ||||||||
Diversified Financial Services (1.3%): | ||||||||
215,000 | AIG SunAmerica Global Finance Vi, 6.30%, 5/10/11(a) | 218,225 | ||||||
295,000 | Bank of America Corp., 5.75%, 12/1/17 | 306,985 | ||||||
55,000 | Bank of America Corp., 5.65%, 5/1/18 | 56,197 | ||||||
120,000 | Bank of America Corp., 7.63%, 6/1/19 | 138,172 | ||||||
180,000 | Charles Schwab Corp., 4.45%, 7/22/20 | 179,304 | ||||||
1,000,000 | Citibank NA, 1.75%, 12/28/12 | 1,020,234 | ||||||
1,050,000 | Citigroup Funding, Inc., 2.25%, 12/10/12 | 1,080,044 | ||||||
135,000 | Citigroup, Inc., 6.13%, 11/21/17 | 147,945 | ||||||
85,000 | Citigroup, Inc., 6.13%, 5/15/18 | 93,120 | ||||||
220,000 | Citigroup, Inc., 8.50%, 5/22/19 | 273,116 | ||||||
115,000 | ERAC USA Finance Co., 2.75%, 7/1/13(a) | 117,053 | ||||||
120,000 | JPMorgan Chase & Co., 6.00%, 1/15/18 | 134,009 | ||||||
65,000 | JPMorgan Chase & Co., 6.30%, 4/23/19 | 73,987 | ||||||
150,000 | JPMorgan Chase & Co., 4.40%, 7/22/20 | 147,637 | ||||||
295,000 | Morgan Stanley, 3.45%, 11/2/15 | 287,612 | ||||||
85,000 | NASDAQ OMX Group, Inc. (The), 5.55%, 1/15/20 | 85,882 | ||||||
130,000 | PNC Funding Corp., 5.13%, 2/8/20 | 135,498 | ||||||
4,495,020 | ||||||||
8
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Telecommunication Services (0.2%): | ||||||||
$ | 1,000 | AT&T, Inc., 8.07%, 11/15/31 | $ | 1,257 | ||||
250,000 | AT&T, Inc., 6.30%, 1/15/38 | 263,737 | ||||||
28,000 | AT&T, Inc., 5.35%, 9/1/40(a) | 26,333 | ||||||
65,000 | Verizon Communications, Inc., 6.35%, 4/1/19 | 75,020 | ||||||
120,000 | Verizon Communications, Inc., 8.95%, 3/1/39 | 171,011 | ||||||
537,358 | ||||||||
Electric Utilities (0.1%): | ||||||||
120,000 | Progress Energy, Inc., 6.85%, 4/15/12 | 128,540 | ||||||
105,000 | Progress Energy, Inc., 7.05%, 3/15/19 | 124,573 | ||||||
253,113 | ||||||||
Electronic Equipment, Instruments & Components (0.0%): | ||||||||
10,000 | Corning, Inc., 6.63%, 5/15/19 | 11,541 | ||||||
20,000 | Corning, Inc., 7.25%, 8/15/36, Callable 8/15/26 @ 100 | 22,761 | ||||||
34,302 | ||||||||
Energy Equipment & Services (0.0%): | ||||||||
45,000 | Texas East Transmission, 7.00%, 7/15/32 | 51,894 | ||||||
Food & Staples Retailing (0.1%): | ||||||||
121,614 | CVS Pass-Through Trust, 6.04%, 12/10/28 | 124,726 | ||||||
19,518 | CVS Pass-Through Trust, 8.35%, 7/10/31(a) | 23,248 | ||||||
260,000 | Safeway, Inc., 3.95%, 8/15/20 | 246,207 | ||||||
45,000 | Wal-Mart Stores, Inc., 5.25%, 9/1/35 | 45,286 | ||||||
15,000 | Wal-Mart Stores, Inc., 6.50%, 8/15/37 | 17,623 | ||||||
457,090 | ||||||||
Food Products (0.2%): | ||||||||
85,000 | Corn Products International, Inc., 6.63%, 4/15/37 | 88,852 | ||||||
85,000 | GlaxoSmithKline, 5.65%, 5/15/18 | 97,191 | ||||||
85,000 | Kraft Foods, Inc., 5.38%, 2/10/20 | 91,483 | ||||||
135,000 | Kraft Foods, Inc., 7.00%, 8/11/37 | 158,046 | ||||||
15,000 | Kraft Foods, Inc., 6.88%, 2/1/38 | 17,416 | ||||||
250,000 | Wm. Wrigley Jr. Co., 1.66%, 6/28/11(a)(b) | 250,115 | ||||||
703,103 | ||||||||
Health Care Equipment & Supplies (0.2%): | ||||||||
165,000 | Boston Scientific Corp., 5.45%, 6/15/14 | 175,117 | ||||||
130,000 | CareFusion Corp., 4.13%, 8/1/12 | 135,443 | ||||||
571,000 | Wright Medical Group, Inc., 2.63%, 12/1/14 | 537,454 | ||||||
848,014 | ||||||||
Health Care Providers & Services (0.2%): | ||||||||
220,000 | Aetna, Inc., 3.95%, 9/1/20 | 211,428 | ||||||
335,000 | Express Scripts, Inc., 5.25%, 6/15/12 | 353,578 | ||||||
75,000 | Medco Health Solutions, Inc., 2.75%, 9/15/15 | 74,410 | ||||||
135,000 | WellPoint, Inc., 4.35%, 8/15/20 | 133,948 | ||||||
773,364 | ||||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
170,000 | Expedia, Inc., 5.95%, 8/15/20 | 170,850 | ||||||
20,000 | Yum! Brands, Inc., 6.25%, 3/15/18 | 22,582 | ||||||
60,000 | Yum! Brands, Inc., 5.30%, 9/15/19 | 63,550 | ||||||
256,982 | ||||||||
Household Products (0.0%): | ||||||||
125,000 | Ohio Power Co., Series 1, 5.38%, 10/1/21 | 133,095 | ||||||
Industrial Conglomerates (0.5%): | ||||||||
1,200,000 | General Electric Capital Corp., Series G, 2.63%, 12/28/12, MTN | 1,244,622 | ||||||
85,000 | General Electric Capital Corp., 5.63%, 5/1/18 | 92,694 | ||||||
70,000 | General Electric Capital Corp., Series G, 6.00%, 8/7/19, MTN | 77,881 | ||||||
40,000 | General Electric Capital Corp., 5.88%, 1/14/38, MTN | 41,522 | ||||||
160,000 | General Electric Co., 5.25%, 12/6/17 | 172,815 | ||||||
1,629,534 | ||||||||
9
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Insurance (0.1%): | ||||||||
$ | 120,000 | Aflac, Inc., 6.45%, 8/15/40 | $ | 122,901 | ||||
115,000 | CNA Financial Corp., 5.88%, 8/15/20 | 114,503 | ||||||
75,000 | Pacific Life Corp., 6.00%, 2/10/20(a) | 78,825 | ||||||
50,000 | Reinsurance Group of America, Inc., 6.45%, 11/15/19 | 52,771 | ||||||
70,000 | Travelers Cos., Inc. (The), 5.35%, 11/1/40 | 68,968 | ||||||
437,968 | ||||||||
Media (0.3%): | ||||||||
135,000 | Comcast Corp., 5.70%, 5/15/18 | 148,571 | ||||||
65,000 | Comcast Corp., 5.15%, 3/1/20 | 68,272 | ||||||
20,000 | Cox Communications, Inc., 8.38%, 3/1/39(a) | 25,918 | ||||||
165,000 | DIRECTV Holdings, 7.63%, 5/15/16, Callable 5/15/12 @ 103.81 | 182,944 | ||||||
80,000 | NBC Universal, Inc., 2.10%, 4/1/14(a) | 79,763 | ||||||
75,000 | NBC Universal, Inc., 5.95%, 4/1/41(a) | 74,992 | ||||||
40,000 | Time Warner, Inc., 5.88%, 11/15/16 | 45,149 | ||||||
60,000 | Time Warner, Inc., 8.75%, 2/14/19 | 76,348 | ||||||
35,000 | Time Warner, Inc., 8.25%, 4/1/19 | 43,476 | ||||||
25,000 | Time Warner, Inc., 6.75%, 6/15/39 | 27,612 | ||||||
160,000 | Time Warner, Inc., 5.88%, 11/15/40, Callable 5/15/40 @ 100 | 158,298 | ||||||
931,343 | ||||||||
Metals & Mining (0.0%): | ||||||||
115,000 | Freeport-McMoRan Copper & Gold, Inc., 8.38%, 4/1/17, Callable 4/1/12 @ 104.19 | 127,219 | ||||||
Multi-Utilities (0.0%): | ||||||||
40,000 | NiSource Finance Corp., 6.80%, 1/15/19 | 46,280 | ||||||
Multiline Retail (0.0%): | ||||||||
90,000 | Macy’s Retail Holdings, Inc., 5.35%, 3/15/12 | 92,925 | ||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
50,000 | Hess Corp., 5.60%, 2/15/41 | 49,637 | ||||||
45,000 | Spectra Energy Capital Corp., 7.50%, 9/15/38 | 52,709 | ||||||
102,346 | ||||||||
Pharmaceuticals (0.1%): | ||||||||
95,000 | Merck & Co., Inc., 5.00%, 6/30/19 | 104,686 | ||||||
230,000 | Pfizer, Inc., 6.20%, 3/15/19 | 269,413 | ||||||
374,099 | ||||||||
Real Estate Investment Trusts (REITs) (0.1%): | ||||||||
115,000 | Digital Realty Trust LP, 4.50%, 7/15/15(a) | 115,708 | ||||||
165,000 | Health Care REIT, Inc., 4.95%, 1/15/21, Callable 10/15/20 @ 100 | 158,986 | ||||||
75,000 | WEA Finance LLC, 6.75%, 9/2/19(a) | 83,552 | ||||||
358,246 | ||||||||
Road & Rail (0.1%): | ||||||||
20,000 | CSX Corp., 6.15%, 5/1/37 | 21,503 | ||||||
140,000 | CSX Corp., 5.50%, 4/15/41, Callable 10/15/40 @ 100 | 137,558 | ||||||
20,000 | Union Pacific Corp., 6.13%, 2/15/20 | 22,823 | ||||||
181,884 | ||||||||
Software (0.0%): | ||||||||
75,000 | Adobe Systems, Inc., 4.75%, 2/1/20 | 76,718 | ||||||
Specialty Retail (0.1%): | ||||||||
100,000 | Advance Auto Parts, Inc., 5.75%, 5/1/20 | 104,464 | ||||||
140,000 | AutoZone, Inc., 6.50%, 1/15/14 | 155,475 | ||||||
70,000 | Home Depot, Inc., 5.88%, 12/16/36 | 72,810 | ||||||
332,749 | ||||||||
Thrifts & Mortgage Finance (0.1%): | ||||||||
80,000 | Prudential Financial, Inc., Series D, 4.75%, 9/17/15, MTN | 84,639 | ||||||
20,000 | Prudential Financial, Inc., 7.38%, 6/15/19 | 23,581 | ||||||
35,000 | Prudential Financial, Inc., 6.63%, 12/1/37 | 38,906 | ||||||
147,126 | ||||||||
10
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Corporate Bonds, continued | ||||||||
Wireless Telecommunication Services (0.1%): | ||||||||
$ | 125,000 | American Tower Corp., 4.50%, 1/15/18 | $ | 123,908 | ||||
25,000 | SBC Communications, Inc., 6.15%, 9/15/34 | 25,819 | ||||||
149,727 | ||||||||
Total Corporate Bonds (Cost $16,748,279) | 17,429,310 | |||||||
Preferred Stocks (1.8%): | ||||||||
Commercial Banks (0.3%): | ||||||||
10,908 | KeyCorp, Series A | 1,167,156 | ||||||
Commercial Services & Supplies (0.1%): | ||||||||
5,300 | Stanley Black & Decker, Inc. | 572,294 | ||||||
Food Products (0.2%): | ||||||||
17,650 | Archer Daniels | 685,349 | ||||||
Health Care Providers & Services (0.5%): | ||||||||
1,310 | HealthSouth Corp., Series A | 1,273,975 | ||||||
9,754 | Omnicare Capital Trust II | 377,358 | ||||||
1,651,333 | ||||||||
Multi-Utilities (0.2%): | ||||||||
22,092 | Centerpoint Energy, Inc. | 702,084 | ||||||
Oil, Gas & Consumable Fuels (0.3%): | ||||||||
27,346 | El Paso Energy Capital Trust I | 1,062,939 | ||||||
Road & Rail (0.2%): | ||||||||
49,449 | Swift Mandatory Common Exchange Security Trust(a) | 599,663 | ||||||
Total Preferred Stocks (Cost $5,819,904) | 6,440,818 | |||||||
U.S. Government Agency Mortgages (0.6%): | ||||||||
Federal Home Loan Mortgage Corporation (0.4%) | ||||||||
$ | 250,000 | 3.00%, 7/28/14 | 263,170 | |||||
950,000 | 4.88%, 6/13/18 | 1,062,420 | ||||||
1,325,590 | ||||||||
Federal National Mortgage Association (0.2%) | ||||||||
540,000 | 4.38%, 10/15/15 | 594,402 | ||||||
185,000 | 6.63%, 11/15/30 | 233,427 | ||||||
827,829 | ||||||||
Total U.S. Government Agency Mortgages (Cost $2,069,072) | 2,153,419 | |||||||
U.S. Treasury Obligations (8.0%): | ||||||||
U.S. Treasury Bonds (1.1%) | ||||||||
300,000 | 6.63%, 2/15/27 | 394,594 | ||||||
1,280,000 | 3.50%, 2/15/39 | 1,103,000 | ||||||
420,000 | 4.25%, 5/15/39 | 413,766 | ||||||
400,000 | 4.38%, 11/15/39 | 402,125 | ||||||
350,000 | 4.63%, 2/15/40 | 366,625 | ||||||
1,500,000 | 4.25%, 11/15/40 | 1,475,625 | ||||||
4,155,735 | ||||||||
U.S. Treasury Notes (6.9%) | ||||||||
2,850,000 | 0.75%, 11/30/11 | 2,861,243 | ||||||
550,000 | 0.88%, 2/29/12 | 553,201 | ||||||
6,500,000 | 1.00%, 4/30/12 | 6,552,585 | ||||||
250,000 | 4.38%, 8/15/12 | 265,820 | ||||||
180,000 | 4.13%, 8/31/12 | 190,786 | ||||||
500,000 | 1.38%, 1/15/13 | 507,617 | ||||||
1,680,000 | 2.75%, 10/31/13 | 1,765,969 | ||||||
1,350,000 | 1.75%, 3/31/14 | 1,376,472 | ||||||
200,000 | 2.63%, 6/30/14 | 209,297 | ||||||
2,470,000 | 2.25%, 1/31/15 | 2,535,608 | ||||||
2,300,000 | 2.50%, 3/31/15 | 2,380,684 | ||||||
2,500,000 | 2.63%, 4/30/16 | 2,559,180 | ||||||
6,000 | 3.63%, 2/15/20 | 6,227 | ||||||
1,500,000 | 2.63%, 11/15/20 | 1,414,921 | ||||||
500,000 | 6.88%, 8/15/25 | 668,359 | ||||||
23,847,969 | ||||||||
Total U.S. Treasury Obligation (Cost $27,721,169) | 28,003,704 | |||||||
Yankee Dollars (1.5%): | ||||||||
Building Products (0.0%): | ||||||||
30,000 | Holcim U.S. Finance SARL & CIE SCS, 6.00%, 12/30/19(a) | 31,153 | ||||||
Commercial Banks (0.6%): | ||||||||
100,000 | Abbey National Treasury Service plc, 3.88%, 11/10/14(a) | 99,094 | ||||||
135,000 | Bank of Nova Scotia, 2.38%, 12/17/13 | 139,087 | ||||||
175,000 | Barclays Bank plc, 6.75%, 5/22/19 | 197,664 | ||||||
110,000 | Barclays Bank plc, 5.14%, 10/14/20 | 98,972 | ||||||
95,000 | Commonwealth Bank of Australia, 5.00%, 10/15/19(a) | 99,438 | ||||||
155,000 | Groupe BPCE, 2.38%, 10/4/13(a) | 153,696 | ||||||
255,000 | HSBC Bank plc, 4.13%, 8/12/20(a) | 245,086 | ||||||
100,000 | Lloyds TSB Bank plc, 5.80%, 1/13/20(a) | 98,736 | ||||||
100,000 | Royal Bank of Scotland plc, 4.88%, 3/16/15 | 102,292 | ||||||
100,000 | Santander U.S. Debt SA, 3.72%, 1/20/15(a) | 94,746 | ||||||
305,000 | Societe Generale, 2.50%, 1/15/14(a) | 304,690 | ||||||
100,000 | Standard Chartered plc, 3.85%, 4/27/15(a) | 102,957 | ||||||
160,000 | Westpac Banking Corp., 2.10%, 8/2/13 | 161,625 | ||||||
1,898,083 | ||||||||
11
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Principal | Fair | |||||||
Amount | Value | |||||||
Yankee Dollars, continued | ||||||||
Diversified Financial Services (0.3%): | ||||||||
$ | 155,000 | Credit Suisse Group AG, 5.40%, 1/14/20 | $ | 158,297 | ||||
30,000 | Credit Suisse, NY, 6.00%, 2/15/18 | 32,169 | ||||||
100,000 | Credit Suisse, NY, 5.30%, 8/13/19 | 105,627 | ||||||
250,000 | Credit Suisse, NY, 4.38%, 8/5/20, MTN | 245,450 | ||||||
125,000 | National Australia Bank, 3.75%, 3/2/15(a) | 129,274 | ||||||
180,000 | Nationwide Building Society, 6.25%, 2/25/20(a) | 187,572 | ||||||
180,000 | Rabobank Nederland NV, 4.75%, 1/15/20(a) | 184,115 | ||||||
60,000 | UBS AG Stamford CT, 5.88%, 12/20/17 | 65,990 | ||||||
1,108,494 | ||||||||
Diversified Telecommunication Services (0.1%): | ||||||||
75,000 | Deutsche Telekom International Finance BV, 6.00%, 7/8/19 | 84,844 | ||||||
100,000 | Telecom Italia Capital, 7.00%, 6/4/18 | 105,883 | ||||||
55,000 | Telecom Italia Capital SA, 7.18%, 6/18/19 | 58,846 | ||||||
249,573 | ||||||||
Electric Utilities (0.1%): | ||||||||
50,000 | Electricite de France, 4.60%, 1/27/20(a) | 51,672 | ||||||
100,000 | Enel Finance International SA, 5.13%, 10/7/19(a) | 99,103 | ||||||
150,775 | ||||||||
Electronic Equipment, Instruments & Components (0.0%): | ||||||||
70,000 | Philips Electronics NV, 5.75%, 3/11/18 | 78,492 | ||||||
Food & Staples Retailing (0.0%): | ||||||||
40,000 | Delhaize Group, 5.88%, 2/1/14 | 44,142 | ||||||
Food Products (0.0%): | ||||||||
100,000 | Grupo Bimbo SAB de CV, 4.88%, 6/30/20(a) | 100,391 | ||||||
Independent Power Producers & Energy Traders (0.0%): | ||||||||
100,000 | Iberdrola Finance Ireland, Ltd., 3.80%, 9/11/14(a) | 99,551 | ||||||
Insurance (0.0%): | ||||||||
100,000 | AEGON NV, 4.63%, 12/1/15 | 103,068 | ||||||
Media (0.0%): | ||||||||
100,000 | WPP Finance, 8.00%, 9/15/14 | 115,045 | ||||||
Metals & Mining (0.3%): | ||||||||
100,000 | Anglo American Capital plc, 9.38%, 4/8/19(a) | 134,513 | ||||||
205,000 | ArcelorMittal, 3.75%, 8/5/15 | 206,707 | ||||||
145,000 | ArcelorMittal, 9.85%, 6/1/19 | 183,254 | ||||||
265,000 | Gold Fields Holdings Co., Ltd., 4.88%, 10/7/20(a) | 253,508 | ||||||
100,000 | Rio Tinto Finance (USA), Ltd., 9.00%, 5/1/19 | 134,305 | ||||||
55,000 | Vale Overseas, Ltd., 5.63%, 9/15/19 | 58,581 | ||||||
65,000 | Vale Overseas, Ltd., 6.88%, 11/10/39 | 71,820 | ||||||
1,042,688 | ||||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
130,000 | Petroleos Mexicanos, 5.50%, 1/21/21 | 131,625 | ||||||
40,000 | Shell International Finance B.V., 3.10%, 6/28/15 | 41,078 | ||||||
172,703 | ||||||||
Real Estate Management & Development (0.0%): | ||||||||
30,000 | Brookfield Asset Management, Inc., 7.13%, 6/15/12 | 31,992 | ||||||
Sovereign Bond (0.0%): | ||||||||
95,000 | Republic of Italy, 6.88%, 9/27/23 | 104,696 | ||||||
Total Yankee Dollars (Cost $5,179,034) | 5,330,846 | |||||||
Municipal Bond (0.0%): | ||||||||
Texas (0.0%): | ||||||||
80,000 | Texas State Transportation Commission Revenue, Series B | 79,349 | ||||||
Total Municipal Bond (Cost $80,000) | 79,349 | |||||||
Fair | ||||||||
Shares | Value | |||||||
Investment Company (5.9%): | ||||||||
20,706,023 | Dreyfus Treasury Prime Cash Management, 0.00%(c) | $ | 20,706,023 | |||||
Total Investment Company (Cost $20,706,023) | 20,706,023 | |||||||
Total Investment Securities (Cost $299,674,845)(d) — 99.9% | 350,640,342 | |||||||
Net other assets (liabilities) — 0.1% | 518,161 | |||||||
Net Assets — 100.0% | $ | 351,158,503 | ||||||
12
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Percentages indicated are based on net assets as of December 31, 2010.
LLC—Limited Liability Company
LP—Limited Partnership
MTN—Medium Term Note
NYS—New York Shares
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investor. The sub-adviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. | |
(b) | Variable rate security. The rate presented represents the rate in effect at December 31, 2010. The date presented represents the final maturity date. | |
(c) | The rate represents the effective yield at December 31, 2010. | |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Australia | 0.1 | % | ||
Belgium | — | ^ | ||
British Virgin Islands | 0.1 | |||
Canada | — | ^ | ||
Cayman Islands | — | ^ | ||
France | 0.1 | |||
Guernsey | 0.6 | |||
Ireland (Republic of) | 1.6 | |||
Italy | — | ^ | ||
Japan | 0.7 | |||
Luxembourg | 0.2 | |||
Mexico | 0.6 | |||
Netherlands | 2.4 | |||
Spain | — | ^ | ||
Switzerland | 2.0 | |||
United Kingdom | 2.8 | |||
United States | 88.8 | |||
100.0 | % | |||
^ | Represents amounts less than 0.05%. |
13
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Van Kampen | ||||
Equity and | ||||
Income Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 299,674,845 | ||
Investment securities, at value | $ | 350,640,342 | ||
Interest and dividends receivable | 935,733 | |||
Prepaid expenses | 4,532 | |||
Total Assets | 351,580,607 | |||
Liabilities: | ||||
Payable for investments purchased | 46,115 | |||
Payable for capital shares redeemed | 41,757 | |||
Manager fees payable | 194,970 | |||
Administration fees payable | 14,939 | |||
Distribution fees payable | 72,538 | |||
Custodian fees payable | 3,713 | |||
Administrative and compliance services fees payable | 2,630 | |||
Trustee fees payable | 648 | |||
Other accrued liabilities | 44,794 | |||
Total Liabilities | 422,104 | |||
Net Assets | $ | 351,158,503 | ||
Net Assets Consist of: | ||||
Capital | $ | 312,046,029 | ||
Accumulated net investment income/(loss) | 3,970,738 | |||
Accumulated net realized gains/(losses) from investment transactions | (15,823,761 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 50,965,497 | |||
Net Assets | $ | 351,158,503 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 29,379,795 | |||
Net Asset Value (offering and redemption price per share) | $ | 11.95 | ||
14
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
Van Kampen | ||||
Equity and | ||||
Income Fund | ||||
Investment Income: | ||||
Interest | $ | 3,029,530 | ||
Dividends | 4,151,215 | |||
Total Investment Income | 7,180,745 | |||
Expenses: | ||||
Manager fees | 2,143,600 | |||
Administration fees | 156,816 | |||
Distribution fees | 714,533 | |||
Custodian fees | 18,932 | |||
Administrative and compliance services fees | 11,085 | |||
Trustees’ fees | 22,353 | |||
Professional fees | 32,282 | |||
Shareholder reports | 26,093 | |||
Other expenses | 12,022 | |||
Total expenses before reductions | 3,137,716 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (210,815 | ) | ||
Less expenses paid indirectly | (9,497 | ) | ||
Net expenses | 2,917,404 | |||
Net Investment Income/(Loss) | 4,263,341 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 10,689,219 | |||
Change in unrealized appreciation/(depreciation) on investments | 19,220,629 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 29,909,848 | |||
Change in Net Assets Resulting From Operations | $ | 34,173,189 | ||
15
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Statements of Changes in Net Assets
AZL Van Kampen Equity and Income Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 4,263,341 | $ | 3,432,031 | ||||
Net realized gains/(losses) on investment transactions | 10,689,219 | (6,752,075 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 19,220,629 | 50,623,100 | ||||||
Change in net assets resulting from operations | 34,173,189 | 47,303,056 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (3,752,896 | ) | (4,597,412 | ) | ||||
Change in net assets resulting from dividends to shareholders | (3,752,896 | ) | (4,597,412 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 86,339,778 | 84,441,642 | ||||||
Proceeds from dividends reinvested | 3,752,896 | 4,597,412 | ||||||
Value of shares redeemed | (11,839,372 | ) | (25,024,467 | ) | ||||
Change in net assets resulting from capital transactions | 78,253,302 | 64,014,587 | ||||||
Change in net assets | 108,673,595 | 106,720,231 | ||||||
Net Assets: | ||||||||
Beginning of period | 242,484,908 | 135,764,677 | ||||||
End of period | $ | 351,158,503 | $ | 242,484,908 | ||||
Accumulated net investment income/(loss) | $ | 3,970,738 | $ | 3,340,659 | ||||
Share Transactions: | ||||||||
Shares issued | 7,729,016 | 9,518,799 | ||||||
Dividends reinvested | 344,302 | 439,523 | ||||||
Shares redeemed | (1,078,172 | ) | (2,659,484 | ) | ||||
Change in shares | 6,995,146 | 7,298,838 | ||||||
16
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.83 | $ | 9.00 | $ | 12.57 | $ | 12.68 | $ | 11.58 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.07 | 0.34 | 0.26 | 0.19 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.14 | 1.98 | (3.25 | ) | 0.13 | 1.24 | ||||||||||||||
Total from Investment Activities | 1.26 | 2.05 | (2.91 | ) | 0.39 | 1.43 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.14 | ) | (0.22 | ) | (0.30 | ) | (0.20 | ) | (0.12 | ) | ||||||||||
Net Realized Gains | — | — | (0.36 | ) | (0.30 | ) | (0.21 | ) | ||||||||||||
Total Dividends | (0.14 | ) | (0.22 | ) | (0.66 | ) | (0.50 | ) | (0.33 | ) | ||||||||||
Net Asset Value, End of Period | $ | 11.95 | $ | 10.83 | $ | 9.00 | $ | 12.57 | $ | 12.68 | ||||||||||
Total Return(a) | 11.74 | % | 22.85 | % | (23.92 | )% | 3.07 | % | 12.52 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 351,159 | $ | 242,485 | $ | 135,765 | $ | 244,193 | $ | 224,971 | ||||||||||
Net Investment Income/(Loss) | 1.49 | % | 1.80 | % | 2.37 | % | 2.05 | % | 2.00 | % | ||||||||||
Expenses Before Reductions(b) | 1.10 | % | 1.13 | % | 1.13 | % | 1.11 | % | 1.11 | % | ||||||||||
Expenses Net of Reductions | 1.02 | % | 1.07 | % | 1.07 | % | 1.06 | % | 1.08 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.02 | % | 1.07 | % | N/A | N/A | N/A | |||||||||||||
Portfolio Turnover Rate | 36.65 | % | 68.56 | % | 59.48 | % | 69.49 | % | 55.05 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
17
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Van Kampen Equity and Income Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
18
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Mortgage Dollar Roll Transactions
The Fund may engage in dollar roll transactions with respect to mortgage securities issued by the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. In a dollar roll transaction, a Fund sells a mortgage-backed security and simultaneously agrees to repurchase a similar security on a specified future date at an agreed upon price. During the roll period, the Fund will not be entitled to receive any interest or principal paid on the securities sold. The Fund is compensated for the lost interest on the securities sold by the difference between the sales price and the lower price for the future repurchase as well as by the interest earned on the reinvestment of the sales proceeds. The Fund may also be compensated by receipt of a commitment fee.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
subadvisory agreement, effective June 1, 2010 between the Manager and Invesco Advisers, Inc. (“Invesco”), Invesco provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to June 1, 2010 the Fund was subadvised by Van Kampen Asset Management. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
For the year ended December 31, 2010, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Expense Limit | |||||||
AZL Van Kampen Equity and Income Fund | 0.75 | % | 1.20 | % |
* | The Manager voluntarily reduced the management fee to 0.70% on the first $100 million in assets, 0.675% on the next $100 million in assets, and 0.65% on assets above $200 million. The Manager reserves the right to increase the management fee to the amount shown in the table above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $8,123 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the period, the Fund paid approximately $14,217 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for
22
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 227,022,836 | $ | — | $ | — | $ | 227,022,836 | ||||||||
Convertible Bonds | — | 43,474,037 | — | 43,474,037 | ||||||||||||
Corporate Bonds | — | 17,429,310 | — | 17,429,310 | ||||||||||||
Municipal Bonds | — | 79,349 | — | 79,349 | ||||||||||||
Preferred Stocks: | ||||||||||||||||
Commercial Services & Supplies | 572,294 | — | — | 572,294 | ||||||||||||
Food Products | 685,349 | — | — | 685,349 | ||||||||||||
Oil, Gas & Consumable Fuels | 1,062,939 | — | — | 1,062,939 | ||||||||||||
All Other Preferred Stocks+ | — | 4,120,236 | — | 4,120,236 | ||||||||||||
U.S. Government Agency Mortgages | — | 2,153,419 | — | 2,153,419 | ||||||||||||
U.S. Treasury Obligations | — | 28,003,704 | — | 28,003,704 | ||||||||||||
Yankee Dollars | — | 5,330,846 | — | 5,330,846 | ||||||||||||
Investment Company | 20,706,023 | — | — | 20,706,023 | ||||||||||||
Total Investment Securities | $ | 250,049,441 | $ | 100,590,901 | $ | — | $ | 350,640,342 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
23
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Van Kampen Equity and Income Fund | $ | 168,622,916 | $ | 98,719,975 |
For the year ended December 31, 2010, purchases and sales on long-term U.S. Government Securities were as follows:
Purchases | Sales | |||||||
AZL Van Kampen Equity and Income Fund | $ | 25,506,527 | $ | 25,825,103 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $303,654,611. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 51,939,945 | ||
Unrealized depreciation | (4,954,214 | ) | ||
Net unrealized appreciation | $ | 46,985,731 | ||
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | Expires | |||||||
12/31/2016 | 12/31/2017 | |||||||
AZL Van Kampen Equity and Income Fund | $ | 1,462,270 | $ | 11,069,112 |
During the year ended December 31, 2010, the Fund utilized $9,324,778 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Van Kampen Equity and Income Fund | $ | 3,752,896 | $ | — | $ | 3,752,896 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
24
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Equity and Income Fund
AZL Van Kampen Equity and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Van Kampen Equity and Income Fund | $ | 4,597,412 | $ | — | $ | 4,597,412 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Van Kampen Equity and Income Fund | $ | 4,658,125 | $ | (12,531,382 | ) | $ | 46,985,731 | $ | 39,112,474 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
25
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Van Kampen Equity and Income Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
26
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 67.26% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
27
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (”Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
28
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
29
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
30
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
31
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
32
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
33
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
34
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
AZL® Van Kampen Growth and Income Fund
Annual Report
December 31, 2010
Annual Report
December 31, 2010
Allianz Funds
Table of Contents
Table of Contents
Management Discussion and Analysis
Page 1
Page 1
Expense Examples and Portfolio Composition
Page 3
Page 3
Schedule of Portfolio Investments
Page 5
Page 5
Statement of Assets and Liabilities
Page 8
Page 8
Statement of Operations
Page 9
Page 9
Statements of Changes in Net Assets
Page 10
Page 10
Financial Highlights
Page 11
Page 11
Notes to the Financial Statements
Page 12
Page 12
Report of Independent Registered Public Accounting Firm
Page 19
Page 19
Other Federal Income Tax Information
Page 20
Page 20
Other Information
Page 21
Page 21
Approval of Investment Advisory and Subadvisory Agreements
Page 22
Page 22
Information about the Board of Trustees and Officers
Page 26
Page 26
This report is submitted for the general information of the shareholder of the Funds. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
Table of Contents
AZL® Van Kampen Growth and Income Fund
Allianz Investment Management LLC serves as the Manager for the AZL® Van Kampen Growth and Income Fund and Invesco Advisers, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the 12-month period ended December 31, 2010?
For the 12-month period December 31, 2010, the AZL® Van Kampen Growth and Income Fund returned 12.37%. That compared to a 15.51% total return for its benchmark, the Russell 1000® Value Index1.
As the market rallied on modestly better economic news between September and the end of the year, strong gains in the equity market helped to drive the Fund’s positive absolute return. The portfolio also benefited in relative performance from an overweight position in consumer discretionary shares, as well as stock selection in the sector. The Fund’s overweight focus on the sector was largely made up of media companies, which benefited from an increase in advertising revenue during the period. Stock selection in the telecommunications service sector also aided relative performance, thanks to a significant ownership stake in a wireless carrier that increased its subscriber base.
The Fund’s underperformance relative to its benchmark index was the result of the portfolio’s technology holdings, which dragged on performance throughout the period. In particular, selection in hardware and equipment makers detracted from relative performance.
The Fund maintained a relative underweight position to the financial services sector during the period, which was another source of weakness. Also, the portfolio’s lack of exposure to real estate hurt relative performance, as real estate shares produced strong gains during the period under review.*
Past performance does not guarantee future results. | ||
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2010. | |
1 | The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Investors cannot invest directly in an index. |
1
Table of Contents
AZL® Van Kampen Growth and Income Fund Review
Fund Objective
The Fund’s investment objective is to seek income and long-term growth of capital. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 65% of its total assets in income-producing equity securities, including common stocks and convertible securities although investments are also made in non-convertible preferred stocks and debt securities rated “investment grade,” which are securities rated within the four highest grades assigned by S&P® or by Moody’s.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
Bonds offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher quality bonds generally offer less risk than longer-term bonds and a lower rate of return.
The Fund is subject to the risk that principal value reacts in opposition to the movement of interest rates and that a rising interest rate environment increases the risk of loss of principal.
Growth of a $10,000 Investment
The chart above represents a comparison of a hypothetical investment in the Fund versus a similar investment in the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2010
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (4/30/01) | |||||||||||||
AZL® Van Kampen Growth and Income Fund | 12.37 | % | -2.29 | % | 2.11 | % | 4.02 | % | ||||||||
Russell 1000® Value Index | 15.51 | % | -4.42 | % | 1.28 | % | 3.51 | % | ||||||||
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio1 | Gross | |||
AZL® Van Kampen Growth and Income Fund | 1.14 | % | ||
The above expense ratio is based on the current Fund prospectus dated April 30, 2010. The Manager voluntarily reduced the management fee to 0.675% on the first $100 million of assets and 0.65% on assets above $100 million. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2012. Additional information pertaining to the December 31, 2010 expense ratios can be found in the financial highlights.
1 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the Permitted Underlying Funds. Accordingly, Acquired Fees and Expenses affect the Fund’s total returns. Because these fees and expenses are not included in the Fund’s financial highlights, the Fund’s total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the financial highlights table. Without Acquired Fund Fees and expenses the Fund’s gross ratio would be 1.13%. |
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 1000® Value Index, an unmanaged index that measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The index does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Fund’s performance reflects the deduction of fees for services provided to the Fund. Investors cannot invest directly in an index.
2
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Expense Examples and Portfolio Composition
(Unaudited)
(Unaudited)
As a shareholder of the AZL Van Kampen Growth and Income Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
Actual Example
The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Van Kampen Growth and Income Fund | $ | 1,000.00 | $ | 1,227.10 | $ | 5.56 | 0.99 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. |
** | Excludes expenses paid indirectly. |
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your cost would have been higher.
Annualized | ||||||||||||||||
Beginning | Ending | Expense Paid | Expense Ratio | |||||||||||||
Account Value | Account Value | During Period* | During Period** | |||||||||||||
7/1/10 | 12/31/10 | 7/1/10 - 12/31/10 | 7/1/10 - 12/31/10 | |||||||||||||
AZL Van Kampen Growth and Income Fund | $ | 1,000.00 | $ | 1,020.21 | $ | 5.04 | 0.99 | % |
* | Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. | |
** | Excludes expenses paid indirectly. |
3
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Expense Examples and Portfolio Composition, continued
(Unaudited)
(Unaudited)
The AZL Van Kampen Growth and Income Fund invested, as a percentage of net assets, in the following investments, as of December 31, 2010:
Percent of | ||||
Investments | net assets* | |||
Air Freight & Logistics | 0.5 | % | ||
Auto Components | 0.7 | |||
Automobiles | 0.9 | |||
Beverages | 1.2 | |||
Capital Markets | 3.9 | |||
Chemicals | 2.2 | |||
Commercial Banks | 4.5 | |||
Commercial Services & Supplies | 1.2 | |||
Communications Equipment | 1.0 | |||
Computers & Peripherals | 2.7 | |||
Diversified Financial Services | 7.8 | |||
Diversified Telecommunication Services | 1.1 | |||
Electric Utilities | 3.9 | |||
Electronic Equipment, Instruments & Components | 2.0 | |||
Energy Equipment & Services | 2.0 | |||
Food & Staples Retailing | 3.4 | |||
Food Products | 2.7 | |||
Health Care Equipment & Supplies | 1.2 | |||
Health Care Providers & Services | 2.5 | |||
Household Durables | 1.1 | |||
Household Products | 1.8 | |||
Industrial Conglomerates | 3.8 | |||
Insurance | 4.8 | |||
Internet Software & Services | 3.3 | |||
IT Services | 1.9 | |||
Machinery | 1.7 | |||
Media | 7.7 | |||
Oil, Gas & Consumable Fuels | 12.1 | |||
Personal Products | 1.5 | |||
Pharmaceuticals | 5.8 | |||
Professional Services | 1.2 | |||
Semiconductors & Semiconductor Equipment | 0.9 | |||
Software | 0.3 | |||
Specialty Retail | 1.4 | |||
Wireless Telecommunication Services | 1.7 | |||
Investment Company | 3.6 | |||
100.0 | % | |||
* | Investments are shown as a percentage of net assets, not total investments. As such the total may not equal 100%. For more information about the investments, please see the Schedule of Portfolio Investments. |
4
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Schedule of Portfolio Investments
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks (96.4%): | ||||||||
Air Freight & Logistics (0.5%): | ||||||||
14,874 | FedEx Corp. | $ | 1,383,431 | |||||
Auto Components (0.7%): | ||||||||
53,475 | General Motors Co.* | 1,971,089 | ||||||
Automobiles (0.9%): | ||||||||
140,669 | Ford Motor Co.* | 2,361,833 | ||||||
Beverages (1.2%): | ||||||||
30,276 | Coca-Cola Co. (The) | 1,991,252 | ||||||
51,123 | Coca-Cola Enterprises, Inc. | 1,279,609 | ||||||
3,270,861 | ||||||||
Capital Markets (3.9%): | ||||||||
225,968 | Charles Schwab Corp. | 3,866,313 | ||||||
7,924 | LPL Investment Holdings, Inc.* | 288,196 | ||||||
128,005 | Morgan Stanley | 3,483,016 | ||||||
62,262 | State Street Corp. | 2,885,221 | ||||||
10,522,746 | ||||||||
Chemicals (2.2%): | ||||||||
72,086 | Dow Chemical Co. (The) | 2,461,016 | ||||||
30,730 | LyondellBasell Industries NV, Class A* | 1,057,112 | ||||||
29,353 | PPG Industries, Inc. | 2,467,707 | ||||||
5,985,835 | ||||||||
Commercial Banks (4.5%): | ||||||||
56,306 | BB&T Corp. | 1,480,285 | ||||||
103,355 | Fifth Third Bancorp | 1,517,251 | ||||||
79,881 | PNC Financial Services Group, Inc. | 4,850,374 | ||||||
63,730 | U.S. Bancorp | 1,718,798 | ||||||
82,015 | Wells Fargo & Co. | 2,541,645 | ||||||
12,108,353 | ||||||||
Commercial Services & Supplies (1.2%): | ||||||||
41,033 | Avery Dennison Corp. | 1,737,337 | ||||||
51,018 | Cintas Corp. | 1,426,464 | ||||||
3,163,801 | ||||||||
Communications Equipment (1.0%): | ||||||||
134,942 | Cisco Systems, Inc.* | 2,729,877 | ||||||
Computers & Peripherals (2.7%): | ||||||||
231,600 | Dell, Inc.* | 3,138,180 | ||||||
95,033 | Hewlett-Packard Co. | 4,000,889 | ||||||
7,139,069 | ||||||||
Diversified Financial Services (7.8%): | ||||||||
376,290 | Bank of America Corp. | 5,019,709 | ||||||
730,439 | Citigroup, Inc.* | 3,454,976 | ||||||
290,605 | JPMorgan Chase & Co. | 12,327,464 | ||||||
20,802,149 | ||||||||
Diversified Telecommunication Services (1.1%): | ||||||||
82,626 | Verizon Communications, Inc. | 2,956,358 | ||||||
Electric Utilities (3.9%): | ||||||||
148,809 | American Electric Power Co., Inc. | 5,354,148 | ||||||
42,061 | Edison International | 1,623,555 | ||||||
22,645 | Entergy Corp. | 1,603,945 | ||||||
49,841 | FirstEnergy Corp. | 1,845,114 | ||||||
10,426,762 | ||||||||
Electronic Equipment, Instruments & Components (2.0%): | ||||||||
126,120 | Tyco International, Ltd. | 5,226,413 | ||||||
Energy Equipment & Services (2.0%): | ||||||||
19,849 | Cameron International Corp.* | 1,006,940 | ||||||
52,881 | Schlumberger, Ltd. | 4,415,563 | ||||||
5,422,503 | ||||||||
Food & Staples Retailing (3.4%): | ||||||||
82,536 | SYSCO Corp. | 2,426,558 | ||||||
47,988 | Wal-Mart Stores, Inc. | 2,587,993 | ||||||
101,556 | Walgreen Co. | 3,956,622 | ||||||
8,971,173 | ||||||||
Food Products (2.7%): | ||||||||
118,221 | Kraft Foods, Inc., Class A | 3,725,144 | ||||||
106,821 | Unilever NV, NYS | 3,354,179 | ||||||
7,079,323 | ||||||||
Health Care Equipment & Supplies (1.2%): | ||||||||
72,036 | Covidien plc | 3,289,164 | ||||||
Health Care Providers & Services (2.5%): | ||||||||
46,435 | Cardinal Health, Inc. | 1,778,925 | ||||||
133,342 | UnitedHealth Group, Inc. | 4,814,979 | ||||||
6,593,904 | ||||||||
Household Durables (1.1%): | ||||||||
85,330 | Sony Corp., SP ADR | 3,047,134 | ||||||
Household Products (1.8%): | ||||||||
76,697 | Procter & Gamble Co. (The) | 4,933,918 | ||||||
Industrial Conglomerates (3.8%): | ||||||||
555,343 | General Electric Co. | 10,157,223 | ||||||
Insurance (4.8%): | ||||||||
33,147 | Chubb Corp. (The) | 1,976,887 | ||||||
319,916 | Marsh & McLennan Cos., Inc. | 8,746,504 | ||||||
67,663 | Principal Financial Group, Inc. | 2,203,107 | ||||||
12,926,498 | ||||||||
Internet Software & Services (3.3%): | ||||||||
213,093 | eBay, Inc.* | 5,930,378 | ||||||
180,141 | Yahoo!, Inc.* | 2,995,745 | ||||||
8,926,123 | ||||||||
IT Services (1.9%): | ||||||||
84,404 | Amdocs, Ltd.* | 2,318,578 | ||||||
152,164 | Western Union Co. | 2,825,685 | ||||||
5,144,263 | ||||||||
5
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
Fair | ||||||||
Shares | Value | |||||||
Common Stocks, continued | ||||||||
Machinery (1.7%): | ||||||||
23,598 | Dover Corp. | $ | 1,379,303 | |||||
65,200 | Ingersoll-Rand plc | 3,070,268 | ||||||
4,449,571 | ||||||||
Media (7.7%): | ||||||||
212,922 | Comcast Corp., Class A | 4,677,896 | ||||||
54,022 | Time Warner Cable, Inc. | 3,567,073 | ||||||
145,491 | Time Warner, Inc. | 4,680,446 | ||||||
192,722 | Viacom, Inc., Class B | 7,633,718 | ||||||
20,559,133 | ||||||||
Oil, Gas & Consumable Fuels (12.1%): | ||||||||
79,746 | Anadarko Petroleum Corp. | 6,073,455 | ||||||
30,480 | ConocoPhillips | 2,075,688 | ||||||
35,911 | Devon Energy Corp. | 2,819,373 | ||||||
38,420 | Exxon Mobil Corp. | 2,809,270 | ||||||
59,514 | Hess Corp. | 4,555,202 | ||||||
13,592 | Noble Energy, Inc. | 1,169,999 | ||||||
69,606 | Occidental Petroleum Corp. | 6,828,349 | ||||||
79,249 | Royal Dutch Shell plc, SP ADR | 5,292,248 | ||||||
32,742 | Williams Cos., Inc. (The) | 809,382 | ||||||
32,432,966 | ||||||||
Personal Products (1.5%): | ||||||||
138,314 | Avon Products, Inc. | 4,019,405 | ||||||
Pharmaceuticals (5.8%): | ||||||||
36,581 | Abbott Laboratories | 1,752,596 | ||||||
156,525 | Bristol-Myers Squibb Co. | 4,144,782 | ||||||
66,313 | Merck & Co., Inc. | 2,389,921 | ||||||
268,693 | Pfizer, Inc. | 4,704,814 | ||||||
67,650 | Roche Holding AG, SP ADR | 2,479,372 | ||||||
15,471,485 | ||||||||
Professional Services (1.2%): | ||||||||
28,756 | Manpower, Inc. | 1,804,727 | ||||||
44,429 | Robert Half International, Inc. | 1,359,527 | ||||||
3,164,254 | ||||||||
Semiconductors & Semiconductor Equipment (0.9%): | ||||||||
114,538 | Intel Corp. | 2,408,734 | ||||||
Software (0.3%): | ||||||||
23,479 | Microsoft Corp. | 655,534 | ||||||
Specialty Retail (1.4%): | ||||||||
105,054 | Home Depot, Inc. | 3,683,193 | ||||||
Wireless Telecommunication Services (1.7%): | ||||||||
167,066 | Vodafone Group plc, SP ADR | 4,415,554 | ||||||
Total Common Stocks (Cost $218,793,783) | 257,799,632 | |||||||
Investment Company (3.6%): | ||||||||
9,587,331 | Dreyfus Treasury Prime Cash Management, 0.00%(a) | 9,587,331 | ||||||
Total Investment Company (Cost $9,587,331) | 9,587,331 | |||||||
Total Investment Securities (Cost $228,381,114)(b) — 100.0% | 267,386,963 | |||||||
Net other assets (liabilities) — 0.0% | 71,474 | |||||||
Net Assets — 100.0% | $ | 267,458,437 | ||||||
Percentages indicated are based on net assets as of December 31, 2010.
NYS—New York Shares
plc—Public Limited Company
SP ADR—Sponsored American Depositary Receipt
* | Non-income producing security | |
(a) | The rate represents the effective yield at December 31, 2010. | |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
6
continued
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Schedule of Portfolio Investments, continued
December 31, 2010
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investment securities as of December 31, 2010:
Country | Percentage | |||
Guernsey | 0.9 | % | ||
Ireland (Republic of) | 2.4 | |||
Japan | 1.1 | |||
Netherlands | 3.3 | |||
Switzerland | 2.9 | |||
United Kingdom | 3.6 | |||
United States | 85.8 | |||
100.0 | % | |||
7
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Statement of Assets and Liabilities
December 31, 2010
AZL | ||||
Van Kampen | ||||
Growth and | ||||
Income Fund | ||||
Assets: | ||||
Investment securities, at cost | $ | 228,381,114 | ||
Investment securities, at value | $ | 267,386,963 | ||
Dividends receivable | 324,979 | |||
Receivable for capital shares issued | 34,717 | |||
Receivable for expenses paid indirectly | 759 | |||
Prepaid expenses | 3,475 | |||
Total Assets | 267,750,893 | |||
Liabilities: | ||||
Payable for capital shares redeemed | 38,476 | |||
Manager fees payable | 146,736 | |||
Administration fees payable | 10,209 | |||
Distribution fees payable | 55,620 | |||
Custodian fees payable | 2,918 | |||
Administrative and compliance services fees payable | 2,110 | |||
Trustee fees payable | 422 | |||
Other accrued liabilities | 35,965 | |||
Total Liabilities | 292,456 | |||
Net Assets | $ | 267,458,437 | ||
Net Assets Consist of: | ||||
Capital | $ | 251,374,515 | ||
Accumulated net investment income/(loss) | 2,301,731 | |||
Accumulated net realized gains/(losses) from investment transactions | (25,223,658 | ) | ||
Net unrealized appreciation/(depreciation) on investments | 39,005,849 | |||
Net Assets | $ | 267,458,437 | ||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 25,002,157 | |||
Net Asset Value (offering and redemption price per share) | $ | 10.70 | ||
8
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Statement of Operations
For the Year Ended December 31, 2010
AZL | ||||
Van Kampen | ||||
Growth and | ||||
Income Fund | ||||
Investment Income: | ||||
Dividends | $ | 4,502,995 | ||
Total Investment Income | 4,502,995 | |||
Expenses: | ||||
Manager fees | 1,698,870 | |||
Administration fees | 101,649 | |||
Distribution fees | 558,079 | |||
Custodian fees | 15,676 | |||
Administrative and compliance services fees | 8,381 | |||
Trustees’ fees | 16,874 | |||
Professional fees | 25,599 | |||
Shareholder reports | 19,947 | |||
Other expenses | 9,408 | |||
Total expenses before reductions | 2,454,483 | |||
Less expenses voluntarily waived/reimbursed by the Manager | (222,860 | ) | ||
Less expenses paid indirectly | (30,366 | ) | ||
Net expenses | 2,201,257 | |||
Net Investment Income/(Loss) | 2,301,738 | |||
Realized and Unrealized Gains/(Losses) on Investments: | ||||
Net realized gains/(losses) on securities transactions | 8,320,516 | |||
Change in unrealized appreciation/(depreciation) on investments | 13,496,778 | |||
Net Realized/Unrealized Gains/(Losses) on Investments | 21,817,294 | |||
Change in Net Assets Resulting From Operations | $ | 24,119,032 | ||
9
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Statements of Changes in Net Assets
AZL Van Kampen Growth and Income Fund | ||||||||
For the | For the | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Change in Net Assets: | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ | 2,301,738 | $ | 2,145,964 | ||||
Net realized gains/(losses) on investment transactions | 8,320,516 | (17,260,740 | ) | |||||
Change in unrealized appreciation/(depreciation) on investments | 13,496,778 | 51,654,636 | ||||||
Change in net assets resulting from operations | 24,119,032 | 36,539,860 | ||||||
Dividends to Shareholders: | ||||||||
From net investment income | (2,141,891 | ) | (4,098,139 | ) | ||||
Change in net assets resulting from dividends to shareholders | (2,141,891 | ) | (4,098,139 | ) | ||||
Capital Transactions: | ||||||||
Proceeds from shares issued | 94,239,834 | 15,685,724 | ||||||
Proceeds from dividends reinvested | 2,141,891 | 4,098,139 | ||||||
Value of shares redeemed | (34,259,321 | ) | (28,764,535 | ) | ||||
Change in net assets resulting from capital transactions | 62,122,404 | (8,980,672 | ) | |||||
Change in net assets | 84,099,545 | 23,461,049 | ||||||
Net Assets: | ||||||||
Beginning of period | 183,358,892 | 159,897,843 | ||||||
End of period | $ | 267,458,437 | $ | 183,358,892 | ||||
Accumulated net investment income/(loss) | $ | 2,301,731 | $ | 2,141,884 | ||||
Share Transactions: | ||||||||
Shares issued | 9,241,737 | 2,076,315 | ||||||
Dividends reinvested | 225,700 | 444,002 | ||||||
Shares redeemed | (3,550,937 | ) | (3,552,551 | ) | ||||
Change in shares | 5,916,500 | (1,032,234 | ) | |||||
10
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.61 | $ | 7.95 | $ | 12.95 | $ | 13.37 | $ | 12.36 | ||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.07 | 0.12 | 0.24 | 0.22 | 0.15 | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.11 | 1.75 | (4.31 | ) | 0.14 | 1.74 | ||||||||||||||
Total from Investment Activities | 1.18 | 1.87 | (4.07 | ) | 0.36 | 1.89 | ||||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.09 | ) | (0.21 | ) | (0.24 | ) | (0.18 | ) | (0.10 | ) | ||||||||||
Net Realized Gains | — | — | (0.69 | ) | (0.60 | ) | (0.78 | ) | ||||||||||||
Total Dividends | (0.09 | ) | (0.21 | ) | (0.93 | ) | (0.78 | ) | (0.88 | ) | ||||||||||
Net Asset Value, End of Period | $ | 10.70 | $ | 9.61 | $ | 7.95 | $ | 12.95 | $ | 13.37 | ||||||||||
Total Return(a) | 12.37 | % | 23.64 | % | (32.86 | )% | 2.64 | % | 15.90 | % | ||||||||||
Ratios to Average Net Assets/ Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period ($000’s) | $ | 267,458 | $ | 183,359 | $ | 159,898 | $ | 327,862 | $ | 370,723 | ||||||||||
Net Investment Income/(Loss) | 1.03 | % | 1.32 | % | 1.71 | % | 1.39 | % | 1.34 | % | ||||||||||
Expenses Before Reductions(b) | 1.10 | % | 1.13 | % | 1.12 | % | 1.09 | % | 1.16 | % | ||||||||||
Expenses Net of Reductions | 0.99 | % | 1.00 | % | 1.00 | % | 0.99 | % | 1.09 | % | ||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.00 | % | 1.03 | % | 1.03 | % | 1.00 | % | 1.10 | % | ||||||||||
Portfolio Turnover Rate | 33.94 | % | 53.84 | % | 39.96 | % | 25.25 | % | 29.83 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. | |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. | |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
11
See accompanying notes to the financial statements.
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements
December 31, 2010
1. Organization
The Allianz Variable Insurance Products Trust (the “Trust”) was organized as a Delaware statutory trust on July 13, 1999. The Trust is a diversified open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These Notes to the Financial Statements are for the AZL Van Kampen Growth and Income Fund (the “Fund”). The Trust consists of 29 separate investment portfolios (collectively, the “Funds”), each of which is a series of the Trust, as follows:
• | AZL Allianz AGIC Opportunity Fund | |
• | AZL BlackRock Capital Appreciation Fund | |
• | AZL Columbia Mid Cap Value Fund | |
• | AZL Columbia Small Cap Value Fund | |
• | AZL Davis NY Venture Fund | |
• | AZL Dreyfus Equity Growth Fund | |
• | AZL Eaton Vance Large Cap Value Fund | |
• | AZL Enhanced Bond Index Fund | |
• | AZL Franklin Small Cap Value Fund | |
• | AZL Franklin Templeton Founding Strategy Plus Fund | |
• | AZL Gateway Fund | |
• | AZL International Index Fund | |
• | AZL Invesco International Equity Fund | |
• | AZL JPMorgan U.S. Equity Fund | |
• | AZL MFS Investors Trust Fund | |
• | AZL Mid Cap Index Fund | |
• | AZL Money Market Fund | |
• | AZL Morgan Stanley Global Real Estate Fund | |
• | AZL Morgan Stanley International Equity Fund | |
• | AZL Morgan Stanley Mid Cap Growth Fund | |
• | AZL NFJ International Value Fund | |
• | AZL Russell 1000 Growth Index Fund | |
• | AZL Russell 1000 Value Index Fund | |
• | AZL S&P 500 Index Fund | |
• | AZL Schroder Emerging Markets Equity Fund | |
• | AZL Small Cap Stock Index Fund | |
• | AZL Turner Quantitative Small Cap Growth Fund | |
• | AZL Van Kampen Equity and Income Fund | |
• | AZL Van Kampen Growth and Income Fund |
The Trust is authorized to issue an unlimited number of shares of the Fund without par value. Shares of the Fund are available through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies.
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund may enter into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Management has evaluated events and transactions subsequent to period end through the date the financial statements were available to be issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
Security Valuation
The Fund records its investments at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. The valuation techniques used to determine fair value are further described in Note 4 below.
Investment Transactions and Investment Income
Investment transactions are recorded no later than one business day after trade date. For financial reporting purposes, investment transactions are recorded on trade date on the last business day of the reporting period. Net realized gains and losses on investments sold and on foreign currency transactions are recorded on the basis of identified cost. Interest income is recorded on the accrual basis and includes, where applicable, the amortization of premiums or accretion of discounts. Dividend income is
12
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
recorded on the ex-dividend date except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital, are recorded as a reduction to the cost of the individual REIT.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the fair value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies.
Risks Associated with Foreign Securities and Currencies
Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities. Certain foreign investments may also be subject to foreign withholding taxes.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., return of capital, net operating loss, reclassification of certain market discounts, gain/loss, paydowns, and distributions), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales and post October losses) do not require reclassification. Dividends to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
Expense Allocation
Expenses directly attributable to the Fund are charged directly to the Fund, while expenses attributable to more than one Fund are allocated among the respective Funds based upon relative net assets or some other reasonable method. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
Securities Lending
To generate additional income, the Fund may lend up to 331/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, or U.S. government or U.S. government agency securities, equal initially to at least 102% of the fair value plus accrued interest on the securities loaned (105% for foreign securities). The Fund receives payments from borrowers equivalent to the dividends and interest that would have been earned on securities lent while simultaneously seeking to earn income on the investment of cash collateral received. Collateral is marked to market daily to provide a level of collateral at least equal to the fair value of securities loaned. The investment of cash collateral deposited by the borrower is subject to inherent market risks such as interest rate risk, credit risk, liquidity risk, and other risks that are present in
13
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
the market, and as such, the value of these investments may not be sufficient, when liquidated, to repay the borrower when the loaned security is returned. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by the Manager to be of good standing and credit worthy and when in its judgment, the consideration which can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Trust or the borrower at any time, and are, therefore, not considered to be illiquid investments. During the year ended December 31, 2010, the Fund had no amounts outstanding related to securities lending.
Commission Recapture
Certain Funds of the Trust participate in a commission recapture program. The Fund will utilize the recaptured commissions to pay for, in whole or part, certain expenses of the Fund, excluding investment advisory fees. Any amounts received by the Fund, if applicable, are disclosed as “Expenses paid indirectly” on the Statement of Operations.
Derivative Instruments
The Fund did not enter into any derivative instruments during the period. The following is a description of derivative instruments that the Fund may utilize, including the primary underlying risk exposure related to each instrument type.
Foreign Currency Exchange Contracts
During the year ended December 31, 2010, the Fund did not enter into any foreign currency exchange contracts. The Fund may enter into foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of securities denominated in a particular currency. In addition to the foreign currency risk related to the use of these contracts, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date.
Futures Contracts
During the year ended December 31, 2010, the Fund did not enter into any futures contracts. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in market value of the underlying securities and the prices of futures contracts, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
3. Related Party Transactions
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”) to make investment decisions on behalf of the Fund. Pursuant to a subadvisory agreement, effective June 1, 2010 between the Manager and Invesco Advisers, Inc. (“Invesco”), Invesco provides investment advisory services as the Subadviser for the Fund subject to the general supervision of the Trustees and the Manager. Prior to June 1, 2010 the Fund was subadvised by Van Kampen Asset Management. The Manager is entitled to a fee, computed daily and paid monthly, based on the average daily net assets of the Fund. Expenses incurred by the Fund for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.” For its services, the Subadviser is entitled to a fee payable by the Manager. The Manager has contractually agreed to waive fees and reimburse the Fund to limit the annual expenses, excluding interest expense (e.g., cash overdraft fees), taxes, brokerage commissions, other expenditures that
14
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, based on the daily net assets of the Fund, through April 30, 2012. The annual expense limit of the Fund is 1.20%.
The fees payable to the Manager are based on a tiered structure for various net assets levels as follows: the first $100 million of assets at 0.775%, the next $150 million in assets at 0.75%, the next $250 million in assets at 0.725% and assets above $500 million at 0.675%. The Manager voluntarily reduced the management fee as follows: the first $100 million of assets at 0.675% and assets above $100 million at 0.65%. The Manager reserves the right to stop reducing the management fee at any time.
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the stated limit during the respective year. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2010, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $75 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administrative and compliance services fees.”
Citi Fund Services Ohio, Inc. (“Citi” or the “Administrator”), a wholly owned subsidiary of Citigroup, Inc., with which an officer of the Trust is affiliated, serves as the Trust’s administrator, transfer agent, and fund accountant, and assists the Trust in all aspects of its administration and operation. The Administrator is entitled to a Trust-wide asset-based fee, which is based on the following schedule: 0.05% of daily average net assets from $0 to $4 billion, 0.04% of daily average net assets from $4 billion to $6 billion, 0.02% of daily average net assets from $6 billion to $8 billion, 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and are subject to a minimum annual fee. In addition, the Administrator is entitled to annual account fees related to the transfer agency system, an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund and receives 12b-1 fees directly from the Fund, plus a Trust-wide annual fee of $42,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1. Pursuant to this plan, the Fund is authorized to pay certain fees for the sale and distribution of its shares and services provided to its shareholders at an annual rate not to exceed 0.25% of the Fund’s average daily net assets. These fees are reflected on the Statement of Operations as “Distribution fees.”
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is a partner. During the year ended December 31, 2010, $6,274 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $33,000 annual Board retainer and a $7,500 meeting fee for each regular in-person Board meeting, a $3,000 meeting fee for each Committee meeting and a $3,000 meeting fee for each conference call. In addition, Trustees may receive compensation for
15
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
special meetings and telephonic meetings. Also, the Trustees are reimbursed for certain expenses associated with attending Board meetings. Compensation to the Trustees is allocated between the Trust and the Allianz Variable Insurance Products Fund of Funds Trust in proportion to the assets under management of each Trust. During the year ended December 31, 2010, actual Trustee compensation was $787,500 in total for both Trusts.
For the period, the Fund paid approximately $9,737 to affiliated broker/dealers of the Subadviser on the execution of purchases and sales of the Fund’s portfolio investments.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical assets | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (“Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm EST). Equity securities are valued at the last quoted sale price or, if there is no sale, the last quoted bid price is used for long securities and the last quoted ask price is used for securities sold short. Securities listed on NASDAQ Stock Market, Inc. (“NASDAQ”) are valued at the official closing price as reported by NASDAQ. In each of these situations, valuations are typically categorized as a Level 1 in the fair value hierarchy. Investments in open-end investment companies are valued at their respective net asset value as reported by such companies and are typically categorized as Level 1 in the fair value hierarchy.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as a Level 2 in the fair value hierarchy.
Exchange traded futures contracts are valued at the last sales price as of the close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE and are typically categorized as Level 2 in the fair value hierarchy. Non-exchange traded derivatives, such as swaps, are generally valued by approved independent pricing services utilizing pricing techniques which take into account factors such as yield, quality, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes and are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the New York Stock Exchange. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels,
16
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities and are typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2010, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
The following is a summary of the valuation inputs used as of December 31, 2010 in valuing the Fund’s investments based upon the three levels defined above:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investment Securities: | ||||||||||||||||
Common Stocks+ | $ | 257,799,632 | $ | — | $ | — | $ | 257,799,632 | ||||||||
Investment Company | 9,587,331 | — | — | 9,587,331 | ||||||||||||
Total Investment Securities | $ | 267,386,963 | $ | — | $ | — | $ | 267,386,963 | ||||||||
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
The Fund recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Levels 1 and 2 as of December 31, 2010.
In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06 “Improving Disclosures about Fair Value Measurements”. The portions of ASU No. 2010-06 which require reporting entities to prepare new disclosures surrounding amounts and reason for significant transfers in and out of Level 1 and Level 2 fair value measurements as well as inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 have been adopted by the Fund.
The remaining portion of ASU No. 2010-06 requires reporting entities to make new disclosures about information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of activity in Level 3 fair value measurements. These new and revised disclosures are required to be implemented for fiscal years beginning after December 15, 2010. Management is currently evaluating the impact that the adoption of this remaining portion of ASU No. 2010-06 may have on the Fund’s financial statement disclosures.
5. Security Purchases and Sales
For the year ended December 31, 2010, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||
AZL Van Kampen Growth and Income Fund | $ | 130,572,692 | $ | 71,762,725 |
6. Federal Income Tax Information
It is the Fund’s policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. Therefore, no provision is made for federal income taxes.
Management of the Funds has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax year ends and the interim tax period since then, as applicable). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.
Cost for federal income tax purposes at December 31, 2010, is $230,077,085. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 40,355,309 | ||
Unrealized depreciation | (3,045,431 | ) | ||
Net unrealized appreciation | $ | 37,309,878 | ||
17
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Van Kampen Growth and Income Fund
AZL Van Kampen Growth and Income Fund
Notes to the Financial Statements, continued
December 31, 2010
At December 31, 2010 the Fund had net capital loss carryforwards, as summarized below, to offset future net capital gains, if any, to the extent provided by the Treasury regulations. To the extent that these carryforwards are used to offset future capital gains, it is probable that the gains that are offset will not be distributed to shareholders.
Expires | ||||
12/31/2017 | ||||
AZL Van Kampen Growth and Income Fund | $ | 23,527,687 |
During the year ended December 31, 2010, the Fund utilized $7,575,581 in capital loss carryforwards to offset capital gains.
The Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted on December 22, 2010. The Act makes changes to several tax rules impacting the Funds. In general, the provisions of the Act will be effective for the Funds’ fiscal year ending December 31, 2011. Although the Act provides several benefits, including the unlimited carryover of future capital losses, there may be a greater likelihood that all or a portion of each fund’s pre-enactment capital loss carryovers, if any, may expire without being utilized due to the fact that post-enactment capital losses get utilized before pre-enactment capital loss carryovers. Relevant information regarding the impact of the Act on the Fund, if any, will be contained within the “Federal Taxes” section of the financial statement notes for the fiscal year ending December 31, 2011.
The tax character of dividends paid to shareholders during the year ended December 31, 2010 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Van Kampen Growth and Income Fund | $ | 2,141,891 | $ | — | $ | 2,141,891 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2009 were as follows:
Net | ||||||||||||
Ordinary | Long-Term | Total | ||||||||||
Income | Capital Gains | Distributions(a) | ||||||||||
AZL Van Kampen Growth and Income Fund | $ | 4,098,139 | $ | — | $ | 4,098,139 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2010, the components of accumulated earnings on a tax basis were as follows:
Undistributed | Accumulated | Total | ||||||||||||||
Ordinary | Capital and | Unrealized | Accumulated | |||||||||||||
Income | Other Losses | Appreciation(a) | Earnings (Deficit) | |||||||||||||
AZL Van Kampen Growth and Income Fund | $ | 2,301,731 | $ | (23,527,687 | ) | $ | 37,309,878 | $ | 16,083,922 |
(a) | The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
18
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Van Kampen Growth and Income Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 the Fund as of December 31, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 23, 2011
19
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2010, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
20
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
21
Table of Contents
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
The Allianz Variable Insurance Products Trust (the “Trust”) is a manager-of-managers fund. That means that the Trust’s Manager (“Allianz Investment Management LLC”) is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending for selection as a Subadviser.
In reviewing the services provided by the Manager and the terms of the investment management agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Funds are offered only through variable annuities and variable life insurance policies, and not in the retail fund market. In addition, the Board receives information regarding the Manager’s expertise with regard to portfolio diversification and asset allocation requirements within variable insurance products issued by Allianz Life Insurance Company of North America and its subsidiary, Allianz Life Insurance Company of New York. Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The Trust’s Manager has adopted policies and procedures to assist it in the process of analyzing each potential Subadviser with expertise in particular asset classes for purposes of making the recommendation that a specific investment adviser be selected. The Trust’s Board reviews and considers the information provided by the Manager in deciding which investment advisers to select. After an investment adviser becomes a Subadviser, a similarly rigorous process is instituted by the Manager to monitor the investment performance and other responsibilities of the Subadviser. The Manager reports to the Trust’s Board on its analysis at the regular meetings of the Board, which are held at least quarterly. Where warranted, the Manager will add or remove a particular Subadviser from a “watch” list that it maintains. Watch list criteria include, for example: (a) Fund performance over various time periods; (b) Fund risk issues, such as changes in key personnel involved with Fund management, changes in investment philosophy or process, or “capacity” concerns; and (c) organizational risk issues, such as regulatory, compliance or legal concerns, or changes in the ownership of the Subadviser. The Manager may place a Fund on the watch list for other reasons, and if so, will explain its rationale to the Trustees. Funds which are on the watch list are subject to special scrutiny of the Manager and the Board of Trustees. Funds may be removed from such watch list, if for example, performance improves or regulatory matters are satisfactorily resolved. However, in some situations where Funds which have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board of Trustees has subsequently approved new Subadvisory Agreements with such Subadvisers.
In assessing the Manager’s and Subadvisers’ (collectively, the “Advisory Organizations”), performance of their obligations, the Board considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruption of a Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew a contract.
As required by the Investment Company Act of 1940 (“1940 Act”), the Trust’s Board has reviewed and approved the Trust’s Investment Management Agreement with the Manager (the “Advisory Agreement”) and portfolio management agreements (the “Subadvisory Agreements”) with the Subadvisers. The Board’s decision to approve these contracts reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of these contracts, the Board considers many factors, among the most material of which are: the Fund’s investment objectives and long term performance; the Advisory Organizations’ management philosophy, personnel, and processes, including their compliance history and the adequacy of their compliance processes; the preferences and expectations of Fund shareholders (and underlying contract owners) and their relative sophistication; the continuing state of competition in the mutual fund industry; and comparable fees in the mutual fund industry.
The Board also considers the compensation and benefits received by the Advisory Organizations. This includes fees received for services provided to the Fund by affiliated persons of the Advisory Organizations and research services received by the Advisory Organizations from brokers that execute Fund trades, as well as advisory fees. The Board considered the fact that: (1) the Manager and the Trust are parties to an Administrative Service Agreement, a Compliance Services Agreement, and a Chief Compliance Officer Agreement, under which the Manager is compensated by the Trust for performing certain administrative and compliance services including providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer; and (2) Allianz Life Financial Services, LLC, an affiliated person of the Manager, is a registered securities broker-dealer and receives (along with its affiliated persons) payments made by the Trust pursuant to Rule 12b-1.
The Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser’s compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser’s cost of providing the services; the extent to which the adviser may realize “economies of scale” as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser’s relationship with the fund; performance and expenses of comparable funds; and the extent to which the
22
Table of Contents
independent Board members are fully informed about all facts bearing on the adviser’s service and fee. The Trust’s Board is aware of these factors and takes them into account in its review of the Trust’s advisory contracts.
The Board considered and weighed these circumstances in light of its experience in governing the Trust and working with the Advisory Organizations on matters relating to the Funds, and is assisted in its deliberations by the advice of legal counsel to the Independent Trustees. In this regard, the Board requests and receives a significant amount of information about the Funds and the Advisory Organizations. Some of this information is provided at each regular meeting of the Board; additional information is provided in connection with the particular meeting or meetings at which the Board’s formal review of an advisory contract occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board’s evaluation of an advisory contract is informed by reports covering such matters as: an Advisory Organization’s investment philosophy, personnel, and processes; the Fund’s short- and long-term performance (in absolute terms as well as in relationship to its benchmark(s), certain competitor or “peer group” funds and similar funds managed by the particular Subadviser), and comments on the reasons for performance; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Advisory Organizations and their affiliates; compliance and audit reports concerning the Funds and the companies that service them; and relevant developments in the mutual fund industry and how the Funds and/or Advisory Organizations are responding to them.
The Board also receives financial information about Advisory Organizations, including reports on the compensation and benefits the Advisory Organizations derive from their relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Funds. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Funds.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2010. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 20, 2010, and at an “in person” Board of Trustees meeting held November 3, 2010. The Agreements were approved at the Board meeting of November 3, 2010. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2012. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers each Fund’s business and other affairs. As the Trust is a manager of managers fund, the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each of the Trust’s investment portfolios. The Trust’s Manager is responsible for determining, in the first instance, which investment advisers to consider recommending to the Board of Trustees for selection as a Subadviser.
The Trustees noted that the Manager also provides the Trust and each Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by any others retained by the Trust on behalf of the Funds) and executive and other personnel as are necessary for the operation of the Trust and the Funds. Except for the Trust’s Chief Compliance Officer, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Trustees considered the scope and quality of services provided by the Manager and the Subadvisers and noted that the scope of such services provided had expanded as a result of recent regulatory and other developments. The Trustees noted that, for example, the Manager and Subadvisers are responsible for maintaining and monitoring their own compliance programs, and these compliance programs have recently been refined and enhanced in light of new regulatory requirements. The Trustees
23
Table of Contents
considered the capabilities and resources which the Manager has dedicated to performing services on behalf of the Trust and its Funds. The quality of administrative and other services, including the Manager’s role in coordinating the activities of the Trust’s other service providers, also were considered. The Trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided (and expected to be provided) to the Trust and to each of the Funds under the Agreements.
(2) The investment performance of the Funds, the Manager and the Subadvisers. In connection with every in-person quarterly Board of Trustees meeting, Trustees receive extensive information on the performance results of each of the Funds. This includes, for example, performance information on all of the Funds for the previous quarter, and previous one, three and five-year periods, and since inception. (For Funds which have been in existence for less than five years, Trustees may receive performance information on comparable funds managed by the particular Subadviser for periods prior to the creation of a particular Fund.) Such performance information includes information on absolute total return, performance versus Subadvisers’ comparable fund(s), performance versus the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held November 3, 2010, the Manager reported that for the three year period ended June 30, 2010, nine Funds were in the top 40%, six were in the middle 20% and six were in the bottom 40%, and for the one year period ended June 30, 2010, 14 Funds were in the top 40%, three were in the middle 20%, and seven were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2010, nine Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. At the Board of Trustees meeting held November 3, 2010, the Trustees determined that the overall investment performance of the Funds was acceptable.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadvisers and their affiliates from their relationship with the Funds. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily “cap” Fund expenses at certain levels, and information is provided to Trustees setting forth “contractual” advisory fees and “actual” fees after taking expense caps into account. Based upon the information provided, the “actual” advisory fees payable by the Funds overall are generally comparable to the average level of fees paid by Fund peer groups. For the 29 Funds reviewed by the Board of Trustees in the fall of 2010, 23 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. The Trustees recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The Board has concluded that the advisory fees to be paid to the Manager by the Funds are not unreasonable.
The Manager has also supplied information to the Board of Trustees pertaining to total Fund expenses (which includes advisory fees, the 25 basis point 12b-1 fee paid by the Funds, and other Fund expenses). As noted above, the Manager has agreed to “cap” Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2010 for the 29 Funds was as follows: (1) 18 of the Funds had total expense rankings at or below the 50th percentile; (2) six of the Funds were between the 50th and 65th percentiles; (3) for one Fund with an expense rank above the 65th percentile, the Manager expects such Fund to be below the 65th percentile in 2011 because of greater Fund assets; (4) for one Fund with an expense rank above the 65th percentile, the Manager reported that the Fund is not yet at scale; and (5) for three Funds with an expense rank above the 65th percentile, the Manager reported that the peer group makes for poor comparability.
The Manager has committed to providing the Funds with a high quality of service and working to reduce Fund expenses over time, particularly as the Funds grow larger. The Trustees concluded therefore that the expense ratios of the Funds were not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2007 through June 30, 2010. The Trustees recognized that it is difficult to make comparisons of profitability from investment company advisory agreements because comparative information is not generally publicly available and is affected by numerous factors, including the structure of the particular adviser, the types of funds it manages, its business mix, numerous assumptions regarding allocation of expenses and the adviser’s capital structure and cost of capital. In considering profitability information, the Trustees considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Trustees recognized that the Manager should, in the abstract, be entitled to earn a reasonable level of profits for the services it provides to each Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Funds was not excessive.
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvises. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreements with the Subadvisers which are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. The Trustees were also provided with certain information on profitability for Subadvisers which are affiliated with the Manager. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
24
Table of Contents
(4) and (5) The extent to which economies of scale would be realized as the Funds grow, and whether fee levels reflect these economies of scale. The Trustees noted that most of the advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels, although certain Subadvisory Agreements have such “breakpoints.” The Trustees recognized that breakpoints may be an appropriate way for the Manager to share its economies of scale, if any, with Funds that have substantial assets. However, they also recognized that there may not be a direct relationship between any economies of scale realized by Funds and those realized by the Manager as assets increase. The Trustees do not believe there is a uniform methodology for establishing breakpoints that give effect to Fund-specific service provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Funds, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. Depending on the age, size, and other characteristics of a particular fund and its manager’s cost structure, different conclusions can be drawn as to whether there are economies of scale to be realized at any particular level of assets, notwithstanding the intuitive conclusion that such economies exist, or will be realized at some level of total assets. Moreover, because different managers have different cost structures and service models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Trustees also noted that the advisory agreements for many funds do not have breakpoints at all, or if breakpoints exist, they may be at asset levels significantly greater than those of the individual Funds. The Trustees also noted that the total assets in all of the Funds as of June 30, 2010 were approximately $5.1 billion, and that no single non-money market Fund had assets in excess of $366 million.
The Trustees noted that the Manager has agreed to temporarily “cap” Fund expenses at certain levels, which has the effect of reducing expenses as would the implementation of advisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or advisory fee breakpoints as the Funds grow larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Agreements at a meeting to be held prior to December 31, 2011, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
25
Table of Contents
Information about the Board of Trustees and Officers (Unaudited)
Overall responsibility for the management of the Trust rests with its Board of Trustees (“Trustees”), which is elected by Shareholders of the Trust. The Trustees elect the officers of the Trust to supervise its day-to-day operations. The information regarding the Trustees and Officers is set for below:
Non-Interested Trustees(1)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Peter R. Burnim, Age 64 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director iQ Venture Partners, Inc.; EVP Northstar Companies 2002- 2005; Senior Officer Citibank and Citicorp for over 25 years; Sterling Centrecorp, Inc. Board; Highland Financial Holdings Boards. | 36 | HFH Fund Boards, Argus International Life Boards | |||||
Peggy L. Ettestad, Age 53 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Managing Director, Red Canoe Management Consulting LLC, Senior Managing Director, Residential Capital LLC 2003-2008; Chief Operations Officer, Transamerica Reinsurance 2002-2003. | 36 | None | |||||
Roger Gelfenbien, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture from 1983 to August 1999. | 36 | Webster Financial Virtus Funds (8 Funds) | |||||
Dickson W. Lewis, Age 62 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Manager, Canada- Lifetouch National School Studios, 2006 to present. Vice President/General Manager of Jostens, Inc., a manufacturer of school products, 2001 to 2006; Senior Vice President of Fortis Group, a Life insurance and Securities company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001. | 36 | Board of Education, Orono, MN | |||||
Claire R. Leonardi, Age 55 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | General Partner of Fairview Capital, L.P., a venture capital fund-of-funds, 9/94 to present. | 36 | Natural History Museum of the Adirondacks | |||||
Arthur C. Reeds III, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired Senior Investment Officer, Hartford Foundation for Public Giving from September 2000 to January 2003; Chairman, Chief Executive and President of Conning Corp., a money manager, from September 1999 to March 2000; Investment Consultant from 1997 to September 1999. | 36 | Connecticut Water Service, Inc. | |||||
Peter W. McClean, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, a market risk information company, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., April 1996 to August 2001. | 36 | Cyrus Reinsurance; PNMAC Mortgage Opportunity Fund LLC, Energy Capital, LLC Advisory Board, Family Health International |
26
Table of Contents
Interested Trustees(3)
Number of | ||||||||||
Positions | Portfolios | |||||||||
Held with | Overseen for | Other | ||||||||
Allianz | Term of | Allianz | Directorships | |||||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | VIP and VIP | Held Outside the | ||||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | FOF Trust | Fund Complex | |||||
Robert DeChellis, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President, Allianz Life Financial Services, LLC, 2007 to present; Senior Vice President of Marketing and Product Innovation, 2006 to 2007; Executive Vice President, Travelers Life 2004 to 2005; Executive Vice President, Jackson National Life Distributors, Inc. 2002 to 2004. | 36 | None |
Officers
Positions | ||||||
Held with | ||||||
Allianz | Term of | |||||
VIP and VIP | Office(2)/Length | Principal Occupation(s) | ||||
Name, Address, and Age | FOF Trust | of Time Served | During the Past 5 Years | |||
Michael Radmer, Age 65 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Ty Edwards, Age 44 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 4/10 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., December 2009 to present; Director, Product Management, Columbia Management, April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund Administration, Columbia Management, January 2006 to April 2007; Vice President, Fund Administration, Columbia Management, July 2002 to December 2005. | |||
Stephen G. Simon, Age 42 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 11/06 | Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to present; President, Simon Compliance Consulting Ltd., May 2004 to July 2004; Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004. | |||
Brian Muench, Age 40 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 2/06 | President, Advisory Management, Allianz Investment Management LLC from November 2010 to present; Vice President, Allianz Investment Management LLC from November 2005 to November 2010, Assistant Vice President, Investments, Allianz Life from February 2002 to November 2005. |
(1) | Member of the Audit Committee. | |
(2) | Indefinite. | |
(3) | Is an “interested person”, as defined by the 1940 Act, due to employment by Allianz. | |
(4) | The Manager and the Trust are parties to a Chief Compliance Officer Agreement under which the Manager is compensated by the Trust for providing an employee of the Manager or one of its affiliates to act as the Trust’s Chief Compliance Officer. The Chief Compliance Officer and Anti Money Laundering Compliance Officer is not considered a corporate officer or executive employee of the Trust. |
The Funds’ Statement of Additional Information includes additional information about the Funds’ Trustees and Officers. To receive your free copy of the Statement of Additional Information, call toll free: 1-800-624-0197.
27
Table of Contents
Allianz Funds
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1210 2/11 |
Table of Contents
Item 2. Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This code of ethics is included as an Exhibit. |
(b) During the period covered by the report, with respect to the registrant’s code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; there have been no amendments to, nor any waivers granted from, a provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item 2. |
Item 3. Audit Committee Financial Expert.
3(a)(1) The registrant’s board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee.
3(a)(2) The audit committee financial expert is Arthur C. Reeds III, who is “independent” for purposes of this Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
2010 | 2009 | |||||||
(a) Audit Fees | $ | 354,380 | $ | 342,160 | ||||
(b) Audit-Related Fees | $ | 9,000 | $ | 26,500 |
The fees for 2010 relate to the consent issuance in two Form N-14 filings and the review of the annual registration statement filed with the Securities and Exchange Commission (“SEC”).
The fees for 2009 relate to the consent issuance in ten Form N-14 filings, the review of the annual registration statement filed with the SEC and an Irish Letter.
2010 | 2009 | |||||||
(c) Tax Fees | $ | 68,185 | $ | 87,695 |
Tax fees for both years related to the preparation of the Funds’ federal and state income tax returns, federal excise tax return review and review of capital gain and income distribution calculations.
2010 | 2009 | |||||||
All Other Fees | $ | 0 | $ | 0 |
4(e)(1)
The Audit Committee (“Committee”) of the Registrant is responsible for pre-approving all audit and non-audit services performed by the independent auditor in order to assure that the provision of such services does not impair the auditor’s independence. Before the Registrant engages the independent auditor to render a service, the engagement must be either specifically approved by the Committee or entered into pursuant to the pre-approval policy. The Committee may delegate preapproval authority to one or more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Committee at its next scheduled meeting. The Committee may not delegate to management the Committee’s responsibilities to pre-approve services performed by the independent auditor. The Committee has delegated pre-approval authority to its Chairman for any services not exceeding $10,000. |
4(e)(2)
During the previous two fiscal years, the Registrant did not receive any non-audit services pursuant to a waiver from the audit committee approval or pre-approval requirement under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
4(f)
Not applicable |
4(g)
2010 | 2009 | |||||||
$ | 77,185 | $ | 114,195 |
4(h)
Not applicable |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) The Schedule of Investments as of the close of the reporting period are included as part of the report to shareholders filed under Item 1 of the Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Table of Contents
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a)The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b)There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The code of ethics that is the subject of the disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Allianz Variable Insurance Products Trust
By (Signature and Title)* | /s/ Brian Muench |
Date March 1, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ Brian Muench |
Date March 1, 2011
By (Signature and Title)* | /s/ Ty Edwards |
Date March 1, 2011
* | Print the name and title of each signing officer under his or her signature. |