UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-09491
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 Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219-8000
(Name and address of agent for service)
Registrant’s telephone number, including area code: 800-624-0197
Date of fiscal year end: December 31
Date of reporting period: December 31, 2014
Item 1. Reports to Stockholders.
AZL® BlackRock Capital Appreciation Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 14
Other Federal Income Tax Information
Page 15
Other Information
Page 16
Approval of Investment Advisory and Subadvisory Agreements
Page 17
Information about the Board of Trustees and Officers
Page 20
This report is submitted for the general information of the shareholder 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.
AZL® BlackRock Capital Appreciation Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014 the AZL® BlackRock Capital Appreciation Fund returned 9.11%. That compared to a 13.05% total return for its benchmark, the Russell 1000® Growth Index1.
U.S. equities posted solid gains for the 12-month period under review as the U.S. economy continued to gain strength, with better-than-expected job growth, improved consumer confidence and healthier business spending. Strong corporate fundamentals and the Federal Reserve’s accommodative monetary policy further supported stock market gains. Together, these forces helped the broad-market S&P 500 Index to post its third consecutive year of double-digit returns, ending the period up 13.69%.
The period started and ended with high market volatility, triggered in part by weakening global economic growth, shifting expectations about Federal Reserve policy, and geopolitical flare-ups, as well as the collapse of oil prices in recent months. The resulting flight to quality by investors benefited defensive sectors such as utilities and health care.
The Fund underperformed its benchmark during the 12-month period. The largest detractor from relative performance at the sector level was an overweight position in consumer discretionary, particularly among Internet and catalog retailers. The position in an American travel website was the largest individual detractor in the sector, as the company announced disappointing earnings and operational results late in the period. Stock selection in the information technology also detracted from performance, as did telecommunication services, where a Japanese Internet and telecom conglomerate represented the top portfolio detractor. Weak results in one of its subsidiaries dragged on investor confidence.*
A larger-than-benchmark position in the health care sector, especially pharmaceuticals and biotechnology, helped enhance relative performance. Stock selection in these industries also helped enhance results, with a key biopharmaceutical company representing the top portfolio contributor following positive clinical trials for several drugs and FDA approval for use of an existing drug in a secondary application. Holdings of a pharmaceutical company, a rail transportation company and a Chinese e-commerce company also helped relative returns. The rail company benefited from the strengthening economic recovery and tight rail capacity which aided pricing ability. The Fund’s zero exposure to benchmark holdings in an IT services company also helped boost performance as the company’s worst earnings miss in 10 years drove share prices down.*
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, 2014. |
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
AZL® BlackRock Capital Appreciation Fund Review (unaudited)
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 primarily in a diversified portfolio consisting of primarily common stock of U.S. companies that the Subadviser believes have exhibited above-average growth rates in earnings over the long term.
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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (4/29/05) | |||||||||||||
AZL® BlackRock Capital Appreciation Fund | 9.11 | % | 18.31 | % | 12.40 | % | 7.99 | % | ||||||||
Russell 1000® Growth Index | 13.05 | % | 20.26 | % | 15.81 | % | 9.48 | % |
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 | 1.11 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager 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, 2016. Additional information pertaining to the December 31, 2014 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
AZL BlackRock Capital Appreciation Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 1,000.00 | $ | 1,083.10 | $ | 5.25 | 1.00 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 32.5 | % | |||
Consumer Discretionary | 25.0 | ||||
Health Care | 22.7 | ||||
Industrials | 7.2 | ||||
Financials | 4.8 | ||||
Energy | 3.9 | ||||
Consumer Staples | 2.9 | ||||
Materials | 0.6 | ||||
|
| ||||
Total Common Stocks | 99.6 | ||||
Securities Held as Collateral for Securities on Loan | 22.6 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 122.4 | ||||
Net other assets (liabilities) | (22.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL BlackRock Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (99.6%): |
| ||||||
| Aerospace & Defense (2.1%): |
| ||||||
52,748 | Precision Castparts Corp. | $ | 12,705,938 | |||||
|
| |||||||
| Airlines (1.8%): |
| ||||||
142,471 | Spirit Airlines, Inc.* | 10,767,958 | ||||||
|
| |||||||
| Auto Components (0.7%): |
| ||||||
57,986 | Delphi Automotive plc | 4,216,742 | ||||||
|
| |||||||
| Beverages (0.6%): |
| ||||||
36,338 | Constellation Brands, Inc., Class A* | 3,567,301 | ||||||
|
| |||||||
| Biotechnology (8.3%): |
| ||||||
61,627 | Gilead Sciences, Inc.* | 5,808,961 | ||||||
27,107 | Regeneron Pharmaceuticals, Inc.*^ | 11,120,647 | ||||||
132,093 | United Therapeutics Corp.*^ | 17,104,723 | ||||||
126,108 | Vertex Pharmaceuticals, Inc.* | 14,981,630 | ||||||
|
| |||||||
49,015,961 | ||||||||
|
| |||||||
| Chemicals (0.6%): |
| ||||||
33,526 | Ecolab, Inc. | 3,504,138 | ||||||
|
| |||||||
| Consumer Finance (1.4%): |
| ||||||
124,815 | Discover Financial Services | 8,174,134 | ||||||
|
| |||||||
| Diversified Financial Services (1.4%): |
| ||||||
86,425 | Moody’s Corp. | 8,280,379 | ||||||
|
| |||||||
| Food & Staples Retailing (1.5%): |
| ||||||
42,748 | CVS Caremark Corp. | 4,117,060 | ||||||
92,877 | Whole Foods Market, Inc.^ | 4,682,858 | ||||||
|
| |||||||
8,799,918 | ||||||||
|
| |||||||
| Food Products (0.8%): |
| ||||||
46,361 | Hershey Co. | 4,818,299 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (0.5%): |
| ||||||
5,532 | Intuitive Surgical, Inc.* | 2,926,096 | ||||||
|
| |||||||
| Health Care Providers & Services (2.9%): |
| ||||||
140,870 | Express Scripts Holding Co.* | 11,927,463 | ||||||
36,860 | Humana, Inc. | �� | 5,294,202 | |||||
|
| |||||||
17,221,665 | ||||||||
|
| |||||||
| Health Care Technology (0.8%): |
| ||||||
32,891 | athenahealth, Inc.*^ | 4,792,219 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (2.4%): |
| ||||||
116,896 | Starbucks Corp.^ | 9,591,317 | ||||||
32,812 | Wynn Resorts, Ltd. | 4,881,113 | ||||||
|
| |||||||
14,472,430 | ||||||||
|
| |||||||
| Insurance (1.0%): |
| ||||||
39,456 | Berkshire Hathaway, Inc., Class B* | 5,924,318 | ||||||
|
| |||||||
| Internet & Catalog Retail (6.4%): |
| ||||||
108,909 | Alibaba Group Holding, Ltd., ADR*(a) | 11,320,001 | ||||||
3,070 | Alibaba Group Holding, Ltd.* | 319,096 | ||||||
34,545 | Netflix, Inc.*^ | 11,800,917 | ||||||
192,543 | TripAdvisor, Inc.*^ | 14,375,261 | ||||||
|
| |||||||
37,815,275 | ||||||||
|
| |||||||
| Internet Software & Services (15.4%): |
| ||||||
63,079 | Baidu, Inc., ADR* | 14,380,120 | ||||||
331,764 | Facebook, Inc., Class A* | 25,884,228 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Internet Software & Services, continued |
| ||||||
28,382 | Google, Inc., Class A* | $ | 15,061,192 | |||||
68,082 | LinkedIn Corp., Class A* | 15,639,116 | ||||||
386,534 | Yahoo!, Inc.* | 19,523,832 | ||||||
|
| |||||||
90,488,488 | ||||||||
|
| |||||||
| IT Services (7.0%): |
| ||||||
49,171 | Alliance Data Systems Corp.*^ | 14,065,365 | ||||||
105,167 | Visa, Inc., Class A^ | 27,574,787 | ||||||
|
| |||||||
41,640,152 | ||||||||
|
| |||||||
| Media (9.7%): |
| ||||||
370,738 | Liberty Global plc, Class A* | 18,612,901 | ||||||
93,335 | Time Warner Cable, Inc. | 7,972,676 | ||||||
568,727 | Twenty-First Century Fox, Inc.^ | 21,841,960 | ||||||
94,768 | Walt Disney Co. (The) | 8,926,198 | ||||||
|
| |||||||
57,353,735 | ||||||||
|
| |||||||
| Multiline Retail (2.0%): |
| ||||||
165,217 | Dollar General Corp.* | 11,680,842 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (3.9%): |
| ||||||
98,726 | Concho Resources, Inc.* | 9,847,919 | ||||||
841,419 | Palantir Technologies, Inc.*(a) | 6,748,180 | ||||||
27,842 | Pioneer Natural Resources Co. | 4,144,282 | ||||||
43,727 | Range Resources Corp.^ | 2,337,208 | ||||||
|
| |||||||
23,077,589 | ||||||||
�� |
|
| ||||||
| Pharmaceuticals (10.1%): |
| ||||||
372,197 | Abbvie, Inc. | 24,356,571 | ||||||
48,926 | Mallinckrodt plc* | 4,845,142 | ||||||
75,543 | Perrigo Co. plc | 12,627,768 | ||||||
128,683 | Valeant Pharmaceuticals International, Inc.* | 18,415,824 | ||||||
|
| |||||||
60,245,305 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.0%): |
| ||||||
76,236 | Crown Castle International Corp. | 5,999,773 | ||||||
|
| |||||||
| Road & Rail (3.2%): |
| ||||||
159,898 | Union Pacific Corp. | 19,048,649 | ||||||
|
| |||||||
| Software (5.8%): |
| ||||||
121,635 | Oracle Corp. | 5,469,926 | ||||||
274,500 | Salesforce.com, Inc.*^ | 16,280,595 | ||||||
83,371 | VMware, Inc., Class A*^ | 6,879,775 | ||||||
67,630 | Workday, Inc., Class A*^ | 5,519,284 | ||||||
|
| |||||||
34,149,580 | ||||||||
|
| |||||||
| Specialty Retail (1.2%): |
| ||||||
66,611 | Home Depot, Inc. (The) | 6,992,157 | ||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (4.4%): |
| ||||||
235,766 | Apple, Inc. | 26,023,851 | ||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (2.7%): |
| ||||||
141,945 | Lululemon Athletica, Inc.*^ | 7,919,112 | ||||||
106,973 | Michael Kors Holdings, Ltd.*^ | 8,033,672 | ||||||
|
| |||||||
15,952,784 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $488,834,383) | 589,655,676 | ||||||
|
|
Continued
4
AZL BlackRock Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (22.6%): |
| ||||||
$ | 133,898,895 | Allianz Variable Insurance Products Securities Lending Collateral Trust(b) | $ | 133,898,895 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 133,898,895 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.2%): |
| ||||||
953,298 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(c) | 953,298 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $953,298) | 953,298 | ||||||
|
| |||||||
| Total Investment Securities (Cost $623,686,576)(d) — 122.4% | 724,507,869 | ||||||
| Net other assets (liabilities) — (22.4)% | (132,362,034 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 592,145,835 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $130,413,335. |
(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, 2014, these securities represent 3.05% of the net assets of the fund. |
(b) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(c) | The rate represents the effective yield at December 31, 2014. |
(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 investments as of December 31, 2014:
Country | Percentage | |||
Canada | 3.6 | % | ||
Cayman Islands | 2.0 | % | ||
China | 1.6 | % | ||
Hong Kong | 1.1 | % | ||
Ireland (Republic of) | 1.7 | % | ||
United Kingdom | 0.6 | % | ||
United States | 89.4 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
5
AZL BlackRock Capital Appreciation Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 623,686,576 | |||
|
| ||||
Investment securities, at value* | $ | 724,507,869 | |||
Interest and dividends receivable | 242,544 | ||||
Receivable for capital shares issued | 64,610 | ||||
Receivable for investments sold | 3,271,789 | ||||
Reclaims receivable | 354 | ||||
Prepaid expenses | 4,947 | ||||
|
| ||||
Total Assets | 728,092,113 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 1,033,909 | ||||
Payable for capital shares redeemed | 479,577 | ||||
Payable for collateral received on loaned securities | 133,898,895 | ||||
Manager fees payable | 353,516 | ||||
Administration fees payable | 13,500 | ||||
Distribution fees payable | 126,255 | ||||
Custodian fees payable | 6,152 | ||||
Administrative and compliance services fees payable | 1,762 | ||||
Trustee fees payable | 35 | ||||
Other accrued liabilities | 32,677 | ||||
|
| ||||
Total Liabilities | 135,946,278 | ||||
|
| ||||
Net Assets | $ | 592,145,835 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 377,628,568 | |||
Accumulated net investment income/(loss) | — | ||||
Accumulated net realized gains/(losses) from investment transactions | 113,696,013 | ||||
Net unrealized appreciation/(depreciation) on investments | 100,821,254 | ||||
|
| ||||
Net Assets | $ | 592,145,835 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 31,787,842 | ||||
Net Asset Value (offering and redemption price per share) | $ | 18.63 | |||
|
|
* | Includes securities on loan of $130,413,335. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 3,997,735 | |||
Income from securities lending | 130,624 | ||||
Foreign withholding tax | (1,576 | ) | |||
|
| ||||
Total Investment Income | 4,126,783 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,963,456 | ||||
Administration fees | 165,131 | ||||
Distribution fees | 1,551,077 | ||||
Custodian fees | 28,519 | ||||
Administrative and compliance services fees | 8,550 | ||||
Trustee fees | 32,973 | ||||
Professional fees | 34,343 | ||||
Shareholder reports | 33,593 | ||||
Other expenses | 16,538 | ||||
|
| ||||
Total expenses before reductions | 6,834,180 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (620,426 | ) | |||
Less expenses paid indirectly | (7,550 | ) | |||
|
| ||||
Net expenses | 6,206,204 | ||||
|
| ||||
Net Investment Income/(Loss) | (2,079,421 | ) | |||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 116,923,544 | ||||
Change in net unrealized appreciation/depreciation on investments | (67,502,717 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 49,420,827 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 47,341,406 | |||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL BlackRock Capital Appreciation Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (2,079,421) | $ | (1,357,741) | ||||||
Net realized gains/(losses) on investment transactions | 116,923,544 | 128,641,753 | ||||||||
Change in unrealized appreciation/depreciation on investments | (67,502,717) | 55,425,199 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 47,341,406 | 182,709,211 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | — | (3,318,026) | ||||||||
From net realized gains | (59,367,203) | — | ||||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (59,367,203) | (3,318,026) | ||||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 15,715,895 | 39,281,631 | ||||||||
Proceeds from dividends reinvested | 59,367,203 | 3,318,026 | ||||||||
Value of shares redeemed | (182,044,463) | (68,680,901) | ||||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (106,961,365) | (26,081,244) | ||||||||
|
|
|
| |||||||
Change in net assets | (118,987,162) | 153,309,941 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 711,132,997 | 557,823,056 | ||||||||
|
|
|
| |||||||
End of period | $ | 592,145,835 | $ | 711,132,997 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | — | $ | — | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 850,880 | 2,445,729 | ||||||||
Dividends reinvested | 3,348,404 | 198,803 | ||||||||
Shares redeemed | (9,905,890) | (4,183,127) | ||||||||
|
|
|
| |||||||
Change in shares | (5,706,606) | (1,538,595) | ||||||||
|
| �� |
|
|
See accompanying notes to the financial statements.
7
AZL BlackRock Capital Appreciation Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 18.97 | $ | 14.29 | $ | 12.57 | $ | 13.83 | $ | 11.73 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.07 | ) | (0.03 | ) | 0.09 | 0.01 | (0.01 | ) | |||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.70 | 4.80 | 1.64 | (1.27 | ) | 2.24 | |||||||||||||||||||
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Total from Investment Activities | 1.63 | 4.77 | 1.73 | (1.26 | ) | 2.23 | |||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | — | (0.09 | ) | (0.01 | ) | — | (0.01 | ) | |||||||||||||||||
Net Realized Gains | (1.97 | ) | — | — | — | (0.12 | ) | ||||||||||||||||||
Return of Capital | — | — | — | — | — | (a) | |||||||||||||||||||
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Total Dividends | (1.97 | ) | (0.09 | ) | (0.01 | ) | — | (0.13 | ) | ||||||||||||||||
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Net Asset Value, End of Period | $ | 18.63 | $ | 18.97 | $ | 14.29 | $ | 12.57 | $ | 13.83 | |||||||||||||||
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Total Return(b) | 9.11 | % | 33.44 | % | 13.73 | % | (9.11 | )% | 19.20 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 592,146 | $ | 711,133 | $ | 557,823 | $ | 477,619 | $ | 562,801 | |||||||||||||||
Net Investment Income/(Loss) | (0.34 | )% | (0.22 | )% | 0.62 | % | 0.05 | % | (0.06 | )% | |||||||||||||||
Expenses Before Reductions(c) | 1.10 | % | 1.11 | % | 1.11 | % | 1.13 | % | 1.13 | % | |||||||||||||||
Expenses Net of Reductions | 1.00 | % | 1.00 | % | 1.01 | % | 1.02 | % | 1.00 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.00 | % | 1.01 | % | 1.01 | % | 1.02 | % | 1.00 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 101 | % | 161 | % | 62 | % | 81 | % | 80 | %(f) |
(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) | The portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
(f) | Cost 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 81%. |
See accompanying notes to the financial statements.
8
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL BlackRock Capital Appreciation Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
9
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $44.9 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $12,960 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL BlackRock Capital Appreciation Fund | 0.80 | % | 1.20 | % |
* | The Manager voluntarily reduced 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion,
10
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $7,874 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Oil, Gas & Consumable Fuels | $ | 16,329,409 | $ | — | $ | 6,748,180 | $ | 23,077,589 | ||||||||||||
All Other Common Stocks+ | 566,578,087 | — | — | 566,578,087 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 133,898,895 | — | 133,898,895 | ||||||||||||||||
Unaffiliated Investment Company | 953,298 | — | — | 953,298 | ||||||||||||||||
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Total Investment Securities | $ | 583,860,794 | $ | 133,898,895 | $ | 6,748,180 | $ | 724,507,869 | ||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
11
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
A reconciliation of assets in which level 3 inputs are used in determining fair value, along with additional quantitative disclosures, are presented when there are significant level 3 instruments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 622,173,911 | $ | 791,688,595 |
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 Trustees. Not all restricted securities are considered illiquid. The illiquid restricted securities held as of December 31, 2014 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Alibaba Group Holding, Ltd. | 4/25/14 | $ | 7,405,812 | 108,909 | $ | 11,320,001 | 1.91 | % | |||||||||||||||||
Palantir Technologies, Inc. | 2/7/14 | 5,157,898 | 841,419 | 6,748,180 | 1.14 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Foreign Securities and Currencies Risk: 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.
8. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $625,827,590. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 108,266,675 | ||
Unrealized depreciation | (9,586,396 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 98,680,279 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | — | $ | 59,367,203 | $ | 59,367,203 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 3,317,990 | $ | 36 | $ | 3,318,026 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
12
AZL BlackRock Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL BlackRock Capital Appreciation Fund | $ | 6,968,622 | $ | 108,868,405 | $ | — | $ | 98,680,240 | $ | 214,517,267 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
14
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2014, the Fund declared net long-term capital gain distributions of $59,367,203.
15
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.
16
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
18
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® BlackRock Global Allocation Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Consolidated Expense Examples and Portfolio Composition
Page 3
Consolidated Schedule of Portfolio Investments
Page 4
Consolidated Statement of Assets and Liabilities
Page 24
Consolidated Statement of Operations
Page 24
Consolidated Statements of Changes in Net Assets
Page 25
Consolidated Financial Highlights
Page 26
Notes to the Consolidated Financial Statements
Page 27
Report of Independent Registered Public Accounting Firm
Page 38
Other Federal Income Tax Information
Page 39
Other Information
Page 40
Approval of Investment Advisory and Subadvisory Agreements
Page 41
Information about the Board of Trustees and Officers
Page 44
This report is submitted for the general information of the shareholder 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.
AZL® BlackRock Global Allocation Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® BlackRock Global Allocation Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014 the AZL® BlackRock Global Allocation Fund returned 1.95%. That compared to a 4.18% total return for its benchmark, the Balanced Composite Index which is comprised of a 36% weighting in the S&P 500 Index1, a 24% weighting in the FTSE World ex U.S. Index2, 24% weighting in the BofA Merrill Lynch 5-Year U.S. Treasury Bond Index3 and a 16% weighting in the Citigroup (Non-USD) World Government Bond Index4.
U.S. equity markets outperformed most international equity markets for the 12-month period, while fixed income markets offered modest gains. Global equity markets started out on a negative note: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve would soon end its stimulus efforts all weighed on investors. Stocks recovered quickly, however, with new data showing that growth in the U.S. remained strong and the European Central Bank exhibiting a willingness to act to combat low inflation in the eurozone.
Market volatility increased through the year due in part to geopolitical crises, particularly the Russia-Ukraine conflict, and the ground war in Gaza. Signs of a stronger U.S. economic recovery and flagging global growth helped support strength in the U.S. dollar. The appreciating dollar put pressure on commodity prices, particularly oil, later in the period. It also led many foreign equity markets to underperform in U.S. dollar terms, despite posting gains in local currency terms. Concerns around weak global growth, along with the strong U.S. currency, drove investors to seek safety in U.S. Treasuries later in the period, bidding up prices on those securities and driving down interest rates.
The Fund underperformed its composite benchmark for the period under review primarily due to a combination of stock selection, country and sector allocations, and exposure to cash securities. From a country perspective, a smaller-than-benchmark exposure to U.S. equities as well as stock selection in that country weighed on results. Stock selection in Canada and Europe, most notably in France and Germany, also dragged on relative performance. At the sector level, stock selection and overweight positions in the materials and industrials sectors hurt the Fund’s performance, as did selection in information technology and financials. A larger-than-benchmark holding of gold-related securities detracted from relative performance as commodities prices fell during the period. The Fund’s cash-equivalent holdings—which were used to help mitigate portfolio volatility and as a source of funds for new investments— dragged on results, given the low-interest rate environment and the fully invested nature of the benchmark.*
The Fund’s relative performance benefited from stock selection in Japan and an overweight allocation to that country. Strong corporate earnings and stimulus efforts by the Japanese central bank helped buoy the nation’s equity markets. From a sector perspective, an
overweight allocation to health care holdings, along with stock selection within that sector, helped boost relative performance. An underweight allocation to fixed income securities in general helped improve the Fund’s relative returns, as did a smaller-than-benchmark position in Japanese government bonds. The Fund’s overweight allocation to emerging market sovereign bonds also contributed positively to relative performance. From a currency perspective, the Fund benefited from a larger-than-benchmark exposure to U.S. currency-denominated securities as the U.S. dollar strengthened relative to other foreign currencies.*
The Fund uses derivatives, which may include options, futures, swaps and forward contracts both to enhance returns of the Fund and to hedge (or protect) against adverse movements in currency exchange rates, interest rates and movements in the securities markets. During the period, the Fund’s use of derivatives had a positive impact on the absolute performance of the Fund.*
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, 2014. |
1 | The Standard & Poor’s 500 Index (“S&P 500”) 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 Financial Times Stock Exchange World ex U.S. Index (“FTSE World Index”) is part of a range of indexes designed to help United States investors benchmark their international investments. The index comprises large- (84%) and mid- (16%) cap stocks providing coverage of Developed and Emerging Markets (46 countries) excluding the United States. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization. |
3 | The BofA Merrill Lynch 5-Year U.S. Treasury Bond Index is designed to track the total return of the current coupon 5-Year U.S. Treasury bond. |
4 | The Citigroup Non-U.S. Dollar World Government Bond Index is a market capitalization-weighted index that tracks 10 government bond indices, excluding the United States. Investors cannot invest directly in an index. |
1
AZL® BlackRock Global Allocation Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to seek high total investment return. 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 portfolio of equity, debt and money market 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.
Small- to mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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 as well as the component indices of the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2014
1 Year | Since Inception (1/10/12) | |||||||
AZL® BlackRock Global Allocation Fund | 1.95 | % | 7.68 | % | ||||
Balanced Composite Index | 4.18 | % | 9.18 | % | ||||
S&P 500 Index | 13.69 | % | 19.50 | % | ||||
FTSE World ex U.S. Index | -3.74 | % | 9.43 | % | ||||
BofA Merrill Lynch 5-Year U.S. Treasury Bond Index | 2.93 | % | 0.92 | % | ||||
Citigroup Non-U.S. Dollar World Government Bond Index | -2.68 | % | -1.67 | % |
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® BlackRock Global Allocation Fund | 1.16 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 1.19% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 1.14%. |
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 is comprised of 36% Standard & Poor’s 500 Index (“S&P 500”); 24% FTSE World ex U.S. Index; 24% BofA Merrill Lynch 5-Year U.S. Treasury Bond Index; and 16% Citigroup Non-U.S. Dollar World Government Bond. The S&P 500 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 FTSE World ex U.S. Index is part of a range of indexes designed to help U.S. investors benchmark their international investments. The index comprises large- (84%) and mid- (16%) cap stocks providing coverage of Developed and Emerging Markets (46 countries) excluding the U.S. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization. The BofA Merrill Lynch 5-Year U.S. Treasury Bond Index is designed to track the total return of the current coupon 5-Year U.S. Treasury bond. The Citigroup Non-U.S. Dollar World Government Bond Index is a market capitalization-weighted index that tracks 10 government bond indices, excluding the United States. 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 |
AZL BlackRock Global Allocation Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL BlackRock Global Allocation Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,000.00 | $ | 982.70 | $ | 5.40 | 1.08 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,000.00 | $ | 1,019.76 | $ | 5.50 | 1.08 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Common Stocks | 54.3 | % | |||
U.S. Treasury Obligations | 24.3 | ||||
Foreign Bonds | 9.2 | ||||
Securities Held as Collateral on Loan | 5.9 | ||||
Yankee Dollars | 2.8 | ||||
Corporate Bonds | 2.5 | ||||
Convertible Bonds | 2.1 | ||||
Preferred Stocks | 1.9 | ||||
Purchased Options | 1.3 | ||||
Floating Rate Loans | 1.1 | ||||
Exchange Traded Funds | 0.7 | ||||
Convertible Preferred Stocks | 0.3 | ||||
U.S. Government Mortgage | 0.1 | ||||
Money Market | 0.1 | ||||
Warrants | — | ||||
Right | — | ^ | |||
|
| ||||
Total Investment Securities | 106.6 | ||||
Net other assets (liabilities) | (6.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
Investments | Percent of net assets | ||||
United States | 64.8 | % | |||
Japan | 9.4 | ||||
United Kingdom | 5.4 | ||||
Mexico | 3.6 | ||||
France | 2.8 | ||||
Australia | 2.2 | ||||
Switzerland | 2.1 | ||||
Netherlands | 2.0 | ||||
Canada | 1.4 | ||||
Germany | 1.4 | ||||
All other countries | 11.5 | ||||
|
| ||||
Total Investment Securities | 106.6 | ||||
Net other assets (liabilities) | (6.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (54.3%): |
| ||||||
| Aerospace & Defense (1.1%): |
| ||||||
989 | Boeing Co. (The) | $ | 128,550 | |||||
38,316 | European Aeronautic Defence & Space Co. NV | 1,902,823 | ||||||
1,417 | General Dynamics Corp. | 195,008 | ||||||
1,326 | L-3 Communications Holdings, Inc. | 167,354 | ||||||
1,490 | Northrop Grumman Corp. | 219,611 | ||||||
7,481 | Precision Castparts Corp. | 1,802,023 | ||||||
1,856 | Raytheon Co.^ | 200,764 | ||||||
39,335 | Safran SA | 2,420,742 | ||||||
14,421 | United Technologies Corp. | 1,658,415 | ||||||
|
| |||||||
8,695,290 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.5%): |
| ||||||
12,245 | Deutsche Post AG | 400,592 | ||||||
5,823 | FedEx Corp. | 1,011,222 | ||||||
21,832 | United Parcel Service, Inc., Class B | 2,427,064 | ||||||
|
| |||||||
3,838,878 | ||||||||
|
| |||||||
| Airlines (0.4%): |
| ||||||
54,500 | Japan Airlines Co., Ltd. | 1,592,243 | ||||||
28,986 | United Continental Holdings, Inc.* | 1,938,874 | ||||||
|
| |||||||
3,531,117 | ||||||||
|
| |||||||
| Auto Components (1.3%): |
| ||||||
20,600 | Aisin Sieki Co., Ltd. | 740,544 | ||||||
15,601 | BorgWarner, Inc.^ | 857,275 | ||||||
48,200 | Bridgestone Corp. | 1,675,272 | ||||||
134,683 | Cheng Shin Rubber Industry Co., Ltd. | 315,944 | ||||||
14,952 | Delphi Automotive plc | 1,087,309 | ||||||
46,900 | DENSO Corp. | 2,186,167 | ||||||
23,600 | Futaba Industrial Co., Ltd.^ | 110,441 | ||||||
2,082 | Hyundai Wia Corp. | 331,521 | ||||||
5,000 | Koito Manufacturing Co., Ltd. | 152,524 | ||||||
2,059 | Lear Corp. | 201,947 | ||||||
3,100 | Stanley Electric Co., Ltd. | 67,018 | ||||||
38,900 | Toyota Industries Corp. | 1,988,016 | ||||||
|
| |||||||
9,713,978 | ||||||||
|
| |||||||
| Automobiles (1.9%): |
| ||||||
7,073 | Bayerische Motoren Werke AG (BMW) | 768,063 | ||||||
1,900 | Daihatsu Motor Co., Ltd.^ | 24,927 | ||||||
108,000 | Dongfeng Motor Corp., H Shares | 150,993 | ||||||
130,023 | Ford Motor Co. | 2,015,357 | ||||||
120,100 | Fuji Heavy Industries, Ltd. | 4,230,034 | ||||||
42,300 | Honda Motor Co., Ltd. | 1,230,277 | ||||||
5,313 | Hyundai Motor Co. | 806,721 | ||||||
45,400 | Isuzu Motors, Ltd. | 554,001 | ||||||
9,127 | Maruti Suzuki India, Ltd. | 479,883 | ||||||
63,300 | Suzuki Motor Corp. | 1,903,179 | ||||||
27,300 | Toyota Motor Corp. | 1,702,728 | ||||||
270 | Volkswagen AG | 58,825 | ||||||
165,770 | Yulon Motor Co., Ltd. | 242,482 | ||||||
|
| |||||||
14,167,470 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks (4.4%): |
| ||||||
23,504 | Axis Bank, Ltd. | $ | 185,708 | |||||
82,439 | Banco Bilbao Vizcaya Argentaria SA | 775,784 | ||||||
214,213 | Bank of America Corp. | 3,832,271 | ||||||
22,000 | Bank of Yokohama, Ltd. (The) | 119,425 | ||||||
29,503 | BNP Paribas SA | 1,733,517 | ||||||
19,000 | Chiba Bank, Ltd. (The) | 124,723 | ||||||
75,000 | Chuo Mitsui Trust Holdings, Inc. | 286,277 | ||||||
51,579 | Citigroup, Inc. | 2,790,940 | ||||||
10,992 | Commonwealth Bank of Australia | 763,211 | ||||||
26,241 | Fifth Third Bancorp | 534,660 | ||||||
77,000 | Fukuoka Financial Group, Inc. | 397,615 | ||||||
16,682 | HDFC Bank, Ltd. | 250,205 | ||||||
259,946 | HSBC Holdings plc | 2,456,313 | ||||||
31,485 | ICICI Bank, Ltd. | 174,895 | ||||||
370,849 | Intesa Sanpaolo SpA | 1,072,680 | ||||||
63,564 | JPMorgan Chase & Co. | 3,977,835 | ||||||
9,846 | Kotak Mahindra Bank, Ltd. | 196,066 | ||||||
623,354 | Lloyds Banking Group plc* | 736,008 | ||||||
330,600 | Mitsubishi UFJ Financial Group, Inc. | 1,812,368 | ||||||
94,004 | Regions Financial Corp. | 992,682 | ||||||
13,000 | Shizuoka Bank, Ltd. (The) | 118,932 | ||||||
8,086 | Societe Generale | 339,744 | ||||||
46,800 | Sumitomo Mitsui Financial Group, Inc. | 1,691,283 | ||||||
7,951 | Svenska Handelsbanken AB, A Shares | 371,499 | ||||||
13,504 | Toronto-Dominion Bank (The) | 645,378 | ||||||
29,962 | U.S. Bancorp | 1,346,792 | ||||||
59,657 | UniCredit SpA | 380,179 | ||||||
82,892 | Wells Fargo & Co. | 4,544,138 | ||||||
17,557 | Westpac Banking Corp. | 471,882 | ||||||
17,236 | Yes Bank, Ltd. | 209,115 | ||||||
|
| |||||||
33,332,125 | ||||||||
|
| |||||||
| Beverages (0.7%): |
| ||||||
2,692 | Anheuser-Busch InBev NV | 302,905 | ||||||
51,823 | Coca-Cola Co. (The) | 2,187,967 | ||||||
1,846 | Constellation Brands, Inc., Class A* | 181,222 | ||||||
8,367 | Diageo plc, Sponsored ADR | 954,590 | ||||||
6,528 | Diageo plc | 187,208 | ||||||
21,800 | Kirin Holdings Co., Ltd. | 270,085 | ||||||
9,502 | Remy Cointreau SA | 634,610 | ||||||
13,805 | SABMiller plc | 714,353 | ||||||
10,300 | Suntory Beverage & Food, Ltd. | 355,696 | ||||||
|
| |||||||
5,788,636 | ||||||||
|
| |||||||
| Biotechnology (1.0%): |
| ||||||
4,336 | Alexion Pharmaceuticals, Inc.* | 802,290 | ||||||
13,796 | Amgen, Inc. | 2,197,565 | ||||||
3,082 | Biogen Idec, Inc.* | 1,046,185 | ||||||
12,697 | Celgene Corp.* | 1,420,286 | ||||||
8,576 | Gilead Sciences, Inc.* | 808,374 | ||||||
62,008 | Mesoblast, Ltd.*^ | 220,168 | ||||||
767 | Regeneron Pharmaceuticals, Inc.*^ | 314,662 | ||||||
8,926 | Vertex Pharmaceuticals, Inc.* | 1,060,409 | ||||||
|
| |||||||
7,869,939 | ||||||||
|
|
Continued
4
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Building Products (0.2%): |
| ||||||
16,904 | Compagnie de Saint-Gobain SA | $ | 711,562 | |||||
13,500 | Daikin Industries, Ltd. | 870,859 | ||||||
|
| |||||||
1,582,421 | ||||||||
|
| |||||||
| Capital Markets (0.6%): |
| ||||||
1,250 | Ameriprise Financial, Inc. | 165,313 | ||||||
19,715 | Bank of New York Mellon Corp. (The) | 799,838 | ||||||
25,666 | Charles Schwab Corp. (The) | 774,857 | ||||||
34,739 | Deutsche Bank AG, Registered Shares | 1,049,888 | ||||||
4,909 | Goldman Sachs Group, Inc. (The) | 951,510 | ||||||
97,829 | UBS Group AG* | 1,682,159 | ||||||
|
| |||||||
5,423,565 | ||||||||
|
| |||||||
| Chemicals (1.9%): |
| ||||||
15,338 | Akzo Nobel NV | 1,063,482 | ||||||
8,897 | Arkema, Inc. | 589,932 | ||||||
90,000 | Asahi Kasei Corp. | 824,931 | ||||||
3,482 | BASF SE | 294,311 | ||||||
526 | CF Industries Holdings, Inc. | 143,356 | ||||||
4,461 | Dow Chemical Co. (The) | 203,466 | ||||||
17,683 | FMC Corp.^ | 1,008,462 | ||||||
31,400 | Hitachi Chemical Co., Ltd. | 556,321 | ||||||
37,200 | JSR Corp.^ | 638,898 | ||||||
14,014 | Koninklijke DSM NV | 852,041 | ||||||
45,000 | Kuraray Co., Ltd. | 513,136 | ||||||
3,245 | Linde AG | 605,185 | ||||||
7,201 | LyondellBasell Industries NV, Class A | 571,687 | ||||||
22,700 | Nitto Denko Corp. | 1,269,676 | ||||||
9,207 | Potash Corp. of Saskatchewan, Inc. | 325,554 | ||||||
1,021 | PPG Industries, Inc. | 236,004 | ||||||
30,800 | Shin-Etsu Chemical Co., Ltd. | 2,004,098 | ||||||
7,584 | Syngenta AG, Registered Shares | 2,435,961 | ||||||
247,000 | Ube Industries, Ltd.^ | 369,113 | ||||||
|
| |||||||
14,505,614 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.0%): |
| ||||||
2,017 | Cintas Corp.^ | 158,213 | ||||||
3,100 | Sohgo Security Services Co., Ltd.^ | 74,541 | ||||||
|
| |||||||
232,754 | ||||||||
|
| |||||||
| Communications Equipment (0.6%): |
| ||||||
102,128 | Cisco Systems, Inc. | 2,840,690 | ||||||
18,395 | El Towers SpA* | 920,676 | ||||||
1,869 | Harris Corp. | 134,232 | ||||||
1,960 | Motorola Solutions, Inc.^ | 131,477 | ||||||
14,107 | QUALCOMM, Inc. | 1,048,573 | ||||||
|
| |||||||
5,075,648 | ||||||||
|
| |||||||
| Construction & Engineering (0.2%): |
| ||||||
4,791 | Bouygues SA | 172,864 | ||||||
25,000 | JGC Corp. | 515,313 | ||||||
4,000 | Kinden Corp. | 40,511 | ||||||
2,000 | Maeda Road Construction Co., Ltd.^ | 29,737 | ||||||
84,000 | Okumura Corp.^ | 377,720 | ||||||
92,000 | Toda Corp.^ | 363,380 | ||||||
|
| |||||||
1,499,525 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Consumer Finance (0.7%): |
| ||||||
26,951 | American Express Co. | $ | 2,507,521 | |||||
15,015 | Capital One Financial Corp. | 1,239,488 | ||||||
21,298 | Discover Financial Services | 1,394,806 | ||||||
|
| |||||||
5,141,815 | ||||||||
|
| |||||||
| Containers & Packaging (0.3%): |
| ||||||
16,318 | Crown Holdings, Inc.*^ | 830,586 | ||||||
20,018 | Sealed Air Corp. | 849,364 | ||||||
|
| |||||||
1,679,950 | ||||||||
|
| |||||||
| Distributors (0.0%): |
| ||||||
2,200 | Canon Marketing Japan, Inc. | 36,960 | ||||||
|
| |||||||
| Diversified Financial Services (0.2%): |
| ||||||
5,630 | Deutsche Boerse AG | 403,421 | ||||||
83,371 | ING Groep NV* | 1,079,327 | ||||||
|
| |||||||
1,482,748 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.0%): |
| ||||||
39,563 | AT&T, Inc.^ | 1,328,921 | ||||||
114,563 | BT Group plc | 711,070 | ||||||
42,017 | Deutsche Telekom AG, Registered Shares | 673,380 | ||||||
20,604 | France Telecom SA | 350,356 | ||||||
11,200 | Nippon Telegraph & Telephone Corp. | 576,426 | ||||||
24,588 | Oi SA, ADR* | 78,437 | ||||||
332,000 | Singapore Telecommunications, Ltd. | 974,800 | ||||||
327 | Swisscom AG, Registered Shares^ | 171,760 | ||||||
23,018 | TDC A/S | 175,445 | ||||||
251,712 | Telecom Italia SpA | 266,914 | ||||||
32,883 | Telecom Italia SpA | 27,482 | ||||||
152,500 | Telekom Malaysia Berhad | 299,261 | ||||||
8,280 | Verizon Communications, Inc. | 385,753 | ||||||
56,872 | Verizon Communications, Inc. | 2,660,472 | ||||||
|
| |||||||
8,680,477 | ||||||||
|
| |||||||
| Electric Utilities (0.4%): |
| ||||||
19,181 | American Electric Power Co., Inc. | 1,164,669 | ||||||
22,500 | Chubu Electric Power Co., Inc.* | 264,744 | ||||||
1,898 | Duke Energy Corp. | 158,559 | ||||||
156,961 | Enel SpA | 701,728 | ||||||
8,232 | Exelon Corp.^ | 305,243 | ||||||
4,303 | FirstEnergy Corp. | 167,774 | ||||||
5,142 | NRG Yield, Inc.^ | 242,394 | ||||||
11,138 | PPL Corp. | 404,644 | ||||||
42,011 | Terna – Rete Elettrica Nationale SpA | 190,291 | ||||||
|
| |||||||
3,600,046 | ||||||||
|
| |||||||
| Electrical Equipment (0.7%): |
| ||||||
21,750 | Eaton Corp. plc | 1,478,130 | ||||||
43,000 | GS Yuasa Corp.^ | 182,937 | ||||||
2,000 | Mabuchi Motor Co., Ltd. | 78,831 | ||||||
93,000 | Mitsubishi Electric Corp. | 1,107,446 | ||||||
16,186 | Rockwell Automation, Inc. | 1,799,883 | ||||||
13,003 | Schneider Electric SA | 944,711 | ||||||
2,009 | Schneider Electric SE^ | 145,311 | ||||||
40,500 | Sumitomo Electric Industries, Ltd. | 505,396 | ||||||
|
| |||||||
6,242,645 | ||||||||
|
|
Continued
5
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electronic Equipment, Instruments & Components (0.6%): |
| ||||||
3,065 | Avnet, Inc. | $ | 131,856 | |||||
3,300 | Hitachi High-Technologies Corp. | 95,231 | ||||||
232,000 | Hitachi, Ltd. | 1,697,888 | ||||||
22,400 | HOYA Corp. | 750,099 | ||||||
400 | Keyence Corp. | 177,205 | ||||||
4,427 | Keysight Technologies, Inc.* | 149,500 | ||||||
14,500 | Kyocera Corp. | 664,701 | ||||||
5,700 | Murata Manufacturing Co., Ltd. | 622,735 | ||||||
6,200 | Omron Corp. | 277,933 | ||||||
2,753 | TE Connectivity, Ltd. | 174,127 | ||||||
|
| |||||||
4,741,275 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.7%): |
| ||||||
95,700 | Dropbox, Inc.*(a)(b) | 1,827,985 | ||||||
1,698 | Helmerich & Payne, Inc. | 114,479 | ||||||
17,702 | Ocean Rig UDW, Inc. | 164,275 | ||||||
30,284 | Oceaneering International, Inc. | 1,781,002 | ||||||
149,099 | SBM Offshore NV* | 1,767,900 | ||||||
|
| |||||||
5,655,641 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.1%): |
| ||||||
2,061 | CVS Health Corp. | 198,495 | ||||||
3,600 | FamilyMart Co., Ltd. | 134,416 | ||||||
11,194 | Fresh Market, Inc. (The)*^ | 461,193 | ||||||
3,225 | Kroger Co. (The) | 207,077 | ||||||
|
| |||||||
1,001,181 | ||||||||
|
| |||||||
| Food Products (1.0%): |
| ||||||
20,000 | Ajinomoto Co., Inc. | 370,657 | ||||||
3,207 | Archer-Daniels-Midland Co. | 166,764 | ||||||
57,961 | Cosan, Ltd., A Shares | 449,198 | ||||||
6,008 | Danone SA | 395,198 | ||||||
46,949 | Nestle SA, Registered Shares | 3,442,473 | ||||||
27,712 | SLC Agricola SA | 147,049 | ||||||
60,391 | Unilever NV | 2,372,044 | ||||||
17,190 | Unilever plc | 698,185 | ||||||
|
| |||||||
8,041,568 | ||||||||
|
| |||||||
| Gas Utilities (0.3%): |
| ||||||
14,273 | Gas Natural SDG SA | 359,021 | ||||||
79,899 | Snam Rete Gas SpA | 394,105 | ||||||
259,000 | Tokyo Gas Co., Ltd. | 1,397,840 | ||||||
|
| |||||||
2,150,966 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.4%): |
| ||||||
1,032 | Becton, Dickinson & Co. | 143,613 | ||||||
885 | C.R. Bard, Inc. | 147,459 | ||||||
2,904 | CareFusion Corp.* | 172,323 | ||||||
25,562 | Getinge AB, B Shares | 580,995 | ||||||
17,050 | Medtronic, Inc.^ | 1,231,010 | ||||||
18,122 | Mindray Medical International, Ltd., Sponsored ADR^ | 478,421 | ||||||
5,116 | Zimmer Holdings, Inc. | 580,257 | ||||||
|
| |||||||
3,334,078 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services (2.3%): |
| ||||||
17,679 | Aetna, Inc. | $ | 1,570,426 | |||||
35,516 | Al Noor Hospitals Group plc | 545,346 | ||||||
1,846 | AmerisourceBergen Corp. | 166,435 | ||||||
1,413 | Anthem, Inc. | 177,572 | ||||||
1,222,800 | Bangkok Dusit Medical Services Public Co., Ltd., Class F | 636,562 | ||||||
87,500 | Bumrungrad Hospital Public Co., Ltd. | 374,655 | ||||||
2,262 | Cardinal Health, Inc. | 182,611 | ||||||
13,130 | Catamaran Corp.* | 679,478 | ||||||
23,895 | Envision Healthcare Holdings, Inc.* | 828,918 | ||||||
5,802 | Fresenius SE & Co. KGaA | 302,946 | ||||||
23,930 | HCA Holdings, Inc.* | 1,756,223 | ||||||
436,104 | Healthscope, Ltd.* | 965,350 | ||||||
9,772 | HealthSouth Corp.^ | 375,831 | ||||||
7,337 | Humana, Inc. | 1,053,813 | ||||||
633,400 | IHH Healthcare Berhad | 871,996 | ||||||
105,242 | Life Healthcare Group Holdings Pte, Ltd. | 388,110 | ||||||
11,050 | McKesson, Inc. | 2,293,758 | ||||||
60,203 | NMC Health plc | 429,300 | ||||||
382,799 | PT Siloam International Hospital Tbk* | 423,743 | ||||||
102,000 | Raffles Medical Group, Ltd. | 299,349 | ||||||
9,900 | Ship Healthcare Holdings, Inc.^ | 224,985 | ||||||
97,197 | Sinopharm Group Co., H Shares | 342,147 | ||||||
137,245 | Spire Healthcare Group plc* | 807,289 | ||||||
12,100 | Tenet Healthcare Corp.*^ | 613,107 | ||||||
15,574 | UnitedHealth Group, Inc. | 1,574,376 | ||||||
|
| |||||||
17,884,326 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.3%): |
| ||||||
18,709 | McDonald’s Corp. | 1,753,033 | ||||||
12,153 | SeaWorld Entertainment, Inc. | 217,539 | ||||||
1,889 | Wyndham Worldwide Corp. | 162,001 | ||||||
|
| |||||||
2,132,573 | ||||||||
|
| |||||||
| Household Durables (0.1%): |
| ||||||
3,000 | Alpine Electronics, Inc.^ | 49,342 | ||||||
31,698 | Cyrela Brazil Realty SA Empreendimentos e Participacoes | 131,936 | ||||||
104,000 | Haier Electronics Group Co., Ltd. | 245,813 | ||||||
41,778 | MRV Engenharia e Participacoes SA | 117,919 | ||||||
7,300 | Rinnai Corp. | 491,643 | ||||||
18,900 | Sony Corp. | 384,846 | ||||||
|
| |||||||
1,421,499 | ||||||||
|
| |||||||
| Household Products (0.8%): |
| ||||||
14,895 | Colgate-Palmolive Co. | 1,030,585 | ||||||
1,043 | Energizer Holdings, Inc. | 134,088 | ||||||
5,451 | Kimberly-Clark Corp. | 629,809 | ||||||
50,384 | Procter & Gamble Co. (The) | 4,589,478 | ||||||
|
| |||||||
6,383,960 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.6%): |
| ||||||
51,570 | AES Corp. (The) | 710,119 | ||||||
46,687 | Calpine Corp.* | 1,033,183 |
Continued
6
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Independent Power and Renewable Electricity Producers, continued |
| ||||||
5,123 | NextEra Energy Partners LP^ | $ | 172,901 | |||||
11,954 | NextEra Energy, Inc. | 1,270,591 | ||||||
32,297 | NRG Energy, Inc.^ | 870,404 | ||||||
9,032 | TerraForm Power, Inc.*(a)(b) | 264,963 | ||||||
3,476 | TerraForm Power, Inc., Class A | 107,339 | ||||||
|
| |||||||
4,429,500 | ||||||||
|
| |||||||
| Industrial Conglomerates (1.4%): |
| ||||||
858 | 3M Co. | 140,987 | ||||||
170,219 | Beijing Enterprises Holdings, Ltd. | 1,330,826 | ||||||
7,944 | Danaher Corp. | 680,880 | ||||||
142,156 | General Electric Co. | 3,592,282 | ||||||
197,000 | Keppel Corp., Ltd. | 1,314,863 | ||||||
12,446 | Koninklijke Philips Electronics NV | 361,329 | ||||||
25,119 | Siemens AG, Registered Shares | 2,848,413 | ||||||
|
| |||||||
10,269,580 | ||||||||
|
| |||||||
| Insurance (1.9%): |
| ||||||
1,398 | ACE, Ltd. | 160,602 | ||||||
124,400 | AIA Group, Ltd. | 685,079 | ||||||
8,082 | Allstate Corp. (The) | 567,761 | ||||||
27,295 | American International Group, Inc. | 1,528,793 | ||||||
44,805 | AXA SA | 1,034,718 | ||||||
2,505 | Axis Capital Holdings, Ltd. | 127,980 | ||||||
4 | Berkshire Hathaway, Inc., Class A*^ | 904,000 | ||||||
12,164 | Berkshire Hathaway, Inc., Class B* | 1,826,424 | ||||||
1,093 | Chubb Corp. (The) | 113,093 | ||||||
3,178 | CNA Financial Corp.^ | 123,020 | ||||||
102,653 | Legal & General Group plc | 394,223 | ||||||
4,130 | Lincoln National Corp. | 238,177 | ||||||
16,385 | Marsh & McLennan Cos., Inc. | 937,877 | ||||||
14,847 | MetLife, Inc. | 803,074 | ||||||
22,300 | MS&AD Insurance Group Holdings, Inc. | 529,755 | ||||||
19,500 | NKSJ Holdings, Inc. | 490,117 | ||||||
6,067 | Prudential Financial, Inc. | 548,821 | ||||||
49,043 | Prudential plc | 1,128,447 | ||||||
1,725 | Reinsurance Group of America, Inc. | 151,145 | ||||||
35,500 | Sony Financial Holdings, Inc. | 523,570 | ||||||
46,600 | Tokio Marine Holdings, Inc. | 1,513,577 | ||||||
15,776 | XL Group plc, Class B | 542,221 | ||||||
|
| |||||||
14,872,474 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.2%): |
| ||||||
5,842 | Amazon.com, Inc.* | 1,813,065 | ||||||
|
| |||||||
| Internet Software & Services (2.2%): |
| ||||||
30,100 | DeNA Co., Ltd.^ | 359,673 | ||||||
44,191 | eBay, Inc.* | 2,479,999 | ||||||
15,437 | Facebook, Inc., Class A* | 1,204,395 | ||||||
4,936 | Google, Inc., Class A* | 2,619,338 | ||||||
7,064 | Google, Inc., Class C* | 3,718,489 | ||||||
63,300 | Gree, Inc.^ | 381,582 | ||||||
28,140 | SINA Corp.* | 1,052,717 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Internet Software & Services, continued |
| ||||||
83,283 | Twitter, Inc.*^ | $ | 2,987,361 | |||||
17,133 | Uber Technologies, Inc.*(a)(b) | 2,283,315 | ||||||
|
| |||||||
17,086,869 | ||||||||
|
| |||||||
| IT Services (1.2%): |
| ||||||
1,652 | Accenture plc, Class A | 147,540 | ||||||
523 | Alliance Data Systems Corp.* | 149,604 | ||||||
3,055 | Amdocs, Ltd. | 142,531 | ||||||
14,472 | Atos Origin SA | 1,145,077 | ||||||
2,856 | Computer Sciences Corp. | 180,071 | ||||||
2,987 | Fidelity National Information Services, Inc. | 185,791 | ||||||
6,293 | International Business Machines Corp. | 1,009,649 | ||||||
35,888 | MasterCard, Inc., Class A | 3,092,111 | ||||||
10,391 | Visa, Inc., Class A | 2,724,520 | ||||||
52,314 | Worldline SA* | 1,011,917 | ||||||
|
| |||||||
9,788,811 | ||||||||
|
| |||||||
| Leisure Products (0.1%): |
| ||||||
5,600 | Namco Bandai Holdings, Inc. | 118,882 | ||||||
24,500 | Nikon Corp.^ | 325,366 | ||||||
22,500 | Sega Sammy Holdings, Inc. | 288,710 | ||||||
7,700 | Yamaha Corp. | 114,389 | ||||||
|
| |||||||
847,347 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.6%): |
| ||||||
24,519 | Agilent Technologies, Inc. | 1,003,808 | ||||||
855 | Mettler-Toledo International, Inc.*^ | 258,603 | ||||||
13,897 | PerkinElmer, Inc.^ | 607,716 | ||||||
15,190 | Thermo Fisher Scientific, Inc. | 1,903,155 | ||||||
4,825 | Waters Corp.* | 543,874 | ||||||
|
| |||||||
4,317,156 | ||||||||
|
| |||||||
| Machinery (1.1%): |
| ||||||
4,016 | CNH Industrial NV | 32,366 | ||||||
29,402 | Colfax Corp.*^ | 1,516,262 | ||||||
75,747 | Cummins India, Ltd. | 1,044,108 | ||||||
1,915 | Dover Corp.^ | 137,344 | ||||||
2,900 | Fanuc, Ltd. | 478,692 | ||||||
164,090 | Haitian International Holdings, Ltd. | 344,105 | ||||||
122,000 | IHI Corp. | 619,538 | ||||||
17,100 | Komatsu, Ltd. | 379,162 | ||||||
29,000 | Kubota Corp. | 421,187 | ||||||
129,000 | Mitsubishi Heavy Industries, Ltd. | 713,381 | ||||||
5,700 | Nabtesco Corp.^ | 136,864 | ||||||
11,448 | PACCAR, Inc. | 778,578 | ||||||
1,065 | Parker Hannifin Corp.^ | 137,332 | ||||||
13,332 | Samsung Heavy Industries Co., Ltd. | 239,762 | ||||||
1,000 | SMC Corp. | 260,451 | ||||||
14,343 | Stanley Black & Decker, Inc. | 1,378,075 | ||||||
3,200 | THK Co., Ltd. | 77,272 | ||||||
|
| |||||||
8,694,479 | ||||||||
|
| |||||||
| Media (1.0%): |
| ||||||
38,908 | Comcast Corp., Class A | 2,257,053 | ||||||
10,852 | DISH Network Corp., Class A* | 791,002 |
Continued
7
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
33,104 | Grupo Televisa SAB* | $ | 225,750 | |||||
14,308 | Liberty Broadband Corp., Class C*^ | 712,825 | ||||||
7,085 | Liberty Broadband Corp., Class A* | 354,888 | ||||||
45,381 | Liberty Media Corp., Class C* | 1,589,696 | ||||||
20,948 | Liberty Media Corp.* | 738,836 | ||||||
17,990 | Manchester United plc, Class A* | 286,041 | ||||||
101,700 | RAI Way SpA* | 392,522 | ||||||
2,382 | RTL Group | 226,333 | ||||||
1,128 | Time Warner Cable, Inc. | 171,524 | ||||||
2,200 | TV Asahi Holdings Corp. | 34,736 | ||||||
1,429 | Viacom, Inc., Class B | 107,532 | ||||||
56,459 | Zon Multimedia Servicos de Telecommunicacoes e Multimedia SGPS SA | 357,371 | ||||||
|
| |||||||
8,246,109 | ||||||||
|
| |||||||
| Metals & Mining (2.2%): |
| ||||||
177,923 | Antofagasta plc | 2,065,482 | ||||||
63,228 | Barrick Gold Corp., ADR | 679,701 | ||||||
40,304 | BHP Billiton plc | 861,989 | ||||||
53,384 | Constellium NV* | 877,099 | ||||||
60,918 | Eldorado Gold Corp. | 371,330 | ||||||
136,556 | First Quantum Minerals, Ltd. | 1,941,059 | ||||||
145,209 | Freeport-McMoRan Copper & Gold, Inc. | 3,392,084 | ||||||
76,765 | Goldcorp, Inc. | 1,421,688 | ||||||
303,956 | Platinum Group Metals, Ltd.* | 143,931 | ||||||
73,949 | Rio Tinto plc | 3,406,600 | ||||||
57,449 | Southern Copper Corp.^ | 1,620,062 | ||||||
|
| |||||||
16,781,025 | ||||||||
|
| |||||||
| Multiline Retail (0.0%): |
| ||||||
2,175 | Kohl’s Corp.^ | 132,762 | ||||||
2,073 | Macy’s, Inc.^ | 136,300 | ||||||
2,800 | Ryohin Keikaku Co., Ltd. | 346,036 | ||||||
|
| |||||||
615,098 | ||||||||
|
| |||||||
| Multi-Utilities (0.6%): |
| ||||||
23,266 | CenterPoint Energy, Inc. | 545,122 | ||||||
14,815 | Dominion Resources, Inc. | 1,139,274 | ||||||
41,698 | GDF Suez | 973,754 | ||||||
67,090 | National Grid plc | 956,306 | ||||||
7,813 | RWE AG | 244,580 | ||||||
9,816 | Sempra Energy | 1,093,110 | ||||||
|
| |||||||
4,952,146 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (4.8%): |
| ||||||
28,501 | Anadarko Petroleum Corp. | 2,351,332 | ||||||
19,173 | Antero Midstream Partners LP* | 527,258 | ||||||
112,886 | Athabasca Oil Corp.* | 251,722 | ||||||
42,054 | BG Group plc | 559,701 | ||||||
59,649 | Cameco Corp. | 978,840 | ||||||
2,987 | Chevron Corp. | 335,082 | ||||||
3,655 | Cimarex Energy Co. | 387,430 | ||||||
31,317 | CONSOL Energy, Inc.^ | 1,058,828 | ||||||
23,787 | Diamondback Energy, Inc.*^ | 1,421,987 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
30,140 | Eclipse Resources Corp.*^ | $ | 211,884 | |||||
3,818 | EOG Resources, Inc. | 351,523 | ||||||
4,771 | EQT Corp. | 361,165 | ||||||
19,714 | Gulfport Energy Corp.* | 822,862 | ||||||
136,400 | INPEX Corp. | 1,513,657 | ||||||
27,615 | KazMunaiGas Exploration Production JSC, Registered Shares, GDR | 400,372 | ||||||
63,925 | Lookout, Inc.*(a)(b) | 730,222 | ||||||
135,128 | Lundin Petroleum AB*^ | 1,933,490 | ||||||
3,387 | Marathon Oil Corp. | 95,818 | ||||||
1,960 | Marathon Petroleum Corp. | 176,910 | ||||||
15,127 | Oasis Petroleum, Inc.*^ | 250,201 | ||||||
154,200 | Oil & Natural Gas Corp., Ltd. | 830,962 | ||||||
277,414 | Ophir Energy plc* | 602,282 | ||||||
116,157 | Palantir Technologies, Inc.*(a)(b) | 931,579 | ||||||
7,669 | Parsley Energy, Inc., Class A*^ | 122,397 | ||||||
71,761 | Petroleo Brasileiro SA, Sponsored ADR | 523,856 | ||||||
49,178 | Phillips 66 | 3,526,062 | ||||||
4,315 | Pioneer Natural Resources Co. | 642,288 | ||||||
52,935 | Royal Dutch Shell plc, Sponsored ADR | 3,543,997 | ||||||
203,628 | Statoil ASA | 3,570,909 | ||||||
22,665 | Stone Energy Corp.*^ | 382,585 | ||||||
4,475 | Suncor Energy, Inc. | 142,216 | ||||||
32,673 | Talisman Energy, Inc. | 255,830 | ||||||
10,686 | Tesoro Corp.^ | 794,504 | ||||||
20,473 | Total SA | 1,055,447 | ||||||
41,344 | Total SA, Sponsored ADR, Sponsored ADR^ | 2,116,812 | ||||||
47,155 | TransCanada Corp.^ | 2,318,166 | ||||||
3,490 | Valero Energy Corp. | 172,755 | ||||||
|
| |||||||
36,252,931 | ||||||||
|
| |||||||
| Paper & Forest Products (0.0%): |
| ||||||
3,070 | International Paper Co. | 164,491 | ||||||
|
| |||||||
| Personal Products (0.3%): |
| ||||||
10,433 | Beiersdorf AG^ | 850,841 | ||||||
79,423 | Hypermarcas SA* | 497,664 | ||||||
2,428 | L’Oreal SA | 407,582 | ||||||
|
| |||||||
1,756,087 | ||||||||
|
| |||||||
| Pharmaceuticals (4.2%): |
| ||||||
51,662 | Abbvie, Inc. | 3,380,761 | ||||||
10,955 | Actavis, Inc. plc* | 2,819,927 | ||||||
4,859 | Allergan, Inc. | 1,032,975 | ||||||
31,100 | Astellas Pharma, Inc. | 432,910 | ||||||
22,957 | AstraZeneca plc | 1,614,727 | ||||||
5,926 | AstraZeneca plc, Sponsored ADR^ | 417,072 | ||||||
18,819 | Bristol-Myers Squibb Co. | 1,110,886 | ||||||
23,382 | Catalent, Inc.*^ | 651,890 | ||||||
3,501 | Eli Lilly & Co. | 241,534 | ||||||
59,309 | Merck & Co., Inc. | 3,368,158 | ||||||
6,239 | Mylan, Inc.* | 351,692 | ||||||
18,513 | Novartis AG, Registered Shares | 1,703,108 | ||||||
15,800 | Otsuka Holdings Co., Ltd. | 473,951 |
Continued
8
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Pharmaceuticals, continued |
| ||||||
4,641 | Perrigo Co. plc | $ | 775,790 | |||||
115,919 | Pfizer, Inc. | 3,610,876 | ||||||
16,221 | Roche Holding AG | 4,397,874 | ||||||
6,890 | Sanofi-Aventis SA, Sponsored ADR | 314,253 | ||||||
26,019 | Sanofi-Aventis SA | 2,370,983 | ||||||
2,100 | Sawai Pharmaceutical Co., Ltd.^ | 121,003 | ||||||
20,453 | Shire plc | 1,446,938 | ||||||
460,000 | Sino Biopharmaceutical, Ltd. | 416,134 | ||||||
25,005 | Teva Pharmaceutical Industries, Ltd., Sponsored ADR | 1,438,037 | ||||||
|
| |||||||
32,491,479 | ||||||||
|
| |||||||
| Professional Services (0.1%): |
| ||||||
42,526 | Qualicorp SA* | 444,913 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.4%): |
| ||||||
9,828 | American Capital Agency Corp. | 214,545 | ||||||
7,794 | American Tower Corp. | 770,437 | ||||||
10,532 | Crown Castle International Corp. | 828,869 | ||||||
323,539 | Fibra UNO Amdinistracion SA | 953,695 | ||||||
293,363 | TF Administradora Industrial S de RL de C.V. | 613,953 | ||||||
|
| |||||||
3,381,499 | ||||||||
|
| |||||||
| Real Estate Management & Development (1.4%): |
| ||||||
74,935 | BR Malls Participacoes SA | 463,338 | ||||||
649,000 | CapitaLand, Ltd. | 1,612,926 | ||||||
338,000 | China Overseas Land & Investment, Ltd. | 997,616 | ||||||
38,000 | Daikyo, Inc.* | 58,855 | ||||||
4,400 | Daito Trust Construction Co., Ltd. | 498,276 | ||||||
646,000 | Global Logistic Properties, Ltd. | 1,208,475 | ||||||
21,000 | Nomura Real Estate Holdings, Inc. | 360,923 | ||||||
67,467 | St. Joe Co. (The)*^ | 1,240,718 | ||||||
144,000 | Sun Hung Kai Properties, Ltd. | 2,177,721 | ||||||
180,000 | Wharf Holdings, Ltd. (The) | 1,292,765 | ||||||
|
| |||||||
9,911,613 | ||||||||
|
| |||||||
| Road & Rail (0.9%): |
| ||||||
16,462 | Canadian National Railway Co.^ | 1,134,396 | ||||||
24,792 | CSX Corp. | 898,214 | ||||||
28,600 | East Japan Railway Co. | 2,143,088 | ||||||
14,285 | J.B. Hunt Transport Services, Inc.^ | 1,203,511 | ||||||
25,000 | Nippon Express Co., Ltd. | 127,167 | ||||||
7,000 | Seino Holdings Co., Ltd. | 70,426 | ||||||
16,898 | Union Pacific Corp. | 2,013,059 | ||||||
|
| |||||||
7,589,861 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.4%): |
| ||||||
12,006 | Infineon Technologies AG | 128,702 | ||||||
4,467 | KLA-Tencor Corp.^ | 314,119 | ||||||
19,400 | ROHM Co., Ltd. | 1,177,169 | ||||||
596 | Samsung Electronics Co., Ltd. | 716,521 | ||||||
142,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 626,646 | ||||||
|
| |||||||
2,963,157 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software (1.7%): |
| ||||||
86,301 | Activision Blizzard, Inc. | $ | 1,738,965 | |||||
2,269 | Adobe Systems, Inc.* | 164,956 | ||||||
2,045 | Check Point Software Technologies, Ltd.* | 160,676 | ||||||
11,900 | Electronic Arts, Inc.* | 559,479 | ||||||
53,300 | Gungho Online Enetertainment, Inc.^ | 194,328 | ||||||
1,734 | Intuit, Inc. | 159,857 | ||||||
44,916 | Microsoft Corp. | 2,086,348 | ||||||
16,800 | Nexon Co., Ltd. | 156,673 | ||||||
10,200 | Nintendo Co., Ltd. | 1,063,234 | ||||||
80,656 | Oracle Corp. | 3,627,101 | ||||||
9,978 | SAP AG | 705,416 | ||||||
3,800 | Trend Micro, Inc.^ | 103,985 | ||||||
23,266 | UbiSoft Entertainment SA* | 425,895 | ||||||
45,940 | Veeva Systems, Inc., Class A*^ | 1,213,275 | ||||||
4,253 | VMware, Inc., Class A*^ | 350,958 | ||||||
|
| |||||||
12,711,146 | ||||||||
|
| |||||||
| Specialty Retail (0.2%): |
| ||||||
2,400 | Autobacs Seven Co., Ltd. | 34,177 | ||||||
2,044 | Lowe’s Cos., Inc. | 140,627 | ||||||
15,800 | Sanrio Co., Ltd.^ | 393,046 | ||||||
800 | Shimamura Co., Ltd.^ | 68,938 | ||||||
296,000 | Yamada Denki Co., Ltd.^ | 988,125 | ||||||
222,760 | Zhongsheng Group Holdings, Ltd.^ | 200,913 | ||||||
|
| |||||||
1,825,826 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.2%): |
| ||||||
2,278 | Apple, Inc. | 251,446 | ||||||
211,000 | NEC Corp. | 615,231 | ||||||
1,630 | Samsung SDI Co., Ltd. | 169,489 | ||||||
2,448 | Seagate Technology plc | 162,792 | ||||||
2,403 | Western Digital Corp. | 266,012 | ||||||
|
| |||||||
1,464,970 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.5%): |
| ||||||
52,300 | Coach, Inc. | 1,964,388 | ||||||
255 | Hermes International SA | 91,046 | ||||||
8,056 | Lululemon Athletica, Inc.*^ | 449,444 | ||||||
4,361 | LVMH Moet Hennessy Louis Vuitton SA | 689,541 | ||||||
|
| |||||||
3,194,419 | ||||||||
|
| |||||||
| Tobacco (0.1%): |
| ||||||
5,733 | Philip Morris International, Inc. | 466,953 | ||||||
|
| |||||||
| Trading Companies & Distributors (0.7%): |
| ||||||
16,891 | Fastenal Co.^ | 803,336 | ||||||
68,000 | Mitsubishi Corp. | 1,247,320 | ||||||
197,900 | Mitsui & Co., Ltd. | 2,646,002 | ||||||
67,600 | Sumitomo Corp. | 694,435 | ||||||
|
| |||||||
5,391,093 | ||||||||
|
| |||||||
| Transportation Infrastructure (0.0%): |
| ||||||
615,711 | Delta Topco, Ltd.*(a)(b) | 365,178 | ||||||
4,000 | Kamigumi Co., Ltd. | 35,580 | ||||||
16,337 | Novorossiysk Commercial Sea Trade Port JSC, Registered Shares, GDR | 32,395 | ||||||
|
| |||||||
433,153 | ||||||||
|
|
Continued
9
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Water Utilities (0.1%): |
| ||||||
14,148 | American Water Works Co., Inc. | $ | 754,088 | |||||
|
| |||||||
| Wireless Telecommunication Services (0.5%): |
| ||||||
27,132 | America Movil SAB de C.V., Series L, Sponsored ADR^ | 601,788 | ||||||
341,400 | Axiata Group Berhad | 687,886 | ||||||
105,029 | Far EasTone Telecommunications Co., Ltd. | 241,816 | ||||||
14,300 | KDDI Corp. | 894,904 | ||||||
9,900 | NTT DoCoMo, Inc. | 144,942 | ||||||
73,000 | Taiwan Mobile Co., Ltd. | 241,094 | ||||||
156,902 | Vodafone Group plc | 537,552 | ||||||
15,162 | Vodafone Group plc, Sponsored ADR | 518,086 | ||||||
|
| |||||||
3,868,068 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $396,539,998) | 422,648,074 | ||||||
|
| |||||||
| Preferred Stocks (1.9%): |
| ||||||
| Auto Components (0.3%): |
| ||||||
61,095 | Mobileye N.V., Series F, Preferred Shares*(a)(b) | 2,354,112 | ||||||
|
| |||||||
| Automobiles (0.2%): |
| ||||||
8,234 | Volkswagen AG, Preferred Shares | 1,839,026 | ||||||
|
| |||||||
| Banks (0.8%): |
| ||||||
26,482 | Citigroup Capital XIII, Series A, Preferred Shares^ | 703,891 | ||||||
176,000 | Deutsche Bank Capital Funding Trust VII, Preferred Shares(c) | 179,186 | ||||||
32,500 | GMAC Capital Trust I, Series 2, Preferred Shares | 857,349 | ||||||
15,683 | HSBC Holdings plc, Series 2, Preferred Shares | 416,697 | ||||||
38,941 | Itau Unibanco Holding SA, Preferred Shares | 507,060 | ||||||
21,833 | RBS Capital Fund Trust V, Series E, Preferred Shares | 530,542 | ||||||
27,501 | RBS Capital Funding Trust VII, Series G, Preferred Shares | 670,749 | ||||||
14,719 | Royal Bank of Scotland Group plc, Series T, Preferred Shares, Sponsored ADR | 375,187 | ||||||
12,375 | Royal Bank of Scotland Group plc, Series M, Preferred Shares, Sponsored ADR^ | 305,168 | ||||||
9,710 | Royal Bank of Scotland Group plc, Series Q, Preferred Shares, Sponsored ADR | 246,149 | ||||||
7,409 | U.S. Bancorp, Series G, Preferred Shares | 200,932 | ||||||
14,159 | U.S. Bancorp, Series F, Preferred Shares^ | 416,983 | ||||||
541,000 | USB Capital IX, Preferred Shares | 435,505 | ||||||
|
| |||||||
5,845,398 | ||||||||
|
| |||||||
| Diversified Financial Services (0.0%): |
| ||||||
41,670 | Fannie Mae, Series S, Preferred Shares | 161,263 | ||||||
|
| |||||||
| Food & Staples Retailing (0.1%): |
| ||||||
10,967 | Companhia Brasileira de Destribuicao Grupo Pao de Acucar, Series A, Preferred Shares | 407,073 | ||||||
|
| |||||||
| Health Care Providers & Services (0.0%): |
| ||||||
186,439 | Invitae Corp., Series F, Preferred Shares(a)(b) | 372,878 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Preferred Stocks, continued |
| ||||||
| Machinery (0.0%): |
| ||||||
2,123 | Stanley Black & Decker, Inc., Preferred Shares^ | $ | 249,962 | |||||
|
| |||||||
| Multi-Utilities (0.1%): |
| ||||||
7,500 | Dominion Resources, Inc., Preferred Shares | 390,075 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.2%): |
| ||||||
2,976 | American Tower Corp., Series A, Preferred Shares | 342,121 | ||||||
13,044 | Health Care REIT, Inc., Series 2, Preferred Shares | 861,311 | ||||||
|
| |||||||
1,203,432 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.0%): |
| ||||||
15,600 | Forestar Group, Inc., Preferred Shares | 331,188 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.2%): |
| ||||||
1,918 | Samsung Electronics Co., Ltd., Preferred Shares | 1,794,913 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $12,663,433) | 14,949,320 | ||||||
|
| |||||||
| Warrants (0.0%): |
| ||||||
| Paper & Forest Products (0.0%): |
| ||||||
157,250 | TFS Corp., Ltd.*(c) | 96,646 | ||||||
|
| |||||||
| Real Estate Management & Development (0.0%): |
| ||||||
11,666 | Sun Hung Kai Properties, Ltd.* | 29,489 | ||||||
|
| |||||||
| Total Warrants (Cost $—) | 126,135 | ||||||
|
| |||||||
| Convertible Preferred Stocks (0.3%): |
| ||||||
| Aerospace & Defense (0.0%): |
| ||||||
5,063 | United Technologies Corp., 0.49% | 310,514 | ||||||
|
| |||||||
| Banks (0.0%): |
| ||||||
272 | Wells Fargo & Co., Series L, Class A, 0.02% | 330,480 | ||||||
|
| |||||||
| Electric Utilities (0.1%): |
| ||||||
10,884 | NextEra Energy, Inc., 0.33% | 746,098 | ||||||
|
| |||||||
| Metals & Mining (0.0%): |
| ||||||
11,422 | Cliffs Natural Resources, Inc., Series A, 4.18% | 76,527 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.2%): |
| ||||||
8,784 | Crown Castle International Corp., Series A | 904,665 | ||||||
|
| |||||||
| Total Convertible Preferred Stocks (Cost $2,318,154) | 2,368,284 | ||||||
|
| |||||||
| Right (0.0%): |
| ||||||
| Media (0.0%): |
| ||||||
4,279 | Liberty Broadband Corp.* | 40,651 | ||||||
|
| |||||||
| Total Right (Cost $—) | 40,651 | ||||||
|
| |||||||
| Convertible Bonds (2.1%): |
| ||||||
| Automobiles (0.1%): |
| ||||||
$ | 800,000 | Volkswagen International Finance NV, 5.50%, 11/9/15+(c) | 1,070,525 | |||||
|
| |||||||
| Banks (0.1%): |
| ||||||
753,000 | JPMorgan Chase & Co., Series Q, 5.15%, 12/31/49, Callable 5/1/23 @ 100, Perpetual Bond^(d) | 709,326 | ||||||
|
|
Continued
10
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Convertible Bonds, continued |
| ||||||
| Biotechnology (0.4%): |
| ||||||
$ | 143,000 | BioMarin Pharmaceutical, Inc., 0.75%, 10/15/18 | $ | 168,114 | ||||
155,000 | BioMarin Pharmaceutical, Inc., 1.50%, 10/15/20^ | 189,972 | ||||||
244,000 | Cubist Pharmaceuticals, Inc., 2.50%, 11/1/17 | 845,308 | ||||||
331,000 | Gilead Sciences, Inc., Series D, 1.63%, 5/1/16 | 1,369,925 | ||||||
|
| |||||||
2,573,319 | ||||||||
|
| |||||||
| Energy Equipment and Services (0.0%): |
| ||||||
191,000 | Suzlon Energy, Ltd., Series SUEL, 3.25%, 7/16/19, Callable 1/16/15 @ 100.85(c)(d) | 173,170 | ||||||
|
| |||||||
| Food & Staples Retailing (0.1%): |
| ||||||
500,000 | Olam International, Ltd., 6.00%, 10/15/16(c) | 527,500 | ||||||
|
| |||||||
| Food Products (0.0%): |
| ||||||
400,000 | REI Agro, Ltd., Registered Shares, 5.50%, 11/13/14(a)(e) | 39,000 | ||||||
|
| |||||||
| Health Care Providers & Services (0.1%): |
| ||||||
80,000 | Brookdale Senior Living, Inc., 2.75%, 6/15/18 | 108,950 | ||||||
463,000 | WellPoint, Inc., 2.75%, 10/15/42 | 796,939 | ||||||
|
| |||||||
905,889 | ||||||||
|
| |||||||
| Internet Software & Services (0.0%): |
| ||||||
380,000 | �� | SINA Corp., 1.00%, 12/1/18, Callable 12/1/16 @ 100 | 350,313 | |||||
375,000 | Twitter, Inc., 1.00%, 9/15/21(c) | 326,719 | ||||||
|
| |||||||
677,032 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.2%): |
| ||||||
886,000 | Cobalt International Energy, Inc., 2.63%, 12/1/19 | 534,923 | ||||||
1,111,000 | Cobalt International Energy, Inc., 3.13%, 5/15/24^ | 746,453 | ||||||
70,000 | Dana Gas Sukuk, Ltd., 7.00%, 10/31/17 | 61,600 | ||||||
|
| |||||||
1,342,976 | ||||||||
|
| |||||||
| Pharmaceuticals (0.2%): |
| ||||||
402,000 | Mylan, Inc., 3.75%, 9/15/15 | 1,698,952 | ||||||
|
| |||||||
| Real Estate Management & Development (0.4%): |
| ||||||
750,000 | CapitaLand, Ltd., 2.10%, 11/15/16+(c) | 566,337 | ||||||
1,500,000 | CapitaLand, Ltd., Series CAPL, 2.95%, 6/20/22, Callable 6/20/17 @ 100+(c) | 1,137,998 | ||||||
500,000 | CapitaLand, Ltd., 1.95%, 10/17/23, Callable 10/17/18 @ 100+(c) | 381,994 | ||||||
250,000 | CapitaLand, Ltd., 1.95%, 10/17/23, Callable 10/17/18 @ 100+(c) | 190,997 | ||||||
406,000 | Forest City Enterprises, Inc., 4.25%, 8/15/18 | 463,348 | ||||||
|
| |||||||
2,740,674 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Convertible Bonds, continued |
| ||||||
| Semiconductors & Semiconductor Equipment (0.1%): |
| ||||||
$ | 246,000 | Intel Corp., 3.25%, 8/1/39 | $ | 427,733 | ||||
|
| |||||||
| Software (0.1%): |
| ||||||
420,000 | Salesforce.com, Inc., 0.25%, 4/1/18 | 478,538 | ||||||
428,000 | Take-Two Interactive Software, Inc., 1.75%, 12/1/16 | 647,350 | ||||||
|
| |||||||
1,125,888 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.3%): |
| ||||||
500,000 | Telecom Italia Finance SA, Registered Shares, 6.13%, 11/15/16+(c) | 709,005 | ||||||
300,000 | Telefonica SA, Series TIT, 6.00%, 7/24/17+ | 372,772 | ||||||
900,000 | Telefonica SA, Series TEF, 4.90%, 9/25/17+(c) | 1,094,905 | ||||||
|
| |||||||
2,176,682 | ||||||||
|
| |||||||
| Total Convertible Bonds (Cost $15,152,025) | 16,188,666 | ||||||
|
| |||||||
| Floating Rate Loans (1.1%): |
| ||||||
| Biotechnology (0.2%): |
| ||||||
1,609,718 | Grifols Worldwide Operations USA, 3.17%, 3/3/21(d) | 1,585,572 | ||||||
|
| |||||||
| Construction & Engineering (0.1%): |
| ||||||
304,147 | Autobahn Tank & Rast Holding GmbH, 3.33%, 12/10/18(d) | 366,919 | ||||||
122,640 | Autobahn Tank & Rast Holding GmbH, 3.58%, 12/10/19(d) | 147,479 | ||||||
|
| |||||||
514,398 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.3%): |
| ||||||
377,055 | Drillships Financing Holdings, Inc., 6.00%, 3/31/21(d) | 293,869 | ||||||
478,006 | Drillships Ocean Ventures, Inc., 5.50%, 7/9/21(d) | 382,405 | ||||||
405,533 | Fieldwood Energy LLC, 9.38%, 9/20/20(d) | 294,518 | ||||||
1,299,698 | Seadrill, Ltd., 4.00%, 2/21/21(d) | 1,005,317 | ||||||
|
| |||||||
1,976,109 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.2%): |
| ||||||
1,728,577 | Hilton Worldwide Finance LLC, 3.50%, 10/25/20(d) | 1,706,244 | ||||||
|
| |||||||
| Media (0.2%): |
| ||||||
292,000 | AP One Channel Center Owner LP, Series 4814, 5.00%, 7/15/19(b)(d) | 292,000 | ||||||
472,000 | Charter Communications Operating LLC, 4.25%, 8/12/21(d) | 474,657 | ||||||
722,088 | Univision Communications, Inc., 4.00%, 3/1/20(d) | 705,120 | ||||||
389,246 | Univision Communications, Inc., 4.00%, 3/1/20(d) | 380,098 | ||||||
|
| |||||||
1,851,875 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.1%): |
| ||||||
104,864 | Sheridan Production Partners, 4.25%, 12/2/20(d) | 82,843 |
Continued
11
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Floating Rate Loans, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
$ | 753,671 | Sheridan Production Partners, 4.25%, 12/2/20(d) | $ | 595,399 | ||||
39,120 | Sheridan Production Partners, 4.25%, 12/2/20(d) | 30,905 | ||||||
|
| |||||||
709,147 | ||||||||
|
| |||||||
| Pharmaceuticals (0.0%): |
| ||||||
188,674 | Mallinckrodt International Finance SA, 3.25%, 2/24/21(d) | 184,806 | ||||||
|
| |||||||
| Total Floating Rate Loans (Cost $9,380,783) | 8,528,151 | ||||||
|
| |||||||
| Corporate Bonds (2.5%): |
| ||||||
| Automobiles (0.1%): |
| ||||||
620,000 | General Motors Financial Co., Inc., 3.50%, 7/10/19^ | 633,096 | ||||||
|
| |||||||
| Banks (0.4%): |
| ||||||
307,000 | Bank of America Corp., 1.32%, 3/22/18, MTN(d) | 309,243 | ||||||
385,000 | Bank of America Corp., 2.60%, 1/15/19 | 387,994 | ||||||
430,000 | CIT Group, Inc., 4.75%, 2/15/15(c) | 430,323 | ||||||
410,000 | HSBC USA, Inc., 1.63%, 1/16/18 | 408,421 | ||||||
290,000 | JPMorgan Chase & Co., 6.13%, 6/27/17 | 319,997 | ||||||
1,565,000 | JPMorgan Chase & Co., Series X, 6.10%, 10/29/49, Callable 10/1/24 @ 100(d) | 1,561,087 | ||||||
|
| |||||||
3,417,065 | ||||||||
|
| |||||||
| Beverages (0.0%): |
| ||||||
258,000 | Anheuser-Busch InBev NV Worldwide, Inc., 1.38%, 7/15/17 | 257,771 | ||||||
|
| |||||||
| Capital Markets (0.6%): |
| ||||||
1,258,000 | Ford Motor Credit Co. LLC, 1.72%, 12/6/17 | 1,244,999 | ||||||
408,000 | Ford Motor Credit Co. LLC, 2.38%, 1/16/18^ | 410,364 | ||||||
395,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 429,186 | ||||||
662,000 | Goldman Sachs Group, Inc. (The), Series L, 5.70%, 12/29/49, Callable 5/10/19 @ 100^(d) | 669,613 | ||||||
361,000 | Merrill Lynch & Co., 6.88%, 4/25/18, MTN | 414,637 | ||||||
268,000 | Morgan Stanley, Series G, 7.30%, 5/13/19 | 317,887 | ||||||
489,000 | Morgan Stanley, Series H, 5.45%, 12/29/49, Callable 7/15/19 @ 100^(d) | 489,880 | ||||||
|
| |||||||
3,976,566 | ||||||||
|
| |||||||
| Communications Equipment (0.0%): |
| ||||||
110,000 | Hughes Satellite Systems Corp., 7.63%, 6/15/21 | 121,000 | ||||||
|
| |||||||
| Consumer Finance (0.2%): |
| ||||||
578,000 | Ally Financial, Inc., 2.75%, 1/30/17^ | 576,197 | ||||||
431,000 | Ally Financial, Inc., 3.50%, 1/27/19^ | 425,828 | ||||||
370,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 377,951 | ||||||
|
| |||||||
1,379,976 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Diversified Financial Services (0.3%): |
| ||||||
$ | 558,000 | Bank of America Corp., 2.00%, 1/11/18, MTN | $ | 557,576 | ||||
298,000 | Citigroup, Inc., Series A, 5.95%, 12/29/49, Callable 1/30/23 @ 100^(d) | 293,530 | ||||||
272,000 | General Electric Capital Corp., Series A, 5.55%, 5/4/20, MTN | 312,603 | ||||||
600,000 | General Electric Capital Corp., Series B, 6.25%, 12/15/49, Callable 12/15/22 @ 100^(d) | 653,251 | ||||||
420,000 | General Electric Capital Corp., 6.38%, 11/15/67, Callable 11/15/17 @ 100(d) | 450,450 | ||||||
222,000 | Hyundai Capital America, Inc., 2.13%, 10/2/17(c) | 223,082 | ||||||
|
| |||||||
2,490,492 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.1%): |
| ||||||
820,000 | Medtronic, Inc., 3.15%, 3/15/22(c) | 830,394 | ||||||
|
| |||||||
| IT Services (0.0%): |
| ||||||
130,000 | SunGard Data Systems, Inc., 7.38%, 11/15/18, Callable 2/9/15 @ 105.53 | 135,200 | ||||||
|
| |||||||
| Media (0.1%): |
| ||||||
245,000 | Cablevision Systems Corp., 5.88%, 9/15/22^ | 248,063 | ||||||
200,000 | NBCUniversal Enterprise, Inc., 5.25%, 12/31/99, Callable 3/19/21 @ 100(c) | 207,500 | ||||||
|
| |||||||
455,563 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.2%): |
| ||||||
399,000 | Chesapeake Energy Corp., 3.48%, 4/15/19, Callable 4/15/15 @ 101(d) | 391,020 | ||||||
325,000 | Reliance Holdings USA, Inc., 4.50%, 10/19/20(c) | 339,608 | ||||||
250,000 | Reliance Holdings USA, Inc., 5.40%, 2/14/22(c) | 270,827 | ||||||
270,000 | Sabine Pass Liquefaction LLC, 5.63%, 4/15/23^ | 264,600 | ||||||
|
| |||||||
1,266,055 | ||||||||
|
| |||||||
| Pharmaceuticals (0.2%): |
| ||||||
475,000 | Forest Laboratories, Inc., 4.38%, 2/1/19(c) | 501,776 | ||||||
331,000 | Forest Laboratories, Inc., 5.00%, 12/15/21, Callable 9/16/21 @ 100(c) | 358,415 | ||||||
513,000 | Mylan, Inc., 2.55%, 3/28/19^ | 511,030 | ||||||
|
| |||||||
1,371,221 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.0%): |
| ||||||
162,000 | American Tower Corp., 3.40%, 2/15/19^ | 164,887 | ||||||
|
| |||||||
| Specialty Retail (0.1%): |
| ||||||
393,000 | Best Buy Co., Inc., 5.00%, 8/1/18 | 406,509 | ||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.0%): |
| ||||||
238,000 | Xerox Corp., 6.35%, 5/15/18^ | 269,111 | ||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.0%): |
| ||||||
365,000 | Capital One Bank USA NA, Series BNKT, 2.15%, 11/21/18, Callable 10/21/18 @ 100 | 363,095 | ||||||
|
|
Continued
12
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Transportation Infrastructure (0.1%): |
| ||||||
$ | 516,343 | Delta Topco, Ltd., 10.00%, 11/24/60(a)(b) | $ | 518,360 | ||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
1,070,000 | AT&T, Inc., 2.38%, 11/27/18^ | 1,078,288 | ||||||
|
| |||||||
| Total Corporate Bonds (Cost $19,006,304) | 19,134,649 | ||||||
|
| |||||||
| Foreign Bonds (9.2%): |
| ||||||
| Banks (0.2%): |
| ||||||
610,000 | Lloyds TSB Bank plc , Series E, 13.00%, 1/29/49, Callable 1/21/29 @ 100+(d) | 1,619,378 | ||||||
|
| |||||||
| Metals & Mining (0.0%): |
| ||||||
270,000 | Constellium NV , 7.00%, 1/15/23, Callable 1/15/18 @ 105.25+(c) | 312,791 | ||||||
|
| |||||||
| Sovereign Bonds (9.0%): |
| ||||||
5,769,000 | Australian Government, Series 122, 5.25%, 3/15/19+ | 5,284,244 | ||||||
10,510,000 | Australian Government, Series 143, 2.75%, 10/21/19+ | 8,765,953 | ||||||
3,022,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 1.29%, 1/1/17+(f)(g) | 1,083,288 | ||||||
2,547,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 1.86%, 1/1/21+(f)(g) | 865,774 | ||||||
8,588,000 | Government of Poland, 5.75%, 10/25/21+ | 2,948,779 | ||||||
24,694,000,000 | Indonesia Government, Series FR69, 7.88%, 4/15/19+ | 2,007,135 | ||||||
6,272,000,000 | Indonesia Government, Series FR70, 8.38%, 3/15/24+ | 525,622 | ||||||
150,000,000 | Japan Treasury Discount Bill, Series 482, 0.00%, 1/8/15+(f) | 1,252,505 | ||||||
160,000,000 | Japan Treasury Discount Bill, Series 499, 0.00%, 2/4/15+(f) | 1,336,005 | ||||||
80,000,000 | Japan Treasury Discount Bill, Series 478, 0.00%, 3/10/15+(f) | 667,969 | ||||||
160,000,000 | Japan Treasury Discount Bill, Series 500, 0.00%, 3/23/15+(f) | 1,336,005 | ||||||
49,273,000 | Mexican Bonos Desarr, 8.00%, 12/7/23+(d)(h) | 3,839,063 | ||||||
96,411,800 | Mexican Bonos Desarr, Series M 20, 10.00%, 12/5/24+(d)(h) | 8,561,039 | ||||||
220,707,000 | Mexican Cetes, Series BI, 0.00%, 1/22/15+(h) | 1,494,024 | ||||||
74,245,400 | Mexican Cetes, Series BI, 0.00%, 2/5/15+(h) | 501,988 | ||||||
117,581,800 | Mexican Cetes, Series BI, 0.00%, 2/19/15+(h) | 794,156 | ||||||
198,377,600 | Mexican Cetes, Series BI, 0.00%, 3/5/15+(h) | 1,338,028 | ||||||
225,021,200 | Mexican Cetes, Series BI, 0.00%, 3/19/15+(h) | 1,515,798 | ||||||
150,698,400 | Mexican Cetes, Series BI, 0.00%, 4/1/15+(h) | 1,014,059 | ||||||
115,860,000 | Mexican Cetes, Series BI, 0.00%, 4/16/15+(h) | 778,647 | ||||||
152,284,900 | Mexican Cetes, Series BI, 0.00%, 4/30/15+(h) | 1,022,225 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 235,914,000 | Mexican Cetes, Series BI, 0.00%, 5/28/15+(h) | $ | 1,580,010 | ||||
231,730,000 | Mexican Cetes, Series BI, 0.00%, 6/11/15+(h) | 1,549,318 | ||||||
2,278,000 | New Zealand Government, Series 319, 5.00%, 3/15/19+ | 1,875,365 | ||||||
4,019,000 | Nota do Tesouro Nacional, Series NTNB, 0.00%, 5/15/23+(g) | 3,801,374 | ||||||
4,555,000 | Nota do Tesouro Nacional, Series NTNF, 0.97%, 1/1/25+(f)(g) | 1,501,011 | ||||||
7,328,000 | Poland Government Bond, Series 1020, 5.25%, 10/25/20+ | 2,408,414 | ||||||
6,124,618 | United Kingdom Treasury, 2.25%, 9/7/23+(c) | 10,000,895 | ||||||
|
| |||||||
69,648,693 | ||||||||
|
| |||||||
| Total Foreign Bonds (Cost $76,543,041) | 71,580,862 | ||||||
|
| |||||||
| Yankee Dollars (2.8%): |
| ||||||
| Banks (0.8%): |
| ||||||
275,000 | Banco Estado Chile, 2.03%, 4/2/15 | 276,035 | ||||||
450,000 | Banco Santander Chile SA, 2.11%, 6/7/18(c)(d) | 455,625 | ||||||
1,172,000 | BNP Paribas SA, 2.40%, 12/12/18^ | 1,183,159 | ||||||
253,000 | Export-Import Bank of Korea, 2.88%, 9/17/18 | 259,640 | ||||||
1,275,000 | HSBC Holdings plc, 6.38%, 12/29/49, Callable 9/17/24 @ 100^(d) | 1,287,750 | ||||||
221,000 | Intesa Sanpaolo SpA, 3.88%, 1/16/18^ | 230,095 | ||||||
1,065,000 | Intesa Sanpaolo SpA, 3.88%, 1/15/19 | 1,102,694 | ||||||
200,000 | Lloyds Bank plc, 2.30%, 11/27/18 | 201,889 | ||||||
250,000 | Rabobank Nederland, 3.95%, 11/9/22 | 254,657 | ||||||
553,000 | State Bank of India, 3.62%, 4/17/19(c) | 560,783 | ||||||
460,000 | Sumitomo Mitsui Banking Corp., 2.45%, 1/10/19 | 462,082 | ||||||
366,000 | UBS AG Stamford CT, 2.38%, 8/14/19 | 365,978 | ||||||
|
| |||||||
6,640,387 | ||||||||
|
| |||||||
| Capital Markets (0.2%): |
| ||||||
501,340 | Dana Gas Sukuk, Ltd., 9.00%, 10/31/17, Callable 10/13/17 @ 103(c) | 451,206 | ||||||
1,098,330 | Dana Gas Sukuk, Ltd., 7.00%, 10/31/17(c) | 966,530 | ||||||
|
| |||||||
1,417,736 | ||||||||
|
| |||||||
| Diversified Financial Services (0.1%): |
| ||||||
400,000 | CSG Guernsey I, Ltd., Registered Shares, 7.88%, 2/24/41, Callable 8/24/16 @ 100(c)(d) | 424,000 | ||||||
400,000 | Odebrecht Finance, Ltd., 4.38%, 4/25/25(c) | 343,000 | ||||||
|
| |||||||
767,000 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.1%): |
| ||||||
489,000 | Intelsat Jackson Holdings SA, 7.50%, 4/1/21, Callable 4/1/15 @ 103.75 | 523,230 | ||||||
|
|
Continued
13
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Electric Utilities (0.0%): |
| ||||||
$ | 85,000 | Empresa Distribuidora Y Comercializadora Norte SA, 9.75%, 10/25/22, Callable 10/25/18 @ 104.88(c) | $ | 59,415 | ||||
|
| |||||||
| Government (0.0%): |
| ||||||
178,000 | Provincia de Buenos Aires, 10.88%, 1/26/21(c) | 161,980 | ||||||
|
| |||||||
| Industrial Conglomerates (0.1%): |
| ||||||
400,000 | Hutchison Whampoa International 11, Ltd., 3.50%, 1/13/17(c) | 414,424 | ||||||
|
| |||||||
| Internet & Catalog Retail (0.3%): |
| ||||||
470,000 | Alibaba Group Holding, Ltd., 3.13%, 11/28/21, Callable 9/28/21 @ 100(c) | 464,349 | ||||||
725,000 | Alibaba Group Holding, Ltd., 3.60%, 11/28/24, Callable 8/28/24 @ 100(c) | 719,086 | ||||||
|
| |||||||
1,183,435 | ||||||||
|
| |||||||
| Media (0.0%): |
| ||||||
200,000 | Unitymedia Hessen, 5.50%, 1/15/23, Callable 1/15/18 @ 103(c) | 209,000 | ||||||
|
| |||||||
| Oil Gas & Consumable Fuels (0.0%): |
| ||||||
229,000 | Petrobras International Finance Co., 5.38%, 1/27/21 | 212,185 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.3%): |
| ||||||
240,000 | Bumi Investment Pte, Ltd., 10.75%, 10/6/17, Callable 2/23/15 @ 105.38(c)(e) | 53,400 | ||||||
1,102,000 | Petrobras Global Finance BV, 2.37%, 1/15/19(d) | 977,562 | ||||||
533,000 | Petrobras Global Finance BV, 6.25%, 3/17/24^ | 507,171 | ||||||
469,000 | YPF SA, 8.88%, 12/19/18^(c) | 484,993 | ||||||
283,000 | YPF SA, 8.75%, 4/4/24(c) | 287,599 | ||||||
|
| |||||||
2,310,725 | ||||||||
|
| |||||||
| Paper & Forest Products (0.1%): |
| ||||||
425,000 | TFS Corp., Ltd., 11.00%, 7/15/18, Callable 7/15/15 @ 108(c) | 450,500 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.1%): |
| ||||||
516,000 | Trust F/1401, 5.25%, 12/15/24(c) | 531,532 | ||||||
|
| |||||||
| Real Estate Management & Development (0.0%): |
| ||||||
200,000 | Sun Hung Kai Properties, Ltd., Series E, 4.50%, 2/14/22(c) | 212,822 | ||||||
|
| |||||||
| Road & Rail (0.0%): |
| ||||||
495,000 | Inversiones Alsacia SA, 0.00%, 8/18/18(b)(j) | — | ||||||
388,779 | Inversiones Alsacia SA, 8.00%, 12/31/18, Callable 1/23/15 @ 100(c) | 283,809 | ||||||
173,000 | Viterra, Inc., 5.95%, 8/1/20(c) | 191,002 | ||||||
|
| |||||||
474,811 | ||||||||
|
| |||||||
| Sovereign Bonds (0.6%): |
| ||||||
243,000 | Federal Republic of Brazil, 4.88%, 1/22/21 | 258,188 | ||||||
1,583,590 | Republic of Argentina, Series X, 2.46%, 4/17/17(f) | 1,520,247 | ||||||
949,310 | Republic of Argentina, 0.93%, 5/7/24(f) | 925,577 | ||||||
101,000 | Republic of Colombia, 7.38%, 1/27/17 | 111,858 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 178,000 | Republic of Hungary, 4.75%, 2/3/15 | $ | 178,417 | ||||
534,000 | Republic of Hungary, 4.13%, 2/19/18 | 553,800 | ||||||
1,028,000 | Republic of Turkey, 6.75%, 4/3/18 | 1,143,650 | ||||||
|
| |||||||
4,691,737 | ||||||||
|
| |||||||
| Tobacco (0.0%): |
| ||||||
375,000 | B.A.T. International Finance plc, 2.13%, 6/7/17(c) | 378,485 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
200,000 | Colombia Telecomm SA ESP, 5.38%, 9/27/22, Callable 9/27/17 @ 102.69(c) | 195,000 | ||||||
572,000 | Telecom Italia SpA, 5.30%, 5/30/24(c) | 579,150 | ||||||
|
| |||||||
774,150 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $21,711,149) | 21,413,554 | ||||||
|
| |||||||
| U.S. Government Agency Mortgage (0.1%): |
| ||||||
768,000 | Federal National Mortgage Association, 3.00%, 1/25/45 | 776,880 | ||||||
|
| |||||||
| Total U.S. Government Agency Mortgage | 776,880 | ||||||
|
| |||||||
| U.S. Treasury Obligations (24.3%): |
| ||||||
| U.S. Treasury Bills (18.5%) |
| ||||||
4,230,000 | 0.01%, 1/2/15(f) | 4,230,000 | ||||||
15,000,000 | 0.02%, 1/8/15(f) | 14,999,969 | ||||||
10,507,000 | 0.02%, 1/15/15(f) | 10,506,905 | ||||||
2,000,000 | 0.02%, 1/22/15(f) | 1,999,966 | ||||||
1,521,000 | 0.00%, 2/5/15(f) | 1,520,964 | ||||||
12,500,000 | 0.04%, 2/12/15(f) | 12,499,750 | ||||||
34,484,000 | 0.02%, 2/19/15(f) | 34,483,206 | ||||||
12,000,000 | 0.03%, 2/26/15(f) | 11,999,628 | ||||||
13,000,000 | 0.03%, 3/5/15(f) | 12,999,610 | ||||||
8,000,000 | 0.02%, 3/12/15(f) | 7,999,616 | ||||||
2,715,000 | 0.02%, 3/19/15(f) | 2,714,886 | ||||||
4,000,000 | 0.04%, 3/26/15(f) | 3,999,840 | ||||||
3,000,000 | 0.04%, 4/2/15(f) | 2,999,700 | ||||||
5,000,000 | 0.03%, 4/9/15(f) | 4,999,630 | ||||||
7,250,000 | 0.06%, 5/14/15(f) | 7,248,601 | ||||||
8,500,000 | 0.06%, 5/21/15(f) | 8,498,113 | ||||||
|
| |||||||
143,700,384 | ||||||||
|
| |||||||
| U.S. Treasury Notes (5.8%) |
| ||||||
3,956,800 | 0.25%, 3/31/15 | 3,958,193 | ||||||
1,940,000 | 0.25%, 7/31/15(i) | 1,941,364 | ||||||
4,037,300 | 1.25%, 10/31/18 | 4,011,122 | ||||||
5,250,000 | 1.63%, 7/31/19 | 5,258,201 | ||||||
4,376,800 | 1.62%, 8/31/19 | 4,381,588 | ||||||
5,647,500 | 2.25%, 4/30/21 | 5,763,539 | ||||||
7,527,500 | 2.00%, 5/31/21 | 7,565,138 | ||||||
6,847,700 | 2.38%, 8/15/24 | 6,974,492 | ||||||
5,459,700 | 2.25%, 11/15/24 | 5,496,384 | ||||||
|
| |||||||
45,350,021 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $188,683,250) | 189,050,405 | ||||||
|
| |||||||
| Purchased Options (1.3%): |
| ||||||
| Total Purchased Options (Cost $8,743,630) | 10,448,717 | ||||||
|
|
Continued
14
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Exchange Traded Funds (0.7%): |
| ||||||
$ | 4,500 | ETFS Platinum Trus(i) | $ | 526,725 | ||||
5,330 | ETFS Physical Palladium Share(i) | 413,022 | ||||||
112,395 | iShares Gold Trus(i) | 1,285,799 | ||||||
28,438 | SPDR Gold Trus(i) | 3,229,988 | ||||||
|
| |||||||
| Total Exchange Traded Fund (Cost $6,514,097) | 5,455,534 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (5.9%): |
| ||||||
45,894,168 | Allianz Variable Insurance Products Securities Lending Collateral Trust(k) | 45,894,168 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 45,894,168 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.1%): |
| ||||||
729,538 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(f) | 729,538 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company | 729,538 | ||||||
|
| |||||||
| Total Investment Securities | 829,333,588 | ||||||
| Net other assets (liabilities) — (6.6)% | (51,590,206 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 777,743,382 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American | Depositary Receipt |
GDR—Global | Depositary Receipt |
JPY—Notional | amount stated is in Japanese Yen. |
MTN—Medium | Term Note |
SPDR— | Standard & Poor’s Depository Receipts |
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $44,326,021. |
+ | The principal amount is disclosed in local currency and the fair value is disclosed in U.S. Dollars. |
(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, 2014, these securities represent 1.11% 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, 2014. The total of all such securities represent 1.11% of the net assets of the fund. |
(c) | 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 liquid based on procedures approved by the Board of Trustees. |
(d) | Variable rate security. The rate presented represents the rate in effect at December 31, 2014. The date presented represents the final maturity date. |
(e) | Defaulted bond. |
(f) | The rate represents the effective yield at December 31, 2014. |
(g) | Principal amount is stated in 1,000 Brazilian Real Units. |
(h) | Principal amount is stated in 100 Mexican Peso Units. |
(i) | All or a portion of these securities are held by the AZL Cayman Global Allocation Fund, Ltd. (the “Subsidiary”). |
(j) | Escrow security due to bankruptcy. |
(k) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(l) | 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 investments as of December 31, 2014:
Country | Percentage | |||
Argentina | 0.5 | % | ||
Australia | 2.1 | % | ||
Belgium | — | %NM | ||
Bermuda | 0.1 | % | ||
Brazil | 1.3 | % | ||
Canada | 1.3 | % | ||
Cayman Islands | 0.5 | % | ||
Chile | 0.1 | % | ||
China | 0.1 | % | ||
Colombia | — | %NM | ||
Cyprus | — | %NM | ||
Denmark | — | %NM | ||
European Community | 0.1 | % | ||
France | 2.6 | % | ||
Germany | 1.3 | % | ||
Guernsey | 0.1 | % | ||
Hong Kong | 0.9 | % | ||
Hungary | 0.1 | % | ||
India | 0.5 | % | ||
Indonesia | 0.4 | % | ||
Ireland (Republic of) | 0.4 | % | ||
Israel | 0.2 | % | ||
Italy | 0.7 | % | ||
Japan | 8.9 | % | ||
Jersey | 0.2 | % | ||
Kazakhstan | — | %NM | ||
Korea, Republic Of | 0.3 | % | ||
Luxembourg | 0.2 | % | ||
Malaysia | 0.2 | % | ||
Mexico | 3.3 | % | ||
Netherlands | 1.9 | % | ||
New Zealand | 0.2 | % | ||
Norway | 0.4 | % | ||
Poland | 0.7 | % | ||
Portugal | — | %NM | ||
Republic of Korea (South) | 0.2 | % | ||
Russian Federation | — | %NM | ||
Singapore | 1.0 | % | ||
South Africa | — | %NM | ||
Spain | 0.3 | % | ||
Sweden | 0.4 | % | ||
Switzerland | 1.8 | % | ||
Taiwan | 0.2 | % | ||
Thailand | 0.1 | % | ||
Turkey | 0.1 | % | ||
United Arab Emirates | 0.1 | % | ||
United Kingdom | 5.1 | % | ||
United States | 61.1 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Continued
15
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Securities Sold Short (-0.2%):
Security Description | Proceeds Received | Fair Value | Unrealized Appreciation/ Deprecation | |||||||||
Avery Dennison Corp. | $ | (383,876 | ) | $ | (394,392 | ) | $ | (10,516 | ) | |||
Campbell Soup Co. | (152,034 | ) | (154,440 | ) | (2,406 | ) | ||||||
Mead Johnson Nutrition Co. | (462,551 | ) | (468,315 | ) | (5,764 | ) | ||||||
|
|
|
|
|
| |||||||
$ | (998,461 | ) | $ | (1,017,147 | ) | $ | (18,686 | ) | ||||
|
|
|
|
|
|
Futures Contracts
Cash of $849,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures (U.S. Dollar) | Short | 3/20/15 | (135 | ) | $ | (13,853,700 | ) | $ | (124,563 | ) | ||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Long | 3/23/15 | 14 | 530,689 | 512 | |||||||||||||||
Tokyo Price Index March Futures (Japanese Yen) | Long | 3/12/15 | 27 | 3,173,221 | (68,119 | ) | ||||||||||||||
FTSE 100 Index March Futures (British Pounds) | Long | 3/23/15 | 2 | 203,294 | 6,988 | |||||||||||||||
ASX SPI 200 Index March Futures (Australian Dollar) | Long | 3/20/15 | 1 | 109,840 | 4,550 | |||||||||||||||
S&P/Toronto Stock Exchange 60 Index March Futures (Canadian Dollar) | Long | 3/19/15 | 1 | 146,638 | 8,333 | |||||||||||||||
German Stock Index March Futures (Euro) | Long | 3/20/15 | 3 | 893,229 | 26,461 | |||||||||||||||
CAC 40 10 Euro January Futures (Euro) | Long | 1/16/15 | 3 | 155,243 | 1,564 | |||||||||||||||
NASDAQ 100 E-Mini March Futures (U.S. Dollar) | Long | 3/20/15 | 2 | 169,310 | 5,967 | |||||||||||||||
NIKKEI 225 Index March Futures (Japanese Yen) | Long | 3/12/15 | 60 | 4,336,172 | 23,759 | |||||||||||||||
|
| |||||||||||||||||||
Total | $ | (114,548 | ) | |||||||||||||||||
|
|
Option Contracts
Over-the-counter options purchased as of December 31, 2014 were as follows:
Description | Counterparty | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||||
Abbvie, Inc. | Barclays Bank | Call | USD | 55.00 | 06/19/15 | 36,800 | $ | 417,774 | ||||||||||||||||||
Aetna, Inc. | Barclays Bank | Call | USD | 80.00 | 06/19/15 | 30,000 | 332,207 | |||||||||||||||||||
Anadarko Petroleum Corp. | Barclays Bank | Call | USD | 85.00 | 02/20/15 | 30,275 | 109,172 | |||||||||||||||||||
Anadarko Petroleum Corp. | Citigroup Global Markets | Call | USD | 85.00 | 02/20/15 | 8,325 | 30,020 | |||||||||||||||||||
Anadarko Petroleum Corp. | Deutsche Bank | Call | USD | 95.00 | 02/20/15 | 30,975 | 33,339 | |||||||||||||||||||
Apache Corp. | Citigroup Global Markets | Call | USD | 110.00 | 01/16/15 | 10,800 | 2 | |||||||||||||||||||
Bank of America Corp. | Goldman Sachs | Call | USD | 20.00 | 01/15/16 | 58,700 | 48,155 | |||||||||||||||||||
Citigroup, Inc. | Goldman Sachs | Call | USD | 70.00 | 01/15/16 | 40,400 | 27,931 | |||||||||||||||||||
Coach, Inc. | Bank of America | Call | USD | 60.00 | 02/20/15 | 13,282 | 10 | |||||||||||||||||||
Coca-Cola Co. (The) | Deutsche Bank | Call | USD | 45.00 | 01/16/15 | 59,130 | 3,222 | |||||||||||||||||||
Delphi Automotive plc | Morgan Stanley | Call | USD | 72.50 | 01/16/15 | 1,900 | 2,776 | |||||||||||||||||||
Devon Energy Corp. | Citigroup Global Markets | Call | USD | 75.00 | 04/17/15 | 14,652 | 12,939 | |||||||||||||||||||
Devon Energy Corp. | Barclays Bank | Call | USD | 75.00 | 04/17/15 | 14,653 | 12,940 | |||||||||||||||||||
Electronic Arts, Inc. | Citigroup Global Markets | Call | USD | 37.00 | 01/16/15 | 17,554 | 176,701 | |||||||||||||||||||
EQT Corp. | Deutsche Bank | Call | USD | 100.00 | 03/20/15 | 11,550 | 3,254 | |||||||||||||||||||
EQT Corp. | Citigroup Global Markets | Call | USD | 100.00 | 03/20/15 | 9,167 | 2,583 | |||||||||||||||||||
Euro Stoxx 50 Index | Goldman Sachs | Call | EUR | 3500.00 | 03/16/18 | 424 | 103,849 | |||||||||||||||||||
Euro Stoxx 50 Index | Morgan Stanley | Call | EUR | 3450.00 | 03/17/17 | 495 | 100,792 | |||||||||||||||||||
Euro Stoxx 50 Index | UBS Warburg | Call | EUR | 3600.00 | 06/15/18 | 206 | 43,865 | |||||||||||||||||||
Euro Stoxx 50 Index | Citigroup Global Markets | Call | EUR | 3500.00 | 06/16/17 | 462 | 86,873 | |||||||||||||||||||
Euro Stoxx 50 Index | Bank of America | Call | EUR | 3600.00 | 09/15/17 | 477 | 86,019 | |||||||||||||||||||
Euro Stoxx 50 Index | Deutsche Bank | Call | EUR | 3426.55 | 09/21/18 | 225 | 63,264 | |||||||||||||||||||
Euro Stoxx 50 Index | Barclays Bank | Call | EUR | 3500.00 | 12/15/17 | 488 | 110,818 | |||||||||||||||||||
Euro Stoxx 50 Index | Goldman Sachs | Call | EUR | 3293.01 | 12/16/16 | 1,161 | 277,013 |
Continued
16
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Description | Counterparty | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||||
Euro Stoxx 50 Index | JPMorgan Chase | Call | EUR | 3325.00 | 12/18/15 | 515 | $ | 77,844 | ||||||||||||||||||
Gilead Sciences, Inc. | Citigroup Global Markets | Call | USD | 95.00 | 01/15/16 | 7,700 | 106,567 | |||||||||||||||||||
GLDR Gold Shares(a) | JPMorgan Chase | Call | USD | 120.00 | 09/18/15 | 16,400 | 67,622 | |||||||||||||||||||
Goldman Sachs Group, Inc. | Deutsche Bank | Call | USD | 220.00 | 01/15/16 | 5,500 | 34,506 | |||||||||||||||||||
Google, Inc. | Deutsche Bank | Call | USD | 600.00 | 01/16/15 | 1,437 | 77 | |||||||||||||||||||
Hewlett-Packard Co. | UBS Warburg | Call | USD | 41.00 | 02/20/15 | 3,567 | 3,181 | |||||||||||||||||||
Humana, Inc. | Goldman Sachs | Call | USD | 125.00 | 06/19/15 | 18,048 | 405,881 | |||||||||||||||||||
International Business Machines Corp. | Deutsche Bank | Call | USD | 182.00 | 01/15/16 | 7,500 | 35,670 | |||||||||||||||||||
International Business Machines Corp. | Barclays Bank | Call | USD | 182.00 | 01/15/16 | 7,500 | 35,670 | |||||||||||||||||||
Johnson & Johnson | Deutsche Bank | Call | USD | 110.00 | 07/17/15 | 76,700 | 169,717 | |||||||||||||||||||
JPMorgan Chase & Co. | Goldman Sachs | Call | USD | 75.00 | 01/15/16 | 36,700 | 32,204 | |||||||||||||||||||
Marathon Petroleum Corp. | Citigroup Global Markets | Call | USD | 90.00 | 04/17/15 | 7,233 | 45,999 | |||||||||||||||||||
Marathon Petroleum Corp. | Deutsche Bank | Call | USD | 90.00 | 04/17/15 | 14,559 | 92,590 | |||||||||||||||||||
Marathon Petroleum Corp. | Goldman Sachs | Call | USD | 100.00 | 04/17/15 | 18,250 | 43,351 | |||||||||||||||||||
MetLife, Inc. | Goldman Sachs | Call | USD | 57.50 | 01/15/16 | 60,533 | 158,701 | |||||||||||||||||||
MS Japan Custom Index | Morgan Stanley | Call | JPY | 131.28 | 12/11/15 | 1,352,770 | 122,256 | |||||||||||||||||||
MS Japan Custom Index | Morgan Stanley | Call | JPY | 139.99 | 12/11/15 | 349,532 | 31,932 | |||||||||||||||||||
Mylan, Inc. | Bank of America | Call | USD | 47.00 | 01/16/15 | 18,200 | 172,130 | |||||||||||||||||||
Mylan, Inc. | Deutsche Bank | Call | USD | 47.00 | 01/16/15 | 14,158 | 133,902 | |||||||||||||||||||
Mylan, Inc. | Goldman Sachs | Call | USD | 55.00 | 01/16/15 | 18,200 | 40,066 | |||||||||||||||||||
Nikkei 225 | Citigroup Global Markets | Call | JPY | 18000.00 | 03/13/15 | 30,220 | 126,442 | |||||||||||||||||||
Oracle Corp. | Deutsche Bank | Call | USD | 42.00 | 01/16/15 | 9,647 | 29,192 | |||||||||||||||||||
Pfizer, Inc. | Citigroup Global Markets | Call | USD | 33.00 | 01/15/16 | 151,300 | 181,085 | |||||||||||||||||||
Phillips 66 | Citigroup Global Markets | Call | USD | 75.00 | 05/15/15 | 18,767 | 66,066 | |||||||||||||||||||
Phillips 66 | UBS Warburg | Call | USD | 75.00 | 05/15/15 | 7,507 | 26,427 | |||||||||||||||||||
Phillips 66 | Deutsche Bank | Call | USD | 75.00 | 05/15/15 | 3,737 | 13,155 | |||||||||||||||||||
Prudential Financial, Inc. | Citigroup Global Markets | Call | USD | 90.00 | 01/15/16 | 46,970 | 384,302 | |||||||||||||||||||
Siemens AG | Deutsche Bank | Call | USD | 150.00 | 01/16/15 | 18,114 | — | |||||||||||||||||||
SPDR Gold Shares(a) | JPMorgan Chase | Call | USD | 133.44 | 03/20/15 | 9,230 | 1,699 | |||||||||||||||||||
Stoxx Europe 600 Index | Credit Suisse First Boston | Call | EUR | 355.61 | 03/17/17 | 4,134 | 103,266 | |||||||||||||||||||
Stoxx Europe 600 Index | JPMorgan Chase | Call | EUR | 372.06 | 09/15/17 | 3,057 | 62,851 | |||||||||||||||||||
Stoxx Europe 600 Index | JPMorgan Chase | Call | EUR | 348.12 | 09/16/16 | 4,376 | 107,779 | |||||||||||||||||||
Stoxx Europe 600 Index | Credit Suisse First Boston | Call | EUR | 347.97 | 12/16/16 | 3,668 | 97,033 | |||||||||||||||||||
Taiwan Stock Exchange | Citibank | Call | TWD | 9000.77 | 09/21/16 | 6,700 | 123,543 | |||||||||||||||||||
Topix Index | Morgan Stanley | Call | JPY | 1350.00 | 03/13/15 | 212,691 | 161,491 | |||||||||||||||||||
Topix Index | Goldman Sachs | Call | JPY | 1288.50 | 06/12/15 | 261,314 | 327,687 | |||||||||||||||||||
Topix Index | Morgan Stanley | Call | JPY | 1346.15 | 06/12/15 | 139,308 | 129,496 | |||||||||||||||||||
Topix Index | Bank of America | Call | JPY | 1344.04 | 09/11/15 | 146,667 | 155,217 | |||||||||||||||||||
Topix Index | BNP Paribas | Call | JPY | 1357.29 | 09/11/15 | 117,540 | 116,689 | |||||||||||||||||||
Topix Index | Morgan Stanley | Call | JPY | 1660.07 | 09/11/15 | 117,540 | 22,449 | |||||||||||||||||||
Topix Index | Bank of America | Call | JPY | 1314.84 | 12/11/15 | 247,207 | 314,033 | |||||||||||||||||||
Topix Index | Citigroup Global Markets | Call | JPY | 1325.00 | 12/11/15 | 258,942 | 315,292 | |||||||||||||||||||
Visa, Inc. | Deutsche Bank | Call | USD | 220.00 | 01/16/15 | 4,800 | 203,453 | |||||||||||||||||||
Wells Fargo & Co. | Goldman Sachs | Call | USD | 60.00 | 01/15/16 | 18,400 | 29,195 | |||||||||||||||||||
Chicago Board Options Exchange Index | Morgan Stanley | Put | USD | 16.00 | 02/18/15 | 7,941 | 10,633 | |||||||||||||||||||
CONSOL Energy, Inc. | UBS Warburg | Put | USD | 38.00 | 04/17/15 | 18,350 | 94,313 | |||||||||||||||||||
IBOV BC | Morgan Stanley | Put | USD | 55443.54 | 02/18/15 | 27 | 144,480 | |||||||||||||||||||
Russell 2000 Index | Deutsche Bank | Put | USD | 1150.00 | 01/16/15 | 3,579 | 16,819 | |||||||||||||||||||
Russell 2000 Index | Bank of America | Put | USD | 1165.00 | 02/20/15 | 3,447 | 70,794 | |||||||||||||||||||
S&P 500 Index | Morgan Stanley | Put | USD | 2050.00 | 02/20/15 | 1,706 | 74,469 | |||||||||||||||||||
Topix Index | Morgan Stanley | Put | JPY | 1161.53 | 09/11/15 | 117,540 | 23,917 | |||||||||||||||||||
Transocean, Ltd. | Deutsche Bank | Put | USD | 36.00 | 01/16/15 | 11,744 | 208,308 | |||||||||||||||||||
Transocean, Ltd. | Goldman Sachs | Put | USD | 37.00 | 01/16/15 | 35,100 | 657,648 | |||||||||||||||||||
Transocean, Ltd. | Bank of America | Put | USD | 38.00 | 01/16/15 | 21,131 | 417,034 | |||||||||||||||||||
Transocean, Ltd. | Citigroup Global Markets | Put | USD | 26.00 | 05/15/15 | 59,581 | 523,816 | |||||||||||||||||||
|
| |||||||||||||||||||||||||
Total | $ | 9,235,457 | ||||||||||||||||||||||||
|
|
Continued
17
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Over-the-counter options written as of December 31, 2014 were as follows:
Description | Counterparty | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||||
Abbvie, Inc. | Barclays Bank | Call | USD | 65.00 | 06/19/15 | 36,800 | $ | (171,105 | ) | |||||||||||||||||
Aetna, Inc. | Barclays Bank | Call | USD | 90.00 | 06/19/15 | 30,000 | (145,196 | ) | ||||||||||||||||||
Anadarko Petroleum Corp. | Barclays Bank | Call | USD | 95.00 | 02/20/15 | 30,975 | (33,339 | ) | ||||||||||||||||||
Cimarex Energy Co. | Citigroup Global Markets | Call | USD | 130.00 | 03/20/15 | 3,655 | (6,037 | ) | ||||||||||||||||||
Delphi Automotive plc | Morgan Stanley | Call | USD | 82.50 | 01/16/15 | 1,900 | (36 | ) | ||||||||||||||||||
Diamondback Energy, Inc. | Goldman Sachs | Call | USD | 65.00 | 01/16/15 | 7,375 | (6,790 | ) | ||||||||||||||||||
eBay, Inc. | Citigroup Global Markets | Call | USD | 57.50 | 01/16/15 | 7,014 | (2,763 | ) | ||||||||||||||||||
EOG Resources, Inc. | Goldman Sachs | Call | USD | 100.00 | 04/17/15 | 3,769 | (14,392 | ) | ||||||||||||||||||
Gilead Sciences, Inc. | Citigroup Global Markets | Call | USD | 110.00 | 01/15/16 | 7,700 | (63,848 | ) | ||||||||||||||||||
GLDR Gold Shares(a) | JPMorgan Chase | Call | USD | 140.00 | 09/18/15 | 16,400 | (15,739 | ) | ||||||||||||||||||
Humana, Inc. | Goldman Sachs | Call | USD | 155.00 | 06/19/15 | 18,048 | (101,666 | ) | ||||||||||||||||||
Johnson & Johnson | Deutsche Bank | Call | USD | 117.50 | 07/17/15 | 76,700 | (60,597 | ) | ||||||||||||||||||
Lululemon Athletica, Inc. | Citigroup Global Markets | Call | USD | 52.50 | 03/20/15 | 8,056 | (46,436 | ) | ||||||||||||||||||
Marathon Petroleum Corp. | Deutsche Bank | Call | USD | 100.00 | 04/17/15 | 18,250 | (43,351 | ) | ||||||||||||||||||
MetLife, Inc. | Goldman Sachs | Call | USD | 67.50 | 01/15/16 | 60,533 | (37,523 | ) | ||||||||||||||||||
Mylan, Inc. | Bank of America | Call | USD | 55.00 | 01/16/15 | 18,200 | (40,066 | ) | ||||||||||||||||||
Nikkei 225 | Citigroup Global Markets | Call | JPY | 19500.00 | 03/13/15 | 30,220 | (34,637 | ) | ||||||||||||||||||
Pfizer, Inc. | Citigroup Global Markets | Call | USD | 37.50 | 01/15/16 | 151,300 | (55,547 | ) | ||||||||||||||||||
Prudential Financial, Inc. | Citigroup Global Markets | Call | USD | 105.00 | 01/15/16 | 46,970 | (136,578 | ) | ||||||||||||||||||
Russell 2000 Index | Deutsche Bank | Call | USD | 1230.00 | 01/16/15 | 3,579 | (19,828 | ) | ||||||||||||||||||
Russell 2000 Index | Bank of America | Call | USD | 1255.00 | 02/20/15 | 3,447 | (31,666 | ) | ||||||||||||||||||
S&P 500 Index | Morgan Stanley | Call | USD | 2155.00 | 02/20/15 | 1,706 | (10,623 | ) | ||||||||||||||||||
Tesoro Corp. | Citigroup Global Markets | Call | USD | 75.00 | 02/20/15 | 10,686 | (47,239 | ) | ||||||||||||||||||
Topix Index | Goldman Sachs | Call | JPY | 1490.61 | 06/12/15 | 261,314 | (95,683 | ) | ||||||||||||||||||
Topix Index | BNP Paribas | Call | JPY | 1660.07 | 09/11/15 | 117,540 | (22,449 | ) | ||||||||||||||||||
Topix Index | Citigroup Global Markets | Call | JPY | 1600.00 | 12/11/15 | 258,942 | (93,363 | ) | ||||||||||||||||||
Topix Index | Bank of America | Call | JPY | 1627.28 | 12/11/15 | 247,207 | (78,521 | ) | ||||||||||||||||||
UnitedHealth Group, Inc. | Barclays Bank | Call | USD | 87.50 | 03/20/15 | 7,375 | (104,233 | ) | ||||||||||||||||||
Coach, Inc. | Bank of America | Put | USD | 42.50 | 02/20/15 | 13,282 | (70,641 | ) | ||||||||||||||||||
CONSOL Energy, Inc. | Barclays Bank | Put | USD | 38.00 | 04/17/15 | 18,350 | (94,313 | ) | ||||||||||||||||||
CONSOL Energy, Inc. | UBS Warburg | Put | USD | 39.00 | 04/17/15 | 29,252 | (172,381 | ) | ||||||||||||||||||
Delphi Automotive plc | Morgan Stanley | Put | USD | 65.00 | 01/16/15 | 1,900 | (402 | ) | ||||||||||||||||||
Diamondback Energy, Inc. | Goldman Sachs | Put | USD | 65.00 | 01/16/15 | 7,375 | (45,799 | ) | ||||||||||||||||||
EOG Resources, Inc. | Barclays Bank | Put | USD | 100.00 | 04/17/15 | 7,310 | (86,607 | ) | ||||||||||||||||||
Euro Stoxx 50 Index | Deutsche Bank | Put | EUR | 2586.07 | 09/21/18 | 225 | (88,336 | ) | ||||||||||||||||||
General Electric Co. | Deutsche Bank | Put | USD | 23.00 | 06/19/15 | 73,725 | (42,265 | ) | ||||||||||||||||||
Gilead Sciences, Inc. | Citigroup Global Markets | Put | USD | 85.00 | 01/15/16 | 7,700 | (67,707 | ) | ||||||||||||||||||
IBOV BC | Morgan Stanley | Put | USD | 50617.48 | 02/18/15 | 27 | (54,821 | ) | ||||||||||||||||||
MS Japan Custom Index | Morgan Stanley | Put | JPY | 128.68 | 12/11/15 | 1,352,770 | (107,784 | ) | ||||||||||||||||||
MS Japan Custom Index | Morgan Stanley | Put | JPY | 137.22 | 12/11/15 | 349,532 | (30,981 | ) | ||||||||||||||||||
Nikkei 225 | Citigroup Global Markets | Put | JPY | 15500.00 | 03/13/15 | 30,220 | (47,690 | ) | ||||||||||||||||||
Russell 2000 Index | Deutsche Bank | Put | USD | 1050.00 | 01/16/15 | 3,579 | (2,040 | ) | ||||||||||||||||||
Russell 2000 Index | Bank of America | Put | USD | 1085.00 | 02/20/15 | 3,447 | (27,065 | ) | ||||||||||||||||||
S&P 500 Index | Morgan Stanley | Put | USD | 1935.00 | 02/20/15 | 1,706 | (32,850 | ) | ||||||||||||||||||
Taiwan Stock Exchange | Citibank | Put | TWD | 8100.70 | 09/21/16 | 6,700 | (85,059 | ) | ||||||||||||||||||
Tokyo Stock Exchange Price Index | Bank of America | Put | JPY | 1300.00 | 09/11/15 | 146,667 | (69,610 | ) | ||||||||||||||||||
Topix Index | Goldman Sachs | Put | JPY | 1136.91 | 06/12/15 | 261,314 | (29,181 | ) | ||||||||||||||||||
Topix Index | Morgan Stanley | Put | JPY | 1187.78 | 06/12/15 | 139,308 | (22,538 | ) | ||||||||||||||||||
Topix Index | BNP Paribas | Put | JPY | 1161.53 | 09/11/15 | 117,540 | (23,917 | ) | ||||||||||||||||||
Topix Index | Morgan Stanley | Put | JPY | 1275.00 | 09/11/15 | 121,984 | (50,113 | ) | ||||||||||||||||||
Topix Index | Citigroup Global Markets | Put | JPY | 1170.00 | 12/11/15 | 258,942 | (75,548 | ) | ||||||||||||||||||
Topix Index | Bank of America | Put | JPY | 1171.64 | 12/11/15 | 247,207 | (72,814 | ) | ||||||||||||||||||
Transocean, Ltd. | Citigroup Global Markets | Put | USD | 32.00 | 01/16/15 | 29,406 | (404,204 | ) | ||||||||||||||||||
Transocean, Ltd. | Goldman Sachs | Put | USD | 32.00 | 01/16/15 | 14,699 | (202,046 | ) | ||||||||||||||||||
Transocean, Ltd. | Goldman Sachs | Put | USD | 38.00 | 01/16/15 | 21,131 | (417,034 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||
Total | $ | (3,942,997 | ) | |||||||||||||||||||||||
|
|
Continued
18
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Exchange-traded options purchased as of December 31, 2014 were as follows:
Description | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
Coca-Cola Co. (The) | Call | USD | 45.00 | 01/16/15 | 167 | $ | 919 | |||||||||||||
SPDR Gold Shares(a) | Call | USD | 135.00 | 06/19/15 | 146 | 10,074 | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 10,993 | ||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2014 were as follows:
Description | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
Coca-Cola Co. (The) | Call | USD | 44.00 | 02/20/15 | 85 | $ | (3,613 | ) | ||||||||||||
Coca-Cola Co. (The) | Call | USD | 45.00 | 05/15/15 | 88 | (6,160 | ) | |||||||||||||
Procter & Gamble Co. (The) | Call | USD | 85.00 | 01/16/15 | 91 | (56,875 | ) | |||||||||||||
GLDR Gold Shares(a) | Put | USD | 108.00 | 09/18/15 | 164 | (71,750 | ) | |||||||||||||
Ocean RIG UDW, Inc. | Put | USD | 15.00 | 03/20/15 | 91 | (54,145 | ) | |||||||||||||
|
| |||||||||||||||||||
Total | $ | (192,543 | ) | |||||||||||||||||
|
|
Over-the-counter interest rate swaptions purchased as of December 31, 2014 were as follows:
Description | Counterparty | Put/Call | Exercise | Expiration Date | Notional Amount | Fair Value | ||||||||||||||||||
10-Year Interest Rate, Pay 6-Month USD LIBOR | Deutsche Bank | Call | USD | 2.25 | 02/17/15 | 1,394 | $ | 388,096 | ||||||||||||||||
10-Year Interest Rate, Pay 6-Month USD LIBOR | Bank of America | Call | USD | 2.30 | 02/17/15 | 759 | 61,175 | |||||||||||||||||
5-Year Interest Rate, Pay 6-Month USD LIBOR | Deutsche Bank | Call | USD | 1.65 | 03/09/15 | 4,590 | 106,596 | |||||||||||||||||
5-Year Interest Rate, Pay 6-Month USD LIBOR | Goldman Sachs | Call | USD | 1.73 | 03/19/15 | 230,256 | 84,974 | |||||||||||||||||
5-Year Interest Rate, Pay 6-Month USD LIBOR | Goldman Sachs | Call | USD | 1.75 | 03/19/15 | 1,528 | 63,234 | |||||||||||||||||
5-Year Interest Rate, Pay 6-Month USD LIBOR | Deutsche Bank | Call | USD | 1.67 | 03/31/15 | 3,900 | 122,985 | |||||||||||||||||
10-Year Interest Rate, Pay 6-Month JPY LIBOR | Goldman Sachs | Put | JPY | 1.35 | 01/25/16 | 30,000 | 6,297 | |||||||||||||||||
10-Year Interest Rate, Pay 6-Month JPY LIBOR | Goldman Sachs | Put | JPY | 1.35 | 01/25/16 | 13,882 | 2,914 | |||||||||||||||||
10-Year Interest Rate, Pay 6-Month JPY LIBOR | Deutsche Bank | Put | JPY | 1.25 | 07/29/16 | 1,937,701 | 9,024 | |||||||||||||||||
5-Year Interest Rate, Pay 6-Month JPY LIBOR | Deutsche Bank | Put | JPY | 1.07 | 04/04/18 | 1,006,980 | 5,028 | |||||||||||||||||
|
| |||||||||||||||||||||||
Total | $ | 850,323 | ||||||||||||||||||||||
|
|
Over-the-counter interest rate swaptions written as of December 31, 2014 were as follows:
Description | Counterparty | Put/Call | Exercise | Expiration Date | Notional Amount | Fair Value | ||||||||||||||||||
10-Year Interest Rate, Pay 6-Month USD LIBOR | Bank of America | Call | USD | 2.05 | 02/17/15 | 759 | $ | (13,870 | ) | |||||||||||||||
5-Year Interest Rate, Pay 6-Month USD LIBOR | Deutsche Bank | Call | USD | 1.47 | 03/31/15 | 2,341 | (25,857 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total | $ | (39,727 | ) | |||||||||||||||||||||
|
|
Purchased Currency Options
Exchange-traded currency options purchased as of December 31, 2014 were as follows:
Description | Counterparty | Strike Price | Expiration Date | Notional | Fair Value | |||||||||||||
European Euro Call Currency Option (USD/EUR) | Morgan Stanley | 1.20 | 02/19/15 | 37,819 | $ | 38,328 | ||||||||||||
European Euro Call Currency Option (USD/EUR) | JPMorgan Chase | 1.20 | 03/05/15 | 43,114 | 50,807 | |||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | JPMorgan Chase | 125.00 | 04/30/15 | 132,366 | 145,783 | |||||||||||||
European Euro Put Currency Option (USD/EUR) | Credit Suisse First Boston | 1.27 | 02/19/15 | 45,109 | 5,637 | |||||||||||||
European Euro Put Currency Option (USD/EUR) | Credit Suisse First Boston | 1.24 | 02/19/15 | 23,300 | 13,060 | |||||||||||||
European Euro Put Currency Option (USD/EUR) | Deutsche Bank | 1.24 | 03/03/15 | 113,371 | 63,045 | |||||||||||||
European Euro Put Currency Option (USD/EUR) | Deutsche Bank | 1.24 | 03/26/15 | 38,600 | 35,284 | |||||||||||||
|
| |||||||||||||||||
Total | $ | 351,944 | ||||||||||||||||
|
|
Continued
19
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Short Contracts: | ||||||||||||||||||||
Australian Dollar | Morgan Stanley | 1/16/15 | 2,168,000 | $ | 1,918,008 | $ | 1,767,362 | $ | 150,646 | |||||||||||
Australian Dollar | Deutsche Bank | 1/23/15 | 2,140,754 | 1,858,175 | 1,744,218 | 113,957 | ||||||||||||||
Australian Dollar | Morgan Stanley | 1/23/15 | 940,000 | 781,065 | 765,882 | 15,183 | ||||||||||||||
Australian Dollar | Deutsche Bank | 2/6/15 | 2,127,401 | 1,823,821 | 1,731,577 | 92,244 | ||||||||||||||
Brazilian Real | Morgan Stanley | 1/16/15 | 4,683,262 | 1,815,218 | 1,754,726 | 60,492 | ||||||||||||||
Brazilian Real | BNP Paribas | 2/6/15 | 5,042,887 | 1,908,811 | 1,878,896 | 29,915 | ||||||||||||||
Brazilian Real | Deutsche Bank | 2/13/15 | 1,430,620 | 522,696 | 532,097 | (9,401 | ) | |||||||||||||
British Pound | HSBC Bank | 1/15/15 | 444,000 | 696,299 | 691,847 | 4,452 | ||||||||||||||
Chilean Peso | Morgan Stanley | 8/24/15 | 458,662,190 | 763,000 | 741,282 | 21,718 | ||||||||||||||
Chilean Peso | UBS Warburg | 8/26/15 | 460,660,910 | 766,000 | 744,394 | 21,606 | ||||||||||||||
Chilean Peso | JPMorgan Chase | 9/15/15 | 468,006,000 | 770,000 | 755,061 | 14,939 | ||||||||||||||
Chinese Renminbi | Deutsche Bank | 1/30/15 | 10,246,207 | 1,672,000 | 1,645,448 | 26,552 | ||||||||||||||
Chinese Renminbi | JPMorgan Chase | 1/30/15 | 4,087,158 | 668,000 | 656,360 | 11,640 | ||||||||||||||
Chinese Renminbi | JPMorgan Chase | 6/9/15 | 7,350,064 | 1,169,000 | 1,167,610 | 1,390 | ||||||||||||||
European Euro | BNP Paribas | 1/8/15 | 1,285,000 | 1,636,583 | 1,554,856 | 81,727 | ||||||||||||||
European Euro | Deutsche Bank | 1/8/15 | 1,339,800 | 1,705,532 | 1,621,164 | 84,368 | ||||||||||||||
European Euro | BNP Paribas | 1/9/15 | 1,502,000 | 1,901,998 | 1,817,445 | 84,553 | ||||||||||||||
European Euro | Deutsche Bank | 1/9/15 | 2,363,500 | 2,993,621 | 2,859,874 | 133,747 | ||||||||||||||
European Euro | BNP Paribas | 1/15/15 | 1,498,000 | 1,910,054 | 1,812,714 | 97,340 | ||||||||||||||
European Euro | UBS Warburg | 1/15/15 | 1,495,000 | 1,906,230 | 1,809,084 | 97,146 | ||||||||||||||
European Euro | JPMorgan Chase | 1/22/15 | 528,100 | 656,201 | 639,094 | 17,107 | ||||||||||||||
European Euro | Morgan Stanley | 1/23/15 | 1,274,400 | 1,586,628 | 1,542,263 | 44,365 | ||||||||||||||
European Euro | Morgan Stanley | 1/30/15 | 1,321,600 | 1,626,863 | 1,599,497 | 27,366 | ||||||||||||||
European Euro | UBS Warburg | 1/30/15 | 1,284,600 | 1,581,342 | 1,554,716 | 26,626 | ||||||||||||||
European Euro | Deutsche Bank | 2/5/15 | 824,800 | 1,024,443 | 998,272 | 26,171 | ||||||||||||||
European Euro | Morgan Stanley | 2/5/15 | 1,337,600 | 1,660,844 | 1,618,924 | 41,920 | ||||||||||||||
European Euro | Credit Suisse First Boston | 2/12/15 | 2,153,000 | 2,693,446 | 2,605,936 | 87,510 | ||||||||||||||
European Euro | Deutsche Bank | 2/12/15 | 2,201,100 | 2,752,509 | 2,664,155 | 88,354 | ||||||||||||||
European Euro | UBS Warburg | 2/12/15 | 1,334,300 | 1,667,368 | 1,615,003 | 52,365 | ||||||||||||||
European Euro | Credit Suisse First Boston | 2/13/15 | 1,317,000 | 1,633,896 | 1,594,073 | 39,823 | ||||||||||||||
European Euro | JPMorgan Chase | 2/13/15 | 1,398,300 | 1,736,164 | 1,692,477 | 43,687 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/8/15 | 324,640,128 | 2,909,626 | 2,710,951 | 198,675 | ||||||||||||||
Japanese Yen | UBS Warburg | 1/8/15 | 174,802,944 | 1,536,000 | 1,459,715 | 76,285 | ||||||||||||||
Japanese Yen | BNP Paribas | 1/9/15 | 205,051,417 | 1,859,436 | 1,712,324 | 147,112 | ||||||||||||||
Japanese Yen | UBS Warburg | 1/9/15 | 157,227,800 | 1,372,282 | 1,312,964 | 59,318 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/15/15 | 175,494,774 | 1,533,000 | 1,465,585 | 67,415 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/16/15 | 274,985,900 | 2,546,166 | 2,296,472 | 249,694 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/22/15 | 154,375,325 | 1,335,265 | 1,289,294 | 45,971 | ||||||||||||||
Japanese Yen | Morgan Stanley | 1/22/15 | 153,515,670 | 1,326,453 | 1,282,115 | 44,338 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/23/15 | 159,548,882 | 1,383,268 | 1,332,514 | 50,754 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 1/23/15 | 153,837,060 | 1,334,233 | 1,284,810 | 49,423 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/29/15 | 82,763,425 | 709,599 | 691,258 | 18,341 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 1/29/15 | 228,299,966 | 1,942,000 | 1,906,809 | 35,191 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/30/15 | 83,827,000 | 700,438 | 700,147 | 291 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 1/30/15 | 314,738,755 | 2,630,078 | 2,628,788 | 1,290 | ||||||||||||||
Japanese Yen | Morgan Stanley | 2/4/15 | 160,000,000 | 1,341,393 | 1,336,421 | 4,972 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 2/5/15 | 140,851,348 | 1,186,616 | 1,176,489 | 10,127 | ||||||||||||||
Japanese Yen | UBS Warburg | 2/5/15 | 213,404,400 | 1,796,137 | 1,782,503 | 13,634 | ||||||||||||||
Japanese Yen | BNP Paribas | 2/6/15 | 173,572,532 | 1,464,142 | 1,449,811 | 14,331 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/6/15 | 241,106,288 | 2,050,223 | 2,013,904 | 36,319 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 2/12/15 | 149,504,150 | 1,275,633 | 1,248,835 | 26,798 | ||||||||||||||
Japanese Yen | HSBC Bank | 2/12/15 | 163,526,060 | 1,395,155 | 1,365,962 | 29,193 |
Continued
20
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Japanese Yen | HSBC Bank | 3/10/15 | 80,000,000 | $ | 750,089 | $ | 668,419 | $ | 81,670 | |||||||||||
Japanese Yen | Morgan Stanley | 3/23/15 | 160,000,000 | 1,341,910 | 1,337,043 | 4,867 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 5/7/15 | 377,979,550 | 3,118,000 | 3,160,316 | (42,316 | ) | |||||||||||||
Korean Won | Credit Suisse First Boston | 5/5/15 | 1,738,304,400 | 1,554,000 | 1,577,918 | (23,918 | ) | |||||||||||||
Korean Won | Deutsche Bank | 5/5/15 | 2,106,297,120 | 1,916,000 | 1,911,958 | 4,042 | ||||||||||||||
Mexican Peso | BNP Paribas | 1/22/15 | 22,070,700 | 1,661,387 | 1,494,263 | 167,124 | ||||||||||||||
Mexican Peso | Credit Suisse First Boston | 2/5/15 | 7,424,540 | 555,127 | 502,236 | 52,891 | ||||||||||||||
Mexican Peso | UBS Warburg | 2/6/15 | 15,393,725 | 1,125,305 | 1,041,250 | 84,055 | ||||||||||||||
Mexican Peso | Deutsche Bank | 2/19/15 | 11,758,180 | 879,675 | 794,700 | 84,975 | ||||||||||||||
Mexican Peso | HSBC Bank | 3/5/15 | 19,837,760 | 1,485,807 | 1,339,608 | 146,199 | ||||||||||||||
Mexican Peso | HSBC Bank | 3/19/15 | 14,897,770 | 1,107,624 | 1,005,133 | 102,491 | ||||||||||||||
Mexican Peso | JPMorgan Chase | 3/19/15 | 7,604,350 | 555,691 | 513,056 | 42,635 | ||||||||||||||
Mexican Peso | Credit Suisse First Boston | 4/1/15 | 15,069,840 | 1,100,261 | 1,015,912 | 84,349 | ||||||||||||||
Mexican Peso | UBS Warburg | 4/16/15 | 11,586,000 | 776,490 | 780,336 | (3,846 | ) | |||||||||||||
Mexican Peso | JPMorgan Chase | 4/30/15 | 15,228,490 | 1,115,804 | 1,024,784 | 91,020 | ||||||||||||||
Mexican Peso | BNP Paribas | 5/28/15 | 23,591,400 | 1,608,304 | 1,584,829 | 23,475 | ||||||||||||||
Mexican Peso | JPMorgan Chase | 6/11/15 | 23,173,000 | 1,548,459 | 1,555,382 | (6,923 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 103,632,891 | $ | 99,931,121 | $ | 3,701,770 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Long Contracts: | ||||||||||||||||||||
British Pound | HSBC Bank | 1/15/15 | 444,000 | $ | 715,746 | $ | 691,847 | $ | (23,899 | ) | ||||||||||
British Pound | Brown Brothers Harriman | 1/26/15 | 139,400 | 217,984 | 217,195 | (789 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 9/15/15 | 468,006,000 | 749,197 | 755,061 | 5,864 | ||||||||||||||
Chinese Renminbi | Deutsche Bank | 1/30/15 | 6,183,207 | 998,580 | 992,967 | (5,613 | ) | |||||||||||||
Chinese Renminbi | Deutsche Bank | 1/30/15 | 4,063,000 | 651,539 | 652,481 | 942 | ||||||||||||||
Chinese Renminbi | JPMorgan Chase | 1/30/15 | 4,087,158 | 653,579 | 656,361 | 2,782 | ||||||||||||||
European Euro | BNP Paribas | 1/8/15 | 1,285,000 | 1,580,479 | 1,554,856 | (25,623 | ) | |||||||||||||
European Euro | Brown Brothers Harriman | 1/26/15 | 689,900 | 856,473 | 834,934 | (21,539 | ) | |||||||||||||
Indian Rupee | Credit Suisse First Boston | 6/26/15 | 47,611,585 | 746,000 | 728,272 | (17,728 | ) | |||||||||||||
Indian Rupee | Credit Suisse First Boston | 6/26/15 | 42,139,033 | 661,627 | 644,563 | (17,064 | ) | |||||||||||||
Indian Rupee | Credit Suisse First Boston | 8/5/15 | 48,714,560 | 752,000 | 740,159 | (11,841 | ) | |||||||||||||
Japanese Yen | BNP Paribas | 1/9/15 | 205,051,417 | 1,709,895 | 1,712,325 | 2,430 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/15/15 | 175,494,774 | 1,470,397 | 1,465,585 | (4,812 | ) | |||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/16/15 | 274,985,900 | 2,270,969 | 2,296,472 | 25,503 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/22/15 | 46,184,000 | 387,023 | 385,714 | (1,309 | ) | |||||||||||||
Japanese Yen | JPMorgan Chase | 1/29/15 | 228,299,966 | 1,921,393 | 1,906,809 | (14,584 | ) | |||||||||||||
Japanese Yen | Credit Suisse First Boston | 1/30/15 | 83,827,000 | 695,478 | 700,147 | 4,669 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 2/5/15 | 140,851,348 | 1,168,634 | 1,176,489 | 7,855 | ||||||||||||||
Japanese Yen | UBS Warburg | 2/5/15 | 213,404,400 | 1,781,577 | 1,782,503 | 926 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/6/15 | 241,106,288 | 1,992,853 | 2,013,904 | 21,051 | ||||||||||||||
Mexican Peso | UBS Warburg | 2/6/15 | 11,317,746 | 784,000 | 765,546 | (18,454 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 22,765,423 | $ | 22,674,190 | $ | (91,233 | ) | ||||||||||||||
|
|
|
|
|
|
At December 31, 2014, the Fund’s open forward cross currency contracts were as follows:
Purchase/Sale | Counterparty | Amount Purchased | Amount Sold | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
British Pound/European Euro | Deutsche Bank | 1,129,764 GBP | 1,421,400 EUR | $ | 1,777,029 | $ | 1,816,621 | $ | 39,592 | |||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 1,777,029 | $ | 1,816,621 | $ | 39,592 | |||||||||||||||
|
|
|
|
|
|
Continued
21
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Over-the-Counter Credit Default Swap Agreements—Buy Protection(b)
At December 31, 2014, the Fund’s open over-the-counter credit default swap agreements were as follows:
Underlying Instrument | Counterparty | Expiration Date | Implied Credit Spread at December 31, 2014 (%)(c) | Notional Amount ($)(d) | Fixed Rate (%) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||
Transocean, Inc. | JPMorgan Chase | 6/20/19 | 6.58 | 222,736 | 1.00 | 43,382 | 4,770 | 38,612 | ||||||||||||||||||||
Transocean, Inc. | JPMorgan Chase | 6/20/19 | 6.58 | 63,000 | 1.00 | 12,271 | 1,354 | 10,917 | ||||||||||||||||||||
Transocean, Inc. | Barclays Bank | 6/20/19 | 6.58 | 159,000 | 1.00 | 30,969 | 3,449 | 27,520 | ||||||||||||||||||||
Transocean, Inc. | Barclays Bank | 6/20/19 | 6.58 | 254,000 | 1.00 | 49,472 | 5,967 | 43,505 | ||||||||||||||||||||
Transocean, Inc. | Barclays Bank | 6/20/19 | 6.58 | 105,719 | 1.00 | 20,591 | 2,354 | 18,237 | ||||||||||||||||||||
Transocean, Inc. | Barclays Bank | 6/20/19 | 6.58 | 352,400 | 1.00 | 68,637 | 7,847 | 60,790 | ||||||||||||||||||||
Transocean, Inc. | Citibank | 6/20/19 | 6.58 | 246,673 | 1.00 | 48,045 | 4,897 | 43,148 | ||||||||||||||||||||
Transocean, Inc. | Barclays Bank | 6/20/19 | 6.75 | 125,000 | 1.00 | 24,346 | 3,870 | 20,476 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
297,713 | 34,508 | 263,205 | ||||||||||||||||||||||||||
|
|
|
|
|
|
Centrally Cleared Credit Default Swap Agreements—Buy Protection(b)
At December 31, 2014, the Fund’s open centrally cleared credit default swap agreements were as follows:
Underlying Instrument | Clearing Agent | Expiration Date | Implied Credit Spread at December 31, 2014 (%)(c) | Notional Amount ($)(d) | Fixed Rate (%) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||
CDX North America High Yield Index Swap Agreement with JPMorgan Chase Bank, N.A., Series 23 | JPMorgan Chase | 12/20/19 | 3.57 | 853,396 | 5.00 | (53,056 | ) | (64,138 | ) | 11,082 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
(53,056 | ) | (64,138 | ) | 11,082 | ||||||||||||||||||||||||
|
|
|
|
|
|
Centrally Cleared Interest Rate Swap Agreements
At December 31, 2014, the Fund’s open centrally cleared interest rate swap agreements were as follows:
Pay/Receive Floating Rate | Floating Rate Index | Fixed Rate (%) | Expiration Date | Clearing Agent | Notional Amount (Local) | Upfront Premiums Paid/ (Received) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.18 | 2/1/17 | JPMorgan Chase | 36,640,000 | USD | 424 | (160,060 | ) | (160,484 | ) | |||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.03 | 3/11/17 | JPMorgan Chase | 20,300,000 | USD | 274 | 7,709 | 7,435 | |||||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.02 | 3/11/17 | JPMorgan Chase | 38,680,000 | USD | 522 | 25,266 | 24,744 | |||||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 0.99 | 3/17/17 | JPMorgan Chase | 38,670,000 | USD | 526 | 53,144 | 52,618 | |||||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 2.19 | 2/1/20 | JPMorgan Chase | 14,660,000 | USD | 209 | 261,970 | 261,761 | |||||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 1.88 | 3/11/20 | JPMorgan Chase | 8,260,000 | USD | 126 | 3,102 | 2,976 | |||||||||||||||||||||||
Pay | 6-Month Australian Bank Bill Rate | 2.89 | 6/11/20 | JPMorgan Chase | 963,198 | AUD | 12 | 5,882 | 5,870 | |||||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 2.39 | 3/11/25 | JPMorgan Chase | 8,510,000 | USD | 152 | 34,640 | 34,488 | |||||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 2.29 | 3/17/25 | JPMorgan Chase | 8,510,000 | USD | 153 | (45,795 | ) | (45,948 | ) | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
185,858 | 183,460 | |||||||||||||||||||||||||||||||
|
|
|
|
Continued
22
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2014
Over-the-Counter Interest Rate Swap Agreements
At December 31, 2014, the Fund’s open over-the-counter interest rate swap agreements were as follows:
Pay/Receive Floating Rate | Floating Rate Index | Fixed Rate (%) | Expiration Date | Counterparty | Notional Amount (Local) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | |||||||||||||||||||||
Pay | 6-Month Poland Warsaw Interbank Offer Rate | 2.76 | 9/8/24 | Deutsche Bank | 2,385,000 | PLN | 34,663 | 34,663 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
34,663 | 34,663 | |||||||||||||||||||||||||||
|
|
|
|
Total Return Swaps at December 31, 2014
Counterparty | Receive/Pay Total Return | Expiration Date | Notional Amount (Local) | Unrealized Appreciation/ (Depreciation) | ||||||||||||
BNP Paribas SA | NIKKEI 225 Dividend Index E-Mini March Futures | 4/05/16 | 26,350,000 | JPY | $ | 23,213 | ||||||||||
BNP Paribas SA | NIKKEI 225 Dividend Index E-Mini March Futures | 4/05/16 | 26,800,000 | JPY | 19,456 | |||||||||||
BNP Paribas SA | NIKKEI 225 Dividend Index E-Mini March Futures | 4/05/17 | 27,850,000 | JPY | 32,315 | |||||||||||
BNP Paribas SA | NIKKEI 225 Dividend Index E-Mini March Futures | 4/05/17 | 25,515,000 | JPY | 25,326 | |||||||||||
Citibank NA | PT Siloam International Hospitals Tbk | 3/15/15 | 206,614 | USD | 40,826 | |||||||||||
|
| |||||||||||||||
$ | 141,136 | |||||||||||||||
|
|
(a) | All or portion of these securities are held by the AZL Cayman Global Allocation Fund, Ltd. ( the “Subsidiary”). |
(b) | When a credit event occurs as defined under the terms of the swap agreement, the Fund as a seller of credit protection will either (i) pay to the buyer of protection an amount equal to the par value of the defaulted reference entity and take delivery of the reference entity or (ii) pay a net amount equal to the par value of the defaulted reference entity less its recovery value. Alternatively, the Fund as a buyer of credit protection will either (i) receive from the seller of protection an amount equal to the par value of the defaulted reference entity and deliver the reference entity to the seller or (ii) receive a net amount of equal to the par value of the defaulted reference entity less its recovery value. |
(c) | Implied credit spread, represented in absolute terms, utilized in determining the market value of the credit default swap agreements as of period end will serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a referenced entity reflects the cost of buying/selling protection and may include upfront or daily payments required to be made to enter into the agreement. Generally, wider credit spreads represent a perceived deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the swap agreement. |
(d) | The notional amount represents the maximum potential amount the Fund could be required to make as a seller of credit protection if a credit event occurs, as defined under the terms of the swap agreement. |
See accompanying notes to the financial statements.
23
AZL BlackRock Global Allocation Fund
Consolidated Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 804,647,930 | |||
|
| ||||
Investment securities, at value* | $ | 829,333,588 | |||
Cash | 60,471 | ||||
Segregated cash for collateral | 1,558,225 | ||||
Deposits with brokers for securities sold short | 1,000,895 | ||||
Interest and dividends receivable | 1,731,561 | ||||
Foreign currency, at value (cost $66,894) | 66,847 | ||||
Unrealized appreciation on forward currency contracts | 3,899,788 | ||||
Unrealized appreciation on swap agreements | 439,004 | ||||
Receivable for capital shares issued | 142,649 | ||||
Proceeds paid on swap agreements | 34,508 | ||||
Receivable for investments sold | 841,932 | ||||
Reclaims receivable | 109,498 | ||||
Receivable for variation margin on swaps | 37,275 | ||||
Receivable for variation margin on futures contracts | 165,934 | ||||
Prepaid expenses | 18,226 | ||||
|
| ||||
Total Assets | 839,440,401 | ||||
|
| ||||
Liabilities: | |||||
Cash received as collateral for derivatives | 5,640,000 | ||||
Written options (Proceeds received $3,023,316) | 4,175,267 | ||||
Unrealized depreciation on forward currency contracts | 249,659 | ||||
Payable for collateral received on loaned securities | 45,894,168 | ||||
Payable for investments purchased | 3,896,295 | ||||
Securities sold short (Proceeds received $998,461) | 1,017,147 | ||||
Dividend payable on securities sold short | 1,747 | ||||
Payable for variation margin on futures contracts | 10,279 | ||||
Payable for variation margin on swaps | 4,730 | ||||
Manager fees payable | 494,919 | ||||
Administration fees payable | 41,168 | ||||
Distribution fees payable | 164,973 | ||||
Custodian fees payable | 82,261 | ||||
Administrative and compliance services fees payable | 2,279 | ||||
Trustee fees payable | 46 | ||||
Other accrued liabilities | 22,081 | ||||
|
| ||||
Total Liabilities | 61,697,019 | ||||
|
| ||||
Net Assets | $ | 777,743,382 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 702,832,557 | |||
Accumulated net investment income/(loss) | 13,218,014 | ||||
Accumulated net realized gains/(losses) from investment transactions | 34,060,252 | ||||
Net unrealized appreciation/(depreciation) on investments | 27,632,559 | ||||
|
| ||||
Net Assets | $ | 777,743,382 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 64,990,839 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.97 | |||
|
|
* | Includes securities on loan of $44,326,021. |
Consolidated Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 11,113,894 | |||
Interest | 5,604,047 | ||||
Income from securities lending | 320,340 | ||||
Foreign withholding tax | (633,322 | ) | |||
|
| ||||
Total Investment Income | 16,404,959 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 5,448,538 | ||||
Administration fees | 342,089 | ||||
Distribution fees | 1,816,179 | ||||
Custodian fees | 346,246 | ||||
Administrative and compliance services fees | 9,998 | ||||
Trustee fees | 38,616 | ||||
Professional fees | 46,958 | ||||
Shareholder reports | 9,126 | ||||
Dividends on securities sold short | 17,332 | ||||
Other expenses | 17,878 | ||||
|
| ||||
Total expenses before reductions | 8,092,960 | ||||
Less expenses paid indirectly | (2,782 | ) | |||
|
| ||||
Net expenses | 8,090,178 | ||||
|
| ||||
Net Investment Income/(Loss) | 8,314,781 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains (losses) on securities transactions | 35,405,316 | ||||
Net realized gains (losses) on futures contracts | (3,388,486 | ) | |||
Net realized gains (losses) on options contracts | (1,031,132 | ) | |||
Net realized gains (losses) on swap agreements | 40,619 | ||||
Net realized gains (losses) on forward currency contracts | 8,777,270 | ||||
Change in net unrealized appreciation/depreciation on investments | (34,975,914 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 4,827,673 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 13,142,454 | |||
|
|
See accompanying notes to the financial statements.
24
Consolidated Statements of Changes in Net Assets
AZL BlackRock Global Allocation Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 8,314,781 | $ | 3,428,686 | ||||||
Net realized gains/(losses) on investment transactions | 39,803,587 | 15,537,052 | ||||||||
Change in unrealized appreciation/depreciation on investments | (34,975,914 | ) | 43,890,720 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 13,142,454 | 62,856,458 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (4,674,726 | ) | (48,119 | ) | ||||||
From net realized gains | (15,060,387 | ) | (976,480 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (19,735,113 | ) | (1,024,599 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 125,520,079 | 276,183,753 | ||||||||
Proceeds from dividends reinvested | 19,735,113 | 1,024,599 | ||||||||
Value of shares redeemed | (7,607,923 | ) | (1,414,434 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 137,647,269 | 275,793,918 | ||||||||
|
|
|
| |||||||
Change in net assets | 131,054,610 | 337,625,777 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 646,688,772 | 309,062,995 | ||||||||
|
|
|
| |||||||
End of period | $ | 777,743,382 | $ | 646,688,772 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 13,218,014 | $ | 3,393,450 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 10,340,877 | 24,476,115 | ||||||||
Dividends reinvested | 1,622,953 | 89,877 | ||||||||
Shares redeemed | (629,704 | ) | (120,241 | ) | ||||||
|
|
|
| |||||||
Change in shares | 11,334,126 | 24,445,751 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
25
AZL BlackRock Global Allocation Fund
Consolidated Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2014 | Year Ended December 31, 2013 | January 10, 2012 to December 31, 2012 (a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 12.05 | $ | 10.58 | $ | 10.00 | |||||||||
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Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.07 | 0.13 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.12 | 1.42 | 0.58 | ||||||||||||
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| ||||||||||
Total from Investment Activities | 0.24 | 1.49 | 0.71 | ||||||||||||
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Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.08 | ) | — | (b) | (0.13 | ) | |||||||||
Realized Gains | (0.24 | ) | (0.02 | ) | — | ||||||||||
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| ||||||||||
Total Dividends | (0.32 | ) | (0.02 | ) | (0.13 | ) | |||||||||
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Net Asset Value, End of Period | $ | 11.97 | $ | 12.05 | $ | 10.58 | |||||||||
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Total Return(c) | 1.95 | % | 14.11 | % | 7.13 | %(d) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 777,743 | $ | 646,689 | $ | 309,063 | |||||||||
Net Investment Income/(Loss)(e) | 1.14 | % | 0.72 | % | 1.09 | % | |||||||||
Expenses Before Reductions(e)(f) | 1.11 | % | 1.14 | % | 1.15 | % | |||||||||
Expenses Net of Reductions(e) | 1.11 | % | 1.14 | % | 1.14 | % | |||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e)(g) | 1.11 | % | 1.14 | % | 1.15 | % | |||||||||
Portfolio Turnover Rate | 74 | % | 50 | % | 74 | %(d) |
(a) | Period from commencement of operations. |
(b) | Less than $0.005. |
(c) | The return includes reinvested dividends and fund level expenses, but excludes insurance contract charges. If these charges were included, the returns would have been lower. |
(d) | Not annualized. |
(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, which is used to pay certain Fund Expenses. See Note 2 in Notes to Consolidated Financial Statements. |
See accompanying notes to the financial statements.
26
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL BlackRock Global Allocation Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. Net realized gains and losses on 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 except in the case of foreign securities, in which case dividends are recorded as soon as such information becomes available.
Consolidation of Subsidiaries
The Fund’s primary vehicle for gaining exposure to the commodities markets is through investment in the AZL Cayman Global Allocation Fund, Ltd. (the “Subsidiary”), a wholly-owned and controlled subsidiary of the Fund formed in the Cayman Islands, which invests primarily in commodity-related instruments.
As of December 31, 2014, the Fund’s aggregate investment in the Subsidiary was $7,386,202, representing 0.95% of the Fund’s net assets. The Fund’s operations have been consolidated with the operations of the Subsidiary.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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.
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 is determined in accordance with federal income tax regulations, which may
27
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
differ from U.S. 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 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Consolidated Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $22.9 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $31,704 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Consolidated Statement of Operations.
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 Consolidated Statement of Operations. The Fund ceased participation in the program in June 2014.
Derivative Instruments
All open derivative positions at period end are reflected on the Fund’s Consolidated 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.
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies. 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $128.2 million as of December 31, 2014. The monthly average amount for these contracts was $99.9 million for the year ended December 31, 2014.
Futures Contracts
During the year ended December 31, 2014, the Fund used futures contracts to gain exposure to, or economically hedge against changes in the value of equity securities. 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 Consolidated Statement of Assets and Liabilities. The primary risks associated with
28
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
the use of futures contracts are the imperfect correlation between the change in fair 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 $23.6 million as of December 31, 2014. The monthly average notional amount for these contracts was $46.5 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Consolidated Statement of Operations.
Options Contracts
The Fund may purchase or write put and call options on a security or an index of securities. During the year ended December 31, 2014, the Fund purchased and wrote call and put options to increase or decrease its exposure to underlying instruments (including equity risk, interest rate risk and/or foreign currency exchange rate risk) and/or, in the case of options written, to generate gains from options premiums.
Purchased Options Contracts — The Fund pays a premium which is included in “Investments, at value” on the Consolidated Statement of Assets and Liabilities and marked to market to reflect the current value of the option. Premiums paid for purchasing put options that 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. The Fund bears the risk of loss of the premium and change in value should the counterparty not perform under the contract.
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 that expire are treated as realized gains. Premiums received from writing options that are either exercised or closed are offset against the proceeds received or the amount paid on the transaction to determine realized gains or losses. The risk associated with writing an option is that the Fund bears the market risk of an unfavorable change in the price of an underlying asset and is required to buy or sell an underlying asset under the contractual terms of the option at a price different from the current value.
Realized gains and losses, if any, are reported as “Net realized gains/(losses) on options contracts” on the Consolidated Statement of Operations.
The Fund had the following transactions in purchased call and put options during the year ended December 31, 2014:
Number of Contracts | Notional Amount(a) | Cost | |||||||||||||
Options outstanding at December 31, 2013 | 2,988,566 | 1,029,171 | $ | 4,217,942 | |||||||||||
Options purchased | 7,723,772 | 3,262,792 | 26,175,134 | ||||||||||||
Options exercised | (66,756 | ) | — | (149,158 | ) | ||||||||||
Options expired | (2,160,735 | ) | — | (4,306,881 | ) | ||||||||||
Options closed | (3,935,449 | ) | (627,294 | ) | (17,193,407 | ) | |||||||||
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Options outstanding at December 31, 2014 | 4,549,398 | 3,664,669 | $ | 8,743,630 | |||||||||||
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The Fund had the following transactions in written call and put options during the year ended December 31, 2014:
Number of Contracts | Notional | Premiums Received | |||||||||||||
Options outstanding at December 31, 2013 | (58,831 | ) | (5,014 | ) | $ | (1,043,812 | ) | ||||||||
Options written | (8,905,644 | ) | (358,936 | ) | (12,611,314 | ) | |||||||||
Options exercised | 51,431 | — | 279,644 | ||||||||||||
Options expired | 596,561 | — | 1,199,447 | ||||||||||||
Options closed | 3,565,005 | 360,850 | 9,152,719 | ||||||||||||
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Options outstanding at December 31, 2014 | (4,751,478 | ) | (3,100 | ) | $ | (3,023,316 | ) | ||||||||
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(a) | Includes swaptions and currency options, as applicable. |
Swap Agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Swap agreements are privately negotiated in the over-the-counter (“OTC”) market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). The Fund may enter into swap agreements to manage its exposure to market, interest rate and credit risk. The value of swap agreements are equal to the Fund’s obligations (or rights) under swap agreements, which will generally be equal to the net amounts to be paid or received under the agreements based upon the relative values of the positions held by each party to the agreements. In connection with these arrangements, securities may be indentified as collateral in accordance with the terms of the swap agreements to provide assets of value and recourse in the event of default or bankruptcy by the counterparty.
Swaps are marked to market daily using pricing sources approved by the Trustees and the change in value, if any, is recorded as unrealized gain or loss. For OTC swaps, payments received or made at the beginning of the measurement period are recorded as realized gain or loss upon termination or maturity of the OTC swap. A liquidation payment received or made at the termination of the OTC swap is recorded as a realized gain or loss. Net periodic payments received or paid by the Fund are included as part of realized gains (losses). Upon entering a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or assets determined to be liquid (the amount is subject to the clearing organization that clears the trade). Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable, as applicable, for variation margin on centrally cleared swaps.
Swap agreements involve, to varying degrees, elements of market risk and exposure to loss. The primary risks associated with the use of swap agreements are imperfect correlation between movements in the notional amount and the price of the underlying instruments and the inability of counterparties or clearing house to perform. The counterparty risk for centrally cleared swap agreements is generally lower than for OTC swap agreements because generally a clearing organization becomes substituted for
29
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
each counterparty to a centrally cleared swap agreement and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to a clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members will satisfy its obligations to the Fund.
The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement. The Fund bears the risk of loss of the amount expected to be received under a swap agreement (i.e., any unrealized appreciation) in the event of the default or bankruptcy of the swap agreement counterparty. The notional amount and related unrealized appreciation (depreciation) of each swap agreement at period end is disclosed in the swap tables in the Consolidated Schedule of Portfolio Investments. The Fund is party to International Swap Dealers Association, Inc. Master Agreements (“ISDA Master Agreements”) with select counterparties that govern transactions, such as OTC swap contracts, entered into by the Fund, through the Subsidiary, and those counterparties. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding OTC swap transactions under the applicable ISDA Master Agreement.
Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional amount and are subject to interest rate risk exposure. Interest rate swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that a Fund is contractually obligated to make. If the other party to an interest rate swap defaults, a Fund’s risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive. As of December 31, 2014, the Fund entered into OTC and centrally cleared interest rate swap agreements to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk). The gross notional amount of interest rate swaps outstanding was $175.7 million as of December 31, 2014. The monthly average gross notional amount for interest rate swaps was $57.8 million for the year ended December 31, 2014.
Total return swap agreements involve commitments to pay interest in exchange for a market-linked return, both based on notional amounts. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. The gross notional amount of total return swaps outstanding was $1.1 million as of December 31, 2014. The monthly average gross notional amount for total return swaps was $1.2 million to the year ended December 31, 2014.
Credit default swap agreements may have as reference obligations one or more securities that are not currently held by the Fund. The protection “buyer” in a credit default contract is generally obligated to pay the protection “seller” an upfront, periodic, or daily stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. A Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no credit event occurs, the Fund may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, a Fund generally receives an upfront payment or a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because, in addition to its total net assets, a Fund would be subject to investment exposure on the notional amount of the swap.
Credit default swap agreements involve greater risks than if a Fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A Fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront, periodic, or daily payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. The Fund’s obligations under a credit default swap agreement will be accrued daily (offset against any amounts owing to the Fund). In connection with credit default swaps in which a Fund is the buyer, the Fund will segregate or “earmark” cash or assets determined to be liquid, or enter into certain offsetting positions, with a value at least equal to the Fund’s exposure (any accrued but unpaid net amounts owed by the Fund to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a Fund is the seller, the Fund will segregate or “earmark” cash or assets determined to be liquid, or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the Fund). Such segregation or “earmarking” will ensure that the Fund has assets available to satisfy its obligations with respect to the transaction and will limit any potential leveraging of the Fund’s portfolio. Such segregation or “earmarking” will not limit the Fund’s exposure to loss. As of December 31, 2014, the Fund entered into OTC and centrally cleared credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk). The gross notional amount of OTC and centrally cleared credit default swaps outstanding was $2.4 million as of December 31, 2014. The monthly average gross notional amount for credit default swaps was $3.3 million for the year ended December 31, 2014.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Consolidated Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivatives | Liability Derivatives | |||||||||||
Primary Risk Exposure | Consolidated Statement of Assets and Liabilities Location | Total Fair Value | Consolidated Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Equity Risk Exposure | ||||||||||||
Futures Contracts | Receivable for variation margin on futures contracts* | $ | 78,134 | Payable for variation margin on futures contracts* | $ | 192,682 | ||||||
Option Contracts | Investment securities, at value (purchased options) | 10,448,717 | Written options | 4,175,267 | ||||||||
Total Return Swap Agreements | Unrealized appreciation on swap agreements | 141,136 | Unrealized depreciation on swap agreements | — |
30
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
Asset Derivatives | Liability Derivatives | |||||||||||
Primary Risk Exposure | Consolidated Statement of Assets and Liabilities Location | Total Fair Value | Consolidated Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Credit Risk Exposure | ||||||||||||
Credit Default Swap Agreements | Unrealized appreciation on swap agreements | 274,287 | Unrealized depreciation on swap agreements | — | ||||||||
Interest Rate Risk | ||||||||||||
Interest Rate Swap Agreements | Unrealized appreciation on swap agreements | 424,555 | Unrealized depreciation on swap agreements | 206,432 | ||||||||
Foreign Exchange Rate Risk Exposure | ||||||||||||
Forward Currency Contracts | Unrealized appreciation on forward currency contracts | 3,899,788 | Unrealized depreciation on forward currency contracts | 249,659 |
* | 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 Consolidated Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Consolidated Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Realized Gain (Loss) on Derivatives Recognized as a Result from Operations | Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result from Operations | ||||||||||||||||||||||||
Net Realized Gains (Losses) on Futures Contracts | Net Realized Gains (Losses) on Swap Agreements | Net Realized Gains (Losses) on Option Contracts | Net Realized Gains (Losses) on Forward Currency Contracts | Change in Net Unrealized Appreciation/Depreciation on Investments | |||||||||||||||||||||
Equity Risk Exposure | $ | (3,388,486 | ) | $ | — | $ | (80,344 | ) | $ | — | $ | 2,365,837 | |||||||||||||
Credit Risk Exposure | — | (19,079 | ) | — | — | 325,968 | |||||||||||||||||||
Interest Rate Risk Exposure | — | 59,698 | (702,135 | ) | — | 885,573 | |||||||||||||||||||
Foreign Exchange Rate Risk Exposure | — | — | (248,653 | ) | 8,777,270 | 2,534,352 |
Effective January 1, 2013, the Fund adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”) which amended Accounting Standards Codification Subtopic 210-20, Balance Sheet Offsetting. ASU 2013-01 clarified the scope of ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of that entity’s financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2013-01 clarifies the scope of ASU 2011-11 as applying to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset either in accordance with other requirements of U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement.
The Fund is generally subject to master netting agreements that allow for amounts owed between the Fund and the counterparty to be netted. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements do not apply to amounts owed to/from different counterparties. The amounts shown in the Consolidated Statement of Assets and Liabilities do not take into consideration the effects of legally enforceable master netting agreements. The table below presents the gross and net amounts of these assets and liabilities with any offsets to reflect the Fund’s ability to reflect the master netting agreements at December 31, 2014. For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to master netting arrangements in the Consolidated Statement of Assets and Liabilities. This table also summarizes the fair values of derivative instruments on the Fund’s Consolidated Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014.
As of December 31, 2014, the Fund’s derivative assets and liabilities by type are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Futures contracts | $ | 165,934 | $ | 10,279 | ||||||
Forward currency contracts | 3,899,788 | 249,659 | ||||||||
Option contracts* | 10,448,717 | 4,175,267 | ||||||||
Swap agreements | 476,279 | 4,730 | ||||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities | 14,990,718 | 4,439,935 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (214,202 | ) | (229,880 | ) | ||||||
|
|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 14,776,516 | $ | 4,210,055 | ||||||
|
|
|
|
* | Includes option contracts purchased at value as reported in the Consolidated Statement of Assets and Liabilities. |
31
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a MNA and net of the related collateral received by the Fund as of December 31, 2014:
Counterparty | Derivative Assets | Derivatives Available for Offset | Non-cash | Cash Collateral Received* | Net Amount of Derivative Assets | ||||||||||||||||||||
Bank of America | $ | 1,276,412 | $ | (404,253 | ) | $ | — | $ | (570,000 | ) | $ | 302,159 | |||||||||||||
Barclays Bank | 1,189,109 | (634,793 | ) | — | (550,000 | ) | 4,316 | ||||||||||||||||||
BNP Paribas | 865,006 | (71,989 | ) | — | — | 793,017 | |||||||||||||||||||
Citibank | 2,266,204 | (1,166,656 | ) | — | (1,099,548 | ) | — | ||||||||||||||||||
Credit Suisse First Boston | 1,092,937 | (75,363 | ) | — | — | 1,017,574 | |||||||||||||||||||
Deutsche Bank | 2,596,858 | (298,597 | ) | — | (1,400,000 | ) | 898,261 | ||||||||||||||||||
Goldman Sachs | 2,309,100 | (950,114 | ) | — | (1,300,000 | ) | 58,986 | ||||||||||||||||||
HSBC | 364,005 | (23,899 | ) | — | — | 340,106 | |||||||||||||||||||
JPMorgan Chase | 938,252 | (79,562 | ) | — | — | 858,690 | |||||||||||||||||||
Morgan Stanley | 1,278,886 | (310,148 | ) | — | (520,000 | ) | 448,738 | ||||||||||||||||||
UBS Warburg | 599,747 | (194,681 | ) | — | — | 405,066 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 14,776,516 | $ | (4,210,055 | ) | $ | — | $ | (5,439,548 | ) | $ | 5,126,913 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a MNA and net of the related collateral pledged by the Fund as of December 31, 2014:
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged* | Cash Collateral Pledged* | Net Amount of Derivative Liabilities | ||||||||||||||||||||
Bank of America | $ | 404,253 | $ | (404,253 | ) | $ | — | $ | — | $ | — | ||||||||||||||
Barclays Bank | 634,793 | (634,793 | ) | — | — | — | |||||||||||||||||||
BNP Paribas | 71,989 | (71,989 | ) | — | — | — | |||||||||||||||||||
Citibank | 1,166,656 | (1,166,656 | ) | — | — | — | |||||||||||||||||||
Credit Suisse First Boston | 75,363 | (75,363 | ) | — | — | — | |||||||||||||||||||
Deutsche Bank | 298,597 | (298,597 | ) | — | — | — | |||||||||||||||||||
Goldman Sachs | 950,114 | (950,114 | ) | — | — | — | |||||||||||||||||||
HSBC | 23,899 | (23,899 | ) | — | — | — | |||||||||||||||||||
JPMorgan Chase | 79,562 | (79,562 | ) | — | — | — | |||||||||||||||||||
Morgan Stanley | 310,148 | (310,148 | ) | — | — | — | |||||||||||||||||||
UBS Warburg | 194,681 | (194,681 | ) | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 4,210,055 | $ | (4,210,055 | ) | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received or pledged may be in excess of the amounts shown in the table. The table only reflects collateral amounts up to the amount of the financial instrument disclosed on the Consolidated Statement of Assets and Liabilities. |
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 with 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 Consolidated 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL BlackRock Global Allocation Fund | 0.75 | % | 1.19 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Consolidated Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
32
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
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 Consolidated Statement of Operations. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Consolidated 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 of the 1940 Act. 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 Consolidated 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, 2014, $8,906 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
Options are generally valued at the average of the closing bid and ask quotations on the principal exchange on which the option is traded, which are then typically categorized as Level 1 in the fair value hierarchy. Forward 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 and certain options, are generally valued by approved independent pricing services utilizing techniques which take into account factors such as yields, 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.
33
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Aerospace & Defense | $ | 4,371,725 | $ | 4,323,565 | $ | — | $ | 8,695,290 | ||||||||||||
Air Freight & Logistics | 3,438,286 | 400,592 | — | 3,838,878 | ||||||||||||||||
Airlines | 1,938,874 | 1,592,243 | — | 3,531,117 | ||||||||||||||||
Auto Components | 2,146,531 | 7,567,447 | — | 9,713,978 | ||||||||||||||||
Automobiles | 2,015,357 | 12,152,113 | — | 14,167,470 | ||||||||||||||||
Banks | 18,664,696 | 14,667,429 | — | 33,332,125 | ||||||||||||||||
Beverages | 3,323,779 | 2,464,857 | — | 5,788,636 | ||||||||||||||||
Biotechnology | 7,649,771 | 220,168 | — | 7,869,939 | ||||||||||||||||
Building Products | — | 1,582,421 | — | 1,582,421 | ||||||||||||||||
Capital Markets | 4,373,677 | 1,049,888 | — | 5,423,565 | ||||||||||||||||
Chemicals | 2,488,529 | 12,017,085 | — | 14,505,614 | ||||||||||||||||
Commercial Services & Supplies | 158,213 | 74,541 | — | 232,754 | ||||||||||||||||
Communications Equipment | 4,154,972 | 920,676 | — | 5,075,648 | ||||||||||||||||
Construction & Engineering | — | 1,499,525 | — | 1,499,525 | ||||||||||||||||
Distributors | — | 36,960 | — | 36,960 | ||||||||||||||||
Diversified Financial Services | — | 1,482,748 | — | 1,482,748 | ||||||||||||||||
Diversified Telecommunication Services | 4,067,830 | 4,612,647 | — | 8,680,477 | ||||||||||||||||
Electric Utilities | 2,443,283 | 1,156,763 | — | 3,600,046 | ||||||||||||||||
Electrical Equipment | 3,278,013 | 2,964,632 | — | 6,242,645 | ||||||||||||||||
Electronic Equipment, Instruments & Components | 455,483 | 4,285,792 | — | 4,741,275 | ||||||||||||||||
Energy Equipment & Services | 2,059,756 | 1,767,900 | 1,827,985 | 5,655,641 | ||||||||||||||||
Food & Staples Retailing | 866,765 | 134,416 | — | 1,001,181 | ||||||||||||||||
Food Products | 615,962 | 7,425,606 | — | 8,041,568 | ||||||||||||||||
Gas Utilities | — | 2,150,966 | — | 2,150,966 | ||||||||||||||||
Health Care Equipment & Supplies | 2,753,083 | 580,995 | — | 3,334,078 | ||||||||||||||||
Health Care Providers & Services | 11,272,548 | 6,611,778 | — | 17,884,326 | ||||||||||||||||
Household Durables | — | 1,421,499 | — | 1,421,499 | ||||||||||||||||
Independent Power and Renewable Electricity Producers | 4,164,537 | — | 264,963 | 4,429,500 | ||||||||||||||||
Industrial Conglomerates | 4,414,149 | 5,855,431 | — | 10,269,580 | ||||||||||||||||
Insurance | 8,572,988 | 6,299,486 | — | 14,872,474 | ||||||||||||||||
Internet Software & Services | 14,062,299 | 741,255 | 2,283,315 | 17,086,869 | ||||||||||||||||
IT Services | 7,631,817 | 2,156,994 | — | 9,788,811 | ||||||||||||||||
Leisure Products | — | 847,347 | — | 847,347 | ||||||||||||||||
Machinery | 3,979,957 | 4,714,522 | — | 8,694,479 | ||||||||||||||||
Media | 7,627,669 | 618,440 | — | 8,246,109 | ||||||||||||||||
Metals & Mining | 10,446,954 | 6,334,071 | — | 16,781,025 | ||||||||||||||||
Multiline Retail | 269,062 | 346,036 | — | 615,098 | ||||||||||||||||
Multi-Utilities | 2,777,506 | 2,174,640 | — | 4,952,146 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 24,124,310 | 10,466,820 | 1,661,801 | 36,252,931 | ||||||||||||||||
Personal Products | — | 1,756,087 | — | 1,756,087 | ||||||||||||||||
Pharmaceuticals | 19,513,851 | 12,977,628 | — | 32,491,479 | ||||||||||||||||
Professional Services | — | 444,913 | — | 444,913 | ||||||||||||||||
Real Estate Management & Development | 1,240,718 | 8,670,895 | — | 9,911,613 | ||||||||||||||||
Road & Rail | 5,249,180 | 2,340,681 | — | 7,589,861 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 314,119 | 2,649,038 | — | 2,963,157 | ||||||||||||||||
Software | 10,061,615 | 2,649,531 | — | 12,711,146 | ||||||||||||||||
Specialty Retail | 140,627 | 1,685,199 | — | 1,825,826 | ||||||||||||||||
Technology Hardware, Storage & Peripherals | 680,250 | 784,720 | — | 1,464,970 |
34
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Textiles, Apparel & Luxury Goods | $ | 2,413,832 | $ | 780,587 | $ | — | $ | 3,194,419 | ||||||||||||
Trading Companies & Distributors | 803,336 | 4,587,757 | — | 5,391,093 | ||||||||||||||||
Transportation Infrastructure | — | 67,975 | 365,178 | 433,153 | ||||||||||||||||
Wireless Telecommunication Services | 1,119,874 | 2,748,194 | — | 3,868,068 | ||||||||||||||||
All Other Common Stocks+ | 26,235,550 | — | — | 26,235,550 | ||||||||||||||||
Preferred Stocks | ||||||||||||||||||||
Auto Components | — | — | 2,354,112 | 2,354,112 | ||||||||||||||||
Automobiles | — | 1,839,026 | — | 1,839,026 | ||||||||||||||||
Banks | 4,723,647 | 1,121,751 | — | 5,845,398 | ||||||||||||||||
Food & Staples Retailing | — | 407,073 | — | 407,073 | ||||||||||||||||
Health Care Providers & Services | — | — | 372,878 | 372,878 | ||||||||||||||||
Real Estate Management & Development | — | 331,188 | — | 331,188 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | — | 1,794,913 | — | 1,794,913 | ||||||||||||||||
All Other Preferred Stocks+ | 2,004,732 | — | — | 2,004,732 | ||||||||||||||||
Warrants | 29,489 | 96,646 | — | 126,135 | ||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||||||
Banks | — | 330,480 | — | 330,480 | ||||||||||||||||
All Other Convertible Preferred Stocks+ | 2,037,804 | — | — | 2,037,804 | ||||||||||||||||
Right | 40,651 | — | — | 40,651 | ||||||||||||||||
Convertible Bonds+ | — | 16,188,666 | — | 16,188,666 | ||||||||||||||||
Floating Rate Loans | ||||||||||||||||||||
Media | — | — | 292,000 | 292,000 | ||||||||||||||||
All Other Floating Rate Loans+ | — | 8,236,151 | — | 8,236,151 | ||||||||||||||||
Corporate Bonds | ||||||||||||||||||||
Transportation Infrastructure | — | — | 518,360 | 518,360 | ||||||||||||||||
All Other Corporate Bonds+ | — | 18,616,289 | — | 18,616,289 | ||||||||||||||||
Foreign Bonds+ | — | 71,580,862 | — | 71,580,862 | ||||||||||||||||
Yankee Dollars+ | — | 21,413,554 | — | 21,413,554 | ||||||||||||||||
U.S. Government Agency Mortgage | — | 776,880 | — | 776,880 | ||||||||||||||||
U.S. Treasury Obligations | — | 189,050,405 | — | 189,050,405 | ||||||||||||||||
Purchased Options | 10,993 | 10,437,724 | — | 10,448,717 | ||||||||||||||||
Exchange Traded Funds | 5,455,534 | — | — | 5,455,534 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 45,894,168 | — | 45,894,168 | ||||||||||||||||
Unaffiliated Investment Company | 729,538 | — | — | 729,538 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 253,413,721 | 565,979,275 | 9,940,592 | 829,333,588 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Securities Sold Short | (1,017,147 | ) | — | — | (1,017,147 | ) | ||||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | (114,548 | ) | — | — | (114,548 | ) | ||||||||||||||
Written Options | (84,018 | ) | (1,066,048 | ) | — | (1,150,066 | ) | |||||||||||||
Written Swaptions | — | (1,885 | ) | — | (1,885 | ) | ||||||||||||||
Forward Currency Contracts | — | 3,650,129 | — | 3,650,129 | ||||||||||||||||
Credit Default Swaps | — | 274,287 | — | 274,287 | ||||||||||||||||
Interest Rate Swaps | — | 218,123 | — | 218,123 | ||||||||||||||||
Total Return Swaps | — | 141,136 | — | 141,136 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 252,198,008 | $ | 569,195,017 | $ | 9,940,592 | $ | 831,333,617 | ||||||||||||
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts, written options, forward currency contracts, and swaps. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
A reconciliation of assets in which Level 3 inputs are used in determining fair value, along with additional quantitative disclosures, are presented when there are significant Level 3 investments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 Global Allocation Fund | $ | 500,771,721 | $ | 446,878,694 |
For the year ended December 31, 2014, purchases and sales on long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL BlackRock Global Allocation Fund | $ | 60,327,084 | $ | 58,989,550 |
35
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
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 Trustees. Not all restricted securities are considered illiquid. The illiquid restricted securities held as of December 31, 2014 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Delta Topco, Ltd. | 5/2/12 | $ | 379,997 | $ | 615,711 | $ | 365,178 | 0.05 | % | ||||||||||||||||
Delta Topco, Ltd., 10.00%, 11/24/60 | 5/2/12 | 650,228 | 516,343 | 518,360 | 0.07 | % | |||||||||||||||||||
Dropbox, Inc. | 1/28/14 | 1,827,985 | 95,700 | 1,827,985 | 0.23 | % | |||||||||||||||||||
Invitae Corp., Series F, Preferred Shares | 10/8/14 | 372,878 | 186,439 | 372,878 | 0.05 | % | |||||||||||||||||||
Lookout, Inc. | 9/19/14 | 730,222 | 63,925 | 730,222 | 0.09 | % | |||||||||||||||||||
Mobileye N.V., Series F, Preferred Shares | 8/15/13 | 426,443 | 61,095 | 2,354,112 | 0.30 | % | |||||||||||||||||||
Palantir Technologies, Inc. | 3/27/14 | 712,042 | 116,157 | 931,579 | 0.12 | % | |||||||||||||||||||
REI Agro, Ltd., Registered Shares, 5.50%, 11/13/14 | 2/7/12 | 300,000 | 400,000 | 39,000 | 0.01 | % | |||||||||||||||||||
TerraForm Power, Inc. | 11/21/14 | 359,149 | 9,032 | 264,963 | 0.03 | % | |||||||||||||||||||
Uber Technologies, Inc. | 3/21/14 | 1,063,120 | 17,133 | 2,283,315 | 0.29 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Commodities-Related Investment Risk: Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities. The value of commodity-linked derivative investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or sectors affecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and international economic, political and regulatory developments. The U.S. Commodities Futures Trading Commission has proposed changes to certain of its rules governing investment in commodities by mutual funds, such as the Fund. In the event these changes are adopted, or if there are changes in the tax treatment of the Fund’s direct and indirect investments in commodities, the Fund may be unable to obtain exposure to commodity markets, or may be limited in the extent to which or manner in which it can obtain such exposure.
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
Security Quality Risk (also known as “High Yield Risk”): The Fund may invest in high yield, high risk debt securities and unrated securities of similar credit quality (commonly known as “junk bonds”) may be subject to greater levels of credit and liquidity risk than funds that do not invest in such securities. These securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, the Fund may lose the value of its entire investment.
8. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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.
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AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2014
Cost for federal income tax purposes at December 31, 2014 is $806,832,652. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 61,235,992 | ||
Unrealized depreciation | (38,735,056 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 22,500,936 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | 10,567,371 | $ | 9,167,742 | $ | 19,735,113 |
(a) | Total distributions paid may differ from the Consolidated 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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,024,599 | $ | — | $ | 1,024,599 |
(a) | Total distributions paid may differ from the Consolidated Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 22,960,149 | $ | 30,339,018 | $ | — | $ | 21,642,407 | $ | 74,941,574 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies. |
9. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2014, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
10. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying consolidated statement of assets and liabilities of AZL BlackRock Global Allocation Fund and Subsidiary (the “Fund”) of the Allianz Variable Insurance Products Trust, including the consolidated schedule of portfolio investments, as of December 31, 2014, the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the years in the two-year period then ended, and the consolidated financial highlights for each of the periods in the three-year period then ended. These consolidated financial statements and consolidated financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated 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 consolidated financial statements and consolidated 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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 consolidated financial statements and consolidated financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 2014, 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 three-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 23.84% 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, 2014, the Fund declared net long-term capital gain distributions of $9,167,742.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $5,892,645.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003 | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012 | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002 | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001 | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999 | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010 | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
45
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Dreyfus Research Growth Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 13
Other Federal Income Tax Information
Page 14
Other Information
Page 15
Approval of Investment Advisory and Subadvisory Agreements
Page 16
Information about the Board of Trustees and Officers
Page 19
This report is submitted for the general information of the shareholder 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.
AZL® Dreyfus Research Growth Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Dreyfus Research Growth Fund and The Dreyfus Corporation serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Dreyfus Research Growth Fund returned 8.45%. That compared to a 13.05% total return for its benchmark, the Russell 1000® Growth Index1.
Global equities produced mixed returns for 2014 as investors responded to a mix of encouraging U.S. data, increasing volatility and rising geopolitical risk. Equities gained modestly in the first quarter as policymakers around the world acted to support the global economy. U.S. stocks rallied on positive economic news and the European Central Bank (ECB) maintained its record-low interest rate. As volatility subsided and interest rates remained low in the second quarter, markets charged higher.
Global equity returns were subdued through the late summer as geopolitical risks rose and economic data disappointed. Despite these conditions, U.S. stocks posted third-quarter gains following better-than-expected growth indicators, including improvements in consumer spending, tourism and manufacturing. In Asia, the Bank of Japan provided assurances that it would take further action to bolster the economy. By the end of the period under review, U.S. stocks had tallied another solid quarterly gain after more encouraging growth data. Low inflation continued to pose challenges for ECB policymakers. Emerging-market equities struggled as stocks in Russia declined thanks to a falling ruble and weak oil prices, and Brazil grappled with a corruption scandal that threatened several key public-works projects.
The Fund underperformed its benchmark during the period. Investors moved away from momentum stocks, weakening relative returns in March and April. For the year, industrials, consumer staples and consumer discretionary were the worst relative performers by sector. Holdings in an
engineering construction company, which fell on concerns that low oil prices would negatively affect the company’s pending projects, detracted from relative performance. Additionally, shares in a specialty food retailer dropped after disappointing earnings, as did a position in a media streaming service, which experienced weak subscriber growth. The Fund sold its position in the latter two holdings.*
The Fund’s relative performance was bolstered by a lack of exposure to telecommunication services, and high-performing health care stocks. For example, shares in one pharmaceutical company rose with the continued success of one of its drugs, while shares of another appreciated as confidence in its cystic fibrosis program grew. Also, shares of a science tools company rose as the company announced strong quarterly reports, bolstered by ongoing demand for its next-generation sequencing tools.*
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, 2014. |
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
AZL® Dreyfus Research Growth Fund Review (unaudited)
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.
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 based investments can perform differently from the market as a whole and can be more volatile than other types of securities.
Investing in a single industry or sector, or concentrating investments in a limited number of industries or sectors, tends to increase the risk that economic, political, or regulatory developments affecting certain industries or sectors will have a large impact on the value of the portfolio.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Dreyfus Research Growth Fund | 8.45 | % | 20.20 | % | 15.63 | % | 7.64 | % | ||||||||
Russell 1000® Growth Index | 13.05 | % | 20.26 | % | 15.81 | % | 8.49 | % |
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® Dreyfus Research Growth Fund | 1.07 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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
AZL Dreyfus Research Growth Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Dreyfus Research Growth Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Dreyfus Research Growth Fund | $ | 1,000.00 | $ | 1,042.80 | $ | 5.15 | 1.00 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Dreyfus Research Growth Fund | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 31.7 | % | |||
Health Care | 16.4 | ||||
Consumer Discretionary | 16.0 | ||||
Consumer Staples | 10.7 | ||||
Industrials | 10.2 | ||||
Financials | 5.9 | ||||
Energy | 4.4 | ||||
Materials | 2.8 | ||||
|
| ||||
Total Common Stocks | 98.1 | ||||
Affiliated Investment Company | 2.0 | ||||
|
| ||||
Total Investment Securities | 100.1 | ||||
Net other assets (liabilities) | (0.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Dreyfus Research Growth Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.1%): |
| ||||||
| Aerospace & Defense (4.5%): |
| ||||||
67,874 | Honeywell International, Inc. | $ | 6,781,969 | |||||
20,502 | Precision Castparts Corp. | 4,938,522 | ||||||
33,052 | Raytheon Co. | 3,575,235 | ||||||
|
| |||||||
15,295,726 | ||||||||
|
| |||||||
| Air Freight & Logistics (1.1%): |
| ||||||
21,725 | FedEx Corp. | 3,772,764 | ||||||
|
| |||||||
| Auto Components (0.8%): |
| ||||||
37,519 | Delphi Automotive plc | 2,728,382 | ||||||
|
| |||||||
| Beverages (4.0%): |
| ||||||
96,223 | Coca-Cola Enterprises, Inc. | 4,254,981 | ||||||
98,147 | PepsiCo, Inc. | 9,280,781 | ||||||
|
| |||||||
13,535,762 | ||||||||
|
| |||||||
| Biotechnology (9.0%): |
| ||||||
23,895 | Alexion Pharmaceuticals, Inc.* | 4,421,292 | ||||||
14,398 | Biogen Idec, Inc.* | 4,887,401 | ||||||
55,206 | Celgene Corp.* | 6,175,342 | ||||||
76,375 | Gilead Sciences, Inc.* | 7,199,107 | ||||||
7,790 | Regeneron Pharmaceuticals, Inc.* | 3,195,848 | ||||||
38,892 | Vertex Pharmaceuticals, Inc.* | 4,620,370 | ||||||
|
| |||||||
30,499,360 | ||||||||
|
| |||||||
| Capital Markets (2.5%): |
| ||||||
32,222 | Ameriprise Financial, Inc. | 4,261,361 | ||||||
11,536 | BlackRock, Inc., Class A | 4,124,812 | ||||||
|
| |||||||
8,386,173 | ||||||||
|
| |||||||
| Chemicals (2.0%): |
| ||||||
71,956 | Dow Chemical Co. (The) | 3,281,913 | ||||||
28,704 | Praxair, Inc. | 3,718,890 | ||||||
|
| |||||||
7,000,803 | ||||||||
|
| |||||||
| Commercial Services & Supplies (1.2%): |
| ||||||
89,978 | Tyco International plc | 3,946,435 | ||||||
|
| |||||||
| Construction & Engineering (1.0%): |
| ||||||
54,777 | Fluor Corp. | 3,321,130 | ||||||
|
| |||||||
| Construction Materials (0.8%): |
| ||||||
24,559 | Martin Marietta Materials, Inc. | 2,709,349 | ||||||
|
| |||||||
| Consumer Finance (0.8%): |
| ||||||
42,954 | Discover Financial Services | 2,813,057 | ||||||
|
| |||||||
| Diversified Financial Services (1.3%): |
| ||||||
20,205 | IntercontinentalExchange Group, Inc. | 4,430,754 | ||||||
|
| |||||||
| Energy Equipment & Services (1.9%): |
| ||||||
77,835 | Schlumberger, Ltd. | 6,647,887 | ||||||
|
| |||||||
| Food & Staples Retailing (2.6%): |
| ||||||
30,702 | Costco Wholesale Corp. | 4,352,009 | ||||||
47,289 | CVS Caremark Corp. | 4,554,403 | ||||||
|
| |||||||
8,906,412 | ||||||||
|
| |||||||
| Food Products (1.1%): |
| ||||||
107,158 | Mondelez International, Inc., Class A | 3,892,514 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services (2.7%): |
| ||||||
25,629 | McKesson, Inc. | $ | 5,320,068 | |||||
39,322 | UnitedHealth Group, Inc. | 3,975,061 | ||||||
|
| |||||||
9,295,129 | ||||||||
|
| |||||||
| Household Products (1.6%): |
| ||||||
78,891 | Colgate-Palmolive Co. | 5,458,468 | ||||||
|
| |||||||
| Industrial Conglomerates (1.2%): |
| ||||||
49,485 | Danaher Corp. | 4,241,359 | ||||||
|
| |||||||
| Insurance (1.3%): |
| ||||||
78,725 | Marsh & McLennan Cos., Inc. | 4,506,219 | ||||||
|
| |||||||
| Internet & Catalog Retail (1.7%): |
| ||||||
5,042 | Priceline.com, Inc.* | 5,748,939 | ||||||
|
| |||||||
| Internet Software & Services (8.3%): |
| ||||||
45,081 | Akamai Technologies, Inc.* | 2,838,300 | ||||||
121,732 | Facebook, Inc., Class A* | 9,497,530 | ||||||
11,751 | Google, Inc., Class C* | 6,185,726 | ||||||
11,751 | Google, Inc., Class A* | 6,235,786 | ||||||
15,245 | LinkedIn Corp., Class A* | 3,501,929 | ||||||
|
| |||||||
28,259,271 | ||||||||
|
| |||||||
| IT Services (4.7%): |
| ||||||
35,861 | Accenture plc, Class A | 3,202,746 | ||||||
65,817 | Cognizant Technology Solutions Corp., Class A* | 3,465,923 | ||||||
35,184 | Visa, Inc., Class A | 9,225,245 | ||||||
|
| |||||||
15,893,914 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (1.0%): |
| ||||||
19,091 | Illumina, Inc.* | 3,523,817 | ||||||
|
| |||||||
| Machinery (1.2%): |
| ||||||
29,418 | Cummins, Inc. | 4,241,193 | ||||||
|
| |||||||
| Media (4.8%): |
| ||||||
38,661 | AMC Networks, Inc., Class A* | 2,465,412 | ||||||
120,154 | Comcast Corp., Class A | 6,970,133 | ||||||
163,952 | Interpublic Group of Cos., Inc. (The) | 3,405,283 | ||||||
47,415 | Viacom, Inc., Class B | 3,567,979 | ||||||
|
| |||||||
16,408,807 | ||||||||
|
| |||||||
| Multiline Retail (0.9%): |
| ||||||
42,487 | Dollar General Corp.* | 3,003,831 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (2.5%): |
| ||||||
53,122 | EOG Resources, Inc. | 4,890,943 | ||||||
82,216 | Kinder Morgan, Inc. | 3,478,559 | ||||||
|
| |||||||
8,369,502 | ||||||||
|
| |||||||
| Personal Products (1.4%): |
| ||||||
62,856 | Estee Lauder Co., Inc. (The), Class A | 4,789,627 | ||||||
|
| |||||||
| Pharmaceuticals (3.7%): |
| ||||||
21,679 | Actavis, Inc. plc* | 5,580,391 | ||||||
54,598 | Bristol-Myers Squibb Co. | 3,222,920 | ||||||
23,523 | Perrigo Co. plc | 3,932,105 | ||||||
|
| |||||||
12,735,416 | ||||||||
|
|
Continued
4
AZL Dreyfus Research Growth Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software (9.2%): |
| ||||||
48,795 | Adobe Systems, Inc.* | $ | 3,547,397 | |||||
88,832 | Fortinet, Inc.* | 2,723,589 | ||||||
59,667 | Intuit, Inc. | 5,500,701 | ||||||
206,196 | Microsoft Corp. | 9,577,804 | ||||||
113,512 | Oracle Corp. | 5,104,635 | ||||||
81,682 | Salesforce.com, Inc.* | 4,844,559 | ||||||
|
| |||||||
31,298,685 | ||||||||
|
| |||||||
| Specialty Retail (3.3%): |
| ||||||
75,980 | Home Depot, Inc. (The) | 7,975,620 | ||||||
26,514 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 3,389,550 | ||||||
|
| |||||||
11,365,170 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (9.5%): |
| ||||||
215,657 | Apple, Inc. | 23,804,220 | ||||||
145,342 | EMC Corp. | 4,322,471 | ||||||
43,752 | SanDisk Corp. | 4,286,821 | ||||||
|
| |||||||
32,413,512 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (4.5%): |
| ||||||
53,487 | Michael Kors Holdings, Ltd.* | 4,016,874 | ||||||
54,301 | Nike, Inc., Class B | 5,221,041 | ||||||
33,658 | PVH Corp. | 4,313,946 | ||||||
27,097 | Under Armour, Inc., Class A* | 1,839,886 | ||||||
|
| |||||||
15,391,747 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $237,466,638) | 334,831,114 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Affiliated Investment Company (2.0%): |
| ||||||
6,976,164 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(a) | $ | 6,976,164 | |||||
|
| |||||||
| Total Affiliated Investment Company (Cost $6,976,164) | 6,976,164 | ||||||
|
| |||||||
| Total Investment Securities (Cost $244,442,802)(b) — 100.1% | 341,807,278 | ||||||
| Net other assets (liabilities) — (0.1)% | (328,670 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 341,478,608 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
(a) | The rate represents the effective yield at December 31, 2014. |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
5
AZL Dreyfus Research Growth Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investments in non-affiliates, at cost | $ | 237,466,638 | |||
Investments in affiliates, at cost | 6,976,164 | ||||
|
| ||||
Total Investment securities, at cost | $ | 244,442,802 | |||
|
| ||||
Investments in non-affiliates, at value | $ | 334,831,114 | |||
Investments in affiliates, at value | 6,976,164 | ||||
|
| ||||
Total Investment securities, at value | 341,807,278 | ||||
Interest and dividends receivable | 241,601 | ||||
Prepaid expenses | 2,938 | ||||
|
| ||||
Total Assets | 342,051,817 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 267,417 | ||||
Manager fees payable | 205,008 | ||||
Administration fees payable | 7,890 | ||||
Distribution fees payable | 73,217 | ||||
Custodian fees payable | 2,710 | ||||
Administrative and compliance services fees payable | 930 | ||||
Trustee fees payable | 19 | ||||
Other accrued liabilities | 16,018 | ||||
|
| ||||
Total Liabilities | 573,209 | ||||
|
| ||||
Net Assets | $ | 341,478,608 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 200,826,345 | |||
Accumulated net investment income/(loss) | 599,506 | ||||
Accumulated net realized gains/(losses) from investment transactions | 42,688,281 | ||||
Net unrealized appreciation/(depreciation) on investments | 97,364,476 | ||||
|
| ||||
Net Assets | $ | 341,478,608 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 22,545,048 | ||||
Net Asset Value (offering and redemption price per share) | $ | 15.15 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 4,072,580 | |||
Dividends from affiliates | 1 | ||||
|
| ||||
Total Investment Income | 4,072,581 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,648,258 | ||||
Administration fees | 93,396 | ||||
Distribution fees | 870,252 | ||||
Custodian fees | 11,964 | ||||
Administrative and compliance services fees | 4,578 | ||||
Trustee fees | 17,664 | ||||
Professional fees | 18,856 | ||||
Shareholder reports | 16,297 | ||||
Other expenses | 8,323 | ||||
|
| ||||
Total expenses before reductions | 3,689,588 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (211,556 | ) | |||
Less expenses paid indirectly | (4,973 | ) | |||
|
| ||||
Net expenses | 3,473,059 | ||||
|
| ||||
Net Investment Income/(Loss) | 599,522 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 42,895,777 | ||||
Change in net unrealized appreciation/depreciation on investments | (15,932,685 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 26,963,092 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 27,562,614 | |||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL Dreyfus Research Growth Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 599,522 | $ | 643,804 | ||||||
Net realized gains/(losses) on investment transactions | 42,895,777 | 29,632,495 | ||||||||
Change in unrealized appreciation/depreciation on investments | (15,932,685 | ) | 68,018,427 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 27,562,614 | 98,294,726 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (536,742 | ) | (1,345,946 | ) | ||||||
From net realized gains | (17,640,893 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (18,177,635 | ) | (1,345,946 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 16,458,753 | 20,353,105 | ||||||||
Proceeds from dividends reinvested | 18,177,635 | 1,345,946 | ||||||||
Value of shares redeemed | (63,316,636 | ) | (39,532,733 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (28,680,248 | ) | (17,833,682 | ) | ||||||
|
|
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Change in net assets | (19,295,269 | ) | 79,115,098 | |||||||
Net Assets: | ||||||||||
Beginning of period | 360,773,877 | 281,658,779 | ||||||||
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End of period | $ | 341,478,608 | $ | 360,773,877 | ||||||
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Accumulated net investment income/(loss) | $ | 599,506 | $ | 643,780 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 1,097,285 | 1,617,698 | ||||||||
Dividends reinvested | 1,238,259 | 102,353 | ||||||||
Shares redeemed | (4,252,112 | ) | (3,128,891 | ) | ||||||
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Change in shares | (1,916,568 | ) | (1,408,840 | ) | ||||||
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See accompanying notes to the financial statements.
7
AZL Dreyfus Research Growth Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.75 | $ | 10.89 | $ | 9.28 | $ | 9.62 | $ | 7.86 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.03 | 0.03 | 0.05 | 0.03 | 0.05 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.19 | 3.88 | 1.60 | (0.34 | ) | 1.75 | |||||||||||||||||||
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Total from Investment Activities | 1.22 | 3.91 | 1.65 | (0.31 | ) | 1.80 | |||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.02 | ) | (0.05 | ) | (0.04 | ) | (0.03 | ) | (0.04 | ) | |||||||||||||||
Net Realized Gains | (0.80 | ) | — | — | — | — | |||||||||||||||||||
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Total Dividends | (0.82 | ) | (0.05 | ) | (0.04 | ) | (0.03 | ) | (0.04 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 15.15 | $ | 14.75 | $ | 10.89 | $ | 9.28 | $ | 9.62 | |||||||||||||||
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Total Return(a) | 8.45 | % | 36.00 | % | 17.75 | % | (3.20 | )% | 22.92 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 341,479 | $ | 360,774 | $ | 281,659 | $ | 219,720 | $ | 193,126 | |||||||||||||||
Net Investment Income/(Loss) | 0.17 | % | 0.20 | % | 0.53 | % | 0.43 | % | 0.49 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.06 | % | 1.07 | % | 1.07 | % | 1.10 | % | 1.11 | % | |||||||||||||||
Expenses Net of Reductions | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 0.99 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.00 | % | 1.00 | % | 1.02 | % | 1.03 | % | 1.04 | % | |||||||||||||||
Portfolio Turnover Rate | 46 | % | 48 | % | 53 | % | 109 | % | 112 | % |
(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 any. 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.
8
AZL Dreyfus Research Growth Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Dreyfus Research Growth Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
9
AZL Dreyfus Research Growth Fund
Notes to the Financial Statements
December 31, 2014
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. The Fund ceased participation in the program in June 2014.
Futures Contracts
During the year ended December 31, 2014, the Fund did not enter into any futures contracts. 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 fair 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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Dreyfus Research Growth Fund | 1.00 | % | 1.20 | % |
* | The fees payable to the Manager are based on a tiered structure for various net assets 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 management fees to 0.70%. 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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.”
10
AZL Dreyfus Research Growth Fund
Notes to the Financial Statements
December 31, 2014
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, 2014, $4,362 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
During the year ended December 31, 2014, the Fund paid approximately $641 to affiliated broker/dealers of the Subadvisor 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 334,831,114 | $ | — | $ | 334,831,114 | |||||||||
Affiliated Investment Company | 6,976,164 | — | 6,976,164 | ||||||||||||
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Total Investment Securities | $ | 341,807,278 | $ | — | $ | 341,807,278 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 Research Growth Fund | $ | 157,813,821 | $ | 204,033,595 |
11
AZL Dreyfus Research Growth Fund
Notes to the Financial Statements
December 31, 2014
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $244,666,414. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 98,006,396 | ||
Unrealized depreciation | (865,532 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | 97,140,864 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Dreyfus Research Growth Fund | $ | 536,741 | $ | 17,640,894 | $ | 18,177,635 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Dreyfus Research Growth Fund | $ | 1,345,946 | $ | — | $ | 1,345,946 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Dreyfus Research Growth Fund | $ | 599,506 | $ | 42,911,893 | $ | — | $ | 97,140,864 | $ | 140,652,263 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Effective close of business on April 27, 2015, The Boston Company will replace The Dreyfus Corporation as the subadviser to the AZL® Dreyfus Research Growth Fund. In addition, the following name change will be effective on April 27, 2015.
Name effective on April 27, 2015 | Previous Name | |
AZL® Boston Company Research Growth Fund | AZL® Dreyfus Research Growth Fund |
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report. There are no other subsequent events to report.
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Dreyfus Research Growth Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
13
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $17,640,894.
14
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.
15
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
17
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Enhanced Bond Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 17
Statement of Operations
Page 17
Statements of Changes in Net Assets
Page 18
Financial Highlights
Page 19
Notes to the Financial Statements
Page 20
Report of Independent Registered Public Accounting Firm
Page 27
Other Information
Page 28
Approval of Investment Advisory and Subadvisory Agreements
Page 29
Information about the Board of Trustees and Officers
Page 32
This report is submitted for the general information of the shareholder 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.
AZL® Enhanced Bond Index Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Enhanced Bond Index Fund had a total return of 5.35%. That compared to a 5.97% total return for its benchmark, the Barclays U.S. Aggregate Bond Index1.
Fixed-income markets performed relatively well during the 12- month period as a decline in long-term yields pushed prices higher. Investors started the period with an appetite for risk, which supported higher prices on securities such as corporate bonds. As the period progressed, however, that sentiment changed. Investors grew increasingly concerned about long-term growth prospects for the global economy because of persistent factors such as muted inflation, weak wage growth, declining oil prices and a lag in the U.S. housing recovery. Poor economic growth abroad drove international investors to seek safety in U.S. Treasuries, which drove up prices and pushed down yields. Investors abandoned riskier assets in the second half of the period, causing spreads to widen. The resulting drop in prices in investment grade corporate bonds offset earlier gains, leading the asset class to post a loss for the year and dragging on the Fund’s absolute return.
Despite a strong absolute return, the Fund slightly underperformed its benchmark for the year. The Fund’s allocation to Treasury Inflation Protected Securities (TIPS) was the largest detractor from relative performance. The drop in energy prices in conjunction with renewed fears about global growth in the second half of the period limited inflation concerns and led TIPS to underperform. The portfolio’s duration positioning also weighed on relative performance. The Fund favored a shorter duration stance than the benchmark throughout the second half of the period in anticipation of a rise in interest rates. When rates fell, the strategy underperformed. An underweight allocation to corporate bonds also dragged on performance early in the period as these bonds benefited from the positive outlook that prevailed in the period’s first half.*
The largest positive contributor to relative performance involved the portfolio’s yield curve positioning, which involved a tactical “flattener trade” in anticipation that the yield curve on Treasuries would flatten. The strategy contributed to relative performance as long-term yields fell and short-term yields rose. An overweight position in commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) boosted the Fund’s relative performance, as those sectors outperformed duration-adjusted Treasuries. A preference for auto collateral in the ABS sector also contributed to relative performance, as did an underweight to corporate bonds given that asset class’s underperformance.*
The Fund held derivatives to hedge risk and adjust its duration and yield curve exposure rather than to generate performance. Forward contracts were used to hedge against the portfolio’s currency exposure from non-dollar bonds, while Treasury futures served to adjust the Fund’s duration and yield curve exposure.*
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, 2014. |
1 | The Barclays 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
AZL® Enhanced Bond Index Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to exceed the total return of the Barclays U.S. Aggregate Bond Index. 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 investment-grade debt securities (those of medium and high quality) of all types and repurchase agreements for those securities.
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.
Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund’s performance may be more volatile than if it did not hold these securities.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (7/10/09) | |||||||||||||
AZL® Enhanced Bond Index Fund | 5.35 | % | 2.36 | % | 3.98 | % | 3.70 | % | ||||||||
Barclays U.S. Aggregate Bond Index | 5.97 | % | 2.66 | % | 4.45 | % | 4.57 | % |
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® Enhanced Bond Index Fund | 0.69 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 0.70% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 0.66%. |
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 Barclays 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 |
AZL Enhanced Bond Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,016.40 | $ | 3.30 | 0.65 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,021.93 | $ | 3.31 | 0.65 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Government Agency Mortgages | 36.0 | % | |||
U.S. Treasury Obligation | 24.1 | ||||
Corporate Bonds | 18.0 | ||||
Securities Held as Collateral for Securities on Loan | 17.4 | ||||
Asset Backed Securities | 8.9 | ||||
Yankee Dollars | 8.2 | ||||
Collateralized Mortgage Obligations | 6.6 | ||||
Money Market | 5.4 | ||||
Municipal Bonds | 1.0 | ||||
Convertible Preferred Stock | 0.1 | ||||
|
| ||||
Total Investment Securities | 125.7 | ||||
Net other assets (liabilities) | (25.7 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Asset Backed Securities (8.9%): |
| ||||||
$ | 2,991,825 | American Homes 4 Rent LLC, Class A, Series 2014-SFR2, 3.79%, 10/17/36(a) | $ | 3,052,446 | ||||
2,635,000 | American Homes 4 Rent LLC, Class A, Series 2014-SFR3, 3.68%, 12/17/36(a) | 2,663,819 | ||||||
2,360,000 | AmeriCredit Automobile Receivables Trust, Class A3, Series 2013-5, 0.90%, 9/8/18 | 2,359,202 | ||||||
3,210,000 | AmeriCredit Automobile Receivables Trust, Class A2A, Series 2014-4, 0.72%, 4/9/18 | 3,208,587 | ||||||
225,458 | Auto ABS Compartiment, Class A, Series 2012-2, 2.80%, 4/27/25(a) | 274,841 | ||||||
2,160,000 | Cabela’s Master Credit Card Trust, Class A2, Series 2013-2A, 0.81%, 8/16/21(a)(b) | 2,174,118 | ||||||
598,901 | Capital Auto Receivables Asset Trust, Class A2, Series 2013-1, 0.62%, 7/20/16 | 598,988 | ||||||
2,560,000 | Chrysler Capital Auto Receivables Trust, Class A3, Series 2013-BA, 0.85%, 5/15/18(a) | 2,559,191 | ||||||
1,270,000 | Chrysler Capital Auto Receivables Trust, Class B, Series 2013-BA, 1.78%, 6/17/19(a) | 1,272,851 | ||||||
2,210,000 | Citibank Credit Card Issuance Trust, Class A1, Series 2014-A1, 2.88%, 1/23/23 | 2,266,313 | ||||||
1,983,817 | CNH Equipment Trust, Class A3, Series 2013-A, 0.69%, 6/15/18 | 1,983,444 | ||||||
1,920,000 | Credit Acceptance Auto Loan Trust, Class A, Series 2013-1A, 1.21%, 10/15/20(a) | 1,920,564 | ||||||
2,840,000 | Credit Acceptance Auto Loan Trust, Class A, Series 2014-1A, 1.55%, 10/15/21(a) | 2,834,400 | ||||||
3,190,000 | Credit Acceptance Auto Loan Trust, Class A, Series 2014-2A, 1.88%, 3/15/22(a) | 3,190,115 | ||||||
557,814 | First Investors Auto Owner Trust, Class A2, Series 2013-1A, 0.90%, 10/15/18(a) | 557,707 | ||||||
1,314,913 | Ford Credit Auto Owner Trust, Class A3, Series 2013-A, 0.55%, 7/15/17 | 1,314,616 | ||||||
2,025,000 | Ford Credit Floorplan Master Owner Trust, Class A, Series 2012-2, 1.92%, 1/15/19 | 2,047,232 | ||||||
1,595,000 | Golden Credit Card Trust, Class A, Series 2013-1A, 0.40%, 2/15/18(a)(b) | 1,594,455 | ||||||
3,290,000 | Golden Credit Card Trust, Class A, Series 2014-1A, 0.48%, 3/15/19(a)(b) | 3,287,681 | ||||||
2,190,000 | GoldenTree Loan Opportunities VII, Ltd., Class A, Series 2013-7A, 1.38%, 4/25/25(a)(b) | 2,148,075 | ||||||
2,340,000 | Invitation Homes Trust, Class A, Series 2014-SFR2, 1.25%, 9/17/31(a)(b) | 2,310,933 | ||||||
2,345,000 | Invitation Homes Trust, Class A, Series 2014-SFR3, 1.35%, 12/17/31(a)(b) | 2,331,927 | ||||||
2,140,000 | Nextgear Floorplan Master Owner Trust, Class A, Series 2014-1A, 1.92%, 10/15/19(a) | 2,135,236 | ||||||
1,830,000 | Nissan Master Owner Trust Receivables, Class A, Series 2013-A, 0.45%, 2/15/18(b) | 1,827,914 | ||||||
2,205,000 | Nomad CLO, Ltd., Class A1, Series 2013-1A, 1.43%, 1/15/25(a)(b) | 2,171,200 | ||||||
2,975,000 | OneMain Financial Issuance Trust, Class A, Series 2014-2A, 2.47%, 9/18/24(a) | 2,986,662 | ||||||
1,735,000 | PFS Financing Corp., Class A, Series 2013-AA, 0.71%, 2/15/18(a)(b) | 1,734,565 | ||||||
616,758 | Prestige Auto Receivables Trust, Class A2, Series 2013-1A, 1.09%, 2/15/18(a) | 617,534 |
Principal Amount | Fair Value | |||||||
| Asset Backed Securities, continued |
| ||||||
$ | 2,300,000 | Prestige Auto Receivables Trust, Class C, Series 2014-1A, 2.39%, 5/15/20(a) | $ | 2,290,982 | ||||
2,000,000 | Santander Drive Auto Receivables Trust, Class B, Series 2013-5, 1.55%, 10/15/18 | 2,006,394 | ||||||
142,728 | Santander Drive Auto Receivables Trust, Class C, Series 2011-3, 3.09%, 5/15/17 | 143,602 | ||||||
1,330,000 | Santander Drive Auto Receivables Trust, Class B, Series 2012-5, 1.56%, 8/15/18 | 1,332,990 | ||||||
501,017 | Santander Drive Auto Receivables Trust, Class B, Series 2012-3, 1.94%, 12/15/16 | 501,750 | ||||||
1,200,000 | Santander Drive Auto Receivables Trust, Class C, Series 2012-6, 1.94%, 4/16/18 | 1,208,195 | ||||||
1,785,000 | Santander Drive Auto Receivables Trust, Class B, Series 2013-2, 1.33%, 3/15/18 | 1,788,734 | ||||||
1,900,000 | Santander Drive Auto Receivables Trust, Class C, Series 2013-4, 3.25%, 1/15/20 | 1,956,669 | ||||||
2,468,946 | Santander Drive Auto Receivables Trust, Class A3, Series 2013-A, 1.02%, 1/16/18(a) | 2,472,491 | ||||||
2,075,000 | Santander Drive Auto Receivables Trust, Class B, Series 2013-A, 1.89%, 10/15/19(a) | 2,093,275 | ||||||
1,431,481 | Santander Drive Auto Receivables Trust, Class R, Series 2014-S6, 1.43%, 12/16/19(a) | 1,437,551 | ||||||
3,342,022 | Silver Bay Realty 2014-1 Trust, Class A, Series 2014-1, 1.15%, 9/17/31(a)(b) | 3,291,136 | ||||||
393,040 | SLM Student Loan Trust, Class A2, Series 2004-B, 0.44%, 6/15/21(b) | 390,276 | ||||||
2,217,540 | SLM Student Loan Trust, Class A4, Series 2006-A, 0.43%, 12/15/23(b) | 2,198,473 | ||||||
606,486 | SLM Student Loan Trust, Class A1, Series 2012-A, 1.56%, 4/15/16(a)(b) | 612,795 | ||||||
2,140,000 | Sway Residential Trust, Class A, Series 2014-1, 1.46%, 1/17/20(a)(b) | 2,133,859 | ||||||
1,115,000 | World Financial Network Credit Card Master Trust, Class A, Series 2012-A, 3.14%, 1/17/23 | 1,159,187 | ||||||
|
| |||||||
| Total Asset Backed Securities (Cost $84,306,658) | 84,442,975 | ||||||
|
| |||||||
| Collateralized Mortgage Obligations (6.6%): |
| ||||||
1,309,695 | Banc of America Commercial Mortgage, Inc., Class A1A, Series 2007-3, 5.78%, 6/10/49(b) | 1,411,833 | ||||||
146,865 | Banc of America Large Loan, Class A4B, Series 2010-UB4, 4.94%, 12/20/41(a)(b) | 146,880 | ||||||
50,000 | Bear Stearns Commercial Mortgage Securities, Inc., Class AM, Series 2005-PW10, 5.45%, 12/15/15(b) | 51,618 | ||||||
1,777,756 | Bear Stearns Commercial Mortgage Securities, Inc., Class A1A, Series 2006-PW14, 5.19%, 12/11/38 | 1,885,169 | ||||||
3,310,434 | Bear Stearns Commercial Mortgage Securities, Inc., Class A1A, Series 2007-PW15, 5.32%, 2/11/44 | 3,533,007 | ||||||
625,000 | Bear Stearns Commercial Mortgage Securities, Inc., Class AM, Series 2007-PW16, 5.90%, 6/1/40(b) | 681,198 | ||||||
2,540,000 | BHMS Mortgage Trust, Class AFL, Series 2014-ATLS, 1.66%, 7/5/33(a)(b) | 2,527,861 | ||||||
1,170,000 | Citigroup Commercial Mortgage Trust, Class A, Series 2014-388G, 0.91%, 6/15/33(a)(b) | 1,171,114 |
Continued
4
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 2,030,609 | Commercial Mortgage Loan Trust, Class A1A, Series 2008-LS1, 6.24%, 12/10/49(b) | $ | 2,217,398 | ||||
590,000 | Commercial Mortgage Pass-Through Certificates, Class AM, Series 2006-C8, 5.35%, 12/10/16 | 631,506 | ||||||
1,115,000 | Commercial Mortgage Trust, Class A4, Series 2014-UBS3, 3.82%, 6/10/47 | 1,181,962 | ||||||
2,360,000 | Commercial Mortgage Trust, Class A3, Series 2014-CR21, 3.53%, 12/10/47 | 2,448,744 | ||||||
428,000 | Commercial Mortgage Trust, Class B, Series 2012-LTRT, 3.80%, 10/5/30(a) | 414,154 | ||||||
1,901,684 | Commercial Mortgage Trust, Class A, Series 2013-FL3, 1.68%, 10/13/28(a)(b) | 1,906,034 | ||||||
1,510,000 | Commercial Mortgage Trust, Class C, Series 2014-CR17, 4.90%, 5/10/47(b) | 1,594,223 | ||||||
1,975,000 | Commercial Mortgage Trust, Class A, Series 2014-TWC, 1.00%, 2/13/32(a)(b) | 1,967,890 | ||||||
2,245,000 | Commerical Mortgage Trust, Class B, Series 2014-FL5, 2.30%, 10/15/31(a)(b) | 2,237,331 | ||||||
2,068,247 | Connecticut Avenue Securities, Class 1M1, Series 2014-C04, 2.11%, 11/25/24(b) | 2,070,407 | ||||||
855,000 | Credit Suisse Commercial Mortgage Trust, Class AM, Series 2006-C5, 5.34%, 12/15/39 | 907,695 | ||||||
100,000 | Credit Suisse Mortgage Capital Certificates, Class AM, Series 2006-C3, 6.00%, 6/15/16(b) | 105,544 | ||||||
1,940 | Credit Suisse Mortgage Capital Certificates, Class A2, Series 2007-C2, 5.45%, 1/15/49(b) | 1,925 | ||||||
2,022,602 | DBRR Trust, Class A, Series 2013-EZ3, 1.64%, 12/18/49(a)(b) | 2,033,031 | ||||||
1,320,000 | DBUBS Mortgage Trust, Class A2, Series 2011-LC1A, 4.53%, 7/1/19(a) | 1,424,795 | ||||||
1,022,737 | DBUBS Mortgage Trust, Class A1, Series 2011-LC1A, 3.74%, 6/10/17(a) | 1,047,764 | ||||||
9,266,892 | Government National Mortgage Association, Class XA, Series 2014-GC20, 1.38%, 4/10/47(b) | 706,971 | ||||||
10,721,826 | GS Mortgage Securities Trust, Class XA, Series 2013-GC10, 1.88%, 2/10/46(b) | 1,040,307 | ||||||
1,100,000 | GS Mortgage Securities Trust, Class A, Series 2012-SHOP, 2.93%, 6/5/31(a) | 1,127,600 | ||||||
1,065,000 | GS Mortgage Securities Trust, Class B, Series 2014-GC22, 4.39%, 6/10/47 | 1,126,721 | ||||||
1,500,000 | Hilton USA Trust, Class AFX, Series 2013-HLT, 2.66%, 11/5/30(a) | 1,501,892 | ||||||
2,185,000 | JPMBB Commercial Mortgage Securities Trust, Class A4, Series 2014-C22, 3.80%, 9/15/47 | 2,310,908 | ||||||
14,553 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A2, Series 2007-LD11, 5.96%, 6/15/49(b) | 14,522 | ||||||
600,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A, Series 2012-WLDN, 3.90%, 5/5/30(a) | 627,168 | ||||||
11,423,526 | JPMorgan Chase Commercial Mortgage Securities Corp., Class XA, Series 2013-LC11, 1.71%, 4/15/46(b) | 981,327 |
Principal Amount | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 1,082,674 | Lanark Master Issuer plc, Class 1A, Series 2012-2A, 1.63%, 12/22/54(a)(b) | $ | 1,092,306 | ||||
1,200,000 | LB Commercial Conduit Mortgage Trust, Class AM, Series 2007-C3, 6.10%, 7/15/44(b) | 1,305,208 | ||||||
1,500,387 | Merrill Lynch Mortgage Trust, Class A1A, Series 2007-C1, 6.03%, 6/12/50(b) | 1,598,243 | ||||||
1,229,668 | ML-CFC Commercial Mortgage Trust, Class A1A, Series 2006-4, 5.17%, 12/12/49(b) | 1,296,787 | ||||||
2,101,835 | ML-CFC Commercial Mortgage Trust, Class A1A, Series 2006-3, 5.41%, 7/12/46(b) | 2,228,983 | ||||||
1,395,000 | Morgan Stanley BAML Trust, Class C, Series 2013-C13, 5.06%, 11/15/46(b) | 1,477,569 | ||||||
1,196,234 | Morgan Stanley Capital I Trust, Class A1A, Series 2007-IQ13, 5.31%, 3/15/44 | 1,271,069 | ||||||
2,715,000 | Morgan Stanley Capital I Trust, Class A, Series 2014-MP, 3.47%, 8/11/29(a) | 2,810,084 | ||||||
573,886 | Morgan Stanley Re-REMIC Trust, Class B, Series 2011-IO, 0.02%, 3/23/51(a) | 568,865 | ||||||
623,231 | Morgan Stanley Re-REMIC Trust, Class A, Series 2012-XA, 2.00%, 7/28/49(a) | 624,789 | ||||||
63,421 | Morgan Stanley Re-REMIC Trust, Class AXB1, Series 2012-IO, 1.00%, 3/29/51(a) | 63,358 | ||||||
1,010,000 | Motel 6 Trust, Class B, Series 2012-MTL6, 2.74%, 10/5/25(a) | 1,006,185 | ||||||
616,662 | RBSCF Trust, Class WBTA, Series 2010-RR3, 6.14%, 4/16/17(a)(b) | 642,496 | ||||||
403,058 | STRIPS, Class A, Series 2012-1A, 1.50%, 12/25/44(a) | 403,058 | ||||||
18,395,765 | WF-RBS Commercial Mortgage Trust, Class XA, Series 2014-C20, 1.40%, 5/15/47(b) | 1,401,279 | ||||||
1,545,000 | WF-RBS Commercial Mortgate Trust, Class A5, Series 2014-LC14, 4.05%, 3/15/47(b) | 1,662,843 | ||||||
|
| |||||||
| Total Collateralized Mortgage Obligations (Cost $62,781,979) | 62,489,621 | ||||||
|
| |||||||
| Corporate Bonds (18.0%): |
| ||||||
| Aerospace & Defense (0.0%): | |||||||
345,000 | Boeing Co. (The), 2.85%, 10/30/24, Callable 7/30/24 @ 100 | 342,831 | ||||||
|
| |||||||
| Aerospace/Defense (0.2%): |
| ||||||
785,000 | Precision Castparts Corp., 3.90%, 1/15/43, Callable 7/15/42 @ 100 | 789,551 | ||||||
390,000 | United Technologies Corp., 3.10%, 6/1/22^ | 397,928 | ||||||
1,040,000 | United Technologies Corp., 4.50%, 6/1/42 | 1,132,341 | ||||||
|
| |||||||
2,319,820 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.1%): |
| ||||||
500,000 | FedEx Corp., 3.88%, 8/1/42^ | 481,868 | ||||||
|
| |||||||
| Banks (3.5%): | |||||||
1,650,000 | Bank of America Corp., 1.50%, 10/9/15 | 1,656,766 | ||||||
430,000 | Bank of America Corp., Series 1, 3.75%, 7/12/16 | 445,376 | ||||||
1,245,000 | Bank of America Corp., 6.50%, 8/1/16 | 1,341,271 | ||||||
820,000 | Bank of America Corp., 5.63%, 10/14/16 | 878,126 | ||||||
1,315,000 | Bank of America Corp., 0.49%, 10/14/16(b) | 1,305,293 | ||||||
1,050,000 | Bank of America Corp., Series L, 1.35%, 11/21/16 | 1,047,015 |
Continued
5
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Banks, continued |
| ||||||
$ | 1,065,000 | Bank of America Corp., 1.32%, 3/22/18, MTN(b) | $ | 1,072,781 | ||||
2,695,000 | Bank of America Corp., 2.60%, 1/15/19 | 2,715,955 | ||||||
390,000 | Bank of America Corp., 4.00%, 4/1/24 | 406,078 | ||||||
700,000 | Bank of America Corp., 4.20%, 8/26/24 | 713,108 | ||||||
1,155,000 | Bank of America Corp., 4.25%, 10/22/26, MTN^ | 1,152,407 | ||||||
1,260,000 | Citigroup, Inc., 1.30%, 4/1/16 | 1,261,788 | ||||||
1,035,000 | Citigroup, Inc., 1.03%, 4/1/16(b) | 1,038,629 | ||||||
1,180,000 | Citigroup, Inc., 2.50%, 7/29/19^ | 1,180,948 | ||||||
395,000 | Fifth Third Bank, Series BKNT, 2.88%, 10/1/21, Callable 9/1/21 @ 100 | 394,960 | ||||||
1,630,000 | HSBC USA, Inc., 3.50%, 6/23/24^ | 1,681,911 | ||||||
1,350,000 | JPMorgan Chase & Co., Series G, 0.85%, 2/26/16(b) | 1,352,673 | ||||||
730,000 | JPMorgan Chase & Co., 2.00%, 8/15/17^ | 736,942 | ||||||
775,000 | JPMorgan Chase & Co., 1.13%, 1/25/18^(b) | 781,086 | ||||||
1,095,000 | JPMorgan Chase & Co., 2.20%, 10/22/19^ | 1,085,558 | ||||||
2,205,000 | JPMorgan Chase & Co., 3.63%, 5/13/24^ | 2,257,044 | ||||||
1,565,000 | Wells Fargo & Co., 1.25%, 7/20/16 | 1,570,190 | ||||||
1,300,000 | Wells Fargo & Co., 1.40%, 9/8/17^ | 1,298,944 | ||||||
1,170,000 | Wells Fargo & Co., 0.86%, 4/23/18(b) | 1,171,916 | ||||||
1,080,000 | Wells Fargo & Co., 3.30%, 9/9/24, MTN^ | 1,086,758 | ||||||
1,040,000 | Wells Fargo & Co., 4.10%, 6/3/26, MTN | 1,062,939 | ||||||
360,000 | Wells Fargo & Co., 5.38%, 11/2/43 | 409,577 | ||||||
580,000 | Wells Fargo & Co., Series K, 7.98%, 3/29/49, Callable 3/15/18 @ 100(b) | 640,175 | ||||||
435,000 | Wells Fargo & Co., Series S, 5.90%, 12/31/49, Callable 6/15/24 @ 100(b) | 438,263 | ||||||
|
| |||||||
32,184,477 | ||||||||
|
| |||||||
| Beverages (0.1%): |
| ||||||
460,000 | Anheuser-Busch InBev NV Worldwide, Inc., 5.00%, 4/15/20^ | 514,313 | ||||||
|
| |||||||
| Biotechnology (0.2%): |
| ||||||
450,000 | Amgen, Inc., 3.63%, 5/15/22, Callable 2/15/22 @ 100 | 463,262 | ||||||
545,000 | Amgen, Inc., 5.15%, 11/15/41, Callable 5/15/41 @ 100 | 614,297 | ||||||
395,000 | Amgen, Inc., 5.38%, 5/15/43, Callable 11/15/42 @ 100^ | 458,888 | ||||||
310,000 | Gilead Sciences, Inc., 3.50%, 2/1/25, Callable 11/1/24 @ 100 | 318,184 | ||||||
|
| |||||||
1,854,631 | ||||||||
|
| |||||||
| Capital Markets (2.0%): |
| ||||||
1,045,000 | Ford Motor Credit Co. LLC, 1.72%, 12/6/17 | 1,034,200 | ||||||
1,055,000 | Ford Motor Credit Co. LLC, 8.13%, 1/15/20 | 1,306,785 | ||||||
370,000 | General Electric Capital Corp., 4.38%, 9/16/20 | 405,237 | ||||||
555,000 | General Electric Capital Corp., Series G, 6.15%, 8/7/37, MTN^ | 723,901 | ||||||
905,000 | Goldman Sachs Group, Inc. (The), 0.70%, 3/22/16(b) | 902,982 | ||||||
1,175,000 | Goldman Sachs Group, Inc. (The), 2.38%, 1/22/18, MTN | 1,186,866 |
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Capital Markets, continued |
| ||||||
$ | 915,000 | Goldman Sachs Group, Inc. (The), 1.43%, 4/30/18(b) | $ | 925,736 | ||||
932,000 | Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18 | 956,120 | ||||||
192,000 | Goldman Sachs Group, Inc. (The), 2.63%, 1/31/19^ | 193,172 | ||||||
3,000,000 | Goldman Sachs Group, Inc. (The), 2.55%, 10/23/19^ | 2,989,045 | ||||||
190,000 | Goldman Sachs Group, Inc. (The), 3.63%, 1/22/23 | 192,398 | ||||||
360,000 | Goldman Sachs Group, Inc. (The), 4.80%, 7/8/44, Callable 1/8/44 @ 100 | 385,588 | ||||||
2,525,000 | Morgan Stanley, 6.00%, 4/28/15, MTN | 2,565,865 | ||||||
470,000 | Morgan Stanley, 2.38%, 7/23/19^ | 468,267 | ||||||
870,000 | Morgan Stanley, 3.75%, 2/25/23 | 892,464 | ||||||
290,000 | Morgan Stanley, Series F, 3.88%, 4/29/24^ | 297,550 | ||||||
730,000 | Morgan Stanley, 3.70%, 10/23/24^ | 739,943 | ||||||
320,000 | Morgan Stanley, Series G, 4.35%, 9/8/26, MTN | 321,912 | ||||||
1,740,000 | State Street Capital Trust IV, 1.24%, 6/15/37, Callable 2/9/15 @ 100(b) | 1,444,200 | ||||||
264,670 | SteelRiver Transmission Co. LLC, 4.71%, 6/30/17(a) | 275,580 | ||||||
|
| |||||||
18,207,811 | ||||||||
|
| |||||||
| Chemicals (0.2%): |
| ||||||
233,000 | Dow Chemical Co. (The), 4.25%, 10/1/34, Callable 4/1/34 @ 100^ | 228,840 | ||||||
555,000 | Eastman Chemical Co., 2.40%, 6/1/17 | 563,664 | ||||||
410,000 | Eastman Chemical Co., 2.70%, 1/15/20, Callable 12/15/19 @ 100 | 412,327 | ||||||
690,000 | Eastman Chemical Co., 3.80%, 3/15/25, Callable 12/15/24 @ 100 | 702,407 | ||||||
70,000 | Eastman Chemical Co., 4.65%, 10/15/44, Callable 4/15/44 @ 100^ | 71,631 | ||||||
|
| |||||||
1,978,869 | ||||||||
|
| |||||||
| Consumer Finance (0.5%): |
| ||||||
1,135,000 | American Express Credit Corp., 1.13%, 6/5/17^ | 1,131,427 | ||||||
975,000 | Capital One Bank USA NA, Series BKNT, 1.15%, 11/21/16, Callable 10/21/16 @ 100 | 971,488 | ||||||
290,000 | Capital One Bank USA NA, 1.30%, 6/5/17, Callable 5/5/17 @ 100 | 287,505 | ||||||
2,575,000 | Capital One Bank USA NA, Series BKNT, 2.25%, 2/13/19, Callable 1/13/19 @ 100 | 2,556,352 | ||||||
|
| |||||||
4,946,772 | ||||||||
|
| |||||||
| Diversified Financial Services (0.6%): |
| ||||||
310,000 | Bayer US Finance LLC, 3.38%, 10/8/24(a) | 315,447 | ||||||
1,155,000 | Caterpillar Financial Services Corp., 1.10%, 5/29/15, MTN^ | 1,158,662 | ||||||
795,000 | Citigroup, Inc., 5.30%, 5/6/44^ | 871,057 | ||||||
1,090,000 | Daimler Finance NA LLC, 1.88%, 1/11/18^(a) | 1,093,788 | ||||||
1,090,000 | General Electric Capital Corp., 0.95%, 4/2/18(b) | 1,100,127 | ||||||
720,000 | JPMorgan Chase & Co., 6.00%, 1/15/18 | 805,563 |
Continued
6
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Diversified Financial Services, continued |
| ||||||
$ | 125,000 | JPMorgan Chase & Co., 4.50%, 1/24/22 | $ | 136,469 | ||||
130,000 | JPMorgan Chase & Co., 3.25%, 9/23/22 | 130,757 | ||||||
515,000 | JPMorgan Chase & Co., 3.88%, 9/10/24^ | 515,438 | ||||||
|
| |||||||
6,127,308 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.7%): |
| ||||||
860,000 | AT&T, Inc., 0.90%, 2/12/16 | 859,773 | ||||||
3,000,000 | AT&T, Inc., 3.74%, 11/27/22, Callable 5/27/15 @ 70(a)(c) | 2,270,569 | ||||||
550,000 | Verizon Communications, Inc., 2.45%, 11/1/22, Callable 8/1/22 @ 100 | 516,043 | ||||||
1,195,000 | Verizon Communications, Inc., 5.15%, 9/15/23 | 1,319,558 | ||||||
780,000 | Verizon Communications, Inc., 4.40%, 11/1/34, Callable 5/1/34 @ 100 | 775,305 | ||||||
925,000 | Verizon Communications, Inc., 6.55%, 9/15/43 | 1,185,063 | ||||||
|
| |||||||
6,926,311 | ||||||||
|
| |||||||
| Education Services (0.1%): |
| ||||||
700,000 | Massachusetts Institute of Technology, 4.68%, 7/1/14 | 809,572 | ||||||
|
| |||||||
| Electric Utilities (0.7%): |
| ||||||
425,000 | Alabama Power Co., 4.15%, 8/15/44, Callable 2/15/44 @ 100 | 446,196 | ||||||
430,000 | Carolina Power & Light Co., 4.10%, 3/15/43, Callable 9/15/42 @ 100^ | 456,378 | ||||||
610,000 | CenterPoint Energy Houston Electric LLC, 4.50%, 4/1/44, Callable 10/1/43 @ 100 | 680,842 | ||||||
355,000 | DTE Electric Co., Series A, 4.00%, 4/1/43, Callable 10/1/42 @ 100^ | 366,242 | ||||||
445,000 | Exelon Corp., 5.63%, 6/15/35 | 520,266 | ||||||
1,350,000 | Oncor Electric Delivery Co. LLC, 6.38%, 1/15/15 | 1,351,938 | ||||||
180,000 | Oncor Electric Delivery Co. LLC, 7.00%, 9/1/22 | 227,997 | ||||||
635,000 | Pacific Gas & Electric Co., 5.13%, 11/15/43, Callable 5/15/43 @ 100 | 727,372 | ||||||
250,000 | Pacific Gas & Electric Co., 4.75%, 2/15/44, Callable 8/15/43 @ 100^ | 274,951 | ||||||
350,000 | PPL Capital Funding, Inc., 5.00%, 3/15/44, Callable 9/15/43 @ 100 | 389,527 | ||||||
220,000 | Southern California Edison Co., Series 06-E, 5.55%, 1/15/37 | 273,861 | ||||||
185,000 | Virginia Electric & Power Co., Series A, 6.00%, 5/15/37 | 243,742 | ||||||
25,000 | Virginia Electric & Power Co., 6.35%, 11/30/37 | 34,769 | ||||||
200,000 | Virginia Electric & Power Co., 4.00%, 1/15/43, Callable 7/15/42 @ 100 | 202,857 | ||||||
|
| |||||||
6,196,938 | ||||||||
|
| |||||||
| Electrical Equipment (0.3%): |
| ||||||
840,000 | Eaton Corp., 1.50%, 11/2/17^ | 835,134 | ||||||
255,000 | Eaton Corp., 4.00%, 11/2/32 | 259,376 | ||||||
1,720,000 | General Electric Co., 2.70%, 10/9/22 | 1,720,698 | ||||||
|
| |||||||
2,815,208 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Electronic Equipment, Instruments & Components (0.0%): |
| ||||||
$ | 111,000 | Agilent Technologies, Inc., 6.50%, 11/1/17 | $ | 123,207 | ||||
|
| |||||||
| Food Products (0.2%): |
| ||||||
630,000 | Kraft Foods Group, Inc., 2.25%, 6/5/17 | 640,392 | ||||||
1,425,000 | Wm. Wrigley Jr. Co., 1.40%, 10/21/16(a) | 1,426,153 | ||||||
|
| |||||||
2,066,545 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.3%): |
| ||||||
210,000 | Baxter International, Inc., 3.20%, 6/15/23, Callable 3/15/23 @ 100 | 211,605 | ||||||
170,000 | Becton, Dickinson & Co., 1.80%, 12/15/17^ | 170,627 | ||||||
125,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 126,644 | ||||||
180,000 | Becton, Dickinson & Co., 3.73%, 12/15/24, Callable 9/15/24 @ 100 | 185,324 | ||||||
505,000 | Becton, Dickinson & Co., 4.69%, 12/15/44, Callable 6/15/44 @ 100 | 543,865 | ||||||
270,000 | CareFusion Corp., 3.88%, 5/15/24, Callable 2/15/24 @ 100 | 278,638 | ||||||
1,035,000 | Medtronic, Inc., 3.50%, 3/15/25(a) | 1,058,773 | ||||||
665,000 | Medtronic, Inc., 4.63%, 3/15/45(a) | 720,853 | ||||||
|
| |||||||
3,296,329 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.4%): |
| ||||||
380,000 | Aetna, Inc., 4.13%, 11/15/42, Callable 5/15/42 @ 100 | 381,815 | ||||||
725,000 | UnitedHealth Group, Inc., 1.40%, 10/15/17 | 724,290 | ||||||
200,000 | UnitedHealth Group, Inc., 3.88%, 10/15/20, Callable 7/15/20 @ 100 | 211,870 | ||||||
610,000 | UnitedHealth Group, Inc., 2.88%, 12/15/21 | 616,941 | ||||||
410,000 | UnitedHealth Group, Inc., 4.25%, 3/15/43, Callable 9/15/42 @ 100^ | 429,830 | ||||||
325,000 | WellPoint, Inc., 3.30%, 1/15/23 | 324,683 | ||||||
600,000 | WellPoint, Inc., 3.50%, 8/15/24, Callable 5/15/24 @ 100 | 604,351 | ||||||
300,000 | WellPoint, Inc., 5.10%, 1/15/44 | 337,125 | ||||||
|
| |||||||
3,630,905 | ||||||||
|
| |||||||
| Household Products (0.0%): |
| ||||||
460,000 | Procter & Gamble Co. (The), 1.90%, 11/1/19^ | 460,922 | ||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.6%): |
| ||||||
220,000 | Carolina Power & Light Co., 5.70%, 4/1/35 | 268,227 | ||||||
300,000 | Columbus Southern Power Co., 6.05%, 5/1/18 | 338,998 | ||||||
65,000 | Florida Power & Light Co., 5.95%, 2/1/38 | 86,396 | ||||||
845,000 | Florida Power Corp., 6.40%, 6/15/38 | 1,168,324 | ||||||
40,000 | MidAmerican Energy Holdings Co., 5.95%, 5/15/37 | 49,779 | ||||||
450,000 | MidAmerican Energy Holdings Co., 6.50%, 9/15/37 | 588,956 | ||||||
850,000 | PacifiCorp, 5.65%, 7/15/18 | 960,242 | ||||||
395,000 | PacifiCorp, 5.75%, 4/1/37 | 507,424 | ||||||
630,000 | PacifiCorp, 4.10%, 2/1/42, Callable 8/1/41 @ 100 | 664,678 | ||||||
350,000 | Progress Energy Carolinas, Inc., 5.30%, 1/15/19 | 392,158 | ||||||
865,000 | Public Service Electric & Gas Co., 2.38%, 5/15/23, Callable 2/15/23 @ 100^ | 831,876 | ||||||
|
| |||||||
5,857,058 | ||||||||
|
|
Continued
7
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Industrial Conglomerates (0.1%): |
| ||||||
$ | 495,000 | 3M Co., 3.88%, 6/15/44 | $ | 509,048 | ||||
|
| |||||||
| Insurance (1.0%): |
| ||||||
410,000 | ACE INA Holdings, Inc., 4.15%, 3/13/43^ | 430,621 | ||||||
125,000 | American International Group, Inc., Series MP, 5.45%, 5/18/17, MTN | 136,387 | ||||||
1,080,000 | American International Group, Inc., 4.88%, 6/1/22 | 1,213,212 | ||||||
690,000 | American International Group, Inc., 4.13%, 2/15/24 | 734,513 | ||||||
695,000 | American International Group, Inc., 4.50%, 7/16/44, Callable 1/16/44 @ 100 | 734,275 | ||||||
405,000 | Berkshire Hathaway Finance Corp., 4.30%, 5/15/43^ | 429,352 | ||||||
410,000 | Hartford Financial Services Group, Inc. (The), 4.30%, 4/15/43^ | 420,465 | ||||||
555,000 | Loews Corp., 4.13%, 5/15/43, Callable 11/15/42 @ 100 | 526,457 | ||||||
1,710,000 | MetLife Institutional Funding II LLC, 1.63%, 4/2/15(a) | 1,714,575 | ||||||
1,125,000 | MetLife, Inc., 6.75%, 6/1/16 | 1,212,858 | ||||||
905,000 | New York Life Global Funding, 1.65%, 5/15/17(a) | 911,889 | ||||||
90,000 | Prudential Financial, Inc., Series D, 4.75%, 9/17/15, MTN | 92,351 | ||||||
720,000 | Prudential Financial, Inc., 3.50%, 5/15/24^ | 731,850 | ||||||
|
| |||||||
9,288,805 | ||||||||
|
| |||||||
| IT Services (0.0%): |
| ||||||
450,000 | MasterCard, Inc., 3.38%, 4/1/24^ | 461,906 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): |
| ||||||
280,000 | Thermo Fisher Scientific, Inc., 5.30%, 2/1/44, Callable 8/1/43 @ 100^ | 321,579 | ||||||
|
| |||||||
| Machinery (0.1%): |
| ||||||
605,000 | Deere & Co., 2.60%, 6/8/22, Callable 3/8/22 @ 100 | 595,184 | ||||||
|
| |||||||
| Media (1.0%): |
| ||||||
875,000 | Comcast Corp., 4.20%, 8/15/34, Callable 2/15/34 @ 100^ | 914,940 | ||||||
200,000 | Comcast Corp., 6.50%, 11/15/35 | 266,999 | ||||||
330,000 | Comcast Corp., 6.45%, 3/15/37 | 439,039 | ||||||
935,000 | Comcast Corp., 4.65%, 7/15/42 | 1,023,369 | ||||||
575,000 | Cox Communications, Inc., 4.70%, 12/15/42(a) | 574,491 | ||||||
575,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 3.50%, 3/1/16 | 589,998 | ||||||
730,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 5.20%, 3/15/20 | 807,197 | ||||||
190,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 3.80%, 3/15/22 | 193,300 | ||||||
150,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 4.45%, 4/1/24, Callable 1/1/24 @ 100^ | 156,946 | ||||||
185,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 3.95%, 1/15/25, Callable 10/15/24 @ 100 | 186,456 |
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Media, continued |
| ||||||
$ | 89,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 5.15%, 3/15/42 | $ | 91,969 | ||||
111,000 | Discovery Communications, Inc., 4.88%, 4/1/43 | 114,443 | ||||||
1,135,000 | NBCUniversal Enterprise, Inc., 0.92%, 4/15/18(a)(b) | 1,144,443 | ||||||
280,000 | NBCUniversal Media LLC, 5.15%, 4/30/20 | 317,744 | ||||||
816,000 | NBCUniversal Media LLC, 4.45%, 1/15/43^ | 864,644 | ||||||
525,000 | Omnicom Group, Inc., 5.90%, 4/15/16 | 555,619 | ||||||
820,000 | Scripps Networks Interactive, Inc., 2.70%, 12/15/16 | 842,226 | ||||||
385,000 | Viacom, Inc., 2.75%, 12/15/19, Callable 11/11/19 @ 100^ | 385,763 | ||||||
|
| |||||||
9,469,586 | ||||||||
|
| |||||||
| Metals & Mining (0.3%): |
| ||||||
870,000 | Freeport-McMoRan, Inc., 4.00%, 11/14/21^ | 861,998 | ||||||
1,505,000 | Freeport-McMoRan, Inc., 3.88%, 3/15/23, Callable 12/15/22 @ 100 | 1,418,968 | ||||||
675,000 | Freeport-McMoRan, Inc., 4.55%, 11/14/24, Callable 8/14/24 @ 100^ | 655,444 | ||||||
340,000 | Freeport-McMoRan, Inc., 5.40%, 11/14/34, Callable 5/14/34 @ 100^ | 331,468 | ||||||
|
| |||||||
3,267,878 | ||||||||
|
| |||||||
| Multiline Retail (0.1%): |
| ||||||
640,000 | Target Corp., 3.50%, 7/1/24^ | 664,431 | ||||||
390,000 | Target Corp., 4.00%, 7/1/42^ | 396,172 | ||||||
|
| |||||||
1,060,603 | ||||||||
|
| |||||||
| Multi-Utilities (0.2%): |
| ||||||
155,000 | CenterPoint Energy Resources Corp., 6.25%, 2/1/37 | 196,588 | ||||||
900,000 | DTE Energy Co., Series F, 3.85%, 12/1/23, Callable 9/1/23 @ 100 | 945,427 | ||||||
505,000 | Duke Energy Carolinas LLC, 6.10%, 6/1/37 | 656,879 | ||||||
470,000 | Northwest Florida Timber Finance LLC, 4.75%, 3/4/29(a) | 475,381 | ||||||
|
| |||||||
2,274,275 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.8%): |
| ||||||
2,025,000 | Anadarko Petroleum Corp., 6.38%, 9/15/17 | 2,251,398 | ||||||
435,000 | Anadarko Petroleum Corp., 3.45%, 7/15/24, Callable 4/15/24 @ 100^ | 424,664 | ||||||
225,000 | Anadarko Petroleum Corp., 4.50%, 7/15/44, Callable 1/15/44 @ 100 | 218,357 | ||||||
270,000 | Chevron Corp., 2.19%, 11/15/19^ | 270,999 | ||||||
175,000 | ConocoPhillips Co., 3.35%, 11/15/24, Callable 8/15/24 @ 100^ | 176,811 | ||||||
220,000 | ConocoPhillips Co., 4.30%, 11/15/44, Callable 5/15/44 @ 100 | 230,139 | ||||||
225,000 | Continental Resources, Inc., 4.90%, 6/1/44, Callable 12/1/43 @ 100 | 194,999 | ||||||
216,000 | El Paso Pipeline Partners Operating Co. LLC, 6.50%, 4/1/20 | 244,248 | ||||||
220,000 | El Paso Pipeline Partners Operating Co. LLC, 4.30%, 5/1/24, Callable 2/1/24 @ 100 | 220,426 |
Continued
8
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
$ | 1,390,000 | Energy Transfer Partners LP, 6.50%, 2/1/42, Callable 8/1/41 @ 100 | $ | 1,597,737 | ||||
500,000 | Enterprise Products Operating LLC, 3.90%, 2/15/24, Callable 11/15/23 @ 100 | 509,244 | ||||||
370,000 | Enterprise Products Operating LLC, 3.75%, 2/15/25, Callable 11/15/24 @ 100 | 371,409 | ||||||
200,000 | Enterprise Products Operating LLC, 4.85%, 8/15/42, Callable 2/15/42 @ 100^ | 207,833 | ||||||
220,000 | Enterprise Products Operating LLC, 5.10%, 2/15/45, Callable 8/15/44 @ 100 | 236,542 | ||||||
1,415,000 | Enterprise Products Operating LLC, Series A, 8.38%, 8/1/66, Callable 8/1/16 @ 100 | 1,519,356 | ||||||
530,000 | EOG Resources, Inc., 2.45%, 4/1/20, Callable 3/1/20 @ 100 | 527,251 | ||||||
165,000 | Kinder Morgan Energy Partners LP, 3.95%, 9/1/22, Callable 6/1/22 @ 100 | 163,608 | ||||||
60,000 | Kinder Morgan Energy Partners LP, 3.50%, 9/1/23, Callable 6/1/23 @ 100^ | 56,961 | ||||||
220,000 | Kinder Morgan Energy Partners LP, 4.15%, 2/1/24 | 219,437 | ||||||
454,000 | Kinder Morgan Energy Partners LP, 5.50%, 3/1/44, Callable 9/1/43 @ 100 | 461,509 | ||||||
2,435,000 | Kinder Morgan Energy Partners LP, 5.40%, 9/1/44, Callable 5/15/24 @ 100^ | 2,439,988 | ||||||
685,000 | Kinder Morgan, Inc., 4.30%, 6/1/25, Callable 3/1/25 @ 100^ | 685,319 | ||||||
375,000 | Marathon Petroleum Corp., 4.75%, 9/15/44, Callable 3/15/44 @ 100^ | 354,152 | ||||||
515,000 | Noble Energy, Inc., 5.25%, 11/15/43, Callable 5/15/43 @ 100 | 523,007 | ||||||
1,045,000 | Phillips 66, 4.65%, 11/15/34, Callable 5/15/34 @ 100^ | 1,071,123 | ||||||
335,000 | Plains All American Pipeline LP, 4.90%, 2/15/45, Callable 8/15/44 @ 100 | 340,443 | ||||||
480,000 | Williams Partners LP, 4.00%, 11/15/21^ | 481,175 | ||||||
1,140,000 | Williams Partners LP, 3.90%, 1/15/25, Callable 10/15/24 @ 100^ | 1,095,627 | ||||||
|
| |||||||
17,093,762 | ||||||||
|
| |||||||
| Paper & Forest Products (0.1%): |
| ||||||
400,000 | Georgia-Pacific LLC, 7.70%, 6/15/15 | 411,589 | ||||||
67,000 | International Paper Co., 3.65%, 6/15/24, Callable 3/15/24 @ 100^ | 66,952 | ||||||
191,000 | International Paper Co., 4.80%, 6/15/44, Callable 12/15/43 @ 100^ | 195,050 | ||||||
|
| |||||||
673,591 | ||||||||
|
| |||||||
| Pharmaceuticals (0.7%): |
| ||||||
795,000 | Abbvie, Inc., 2.00%, 11/6/18^ | 792,333 | ||||||
535,000 | Abbvie, Inc., 4.40%, 11/6/42 | �� | 551,943 | |||||
400,000 | Bristol-Myers Squibb Co., 4.50%, 3/1/44, Callable 9/1/43 @ 100 | 437,116 | ||||||
1,020,000 | Merck & Co., Inc., 0.59%, 5/18/18^(b) | 1,021,720 | ||||||
265,000 | Mylan, Inc., 5.40%, 11/29/43, Callable 5/29/43 @ 100 | 294,102 | ||||||
390,000 | Novartis Capital Corp., 4.40%, 5/6/44 | 437,050 |
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Pharmaceuticals, continued |
| ||||||
$ | 710,000 | Pfizer, Inc., 3.40%, 5/15/24^ | $ | 738,668 | ||||
400,000 | Roche Holding, Inc., 4.00%, 11/28/44^(a) | 419,866 | ||||||
995,000 | Watson Pharmaceuticals, Inc., 1.88%, 10/1/17 | 991,143 | ||||||
1,174,000 | Watson Pharmaceuticals, Inc., 3.25%, 10/1/22, Callable 7/1/22 @ 100 | 1,143,030 | ||||||
|
| |||||||
6,826,971 | ||||||||
|
| |||||||
| Property & Casualty Insurance (0.0%): |
| ||||||
325,000 | ACE INA Holdings, Inc., 3.35%, 5/15/24 | 328,412 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.7%): |
| ||||||
1,670,000 | ARC Properties Operating Partnership LP, 4.60%, 2/6/24, Callable 11/6/23 @ 100 | 1,540,646 | ||||||
835,000 | Boston Properties LP, 3.85%, 2/1/23, Callable 11/1/22 @ 100 | 866,794 | ||||||
380,000 | ERP Operating LP, 4.50%, 7/1/44, Callable 1/1/44 @ 100 | 396,033 | ||||||
1,225,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/15/24 @ 100 | 1,244,376 | ||||||
620,000 | Simon Property Group LP, 3.75%, 2/1/24, Callable 11/1/23 @ 100^ | 651,197 | ||||||
955,000 | Simon Property Group LP, 4.25%, 10/1/44^ | 988,225 | ||||||
485,000 | UDR, Inc., 3.75%, 7/1/24, Callable 4/1/24 @ 100 | 488,262 | ||||||
|
| |||||||
6,175,533 | ||||||||
|
| |||||||
| Road & Rail (0.2%): |
| ||||||
370,000 | Burlington North Santa Fe LLC, 4.45%, 3/15/43, Callable 9/15/42 @ 100 | 386,556 | ||||||
445,000 | Burlington North Santa Fe LLC, 4.90%, 4/1/44, Callable 10/1/43 @ 100 | 500,331 | ||||||
240,000 | Union Pacific Corp., 4.85%, 6/15/44, Callable 12/15/43 @ 100^ | 275,437 | ||||||
505,000 | Union Pacific Railroad Co., Series 14-1, 3.23%, 5/14/26 | 507,613 | ||||||
|
| |||||||
1,669,937 | ||||||||
|
| |||||||
| Software (0.3%): |
| ||||||
1,401,000 | Oracle Corp., 3.40%, 7/8/24, Callable 4/8/24 @ 100 | 1,431,923 | ||||||
1,040,000 | Oracle Corp., 4.30%, 7/8/34, Callable 1/8/34 @ 100 | 1,113,499 | ||||||
|
| |||||||
2,545,422 | ||||||||
|
| |||||||
| Specialty Retail (0.2%): |
| ||||||
215,000 | Home Depot, Inc., 4.40%, 3/15/45, Callable 9/15/44 @ 100 | 234,977 | ||||||
465,000 | Lowe’s Cos., Inc., 4.65%, 4/15/42, Callable 10/15/41 @ 100 | 517,186 | ||||||
510,000 | Lowe’s Cos., Inc., 5.00%, 9/15/43, Callable 3/15/43 @ 100 | 596,631 | ||||||
815,000 | Penske Truck Leasing Co. LP, 3.13%, 5/11/15(a) | 821,600 | ||||||
|
| |||||||
2,170,394 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.1%): |
| ||||||
860,000 | Apple, Inc., 2.85%, 5/6/21 | 879,745 | ||||||
410,000 | Apple, Inc., 3.45%, 5/6/24 | 429,378 | ||||||
|
| |||||||
1,309,123 | ||||||||
|
|
Continued
9
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Tobacco (0.2%): |
| ||||||
$ | 680,000 | Altria Group, Inc., 5.38%, 1/31/44^ | $ | 774,055 | ||||
155,000 | Philip Morris International, Inc., 4.50%, 3/20/42 | 163,643 | ||||||
20,000 | Philip Morris International, Inc., 3.88%, 8/21/42 | 18,988 | ||||||
370,000 | Philip Morris International, Inc., 4.13%, 3/4/43 | 362,695 | ||||||
425,000 | Philip Morris International, Inc., 4.88%, 11/15/43 | 473,803 | ||||||
442,000 | Reynolds American, Inc., 6.15%, 9/15/43^ | 512,575 | ||||||
|
| |||||||
2,305,759 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.1%): |
| ||||||
825,000 | GATX Corp., 2.50%, 7/30/19 | 818,775 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
535,000 | Crown Castle Towers LLC, 6.11%, 1/15/20(a) | 614,523 | ||||||
|
| |||||||
| Total Corporate Bonds (Cost $166,988,271) | 170,922,761 | ||||||
|
| |||||||
| Convertible Preferred Stock(0.1%): |
| ||||||
| Banks (0.1%): |
| ||||||
38,500 | Wells Fargo & Co., Callable 9/15/23 @ 25 | 987,525 | ||||||
|
| |||||||
| Total Convertible Preferred Stock (Cost $986,755) | 987,525 | ||||||
|
| |||||||
| Yankee Dollars (8.2%): |
| ||||||
| Banks (3.5%): |
| ||||||
1,965,000 | Asian Development Bank, Series G, 0.75%, 1/11/17 | 1,963,219 | ||||||
1,045,000 | Barclays Bank plc, 2.75%, 11/8/19^ | 1,038,615 | ||||||
210,000 | Barclays Bank plc, 5.14%, 10/14/20^ | 225,853 | ||||||
2,235,000 | Barclays Bank plc, 3.75%, 5/15/24 | 2,303,729 | ||||||
675,000 | BPCE SA, 5.70%, 10/22/23^(a) | 724,793 | ||||||
430,000 | BPCE SA, 4.50%, 3/15/25(a) | 420,165 | ||||||
790,000 | Caixa Economica Federal, 2.38%, 11/6/17(a) | 745,563 | ||||||
920,000 | Credit Agricole SA, 3.88%, 4/15/24(a) | 950,555 | ||||||
710,000 | HSBC Holdings plc, 5.25%, 3/14/44^ | 795,310 | ||||||
1,115,000 | ING Bank NV, 3.75%, 3/7/17(a) | 1,166,850 | ||||||
314,000 | ING Bank NV, 5.80%, 9/25/23(a) | 348,314 | ||||||
1,914,000 | KFW, 0.50%, 7/15/16 | 1,911,397 | ||||||
1,465,000 | Kommunalbanken AS, 0.25%, 1/26/15(a)(b) | 1,465,041 | ||||||
1,856,000 | Kommunalbanken AS, 0.36%, 10/31/16(a)(b) | 1,857,514 | ||||||
1,110,000 | National Bank of Canada, 1.50%, 6/26/15 | 1,113,953 | ||||||
805,000 | Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV, Series G, 1.50%, 2/12/18(a) | 805,657 | ||||||
1,740,000 | Nederlandse Waterschapsbank NV, Series E, 3.00%, 3/17/15(a) | 1,749,025 | ||||||
1,185,000 | Nordea Bank AB, 2.38%, 4/4/19(a) | 1,195,453 | ||||||
555,000 | Nordea Eiendomskreditt AS, 2.13%, 9/22/16^(a) | 565,141 | ||||||
2,610,000 | Oesterreichische Kontrollbank AG, Series G, 1.13%, 7/6/15 | 2,619,566 | ||||||
386,000 | Oriental Republic of Uruguay, 4.50%, 8/14/24^ | 405,300 | ||||||
2,005,000 | Royal Bank of Canada, 1.13%, 7/22/16 | 2,013,676 | ||||||
2,670,000 | Royal Bank of Canada, 2.20%, 9/23/19 | 2,689,544 | ||||||
710,000 | Royal Bank of Scotland Group plc, 1.88%, 3/31/17 | 709,438 |
Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Banks, continued |
| ||||||
$ | 674,000 | Societe Generale SA, 5.00%, 1/17/24(a) | $ | 677,694 | ||||
1,490,000 | Westpac Banking Corp., 2.45%, 11/28/16^(a) | 1,527,190 | ||||||
|
| |||||||
31,988,555 | ||||||||
|
| |||||||
| Capital Markets (0.1%): |
| ||||||
1,355,000 | Credit Suisse Guernsey, Ltd., 2.60%, 5/27/16(a) | 1,387,340 | ||||||
|
| |||||||
| Chemicals (0.0%): |
| ||||||
275,000 | Agrium, Inc., 5.25%, 1/15/45, Callable 7/15/44 @ 100 | 297,032 | ||||||
|
| |||||||
| Diversified Financial Services (0.3%): |
| ||||||
2,190,000 | CDP Financial, Inc., 4.40%, 11/25/19(a) | 2,411,466 | ||||||
|
| |||||||
| Energy Equipment & Services (0.1%): |
| ||||||
600,000 | Schlumberger Investment SA, 3.30%, 9/14/21, Callable 6/14/21 @ 100(a) | 615,811 | ||||||
|
| |||||||
| Government (0.1%): |
| ||||||
689,000 | Province of Manitoba Canada, 3.05%, 5/14/24 | 714,067 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.2%): |
| ||||||
1,595,000 | Carnival Corp., 1.20%, 2/5/16 | 1,594,073 | ||||||
|
| |||||||
| Insurance (0.0%): |
| ||||||
250,000 | AIA Group, Ltd., 4.88%, 3/11/44^(a) | 283,113 | ||||||
185,000 | Aon plc, 4.60%, 6/14/44, Callable 3/14/44 @ 100^ | 192,117 | ||||||
310,000 | Manulife Financial Corp., 3.40%, 9/17/15 | 315,582 | ||||||
|
| |||||||
790,812 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.1%): |
| ||||||
885,000 | Alibaba Group Holding, Ltd., 2.50%, 11/28/19, Callable 10/28/19 @ 100(a) | 873,068 | ||||||
|
| |||||||
| Machinery (0.1%): |
| ||||||
580,000 | Ingersoll-Rand Luxembourg Finance SA, 3.55%, 11/1/24, Callable 8/1/24 @ 100 | 576,464 | ||||||
|
| |||||||
| Media (0.0%): |
| ||||||
370,000 | British Sky Broadcasting Group plc, 3.75%, 9/16/24(a) | 372,266 | ||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
385,000 | BHP Billiton Finance USA, Ltd., 5.00%, 9/30/43 | 436,406 | ||||||
848,000 | Rio Tinto Finance (USA) plc, 4.13%, 8/21/42, Callable 2/21/42 @ 100^ | 823,367 | ||||||
|
| |||||||
1,259,773 | ||||||||
|
| |||||||
| Multi-National (0.8%): |
| ||||||
1,885,000 | African Development Bank, 0.75%, 10/18/16 | 1,885,285 | ||||||
1,640,000 | FMS Wertmanagement, 0.63%, 4/18/16 | 1,640,489 | ||||||
1,415,000 | FMS Wertmanagement, 1.13%, 9/5/17 | 1,414,181 | ||||||
2,790,000 | FMS Wertmanagement, 1.63%, 11/20/18 | 2,795,027 | ||||||
|
| |||||||
7,734,982 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.2%): |
| ||||||
945,000 | BP Capital Markets plc, 0.74%, 5/10/18(b) | 934,786 | ||||||
575,000 | BP Capital Markets plc, 4.74%, 3/11/21 | 625,893 | ||||||
575,000 | BP Capital Markets plc, 2.75%, 5/10/23 | 537,697 | ||||||
555,000 | Ecopetrol SA, 4.13%, 1/16/25 | 527,250 |
Continued
10
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
$ | 525,000 | Ensco plc, 4.50%, 10/1/24, Callable 7/1/24 @ 100^ | $ | 510,288 | ||||
774,000 | Petrobras Global Finance BV, 6.25%, 3/17/24^ | 736,492 | ||||||
1,080,000 | Petrobras International Finance Co., 3.88%, 1/27/16 | 1,059,803 | ||||||
50,000 | Petroleos Mexicanos, 8.00%, 5/3/19 | 59,125 | ||||||
107,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 120,108 | ||||||
2,923,000 | Petroleos Mexicanos, 4.88%, 1/24/22 | 3,061,579 | ||||||
270,000 | Petroleos Mexicanos, 4.88%, 1/18/24 | 280,530 | ||||||
295,000 | Shell International Finance BV, 4.55%, 8/12/43 | 322,721 | ||||||
800,000 | Statoil ASA, 2.45%, 1/17/23 | 763,067 | ||||||
1,100,000 | Statoil ASA, 3.70%, 3/1/24 | 1,138,869 | ||||||
175,000 | Transocean, Inc., 3.80%, 10/15/22, Callable 7/15/22 @ 100^ | 141,807 | ||||||
|
| |||||||
10,820,015 | ||||||||
|
| |||||||
| Personal Products (0.2%): |
| ||||||
690,000 | GlaxoSmithKline Capital plc, 2.85%, 5/8/22 | 690,037 | ||||||
670,000 | Takeda Pharmaceutical Co., Ltd., 1.63%, 3/17/17(a) | 672,075 | ||||||
|
| |||||||
1,362,112 | ||||||||
|
| |||||||
| Pharmaceuticals (0.1%): |
| ||||||
1,115,000 | Actavis Funding SCS, 3.85%, 6/15/24, Callable 3/15/24 @ 100 | 1,120,696 | ||||||
445,000 | Actavis Funding SCS, 4.85%, 6/15/44, Callable 12/15/43 @ 100 | 451,558 | ||||||
|
| |||||||
1,572,254 | ||||||||
|
| |||||||
| Sovereign Bonds (1.1%): |
| ||||||
620,000 | Canada Government, 1.63%, 2/27/19 | 621,897 | ||||||
1,349,000 | Federal Republic of Brazil, 4.88%, 1/22/21^ | 1,433,313 | ||||||
1,070,000 | Federal Republic of Brazil, 2.63%, 1/5/23 | 973,700 | ||||||
2,811,000 | Federal Republic of Brazil, 4.25%, 1/7/25^ | 2,810,999 | ||||||
1,270,000 | Republic of Colombia, 4.00%, 2/26/24 | 1,298,575 | ||||||
430,000 | Republic of South Africa, 5.38%, 7/24/44 | 454,188 | ||||||
262,000 | United Mexican States, 3.50%, 1/21/21 | 267,502 | ||||||
1,826,000 | United Mexican States, 3.63%, 3/15/22^ | 1,865,258 | ||||||
562,000 | United Mexican States, 4.00%, 10/2/23 | 583,075 | ||||||
1,519,000 | United Mexican States, 3.60%, 1/30/25 | 1,513,684 | ||||||
|
| |||||||
11,822,191 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.2%): |
| ||||||
1,296,000 | Vodafone Group plc, 2.95%, 2/19/23^ | 1,249,187 | ||||||
74,000 | Vodafone Group plc, 6.15%, 2/27/37 | 89,291 | ||||||
555,000 | Vodafone Group plc, 4.38%, 2/19/43 | 540,896 | ||||||
|
| |||||||
1,879,374 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $77,568,042) | 78,071,655 | ||||||
|
| |||||||
| Municipal Bonds (1.0%): |
| ||||||
| California (0.1%): |
| ||||||
700,000 | California State, GO, 5.00%, 9/1/42, Callable 9/1/22 @ 100 | 796,607 | ||||||
360,000 | California State Health Facilities Financing Authority Revenue, Series A, 5.00%, 8/15/52, Callable 8/15/23 @ 100 | 402,379 | ||||||
|
| |||||||
1,198,986 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
| Municipal Bonds, continued |
| ||||||
| Illinois (0.2%): |
| ||||||
1,320,000 | Illinois State, GO, 5.50%, 7/1/24, Callable 7/1/23 @ 100 | 1,529,180 | ||||||
|
| |||||||
| Nevada (0.1%): |
| ||||||
1,100,000 | Las Vegas Valley Nevada Water District, GO, 5.00%, 6/1/39, Callable 12/1/24 @ 100 | 1,268,894 | ||||||
|
| |||||||
| Massachusetts (0.1%): |
| ||||||
450,000 | Massachusetts State School Building Authority Sales Tax Revenue, Series B, 5.00%, 10/15/41, Callable 10/15/21 @ 100 | 512,177 | ||||||
|
| |||||||
| Missouri (0.1%): |
| ||||||
460,000 | Metropolitan Saint Louis Sewer District West Water System Revenue, Series A, 5.00%, 5/1/42, Callable 5/1/22 @ 100 | 523,600 | ||||||
|
| |||||||
| New Jersey (0.2%): |
| ||||||
2,005,000 | New Jersey State Transportation Trust Fund Authority Revenue, Series AA, 5.00%, 6/15/36, Callable 6/15/23 @ 100 | 2,204,677 | ||||||
420,000 | New Jersey State Health Care Facilities Financing Authority Revenue, 5.00%, 7/1/44 | 470,119 | ||||||
|
| |||||||
2,674,796 | ||||||||
|
| |||||||
| New York (0.2%): |
| ||||||
895,000 | New York State Urban Development Corp. Revenue, Series E, 5.00%, 3/15/24, Callable 3/15/23 @ 100 | 1,081,885 | ||||||
670,000 | New York City Municipal Finance Authority Water & Sewer System Revenue, Series EE, 5.00%, 6/15/47, Callable 6/15/23 @ 100 | 753,308 | ||||||
|
| |||||||
1,835,193 | ||||||||
|
| |||||||
| Total Municipal Bonds (Cost $9,173,394) | 9,542,826 | ||||||
|
| |||||||
| U.S. Government Agency Mortgages (36.0%): |
| ||||||
| Federal Farm Credit Bank (0.2%) |
| ||||||
2,120,000 | 2.35%, 4/24/23, Callable 1/15/15 @ 100 | 2,088,713 | ||||||
|
| |||||||
| Federal Home Loan Mortgage Corporation (4.6%) |
| ||||||
1,299,000 | 1.00%, 9/27/17 | 1,295,148 | ||||||
1,135,327 | Class BW, Series 3738, 3.50%, 10/15/28 | 1,179,183 | ||||||
591,000 | 4.47%, 9/15/29(c) | 365,866 | ||||||
1,694,000 | 4.65%, 12/17/29(c) | 1,042,559 | ||||||
197,000 | 4.74%, 3/15/31(c) | 117,017 | ||||||
190,000 | 6.75%, 3/15/31 | 285,651 | ||||||
160,592 | 5.00%, 7/1/35, Pool #G01840 | 177,901 | ||||||
213,025 | 5.00%, 7/1/35, Pool #G01838 | 235,972 | ||||||
490,824 | 6.00%, 4/1/39, Pool #G07613 | 558,805 | ||||||
92,302 | 4.00%, 10/1/40, Pool #A95923 | 99,356 | ||||||
94,649 | 4.00%, 11/1/40, Pool #A94779 | 101,874 | ||||||
95,406 | 4.00%, 11/1/40, Pool #A95144 | 102,700 | ||||||
90,260 | 4.00%, 11/1/40, Pool #A94977 | 97,156 | ||||||
139,197 | 3.13%, 3/1/41, Pool #1B8062(b) | 145,638 | ||||||
1,951,766 | 5.50%, 6/1/41, Pool #G07553 | 2,181,885 | ||||||
180,120 | 4.00%, 10/1/41, Pool #Q04022 | 193,859 | ||||||
87,937 | 4.00%, 10/1/41, Pool #Q03841 | 94,591 | ||||||
347,693 | 5.00%, 10/1/41, Pool #G07642 | 384,712 | ||||||
1,586,307 | Class BU, Series 4150, 4.00%, 2/15/42 | 1,679,780 | ||||||
543,485 | 3.50%, 4/1/42, Pool #C03811 | 567,842 |
Continued
11
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal Home Loan Mortgage Corporation, continued | |||||||
$ | 367,386 | 3.50%, 4/1/42, Pool #C03805 | $ | 383,419 | ||||
296,865 | 2.03%, 7/1/42, Pool #2B0646(b) | 306,836 | ||||||
98,765 | 3.50%, 8/1/42, Pool #Q10031 | 103,098 | ||||||
583,304 | 3.50%, 11/1/42, Pool #Q12841 | 607,606 | ||||||
562,483 | 3.00%, 1/1/43, Pool #Q14866 | 569,351 | ||||||
97,142 | 3.50%, 2/1/43, Pool #Q15442 | 101,633 | ||||||
655,087 | 3.00%, 3/1/43, Pool #Q16567 | 663,015 | ||||||
373,038 | 3.00%, 3/1/43, Pool #Q16403 | 377,625 | ||||||
545,769 | 3.00%, 3/1/43, Pool #Q16673 | 552,314 | ||||||
179,926 | 3.00%, 4/1/43, Pool #Q17095 | 182,238 | ||||||
1,026,750 | 3.50%, 7/1/43, Pool #Q20262 | 1,071,637 | ||||||
377,807 | 3.50%, 7/1/43, Pool #Q20206 | 394,791 | ||||||
3,727,697 | 3.00%, 7/1/43, Pool #V80169 | 3,771,412 | ||||||
378,096 | 3.50%, 7/1/43, Pool #Q20021 | 395,624 | ||||||
854,640 | 3.50%, 8/1/43, Pool #V80355 | 894,175 | ||||||
2,050,779 | 3.00%, 8/1/43, Pool #G07550 | 2,075,582 | ||||||
168,519 | 4.00%, 9/1/43, Pool #Q21579 | 181,643 | ||||||
740,096 | 3.50%, 12/1/43, Pool #G07591 | 772,401 | ||||||
48,970 | 3.50%, 1/1/44, Pool #Q24368 | 51,175 | ||||||
700,000 | 5.50%, 1/15/44 | 781,977 | ||||||
1,100,000 | 3.50%, 1/15/44 | 1,143,742 | ||||||
4,800,000 | 4.50%, 1/15/44 | 5,202,563 | ||||||
200,000 | 5.00%, 1/15/44 | 220,695 | ||||||
37,441 | 3.50%, 4/1/44, Pool #Q25812 | 39,128 | ||||||
34,160 | 3.50%, 5/1/44, Pool #Q26452 | 35,699 | ||||||
54,421 | 3.50%, 5/1/44, Pool #Q26218 | 56,923 | ||||||
23,800 | 3.50%, 5/1/44, Pool #Q25988 | 24,865 | ||||||
98,021 | 3.50%, 5/1/44, Pool #Q26362 | 102,421 | ||||||
47,875 | 3.50%, 6/1/44, Pool #Q26707 | 50,029 | ||||||
196,041 | 3.50%, 7/1/44, Pool #Q27230 | 204,626 | ||||||
41,768 | 3.50%, 7/1/44, Pool #Q27319 | 43,701 | ||||||
196,480 | 3.50%, 7/1/44, Pool #Q27351 | 205,082 | ||||||
1,061,586 | 4.00%, 8/1/44, Pool #G07786 | 1,144,075 | ||||||
197,216 | 3.50%, 8/1/44, Pool #Q27843 | 206,100 | ||||||
88,878 | 3.50%, 9/1/44, Pool #Q28604 | 92,993 | ||||||
195,123 | 3.50%, 9/1/44, Pool #Q28605 | 203,885 | ||||||
199,137 | 3.50%, 9/1/44, Pool #Q28268 | 207,864 | ||||||
9,100,000 | 4.00%, 1/15/45 | 9,700,031 | ||||||
|
| |||||||
44,029,469 | ||||||||
|
| |||||||
| Federal National Mortgage Association (18.3%) | |||||||
192,718 | 4.00%, 7/1/19, Pool #AE0968 | 204,180 | ||||||
24,089 | Class NT, Series 2009-70, 4.00%, 8/25/19 | 24,950 | ||||||
388,204 | 4.00%, 7/1/24, Pool #AL1938 | 414,769 | ||||||
436,856 | 5.50%, 7/1/25, Pool #AE0096 | 488,161 | ||||||
3,385,115 | 3.50%, 12/1/25, Pool# AH1359 | 3,598,979 | ||||||
505,474 | 4.00%, 9/1/26, Pool #AL2683 | 541,396 | ||||||
5,142,717 | 4.00%, 5/1/27, Pool# AL5956 | 5,484,623 | ||||||
6,040,863 | 2.50%, 5/1/28, Pool #310125 | 6,163,363 | ||||||
2,982,911 | 3.50%, 9/1/28, Pool #AL4245 | 3,171,679 | ||||||
926,631 | 3.50%, 10/1/28, Pool #AV0198 | 985,145 | ||||||
1,187,619 | 3.50%, 11/1/28, Pool #AV1360 | 1,262,502 | ||||||
844,390 | Class CD, Series 2011-56, 3.50%, 1/25/29 | 871,023 | ||||||
4,900,000 | 2.50%, 1/25/29 | 4,988,813 | ||||||
829,481 | 3.50%, 2/1/29, Pool #AL4922 | 881,852 | ||||||
965,852 | 3.00%, 4/1/29, Pool #AW0937 | 1,007,359 |
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal National Mortgage Association, continued | |||||||
$ | 677,441 | 3.00%, 5/1/29, Pool #AW2544 | $ | 707,166 | ||||
1,255,813 | 3.00%, 6/1/29, Pool #AS2676 | 1,309,908 | ||||||
874,225 | 3.00%, 9/1/29, Pool #AS3220 | 911,954 | ||||||
614,885 | 3.50%, 9/1/29, Pool #AX0105 | 653,957 | ||||||
4,000,000 | 3.50%, 12/1/29, Pool# AL6161 | 4,230,849 | ||||||
2,605,000 | 5.67%, 1/15/30(c) | 1,593,880 | ||||||
1,700,000 | 2.00%, 1/25/30 | 1,693,095 | ||||||
100,000 | 4.50%, 1/25/30 | 105,070 | ||||||
6,200,000 | 3.00%, 1/25/30 | 6,444,367 | ||||||
1,100,000 | 5.00%, 1/25/30 | 1,159,159 | ||||||
1,200,000 | 5.50%, 1/25/30 | 1,267,687 | ||||||
3,901,000 | 5.20%, 5/15/30(c) | 2,372,245 | ||||||
382,955 | 5.50%, 1/1/33, Pool #676661 | 431,720 | ||||||
381,648 | 5.00%, 2/1/33, Pool #AB0107 | 423,019 | ||||||
256,418 | 5.50%, 5/1/33, Pool #555424 | 289,038 | ||||||
2,012,115 | 5.00%, 9/1/33, Pool #741878 | 2,228,875 | ||||||
175,078 | 5.00%, 7/1/34, Pool #725589 | 193,868 | ||||||
1,580,239 | 5.00%, 2/1/35, Pool #AB0117 | 1,753,488 | ||||||
2,838,363 | 5.00%, 2/1/35, Pool #931574 | 3,143,356 | ||||||
2,524,394 | 5.00%, 2/1/35, Pool #AB0112 | 2,795,924 | ||||||
598,199 | 5.50%, 2/1/35, Pool #735989 | 674,041 | ||||||
94,443 | 5.00%, 2/1/35, Pool #AB0108 | 104,575 | ||||||
49,265 | 6.00%, 4/1/35, Pool #735504 | 56,317 | ||||||
2,600,773 | 5.00%, 4/1/36, Pool #AB0111 | 2,880,401 | ||||||
1,390,395 | 5.50%, 9/1/36, Pool #995113 | 1,563,686 | ||||||
124,886 | 5.50%, 2/1/38, Pool #961545 | 139,551 | ||||||
50,529 | 6.00%, 3/1/38, Pool #889529 | 58,062 | ||||||
157,470 | 6.00%, 5/1/38, Pool #889466 | 181,039 | ||||||
374,875 | 5.50%, 5/1/38, Pool #889692 | 418,896 | ||||||
274,095 | 5.50%, 5/1/38, Pool #889441 | 306,282 | ||||||
262,532 | 5.50%, 6/1/38, Pool #995018 | 293,361 | ||||||
72,304 | 5.50%, 9/1/38, Pool #889995 | 80,795 | ||||||
177,243 | 6.00%, 10/1/38, Pool #889983 | 201,117 | ||||||
188,146 | 5.50%, 10/1/39, Pool #AD0362 | 211,517 | ||||||
182,839 | 5.50%, 12/1/39, Pool #AD0571 | 206,119 | ||||||
1,149,728 | 6.00%, 4/1/40, Pool #AL4141 | 1,303,739 | ||||||
231,203 | 6.50%, 5/1/40, Pool #AL1704 | 263,300 | ||||||
571,493 | 4.50%, 7/1/40, Pool #AD7127 | 620,661 | ||||||
1,589,891 | 4.50%, 8/1/40, Pool #AD8036 | 1,727,532 | ||||||
126,442 | 6.00%, 9/1/40, Pool #AE0823 | 143,460 | ||||||
2,680,000 | Class CY, Series 2010-136, 4.00%, 12/25/40 | 2,888,048 | ||||||
537,643 | 4.00%, 1/1/41, Pool #AE0835 | 579,794 | ||||||
169,559 | 2.90%, 2/1/41, Pool #AH6958(b) | 179,014 | ||||||
1,600,328 | 5.00%, 4/1/41, Pool #AH6283 | 1,774,447 | ||||||
2,087,810 | 5.00%, 4/1/41, Pool #AH6176 | 2,314,285 | ||||||
254,952 | 6.00%, 6/1/41, Pool #AL4142 | 289,411 | ||||||
327,124 | 3.24%, 7/1/41, Pool #AL0533(b) | 349,751 | ||||||
178,523 | 4.00%, 12/1/41, Pool #AJ4188 | 192,592 | ||||||
2,369,714 | 5.00%, 1/1/42, Pool #AX5297 | 2,626,706 | ||||||
97,107 | 3.50%, 1/1/42, Pool #AK2073 | 101,680 | ||||||
49,101 | 3.50%, 5/1/42, Pool #AO3128 | 51,363 | ||||||
171,006 | 4.00%, 5/1/42, Pool #AT6144 | 184,777 | ||||||
45,019 | 3.50%, 5/1/42, Pool #AO3360 | 47,095 | ||||||
83,241 | 3.50%, 6/1/42, Pool #AL2168 | 87,186 | ||||||
82,196 | 3.50%, 6/1/42, Pool #AO3107 | 86,075 |
Continued
12
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal National Mortgage Association, continued | |||||||
$ | 365,581 | 2.02%, 7/1/42, Pool #AP0006(b) | $ | 379,538 | ||||
107,202 | 2.29%, 7/1/42, Pool #AO6482(b) | 111,000 | ||||||
80,116 | 3.50%, 7/1/42, Pool #AO8011 | 83,814 | ||||||
2,404,272 | 4.00%, 7/1/42, Pool #AL4244 | 2,597,875 | ||||||
3,884,112 | 4.50%, 7/1/42, Pool #AL6003 | 4,215,054 | ||||||
97,411 | 3.50%, 10/1/42, Pool #AQ0393 | 102,163 | ||||||
337,108 | 4.00%, 11/1/42, Pool #AL5227 | 363,625 | ||||||
321,770 | 3.00%, 12/1/42, Pool #AB7425 | 326,150 | ||||||
384,138 | 3.00%, 12/1/42, Pool #AB7271 | 389,384 | ||||||
964,818 | 3.00%, 1/1/43, Pool #AB7497 | 977,863 | ||||||
975,644 | 3.00%, 1/1/43, Pool #AB7458 | 988,969 | ||||||
662,335 | 3.00%, 1/1/43, Pool #AB7755 | 671,361 | ||||||
1,048,748 | 3.00%, 1/1/43, Pool #AB7567 | 1,063,050 | ||||||
1,341,982 | 3.00%, 2/1/43, Pool #AL3162 | 1,361,117 | ||||||
362,425 | 3.00%, 2/1/43, Pool #AB8558 | 367,591 | ||||||
364,672 | 3.00%, 2/1/43, Pool #AB7762 | 369,887 | ||||||
482,846 | 3.50%, 2/1/43, Pool #AL2935 | 505,650 | ||||||
711,833 | 3.00%, 3/1/43, Pool #AR9194 | 721,998 | ||||||
263,529 | 4.00%, 3/1/43, Pool #AL3377 | 284,400 | ||||||
665,511 | 3.00%, 3/1/43, Pool #AB8701 | 674,600 | ||||||
260,549 | 3.00%, 3/1/43, Pool #AR9218 | 264,000 | ||||||
85,800 | 3.00%, 3/1/43, Pool #AB8712 | 86,964 | ||||||
235,148 | 3.00%, 3/1/43, Pool #AB8830 | 238,351 | ||||||
183,329 | 3.00%, 3/1/43, Pool #AR7576 | 185,834 | ||||||
147,126 | 3.00%, 3/1/43, Pool #AR7568 | 149,034 | ||||||
279,562 | 3.00%, 4/1/43, Pool #AR8630 | 283,228 | ||||||
622,884 | 3.00%, 4/1/43, Pool #AB9016 | 631,377 | ||||||
115,207 | 3.00%, 4/1/43, Pool #AT2037 | 116,727 | ||||||
186,774 | 3.00%, 4/1/43, Pool #AB8923 | 189,220 | ||||||
178,157 | 3.00%, 4/1/43, Pool #AB8924 | 180,591 | ||||||
186,583 | 3.00%, 4/1/43, Pool #AT2043 | 189,136 | ||||||
87,596 | 3.00%, 4/1/43, Pool #AB9033 | 88,792 | ||||||
342,501 | 3.00%, 4/1/43, Pool #AT2040 | 347,043 | ||||||
714,967 | 3.00%, 5/1/43, Pool #AT2719 | 725,168 | ||||||
322,825 | 3.00%, 5/1/43, Pool #AB9462 | 327,643 | ||||||
2,615,223 | 3.00%, 5/1/43, Pool #AT5974 | 2,652,494 | ||||||
266,211 | 3.00%, 5/1/43, Pool #AT6654 | 270,012 | ||||||
272,882 | 3.00%, 5/1/43, Pool #AL3759 | 276,776 | ||||||
1,108,521 | 4.00%, 5/1/43, Pool #AL3692 | 1,195,921 | ||||||
447,943 | 3.00%, 5/1/43, Pool #AB9173 | 454,341 | ||||||
382,214 | 3.00%, 6/1/43, Pool #AB9662 | 387,912 | ||||||
24,301 | 3.00%, 6/1/43, Pool #AB9564 | 24,662 | ||||||
124,941 | 3.00%, 6/1/43, Pool #AT7676 | 126,719 | ||||||
486,361 | 3.50%, 6/1/43, Pool #AR8582 | 508,834 | ||||||
24,157 | 4.00%, 7/1/43, Pool #AU0878 | 26,066 | ||||||
1,545,652 | 3.50%, 7/1/43, Pool #AU1633 | 1,619,194 | ||||||
991,798 | 3.50%, 7/1/43, Pool #AT7940 | 1,040,148 | ||||||
346,030 | 3.50%, 7/1/43, Pool #AT8464 | 362,485 | ||||||
2,825,644 | 3.50%, 7/1/43, Pool #AL4014 | 2,959,789 | ||||||
319,255 | 3.50%, 7/1/43, Pool #AT4327 | 334,869 | ||||||
2,742,456 | 3.50%, 7/1/43, Pool #AL4009 | 2,876,373 | ||||||
820,202 | 3.50%, 7/1/43, Pool #AL4010 | 858,882 | ||||||
814,695 | 4.00%, 8/1/43, Pool #AL5096 | 878,628 | ||||||
2,751,930 | 4.50%, 8/1/43, Pool #AL5097 | 2,988,360 | ||||||
187,335 | 3.50%, 8/1/43, Pool #AU0613 | 196,169 |
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal National Mortgage Association, continued | |||||||
$ | 92,580 | 3.50%, 8/1/43, Pool #AU3270 | $ | 96,960 | ||||
22,583 | 3.50%, 8/1/43, Pool #AT7333 | 23,652 | ||||||
187,139 | 3.50%, 8/1/43, Pool #AU0570 | 195,973 | ||||||
22,295 | 3.50%, 8/1/43, Pool #AU3032 | 23,350 | ||||||
920,642 | 3.50%, 8/1/43, Pool #AS0209 | 964,137 | ||||||
94,690 | 3.50%, 8/1/43, Pool #AU3267 | 99,298 | ||||||
35,906 | 3.50%, 9/1/43, Pool #AT7267 | 37,616 | ||||||
40,308 | 3.50%, 10/1/43, Pool #AU7247 | 42,278 | ||||||
1,819,809 | 4.00%, 11/1/43, Pool #890567 | 1,965,793 | ||||||
313,584 | 4.00%, 12/1/43, Pool #AS1200 | 338,368 | ||||||
943,221 | 3.50%, 12/1/43, Pool #AL4682 | 989,285 | ||||||
175,413 | 3.50%, 1/1/44, Pool #AS1539 | 183,760 | ||||||
2,677,409 | 2.91%, 1/1/44, Pool #AV7743(b) | 2,765,231 | ||||||
166,442 | 3.50%, 1/1/44, Pool #AS1703 | 174,319 | ||||||
108,312 | 3.50%, 1/1/44, Pool #AS1453 | 113,577 | ||||||
380,405 | 4.00%, 1/1/44, Pool #AV2356 | 411,147 | ||||||
92,914 | 4.00%, 1/1/44, Pool #AS1460 | 100,321 | ||||||
4,852,156 | 4.00%, 1/1/44, Pool #AL4685 | 5,234,671 | ||||||
600,000 | 5.50%, 1/25/44 | 671,156 | ||||||
2,300,000 | 6.00%, 1/25/44 | 2,608,254 | ||||||
1,200,000 | 2.50%, 1/25/44 | 1,172,156 | ||||||
10,400,000 | 4.50%, 1/25/44 | 11,288,876 | ||||||
335,411 | 4.00%, 2/1/44, Pool #AL4915 | 362,425 | ||||||
846,248 | 4.00%, 2/1/44, Pool #AL4840 | 914,606 | ||||||
1,040,453 | 4.00%, 2/1/44, Pool #AS1773 | 1,124,458 | ||||||
325,047 | 4.00%, 5/1/44, Pool #AS2316 | 350,721 | ||||||
42,612 | 4.00%, 5/1/44, Pool #AV8073 | 45,975 | ||||||
118,403 | 4.00%, 5/1/44, Pool #AW1006 | 127,736 | ||||||
47,481 | 3.50%, 6/1/44, Pool #AW6405 | 49,742 | ||||||
23,087 | 3.50%, 6/1/44, Pool #AS2591 | 24,180 | ||||||
34,679 | 3.50%, 6/1/44, Pool #AV8080 | 36,331 | ||||||
63,928 | 4.00%, 7/1/44, Pool #AV8811 | 68,973 | ||||||
24,809 | 4.00%, 7/1/44, Pool #AX0365 | 26,769 | ||||||
52,341 | 3.50%, 7/1/44, Pool #AW9544 | 54,834 | ||||||
36,447 | 4.00%, 7/1/44, Pool #AW4579 | 39,324 | ||||||
98,168 | 3.50%, 8/1/44, Pool #AW8558 | 102,726 | ||||||
99,692 | 3.50%, 8/1/44, Pool #AW7923 | 104,324 | ||||||
26,435 | 3.50%, 8/1/44, Pool #AW4287 | 27,695 | ||||||
481,731 | 4.00%, 8/1/44, Pool #AL5735 | 519,792 | ||||||
363,878 | 3.50%, 8/1/44, Pool #AS3031 | 381,214 | ||||||
25,299 | 4.00%, 8/1/44, Pool #AX1260 | 27,297 | ||||||
51,668 | 4.00%, 8/1/44, Pool #AX1378 | 55,751 | ||||||
225,415 | 3.50%, 8/1/44, Pool #AS3034 | 236,440 | ||||||
70,496 | 4.00%, 8/1/44, Pool #AV8823 | 76,068 | ||||||
24,855 | 3.50%, 8/1/44, Pool #AW9207 | 26,072 | ||||||
1,488,951 | 3.50%, 9/1/44, Pool #AX0832 | 1,558,115 | ||||||
2,191,338 | 4.00%, 9/1/44, Pool #AS3259 | 2,368,527 | ||||||
1,191,794 | 4.00%, 9/1/44, Pool# AL6051 | 1,273,450 | ||||||
45,193 | 4.00%, 9/1/44, Pool #AV8836 | 48,751 | ||||||
25,103 | 4.00%, 9/1/44, Pool #AX4057 | 27,088 | ||||||
132,821 | 4.00%, 9/1/44, Pool #AX3209 | 143,332 | ||||||
108,919 | 3.50%, 9/1/44, Pool #AX0830 | 114,251 | ||||||
24,895 | 4.00%, 9/1/44, Pool #AX4214 | 26,864 | ||||||
31,472 | 4.00%, 9/1/44, Pool #AX0584 | 33,924 | ||||||
55,060 | 4.00%, 9/1/44, Pool #AW9087 | 59,408 |
Continued
13
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal National Mortgage Association, continued | |||||||
$ | 49,782 | 3.50%, 9/1/44, Pool #AW8191 | $ | 52,157 | ||||
49,302 | 3.50%, 9/1/44, Pool #AW8188 | 51,709 | ||||||
99,400 | 3.50%, 9/1/44, Pool #AX0983 | 104,015 | ||||||
67,799 | 4.00%, 9/1/44, Pool #AW8760 | 73,156 | ||||||
30,996 | 4.00%, 9/1/44, Pool #AW8776 | 33,445 | ||||||
123,765 | 4.00%, 10/1/44, Pool #AX3063 | 133,552 | ||||||
36,566 | 4.00%, 10/1/44, Pool #AX4698 | 39,457 | ||||||
25,341 | 4.00%, 10/1/44, Pool #AX4717 | 27,346 | ||||||
27,457 | 4.00%, 10/1/44, Pool #AX5017 | 29,630 | ||||||
305,990 | 4.00%, 10/1/44, Pool #AL5987 | 330,210 | ||||||
24,933 | 4.00%, 10/1/44, Pool #AW8061 | 26,907 | ||||||
24,933 | 4.00%, 10/1/44, Pool #AW9115 | 26,903 | ||||||
49,642 | 4.00%, 10/1/44, Pool #AV8847 | 53,571 | ||||||
25,088 | 4.00%, 10/1/44, Pool #AX1180 | 27,074 | ||||||
170,826 | 4.00%, 10/1/44, Pool# AL5986 | 184,665 | ||||||
124,153 | 4.00%, 11/1/44, Pool #AX4403 | 134,000 | ||||||
539,018 | 4.00%, 11/1/44, Pool #AX2569 | 581,766 | ||||||
54,322 | 4.00%, 11/1/44, Pool #AW8073 | 58,631 | ||||||
260,994 | 4.00%, 11/1/44, Pool #AV8862 | 281,693 | ||||||
301,816 | 4.00%, 11/1/44, Pool #AS3698 | 325,753 | ||||||
25,894 | 4.00%, 11/1/44, Pool #AX9361 | 27,948 | ||||||
73,130 | 4.00%, 11/1/44, Pool #AX6852 | 79,067 | ||||||
239,373 | 4.00%, 11/1/44, Pool #AS3696 | 258,358 | ||||||
77,023 | 4.00%, 11/1/44, Pool #AX6014 | 83,131 | ||||||
25,139 | 4.00%, 11/1/44, Pool #AX4776 | 27,133 | ||||||
307,251 | 4.00%, 11/1/44, Pool #AX6846 | 331,619 | ||||||
183,429 | 4.00%, 11/1/44, Pool #AS3684 | 197,976 | ||||||
460,018 | 4.00%, 12/1/44, Pool #AS3949 | 497,361 | ||||||
28,411 | 4.00%, 12/1/44, Pool #AX9746 | 30,664 | ||||||
159,908 | 4.00%, 12/1/44, Pool #AX6909 | 172,590 | ||||||
981,814 | 4.00%, 12/1/44, Pool #AS3945 | 1,058,758 | ||||||
38,927 | 4.00%, 12/1/44, Pool #AX6976 | 42,014 | ||||||
1,250,432 | 3.50%, 12/31/49, Pool #AL4543 | 1,308,095 | ||||||
|
| |||||||
174,208,620 | ||||||||
|
| |||||||
| Government National Mortgage Association (12.9%) | |||||||
54,711 | 4.50%, 9/15/33, Pool #615516 | 60,306 | ||||||
194,881 | 5.00%, 12/15/33, Pool #783571 | 216,738 | ||||||
56,867 | 6.50%, 8/20/38, Pool #4223 | 64,336 | ||||||
71,512 | 6.50%, 10/15/38, Pool #673213 | 81,603 | ||||||
32,541 | 6.50%, 11/20/38, Pool #4292 | 36,870 | ||||||
63,406 | 6.50%, 12/15/38, Pool #782510 | 72,353 | ||||||
614,951 | 5.00%, 1/15/39, Pool #782557 | 680,615 | ||||||
430,367 | 5.00%, 4/15/39, Pool #782619 | 476,195 | ||||||
43,087 | 5.00%, 6/15/39, Pool #782696 | 48,065 | ||||||
349,839 | 5.00%, 10/20/39, Pool #4559 | 390,627 | ||||||
100,814 | 4.50%, 1/15/40, Pool #728627 | 110,420 | ||||||
260,607 | 5.00%, 5/15/40, Pool #782958 | 289,477 | ||||||
283,754 | 4.50%, 7/15/40, Pool #745793 | 310,703 | ||||||
50,089 | 4.00%, 9/20/40, Pool #G24800 | 53,880 | ||||||
474,192 | 4.50%, 10/15/40, Pool #783609 | 519,478 | ||||||
93,260 | 4.00%, 10/20/40, Pool #G24833 | 100,322 | ||||||
1,299,440 | 4.00%, 12/20/40, Pool #G24882 | 1,398,087 | ||||||
979,925 | 4.00%, 1/20/41, Pool #004922 | 1,054,425 | ||||||
139,590 | 4.50%, 2/15/41, Pool #738019 | 152,752 | ||||||
16,614 | 4.00%, 2/20/41, Pool #4945 | 17,875 |
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued |
| ||||||
| Government National Mortgage Association, continued |
| ||||||
$ | 25,391 | 5.00%, 4/20/41, Pool #5018 | $ | 28,333 | ||||
425,270 | 4.50%, 6/20/41, Pool #783590 | 466,209 | ||||||
55,491 | 5.00%, 6/20/41, Pool #5083 | 61,920 | ||||||
955,902 | 4.50%, 7/20/41, Pool #5115 | 1,047,736 | ||||||
283,632 | 4.50%, 7/20/41, Pool #783584 | 310,881 | ||||||
28,362 | 5.00%, 7/20/41, Pool #5116 | 31,647 | ||||||
323,146 | 4.50%, 11/15/41, Pool #783610 | 353,976 | ||||||
188,926 | 3.50%, 10/20/42, Pool #MA0462 | 198,632 | ||||||
188,975 | 3.50%, 1/20/43, Pool #MA0699 | 198,684 | ||||||
4,512,865 | 3.50%, 4/20/43, Pool #MA0934 | 4,743,792 | ||||||
93,338 | 4.00%, 7/20/43, Pool #MA1158 | 100,183 | ||||||
3,300,000 | 4.50%, 1/20/44 | 3,605,637 | ||||||
57,095 | 4.00%, 8/20/44, Pool #AJ2723 | 61,762 | ||||||
28,489 | 4.00%, 8/20/44, Pool #AJ4687 | 30,818 | ||||||
78,246 | 4.00%, 8/20/44, Pool #AI4167 | 84,641 | ||||||
24,827 | 4.00%, 8/20/44, Pool #AI4166 | 26,988 | ||||||
37,980,993 | 4.00%, 10/20/44, Pool #MA2304 | 40,805,643 | ||||||
23,779,384 | 3.50%, 10/20/44, Pool #MA2303 | 24,998,457 | ||||||
11,476,147 | 4.00%, 11/20/44, Pool #MA2372 | 12,330,609 | ||||||
7,500,000 | 4.00%, 12/20/44, Pool #MA2446 | 8,054,297 | ||||||
2,800,000 | 4.00%, 1/15/45 | 3,003,842 | ||||||
2,100,000 | 3.50%, 1/15/45 | 2,204,344 | ||||||
500,000 | 5.00%, 1/15/45 | 550,654 | ||||||
400,000 | 4.50%, 1/15/45 | 437,047 | ||||||
1,100,000 | 3.00%, 2/15/45 | 1,124,888 | ||||||
10,900,000 | 3.00%, 2/20/45 | 11,146,613 | ||||||
|
| |||||||
122,143,360 | ||||||||
|
| |||||||
| Total U.S. Government Agency Mortgages | 342,470,162 | ||||||
|
| |||||||
| U.S. Treasury Obligations (24.1%): |
| ||||||
| U.S. Treasury Bonds (2.1%) |
| ||||||
2,600,000 | 4.75%, 2/15/37^ | 3,586,578 | ||||||
4,080,000 | 3.75%, 8/15/41^ | 4,917,355 | ||||||
890,000 | 2.88%, 5/15/43 | 910,303 | ||||||
350,000 | 3.75%, 11/15/43 | 420,738 | ||||||
8,745,200 | 3.13%, 8/15/44^ | 9,414,750 | ||||||
620,000 | 3.00%, 11/15/44 | 651,582 | ||||||
|
| |||||||
19,901,306 | ||||||||
|
| |||||||
| U.S. Treasury Inflation Index Bonds (0.4%) |
| ||||||
1,535,000 | 2.38%, 1/15/25 | 2,270,050 | ||||||
1,705,000 | 1.38%, 2/15/44 | 1,965,935 | ||||||
|
| |||||||
4,235,985 | ||||||||
|
| |||||||
| U.S. Treasury Inflation Index Notes (3.3%) |
| ||||||
21,050,000 | 0.13%, 4/15/19 | 21,094,785 | ||||||
10,354,647 | 0.13%, 7/15/24 | 9,971,513 | ||||||
|
| |||||||
31,066,298 | ||||||||
|
| |||||||
| U.S. Treasury Notes (18.3%) |
| ||||||
11,250,000 | 0.88%, 8/15/17 | 11,222,753 | ||||||
1,665,000 | 0.88%, 10/15/17^ | 1,658,626 | ||||||
4,170,000 | 0.63%, 11/30/17 | 4,116,574 | ||||||
73,540,000 | 1.00%, 12/15/17^ | 73,367,621 | ||||||
4,390,000 | 2.63%, 1/31/18 | 4,584,464 | ||||||
5,910,000 | 0.75%, 2/28/18 | 5,828,738 |
Continued
14
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| U.S. Treasury Obligations, continued |
| ||||||
| U.S. Treasury Notes, continued |
| ||||||
$ | 6,385,000 | 1.50%, 12/31/18 | $ | 6,393,479 | ||||
7,160,000 | 1.38%, 2/28/19 | 7,121,400 | ||||||
4,500,000 | 1.63%, 3/31/19 | 4,520,039 | ||||||
5,945,000 | 3.13%, 5/15/19 | 6,337,465 | ||||||
13,750,000 | 1.50%, 11/30/19^ | 13,662,990 | ||||||
20,120,000 | 1.88%, 11/30/21^ | 20,002,117 | ||||||
13,821,200 | 2.25%, 11/15/24^ | 13,914,065 | ||||||
|
| |||||||
172,730,331 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $226,278,243) | 227,933,920 | ||||||
|
|
Shares or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (17.4%): |
| ||||||
$ | 165,341,312 | Allianz Variable Insurance Products Securities Lending Collateral Trust(d) | $ | 165,341,312 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 165,341,312 | ||||||
|
| |||||||
| Unaffiliated Investment Company (5.4%): |
| ||||||
51,423,686 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(c) | 51,423,686 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $51,423,686) | 51,423,686 | ||||||
|
| |||||||
| Total Investment Securities (Cost $1,183,858,347)(e) — 125.7% | 1,193,626,443 | ||||||
| Net other assets (liabilities) — (25.7)% | (244,200,680 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 949,425,763 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
GO—General Obligation
MTN—Medium Term Note
Re-REMIC—Restructured Real Estate Mortgage Investment Conduit
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $161,434,424. |
(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 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, 2014. The date presented represents the final maturity date. |
(c) | The rate represents the effective yield at December 31, 2014. |
(d) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Securities Sold Short (-13.9%):
Security Description | Coupon Rate | Maturity Date | Par Amount | Proceeds Received | Fair Value | Unrealized Appreciation/ Deprecation | ||||||||||||||
Federal Home Loan Mortgage Corporation | 3.00% | 1/15/44 | $ | (5,200,000 | ) | $ | (5,204,062 | ) | $ | (5,252,812 | ) | $ | (48,750 | ) | ||||||
Federal National Mortgage Association | 4.00% | 1/25/45 | (15,075,000 | ) | (16,057,217 | ) | (16,088,853 | ) | (31,636 | ) | ||||||||||
Federal National Mortgage Association | 5.00% | 1/25/45 | (5,600,000 | ) | (6,192,723 | ) | (6,187,016 | ) | 5,707 | |||||||||||
Federal National Mortgage Association | 3.00% | 1/25/45 | (3,875,000 | ) | (3,880,450 | ) | (3,919,805 | ) | (39,355 | ) | ||||||||||
Federal National Mortgage Association | 3.50% | 1/25/30 | (9,400,000 | ) | (9,920,373 | ) | (9,930,218 | ) | (9,845 | ) | ||||||||||
Federal National Mortgage Association | 3.50% | 1/25/45 | (13,667,500 | ) | (14,131,981 | ) | (14,247,303 | ) | (115,322 | ) | ||||||||||
Government National Mortgage Association | 4.00% | 1/20/45 | (52,600,000 | ) | (56,241,750 | ) | (56,396,447 | ) | (154,697 | ) | ||||||||||
Government National Mortgage Association | 3.50% | 1/20/45 | (18,600,000 | ) | (19,394,656 | ) | (19,524,187 | ) | (129,531 | ) | ||||||||||
|
|
|
|
|
| |||||||||||||||
Total | $ | (131,023,212 | ) | $ | (131,546,641 | ) | $ | (523,429 | ) | |||||||||||
|
|
|
|
|
|
Continued
15
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2014
Futures Contracts
Description | Type | Expiration Date | Number of Contracts | Notional Value (USD) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
British Pound Sterling 90-Day June Futures | Short | 6/15/16 | (236 | ) | $ | (45,476,562 | ) | $ | (119,919 | ) | ||||||||||
U.S. Treasury 10-Year Note March Futures | Long | 3/20/15 | 199 | 25,232,578 | 167,069 | |||||||||||||||
U.S. Treasury 30-Year Bond March Futures | Long | 3/20/15 | 144 | 20,817,000 | 577,001 | |||||||||||||||
U.S. Treasury 5-Year Note March Futures | Long | 3/31/15 | 182 | 21,645,203 | 32,926 | |||||||||||||||
U.S. Treasury 2-Year Note March Futures | Long | 3/31/15 | 138 | 30,165,938 | (7,533 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 649,544 | ||||||||||||||||||
|
|
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Short Contracts: |
| |||||||||||||||||||
European Euro | JPMorgan Chase | 1/21/15 | 317,553 | $ | 405,150 | $ | 384,291 | $ | 20,859 | |||||||||||
|
|
|
|
|
| |||||||||||||||
Total | $ | 405,150 | $ | 384,291 | $ | 20,859 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Long Contracts: |
| |||||||||||||||||||
European Euro | Goldman Sachs | 1/21/15 | 29,000 | $ | 36,434 | $ | 35,095 | $ | (1,339 | ) | ||||||||||
European Euro | JPMorgan Chase | 1/21/15 | 30,000 | 37,310 | 36,305 | (1,005 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total | $ | 73,744 | $ | 71,400 | $ | (2,344 | ) | |||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
16
AZL Enhanced Bond Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 1,183,858,347 | |||
|
| ||||
Investment securities, at value* | $ | 1,193,626,443 | |||
Cash | 6,924 | ||||
Interest and dividends receivable | 4,172,663 | ||||
Foreign currency, at value (cost $83,286) | 89,656 | ||||
Unrealized appreciation on forward currency contracts | 20,859 | ||||
Receivable for investments sold | 135,809,401 | ||||
Receivable for variation margin on futures contracts | 118,937 | ||||
Prepaid expenses | 7,697 | ||||
|
| ||||
Total Assets | 1,333,852,580 | ||||
|
| ||||
Liabilities: | |||||
Unrealized depreciation on forward currency contracts | 2,344 | ||||
Payable for investments purchased | 86,911,850 | ||||
Payable for capital shares redeemed | 82,392 | ||||
Payable for collateral received on loaned securities | 165,341,312 | ||||
Securities sold short (Proceeds received $131,023,212) | 131,546,641 | ||||
Payable for variation margin on futures contracts | 9,195 | ||||
Manager fees payable | 279,912 | ||||
Administration fees payable | 26,084 | ||||
Distribution fees payable | 199,938 | ||||
Custodian fees payable | 7,111 | ||||
Administrative and compliance services fees payable | 1,881 | ||||
Trustee fees payable | 38 | ||||
Other accrued liabilities | 18,119 | ||||
|
| ||||
Total Liabilities | 384,426,817 | ||||
|
| ||||
Net Assets | $ | 949,425,763 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 918,256,923 | |||
Accumulated net investment income/(loss) | 14,170,123 | ||||
Accumulated net realized gains/(losses) from investment transactions | 7,079,621 | ||||
Net unrealized appreciation/(depreciation) on investments | 9,919,096 | ||||
|
| ||||
Net Assets | $ | 949,425,763 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 85,312,707 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.13 | |||
|
|
* | Includes securities on loan of $161,434,424. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Interest | $ | 18,539,161 | |||
Dividends | 43,372 | ||||
Income from securities lending | 193,354 | ||||
|
| ||||
Total Investment Income | 18,775,887 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,063,876 | ||||
Administration fees | 305,141 | ||||
Distribution fees | 2,188,488 | ||||
Custodian fees | 37,834 | ||||
Administrative and compliance services fees | 10,983 | ||||
Trustee fees | 42,035 | ||||
Professional fees | 47,436 | ||||
Shareholder reports | 10,046 | ||||
Other expenses | 20,128 | ||||
|
| ||||
Total expenses | 5,725,967 | ||||
|
| ||||
Net Investment Income/(Loss) | 13,049,920 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 14,262,823 | ||||
Net realized gains/(losses) on futures contracts | 2,763,411 | ||||
Net realized gains/(losses) on forward currency contracts | 20,700 | ||||
Change in net unrealized appreciation/depreciation on investments | 15,133,180 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 32,180,114 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 45,230,034 | |||
|
|
See accompanying notes to the financial statements.
17
Statements of Changes in Net Assets
AZL Enhanced Bond Index Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 13,049,920 | $ | 7,243,910 | ||||||
Net realized gains/(losses) on investment transactions | 17,046,934 | (6,611,504 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 15,133,180 | (14,704,971 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 45,230,034 | (14,072,565 | ) | |||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (8,934,761 | ) | (7,329,474 | ) | ||||||
From net realized gains | — | (7,727,147 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (8,934,761 | ) | (15,056,621 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 188,396,560 | 317,585,411 | ||||||||
Proceeds from dividends reinvested | 8,934,761 | 15,056,621 | ||||||||
Value of shares redeemed | (73,114,167 | ) | (18,147,991 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 124,217,154 | 314,494,041 | ||||||||
|
|
|
| |||||||
Change in net assets | 160,512,427 | 285,364,855 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 788,913,336 | 503,548,481 | ||||||||
|
|
|
| |||||||
End of period | $ | 949,425,763 | $ | 788,913,336 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 14,170,123 | $ | 8,936,842 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 17,171,705 | 29,111,948 | ||||||||
Dividends reinvested | 818,202 | 1,427,168 | ||||||||
Shares redeemed | (6,635,017 | ) | (1,679,500 | ) | ||||||
|
|
|
| |||||||
Change in shares | 11,354,890 | 28,859,616 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
18
AZL Enhanced Bond Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.67 | $ | 11.17 | $ | 11.02 | $ | 10.51 | $ | 10.04 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.14 | 0.05 | 0.09 | 0.11 | 0.15 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.43 | (0.31 | ) | 0.38 | 0.65 | 0.41 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.57 | (0.26 | ) | 0.47 | 0.76 | 0.56 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.11 | ) | (0.12 | ) | (0.13 | ) | (0.13 | ) | (0.03 | ) | |||||||||||||||
Net Realized Gains | — | (0.12 | ) | (0.19 | ) | (0.12 | ) | (0.06 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.11 | ) | (0.24 | ) | (0.32 | ) | (0.25 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 11.13 | $ | 10.67 | $ | 11.17 | $ | 11.02 | $ | 10.51 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 5.35 | % | (2.32 | )% | 4.22 | % | 7.28 | % | 5.62 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 949,426 | $ | 788,913 | $ | 503,548 | $ | 341,219 | $ | 205,572 | |||||||||||||||
Net Investment Income/(Loss) | 1.49 | % | 1.14 | % | 1.35 | % | 1.69 | % | 2.01 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.65 | % | 0.66 | % | 0.68 | % | 0.69 | % | 0.71 | % | |||||||||||||||
Expenses Net of Reductions | 0.65 | % | 0.66 | % | 0.68 | % | 0.69 | % | 0.70 | % | |||||||||||||||
Portfolio Turnover Rate(c) | 564 | % | 663 | % | 385 | % | 407 | % | 700 | % |
(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) | The portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
See accompanying notes to the financial statements.
19
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Enhanced Bond Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 liquid assets 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.
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.
20
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $71.9 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $19,271 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” 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.
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $0.5 million as of December 31, 2014. The monthly average amount for these contracts was $0.5 million for the year ended December 31, 2014.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $143.3 million as of December 31, 2014. The monthly average notional amount for these contracts was $70.5 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
21
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Foreign Currency Risk Exposure | ||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 20,859 | Unrealized depreciation on forward currency contracts | $ | 2,344 | ||||||
Currency Contracts | Receivable for variation margin on futures contracts* | — | Payable for variation margin on futures contracts* | 119,919 | ||||||||
Interest Rate Risk Exposure | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts* | 776,996 | Payable for variation margin on futures contracts* | 7,533 |
* | 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, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Foreign Currency Risk Exposure | ||||||||||
Foreign Currency Contracts | Net realized gains/(losses) on forward currency contracts/ Change in unrealized appreciation/depreciation on investments | $ | 20,700 | $ | 33,738 | |||||
Currency Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | — | (119,919 | ) | ||||||
Interest Rate Risk Exposure | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | 2,763,411 | 1,357,249 |
Effective January 1, 2013, the Fund adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”) which amended Accounting Standards Codification Subtopic 210-20, Balance Sheet Offsetting. ASU 2013-01 clarified the scope of ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of that entity’s financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2013-01 clarifies the scope of ASU 2011-11 as applying to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset either in accordance with other requirements of U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement.
The Fund is generally subject to master netting agreements that allow for amounts owed between the Fund and the counterparty to be netted. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements do not apply to amounts owed to/from different counterparties. The amounts shown in the Statement of Assets and Liabilities do not take into consideration the effects of legally enforceable master netting agreements. The table below presents the gross and net amounts of these assets and liabilities with any offsets to reflect the Fund’s ability to reflect the master netting agreements at December 31, 2014. For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to master netting arrangements in the Statement of Assets and Liabilities. This table also summarizes the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014.
As of December 31, 2014, the Fund’s derivative assets and liabilities by type are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Futures contracts | $ | 118,937 | $ | 9,195 | ||||||
Forward currency contracts | 20,859 | 2,344 | ||||||||
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Total derivative assets and liabilities in the Statement of Assets and Liabilities | 139,796 | 11,539 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (118,937 | ) | (9,195 | ) | ||||||
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Total assets and liabilities subject to a MNA | $ | 20,859 | $ | 2,344 | ||||||
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22
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a MNA and net of the related collateral received by the Fund as of December 31, 2013:
Counterparty | Derivative Assets Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets | ||||||||||||||||||||
JPMorgan Chase | $ | 20,859 | $ | (1,005 | ) | $ | — | $ | — | $ | 19,854 | ||||||||||||||
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Total | $ | 20,859 | $ | (1,005 | ) | $ | — | $ | — | $ | 19,854 | ||||||||||||||
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The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a MNA and net of the related collateral pledged by the Fund as of December 31, 2014:
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities | ||||||||||||||||||||
JPMorgan Chase | $ | 1,005 | $ | (1,005 | ) | $ | — | $ | — | $ | — | ||||||||||||||
Goldman Sachs | 1,339 | — | — | — | 1,339 | ||||||||||||||||||||
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Total | $ | 2,344 | $ | (1,005 | ) | $ | — | $ | — | $ | 1,339 | ||||||||||||||
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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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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.”
23
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
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, 2014, $10,760 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Asset Backed Securities | $ | — | $ | 84,442,975 | $ | 84,442,975 | |||||||||
Collateralized Mortgage Obligations | — | 62,489,621 | 62,489,621 | ||||||||||||
Convertible Preferred Stock+ | 987,525 | — | 987,525 | ||||||||||||
Corporate Bonds+ | — | 170,922,761 | 170,922,761 | ||||||||||||
Municipal Bonds | — | 9,542,826 | 9,542,826 | ||||||||||||
U.S. Government Agency Mortgages | — | 342,470,162 | 342,470,162 | ||||||||||||
U.S. Treasury Obligations | — | 227,933,920 | 227,933,920 | ||||||||||||
Yankee Dollars+ | — | 78,071,655 | 78,071,655 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 165,341,312 | 165,341,312 | ||||||||||||
Unaffiliated Investment Company | 51,423,686 | — | 51,423,686 | ||||||||||||
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Total Investment Securities | 52,411,211 | 1,141,215,232 | 1,193,626,443 | ||||||||||||
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Securities Sold Short | — | (131,546,641 | ) | (131,546,641 | ) |
24
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Other Financial Instruments:* | |||||||||||||||
Futures Contracts | $ | 649,544 | $ | — | $ | 649,544 | |||||||||
Forward Currency Contracts | — | 18,515 | 18,515 | ||||||||||||
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Total Investments | $ | 53,060,755 | $ | 1,009,687,106 | $ | 1,062,747,861 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures and forward currency contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 4,598,558,548 | $ | 4,343,483,587 |
For the year ended December 31, 2014, purchases and sales on long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL Enhanced Bond Index Fund | $ | 4,300,850,047 | $ | 4,092,478,315 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Foreign Securities and Currencies Risk: 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.
Mortgage-Related and Other Asset-Backed Risk: The Fund may invest in a variety of mortgage-related and other asset-backed securities, which are subject to certain additional risks. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, a Fund that holds mortgage-related securities may exhibit additional volatility. This is known as extension risk. In addition, adjustable and fixed rate mortgage-related securities are subject to call risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. If a Fund purchases mortgage-backed or asset-backed securities that are subordinated to other interests in the same mortgage pool, the Fund may receive payments only after the pool’s obligations to other investors have been satisfied. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may limit substantially the pool’s ability to make payments of principal or interest to the Fund as a holder of such subordinated securities, reducing the values of those securities or in some cases rendering them worthless. An unexpectedly high or low rate of prepayments on a pool’s underlying mortgages may have a similar effect on subordinated securities. A mortgage pool may issue securities subject to various levels of subordination. The risk of non-payment affects securities at each level, although the risk is greater in the case of more highly subordinated securities. A Fund’s investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $1,184,498,919. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 12,935,691 | ||
Unrealized depreciation | (3,808,167 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 9,127,524 | ||
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25
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2014
During the year ended December 31, 2014, the Fund utilized $8,685,941 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 8,934,761 | $ | — | $ | 8,934,761 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 13,419,467 | $ | 1,637,154 | $ | 15,056,621 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 20,614,173 | $ | 1,944,153 | $ | — | $ | 8,610,514 | $ | 31,168,840 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
27
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
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
29
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
33
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Federated Clover Small Value Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 14
Other Federal Income Tax Information
Page 15
Other Information
Page 16
Approval of Investment Advisory and Subadvisory Agreements
Page 17
Information about the Board of Trustees and Officers
Page 20
This report is submitted for the general information of the shareholder 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.
AZL® Federated Clover Small Value Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Federated Clover Small Value Fund and Federated Global Investment Management Corp. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Federated Clover Small Value Fund returned 7.54%. That compared to a 4.22% total return for its benchmark, the Russell 2000® Value Index1.
The Fund’s sub-advisor, Federated Global Investment Management Corp., employs a bottom-up stock selection process. As a result, the portfolio frequently contains industry and security allocations that may be significantly different than those of the index.*
Stocks performed relatively well during much of the 12-month period. The U.S. economy continued to strengthen amid improving corporate profits and a healthier job market. However, investors remained concerned about continued weakness in international economies such as Europe, Russia and Japan. Late in the period, plunging oil prices led investors to seek out relatively safe areas of the market. Small-cap stocks underperformed the broader equity market in that environment. In particular, the steep decline in energy prices led to weak performance among many small-cap stocks in the energy sector, including oil and gas exploration firms.
The Fund outperformed its benchmark during the period. Stock selection in the materials sector was among the largest contributors to relative returns. In particular, shares of a plastics company and a mining firm that specializes in platinum and palladium added to results. Consumer staples holdings also helped relative returns. Shares of an organic food company advanced amid increased consumer demand for healthy eating options, and holdings of a meat processor added to returns as the company was acquired during the period.*
The Fund benefited from strong stock selection in the financial sector, particularly among shares of banks, REITs2 and insurance firms. An underweight position in REITs dragged on performance, however, as such stocks were strong gainers during the period.*
The Fund was hurt by stock selection in the consumer discretionary and information technology sectors. In the consumer discretionary sector, holdings of a footwear and apparel company and a for-profit education company dragged on returns. Stock selection among semiconductor firms also hurt 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, 2014. |
1 | 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. |
2 | The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions. |
Investors cannot invest directly in an index.
1
AZL® Federated Clover Small Value Fund Review (unaudited)
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 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.
Small- to mid-capitalization 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.
Investing in a single industry or sector, or concentrating investments in a limited number of industries or sectors, tends to increase the risk that economic, political, or regulatory developments affecting certain industries or sectors will have a large impact on the value of the portfolio.
The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Federated Clover Small Value Fund | 7.54 | % | 17.51 | % | 14.66 | % | 7.32 | % | ||||||||
Russell 2000® Value Index | 4.22 | % | 18.29 | % | 14.26 | % | 6.89 | % |
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 Ratio1 | Gross | |||
AZL® Federated Clover Small Value Fund | 1.12 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 1.35% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 1.08%. |
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 |
AZL Federated Clover Small Value Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Federated Clover Small Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Federated Clover Small Value Fund | $ | 1,000.00 | $ | 987.30 | $ | 4.86 | 0.97 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Federated Clover Small Value Fund | $ | 1,000.00 | $ | 1,020.32 | $ | 4.94 | 0.97 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 40.4 | % | |||
Industrials | 11.9 | ||||
Consumer Discretionary | 10.8 | ||||
Information Technology | 10.7 | ||||
Health Care | 7.1 | ||||
Utilities | 6.7 | ||||
Energy | 3.6 | ||||
Materials | 3.5 | ||||
Consumer Staples | 2.7 | ||||
|
| ||||
Total Common Stocks | 97.4 | ||||
Securities Held as Collateral for Securities on Loan | 29.1 | ||||
Money Market | 1.6 | ||||
|
| ||||
Total Investment Securities | 128.1 | ||||
Net other assets (liabilities) | (28.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Federated Clover Small Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (97.4%): | |||||||
| Aerospace & Defense (3.9%): | |||||||
65,900 | Curtiss-Wright Corp.^ | $ | 4,651,880 | |||||
44,940 | Esterline Technologies Corp.*^ | 4,929,018 | ||||||
83,175 | Hexcel Corp.*^ | 3,450,931 | ||||||
51,425 | Triumph Group, Inc.^ | 3,456,789 | ||||||
|
| |||||||
16,488,618 | ||||||||
|
| |||||||
| Auto Components (0.8%): | |||||||
59,650 | Tenneco, Inc.*^ | 3,376,787 | ||||||
|
| |||||||
| Banks (13.8%): | |||||||
127,743 | Capital Bank Financial Corp.*^ | 3,423,512 | ||||||
46,735 | City Holding Co.^ | 2,174,580 | ||||||
275,100 | F.N.B. Corp.^ | 3,664,332 | ||||||
155,150 | First Midwest Bancorp, Inc.^ | 2,654,617 | ||||||
178,075 | Great Western Bancorp, Inc.*^ | 4,058,329 | ||||||
681,623 | Investors Bancorp, Inc.^ | 7,651,218 | ||||||
101,550 | PacWest Bancorp | 4,616,463 | ||||||
200,075 | Popular, Inc.* | 6,812,554 | ||||||
302,103 | Synovus Financial Corp.^ | 8,183,969 | ||||||
193,725 | Talmer Bancorp, Inc., Class A^ | 2,719,899 | ||||||
297,700 | TCF Financial Corp.^ | 4,730,453 | ||||||
142,500 | Umpqua Holdings Corp.^ | 2,423,925 | ||||||
163,750 | Webster Financial Corp.^ | 5,326,788 | ||||||
|
| |||||||
58,440,639 | ||||||||
|
| |||||||
| Commercial Banks (0.3%): | |||||||
52,350 | Ameris Bancorp | 1,342,254 | ||||||
|
| |||||||
| Commercial Services & Supplies (0.9%): | |||||||
31,375 | UniFirst Corp. | 3,810,494 | ||||||
|
| |||||||
| Communications Equipment (2.2%): | |||||||
218,675 | Ciena Corp.*^ | 4,244,481 | ||||||
220,275 | SeaChange International, Inc.*^ | 1,405,354 | ||||||
56,850 | ViaSat, Inc.*^ | 3,583,256 | ||||||
|
| |||||||
9,233,091 | ||||||||
|
| |||||||
| Construction & Engineering (1.3%): | |||||||
61,150 | Granite Construction, Inc.^ | 2,324,923 | ||||||
123,900 | Tutor Perini Corp.*^ | 2,982,273 | ||||||
|
| |||||||
5,307,196 | ||||||||
|
| |||||||
| Containers & Packaging (1.9%): | |||||||
257,825 | Berry Plastics Group, Inc.* | 8,134,379 | ||||||
|
| |||||||
| Diversified Consumer Services (0.5%): | |||||||
189,625 | Bridgepoint Education, Inc.*^ | 2,146,555 | ||||||
|
| |||||||
| Diversified Financial Services (1.2%): | |||||||
90,300 | FXCM, Inc.^ | 1,496,271 | ||||||
141,275 | PHH Corp.*^ | 3,384,949 | ||||||
|
| |||||||
4,881,220 | ||||||||
|
| |||||||
| Electric Utilities (3.5%): | |||||||
120,675 | IDACORP, Inc.^ | 7,987,479 | ||||||
179,575 | Portland General Electric Co.^ | 6,793,322 | ||||||
|
| |||||||
14,780,801 | ||||||||
|
|
| Fair Value | |||||||
| Common Stocks, continued | |||||||
| Electronic Equipment, Instruments & Components (1.3%): | |||||||
33,450 | Anixter International, Inc.*^ | $ | 2,958,987 | |||||
93,225 | Insight Enterprises, Inc.* | 2,413,595 | ||||||
|
| |||||||
5,372,582 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.2%): | |||||||
240,625 | Helix Energy Solutions Group, Inc.*^ | 5,221,563 | ||||||
|
| |||||||
| Food Products (1.7%): | |||||||
646,025 | Rite AID Corp.*^ | 4,858,108 | ||||||
71,725 | WhiteWave Foods Co., Class A* | 2,509,658 | ||||||
|
| |||||||
7,367,766 | ||||||||
|
| |||||||
| Gas Utilities (1.8%): | |||||||
135,250 | Atmos Energy Corp. | 7,538,835 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (1.9%): | |||||||
62,425 | Alere, Inc.* | 2,372,150 | ||||||
111,334 | Merit Medical Systems, Inc.* | 1,929,418 | ||||||
144,700 | Wright Medical Group, Inc.*^ | 3,888,089 | ||||||
|
| |||||||
8,189,657 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.4%): | |||||||
82,225 | Capital Senior Living Corp.* | 2,048,225 | ||||||
51,750 | IPC The Hospitalist Co.* | 2,374,808 | ||||||
67,550 | Magellan Health Services, Inc.* | 4,055,026 | ||||||
48,100 | Owens & Minor, Inc.^ | 1,688,791 | ||||||
52,375 | WellCare Health Plans, Inc.*^ | 4,297,892 | ||||||
|
| |||||||
14,464,742 | ||||||||
|
| |||||||
| Hotels Restaurants & Leisure (0.9%): | |||||||
284,725 | Belmond, Ltd., Class A* | 3,522,049 | ||||||
|
| |||||||
| Household Durables (1.8%): | |||||||
158,325 | KB Home^ | 2,620,279 | ||||||
92,950 | La-Z-Boy, Inc.^ | 2,494,778 | ||||||
47,700 | Tempur-Pedic International, Inc.*^ | 2,619,207 | ||||||
|
| |||||||
7,734,264 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (1.4%): |
| ||||||
197,650 | Dynegy, Inc.* | 5,998,678 | ||||||
|
| |||||||
| Insurance (6.5%): | |||||||
109,550 | American Equity Investment Life Holding Co.^ | 3,197,765 | ||||||
81,572 | Argo Group International Holdings, Ltd. | 4,524,798 | ||||||
300,475 | CNO Financial Group, Inc.^ | 5,174,178 | ||||||
140,775 | Fidelity & Guaranty Life^ | 3,416,609 | ||||||
100,525 | First American Financial Corp.^ | 3,407,798 | ||||||
60,250 | Hanover Insurance Group, Inc. (The)^ | 4,297,030 | ||||||
272,075 | Maiden Holdings, Ltd. | 3,479,839 | ||||||
|
| |||||||
27,498,017 | ||||||||
|
| |||||||
| IT Services (1.8%): | |||||||
97,725 | CSG Systems International, Inc.^ | 2,449,966 | ||||||
90,625 | Evertec, Inc. | 2,005,531 | ||||||
100,600 | Unisys Corp.*^ | 2,965,688 | ||||||
|
| |||||||
7,421,185 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.6%): | |||||||
135,950 | Bruker Corp.*^ | 2,667,339 | ||||||
|
|
Continued
4
AZL Federated Clover Small Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Machinery (2.2%): | |||||||
103,550 | Barnes Group, Inc.^ | $ | 3,832,386 | |||||
51,525 | Greenbrier Companies, Inc.^ | 2,768,438 | ||||||
94,750 | Terex Corp. ^ | 2,641,630 | ||||||
|
| |||||||
9,242,454 | ||||||||
|
| |||||||
| Media (2.2%): | |||||||
74,450 | Carmike Cinemas, Inc.*^ | 1,955,802 | ||||||
83,525 | Cinemark Holdings, Inc.^ | 2,971,819 | ||||||
132,425 | Lions Gate Entertainment Corp.^ | 4,240,249 | ||||||
|
| |||||||
9,167,870 | ||||||||
|
| |||||||
| Metals & Mining (1.6%): | |||||||
364,550 | Stillwater Mining Co.*^ | 5,373,467 | ||||||
58,550 | US Silica Holdings, Inc.^ | 1,504,150 | ||||||
|
| |||||||
6,877,617 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (2.4%): | |||||||
176,825 | Newfield Exploration Co.* | 4,795,494 | ||||||
394,875 | SandRidge Energy, Inc.*^ | 718,673 | ||||||
92,900 | Teekay Shipping Corp. | 4,727,681 | ||||||
|
| |||||||
10,241,848 | ||||||||
|
| |||||||
| Pharmaceuticals (1.2%): | |||||||
82,550 | Impax Laboratories, Inc.*^ | 2,615,184 | ||||||
86,200 | Medicines Co. (The)*^ | 2,385,154 | ||||||
|
| |||||||
5,000,338 | ||||||||
|
| |||||||
| Professional Services (1.4%): | |||||||
49,500 | Dun & Bradstreet Corp.^ | 5,987,521 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (14.0%): | |||||||
266,450 | Colony Financial, Inc.^ | 6,346,838 | ||||||
57,725 | EPR Properties^ | 3,326,692 | ||||||
342,775 | FelCor Lodging Trust, Inc.^ | 3,708,826 | ||||||
272,400 | irst Potomac Realty Trust | 3,366,864 | ||||||
73,050 | Highwoods Properties, Inc.^ | 3,234,654 | ||||||
132,625 | LaSalle Hotel Properties^ | 5,367,334 | ||||||
448,625 | Lexington Realty Trust^ | 4,925,903 | ||||||
509,975 | MFA Financial, Inc.^ | 4,074,700 | ||||||
385,687 | New Residential Investment Corp. | 4,925,223 | ||||||
345,587 | NorthStar Realty Finance Corp. | 6,075,418 | ||||||
204,475 | Starwood Property Trust, Inc.^ | 4,751,999 | ||||||
139,010 | Starwood Waypoint Residential Trust^ | 3,665,694 | ||||||
80,050 | Sun Communities, Inc.^ | 4,839,823 | ||||||
|
| |||||||
58,609,968 | ||||||||
|
| |||||||
| Road & Rail (1.7%): | |||||||
248,350 | Swift Transportation Co.*^ | 7,110,261 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.8%): | |||||||
397,875 | Atmel Corp.*^ | 3,340,161 | ||||||
328,175 | Brooks Automation, Inc. | 4,184,230 | ||||||
74,175 | Fairchild Semiconductor International, Inc.*^ | 1,252,074 | ||||||
70,775 | MKS Instruments, Inc.^ | 2,590,365 | ||||||
52,875 | Tessera Technologies, Inc.^ | 1,890,810 | ||||||
82,100 | Veeco Instruments, Inc.*^ | 2,863,648 | ||||||
|
| |||||||
16,121,288 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Software (0.6%): | |||||||
42,025 | Verint Systems, Inc.*^ | $ | 2,449,217 | |||||
|
| |||||||
| Specialty Retail (2.1%): | |||||||
77,825 | GNC Holdings, Inc., Class A^ | 3,654,662 | ||||||
55,700 | Men’s Wearhouse, Inc. (The)^ | 2,459,155 | ||||||
81,025 | Rent-A-Center, Inc.^ | 2,942,828 | ||||||
|
| |||||||
9,056,645 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.0%): | |||||||
1,275,366 | Quantum Corp.* | 2,244,644 | ||||||
451,450 | Violin Memory, Inc.*^ | 2,162,446 | ||||||
|
| |||||||
4,407,090 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (2.5%): | |||||||
48,375 | Deckers Outdoor Corp.*^ | 4,404,059 | ||||||
62,300 | Kate Spade & Co.*^ | 1,994,223 | ||||||
32,550 | Skechers U.S.A., Inc., Class A*^ | 1,798,388 | ||||||
110,225 | Vera Bradley, Inc.*^ | 2,246,386 | ||||||
|
| |||||||
10,443,056 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (4.6%): | |||||||
235,553 | Flushing Financial Corp. | 4,774,659 | ||||||
174,200 | Provident Financial Services, Inc. | 3,146,052 | ||||||
376,875 | Radian Group, Inc.^ | 6,301,349 | ||||||
70,075 | WSFS Financial Corp. | 5,388,067 | ||||||
|
| |||||||
19,610,127 | ||||||||
|
| |||||||
| Tobacco (1.0%): | |||||||
202,437 | Vector Group, Ltd.^ | 4,313,932 | ||||||
|
| |||||||
| Trading Companies & Distributors (0.5%): | |||||||
69,825 | H&E Equipment Services, Inc.^ | 1,961,384 | ||||||
|
| |||||||
| Total Common Stocks (Cost $363,129,069) | 411,539,327 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (29.1%): |
| ||||||
$ | 122,822,444 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 122,822,444 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 122,822,444 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.6%): |
| ||||||
6,723,415 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 6,723,415 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $6,723,415) | 6,723,415 | ||||||
|
| |||||||
| Total Investment Securities (Cost $492,674,928)(c) — | 541,085,186 | ||||||
| Net other assets (liabilities) — (28.1)% | (118,535,486 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 422,549,700 | |||||
|
|
Continued
5
AZL Federated Clover Small Value Fund
Schedule of Portfolio Investments
December 31, 2014
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $118,745,782. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
6
AZL Federated Clover Small Value Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 492,674,928 | |||
|
| ||||
Investment securities, at value* | $ | 541,085,186 | |||
Interest and dividends receivable | 885,848 | ||||
Receivable for investments sold | 5,778,552 | ||||
Prepaid expenses | 3,727 | ||||
|
| ||||
Total Assets | 547,753,313 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 1 | ||||
Payable for investments purchased | 1,647,189 | ||||
Payable for capital shares redeemed | 327,075 | ||||
Payable for collateral received on loaned securities | 122,822,444 | ||||
Manager fees payable | 267,904 | ||||
Administration fees payable | 9,690 | ||||
Distribution fees payable | 89,302 | ||||
Custodian fees payable | 5,165 | ||||
Administrative and compliance services fees payable | 1,516 | ||||
Trustee fees payable | 30 | ||||
Other accrued liabilities | 33,297 | ||||
|
| ||||
Total Liabilities | 125,203,613 | ||||
|
| ||||
Net Assets | $ | 422,549,700 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 319,081,181 | |||
Accumulated net investment income/(loss) | 4,872,809 | ||||
Accumulated net realized gains/(losses) from investment transactions | 50,185,452 | ||||
Net unrealized appreciation/(depreciation) on investments | 48,410,258 | ||||
|
| ||||
Net Assets | $ | 422,549,700 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 19,040,801 | ||||
Net Asset Value (offering and redemption price per share) | $ | 22.19 | |||
|
|
* | Includes securities on loan of $118,745,782. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 6,777,334 | |||
Income from securities lending | 177,942 | ||||
Foreign withholding tax | (19,385 | ) | |||
|
| ||||
Total Investment Income | 6,935,891 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,348,139 | ||||
Administration fees | 116,926 | ||||
Distribution fees | 1,116,046 | ||||
Administrative and compliance services fees | 2,657 | ||||
Trustee fees | 10,261 | ||||
Professional fees | 6,782 | ||||
Other expenses | 5,226 | ||||
|
| ||||
Total expenses before reductions | 4,606,037 | ||||
Less expenses paid indirectly | (20,170 | ) | |||
|
| ||||
Net expenses | 4,585,867 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,350,024 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 53,397,943 | ||||
Change in net unrealized appreciation/depreciation on investments | (23,855,458 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 29,542,485 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 31,892,509 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL Federated Clover Small Value Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,350,024 | $ | 3,958,815 | ||||||
Net realized gains/(losses) on investment transactions | 53,397,943 | 54,010,895 | ||||||||
Change in unrealized appreciation/depreciation on investments | (23,855,458 | ) | 29,950,075 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 31,892,509 | 87,919,785 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (3,659,066 | ) | (2,163,714 | ) | ||||||
From net realized gains | (52,470,818 | ) | (1,287,134 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (56,129,884 | ) | (3,450,848 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 9,136,593 | 17,347,315 | ||||||||
Proceeds from shares issued in merger | — | 164,648,332 | ||||||||
Proceeds from dividends reinvested | 56,129,884 | 3,450,848 | ||||||||
Value of shares redeemed | (100,368,050 | ) | (49,757,745 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (35,101,573 | ) | 135,688,750 | |||||||
|
|
|
| |||||||
Change in net assets | (59,338,948 | ) | 220,157,687 | |||||||
Net Assets: | ||||||||||
Beginning of period | 481,888,648 | 261,730,961 | ||||||||
|
|
|
| |||||||
End of period | $ | 422,549,700 | $ | 481,888,648 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 4,872,809 | $ | 3,958,416 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 378,828 | 826,337 | ||||||||
Shares issued in merger | — | 7,290,861 | ||||||||
Dividends reinvested | 2,559,502 | 161,936 | ||||||||
Shares redeemed | (4,260,773 | ) | (2,346,338 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,322,443 | ) | 5,932,796 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL Federated Clover Small Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 23.66 | $ | 18.14 | $ | 15.96 | $ | 16.72 | $ | 13.27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.15 | 0.20 | 0.15 | 0.11 | 0.09 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.60 | 5.58 | 2.13 | (0.77 | ) | 3.48 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.75 | 5.78 | 2.28 | (0.66 | ) | 3.57 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.21 | ) | (0.16 | ) | (0.10 | ) | (0.10 | ) | (0.12 | ) | |||||||||||||||
Net Realized Gains | (3.01 | ) | (0.10 | ) | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (3.22 | ) | (0.26 | ) | (0.10 | ) | (0.10 | ) | (0.12 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 22.19 | $ | 23.66 | $ | 18.14 | $ | 15.96 | $ | 16.72 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 7.54 | % | 32.00 | % | 14.32 | % | (3.92 | )% | 27.11 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 422,550 | $ | 481,889 | $ | 261,731 | $ | 199,020 | $ | 234,305 | |||||||||||||||
Net Investment Income/(Loss) | 0.53 | % | 1.27 | % | 0.96 | % | 0.60 | % | 0.59 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.03 | % | 1.08 | % | 1.07 | % | 1.09 | % | 1.08 | % | |||||||||||||||
Expenses Net of Reductions | 1.03 | % | 1.01 | % | 0.99 | % | 1.09 | % | 1.08 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.03 | % | 1.08 | % | 1.07 | % | 1.09 | % | 1.08 | % | |||||||||||||||
Portfolio Turnover Rate | 74 | % | 97 | %(d) | 156 | %(e) | 15 | % | 23 | % |
(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 any. 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) | Cost of purchase 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 140%. |
(e) | Effective February 24, 2012, the Subadviser changed from Franklin Advisory Services LLC to Federated Global Investment Management Corp. Costs of purchases and proceeds from sales of portfolio securities associated with the change in Subadviser contributed to a higher portfolio turnover rate for the year ended December 31, 2012 as compared to prior years. |
See accompanying notes to the financial statements.
9
AZL Federated Clover Small Value Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Federated Clover Small Value Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL Federated Clover Small Value Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $48.5 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $17,632 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with Federated Global Investment Management Corp. (“Federated”), Federated 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Federated Clover Small 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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
11
AZL Federated Clover Small Value Fund
Notes to the Financial Statements
December 31, 2014
written policies and procedures comprising the Fund’s compliance program. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $5,510 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 411,539,327 | $ | — | $ | 411,539,327 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 122,822,444 | 122,822,444 | ||||||||||||
Unaffiliated Investment Company | 6,723,415 | — | 6,723,415 | ||||||||||||
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Total Investment Securities | $ | 418,262,742 | $ | 122,822,444 | $ | 541,085,186 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
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AZL Federated Clover Small Value Fund
Notes to the Financial Statements
December 31, 2014
5. Security Purchases and Sales
For the year ended December 31, 2014, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Federated Clover Small Value Fund | $ | 321,020,069 | $ | 403,695,455 |
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $495,933,174. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 58,851,977 | ||
Unrealized depreciation | (13,699,965 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 45,152,012 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Federated Clover Small Value Fund | $ | 11,915,520 | $ | 44,214,364 | $ | 56,129,884 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Federated Clover Small Value Fund | $ | 2,163,714 | $ | 1,287,134 | $ | 3,450,848 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Federated Clover Small Value Fund | $ | 16,612,828 | $ | 41,703,679 | $ | — | $ | 45,152,012 | $ | 103,468,519 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Federated Clover Small Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 24.34% 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, 2014, the Fund declared net long-term capital gain distributions of $44,214,364.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $8,256,454.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
17
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
18
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
19
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
20
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
21
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Franklin Templeton
Founding Strategy Plus Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 25
Statement of Operations
Page 25
Statements of Changes in Net Assets
Page 26
Financial Highlights
Page 27
Notes to the Financial Statements
Page 28
Report of Independent Registered Public Accounting Firm
Page 37
Other Federal Income Tax Information
Page 38
Other Information
Page 39
Approval of Investment Advisory and Subadvisory Agreements
Page 40
Information about the Board of Trustees and Officers
Page 43
This report is submitted for the general information of the shareholder 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.
AZL® Franklin Templeton Founding Strategy Plus Fund Review (unaudited)
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 Strategy and the Templeton Global Bond Strategy.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Franklin Templeton Founding Strategy Plus Fund returned 2.14%. That compared to a 10.56% total return for its benchmark, the Balanced Composite Index, which is comprised of a 60% weighting in the S&P 500 Index1 and a 40% weighting in the Barclays U.S. Aggregate Bond Index2.
The AZL Franklin Templeton Founding Strategy Plus Fund (“the Fund”) invests in a portfolio of four underlying sleeves. The Fund’s portfolio is allocated equally among the following sleeves:
• | The AZL Templeton Growth Strategy seeks U.S. and international equities selling at prices that are low relative to managers’ appraisal of value. |
• | The AZL Franklin Income Strategy primarily invests in equity and fixed-income securities identified by the portfolio managers as undervalued. |
• | The AZL Mutual Shares Strategy focuses on undervalued dividend-paying stocks and bonds. |
• | The AZL Templeton Global Bond Strategy invests predominantly in bonds issued by governments and government agencies around the world. |
The global economy grew moderately during 2014. U.S. economic growth accelerated while growth rates in much of the rest of the world declined. The U.S. Federal Reserve Board ended its asset purchase program in October, while keeping interest rates low. The European Central Bank reduced its main interest rate and implemented an asset purchase program. Japan’s economy entered a recession, and the Bank of Japan expanded its stimulus measures. Global developed market stocks advanced overall during the 12-month period amid a generally accommodative monetary policy environment and continued strength in corporate earnings. Meanwhile, emerging market stocks overall fell amid headwinds such as soft domestic demand, weak exports, plummeting crude oil prices, regional geopolitical tensions and concerns about possible U.S. interest rate increases.
The Fund’s absolute performance benefited from its component funds’ equity holdings in the health care and information technology sectors. However, the energy and industrials sectors weighed on absolute returns. And while holdings in the U.S. performed well, European stocks declined.*
The Fund underperformed its composite benchmark. Relative performance was hurt by the AZL Templeton Growth Strategy’s stock selection in the energy, industrials and consumer staples sectors. In addition, an overweighting and stock selection in Europe, particularly the Netherlands and U.K., were detrimental. Detractors for the AZL Franklin Mutual Shares Strategy included holdings in a U.K.-based
retailer, a natural resources company and an offshore contract oil driller. Additionally, the AZL Templeton Global Bond Strategy’s interest rate strategies and select bond duration exposures in Europe and the U.S. detracted from relative performance.*
Investments for AZL Franklin Mutual Shares Strategy in a U.S. technology leader, an Israel-based pharmaceutical firm and a regional grocery retailer were key contributors to the Fund’s performance. Driven by modest earnings growth and U.S. economic and employment growth, the AZL Franklin Income Strategy’s equities also performed well.*
The AZL Franklin Income Strategy’s fixed income assets remained positioned largely in high yield corporate bonds, which performed positively as long-term interest rates declined. Among fixed income investments, communications, consumer non-cyclical and technology positions benefited performance.*
Some of the sleeves employed currency positions during the period, to varying effect. For instance, the AZL Franklin Mutual Shares Strategy held currency forwards during the period with the goal of somewhat hedging the currency risk of the Fund’s non-U.S. dollar investments. The hedges had a positive impact on the Fund’s performance. Net negative exposures to the yen and euro within the AZL Templeton Global Bond Strategy were significant relative contributors. However, exposure to several other currencies that also depreciated had a negative effect on relative returns, and overall currency exposures detracted from 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, 2014. |
1 | The Standard & Poor’s 500 Index (“S&P 500”) 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 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
AZL® Franklin Templeton Founding Strategy Plus Fund Review (unaudited)
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-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
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 a single industry or sector, or concentrating investments in a limited number of industries or sectors, tends to increase the risk that economic, political, or regulatory developments affecting certain industries or sectors will have a large impact on the value of the portfolio.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, as well as the two component indices of the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2014
1 Year | 3 Year | 5 Year | Since Inception (10/23/09) | |||||||||||||
AZL® Franklin Templeton Founding Strategy Plus Fund | 2.14 | % | 11.46 | % | 8.38 | % | 8.57 | % | ||||||||
Balanced Composite Index | 10.56 | % | 13.18 | % | 11.29 | % | 11.36 | % | ||||||||
S&P 500 Index | 13.69 | % | 20.41 | % | 15.45 | % | 15.67 | % | ||||||||
Barclays U.S. Aggregate Bond Index | 5.97 | % | 2.66 | % | 4.45 | % | 4.33 | % |
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 Ratio | Gross | |||
AZL® Franklin Templeton Founding Strategy Plus Fund | 1.05 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Funds have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 a composite index (the “Balanced Composite Index”), which is comprised of 60% of the Standard & Poor’s 500 Index (“S&P 500”) and 40% of the Barclays U.S. Aggregate Bond Index. The S&P 500 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 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 |
AZL Franklin Templeton Founding Strategy Plus Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 1,000.00 | $ | 964.30 | $ | 5.20 | 1.05 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 1,000.00 | $ | 1,019.91 | $ | 5.35 | 1.05 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Common Stocks, Preferred Stocks, and Convertible Preferred Stocks | 58.6 | % | |||
Foreign Bonds | 16.0 | ||||
Securities Held as Collateral for Securities on Loan | 9.2 | ||||
Money Market | 7.8 | ||||
Corporate Bonds | 6.8 | ||||
Yankee Dollars | 3.3 | ||||
U.S. Government Agency Mortgages | 2.5 | ||||
U.S. Treasury Obligations | 1.0 | ||||
Convertible Bonds | 0.7 | ||||
Equity-Linked Securities | 0.7 | ||||
Floating Rate Loans | 0.6 | ||||
Municipal Bond | 0.1 | ||||
|
| ||||
Total Investment Securities | 107.3 | ||||
Net other assets (liabilities) | (7.3 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
Investments | Percent of net assets | ||||
United States | 59.3 | % | |||
United Kingdom | 6.7 | ||||
France | 2.1 | ||||
Netherlands | 2.0 | ||||
Germany | 1.9 | ||||
Switzerland | 1.8 | ||||
Republic of Korea (South) | 1.5 | ||||
Israel | 1.1 | ||||
All other countries | 24.7 | ||||
|
| ||||
Total Investment Securities | 101.1 | ||||
Net other assets (liabilities) | (1.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (57.9%): |
| ||||||
| Aerospace & Defense (1.0%): |
| ||||||
87,790 | BAE Systems plc | $ | 640,791 | |||||
19,530 | BE Aerospace, Inc.*^ | 1,133,131 | ||||||
6,360 | Boeing Co. (The) | 826,673 | ||||||
21,753 | Huntington Ingalls Industries, Inc. | 2,446,342 | ||||||
9,765 | KLX, Inc.*^ | 402,806 | ||||||
7,200 | Lockheed Martin Corp. | 1,386,504 | ||||||
6,370 | Raytheon Co.^ | 689,043 | ||||||
2,000 | United Technologies Corp. | 230,000 | ||||||
|
| |||||||
7,755,290 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.3%): |
| ||||||
204,142 | TNT Express NV^ | 1,356,129 | ||||||
7,540 | United Parcel Service, Inc., Class B | 838,222 | ||||||
|
| |||||||
2,194,351 | ||||||||
|
| |||||||
| Airlines (0.7%): |
| ||||||
205,190 | Deutsche Lufthansa AG, Registered Shares | 3,435,863 | ||||||
296,020 | International Consolidated Airlines Group SA* | 2,211,938 | ||||||
|
| |||||||
5,647,801 | ||||||||
|
| |||||||
| Auto Components (0.3%): |
| ||||||
26,971 | Compagnie Generale des Establissements Michelin SCA, Class B | 2,444,966 | ||||||
|
| |||||||
| Automobiles (1.2%): |
| ||||||
40,000 | Ford Motor Co. | 620,000 | ||||||
147,382 | General Motors Co. | 5,145,106 | ||||||
265,200 | Nissan Motor Co., Ltd. | 2,310,342 | ||||||
26,700 | Toyota Motor Corp. | 1,665,305 | ||||||
|
| |||||||
9,740,753 | ||||||||
|
| |||||||
| Banks (5.6%): |
| ||||||
10,830 | Bank of America Corp. | 193,749 | ||||||
289,820 | Barclays plc | 1,089,445 | ||||||
37,480 | BNP Paribas SA | 2,202,225 | ||||||
23,852 | CIT Group, Inc. | 1,140,841 | ||||||
124,160 | Citigroup, Inc. | 6,718,297 | ||||||
24,979 | Citizens Financial Group, Inc.^ | 620,978 | ||||||
9,886 | Columbia Banking System, Inc. | 272,952 | ||||||
51,180 | Commerzbank AG* | 679,831 | ||||||
5,306 | Commonwealth Bank of Australia | 368,413 | ||||||
153,240 | Credit Agricole SA | 1,969,774 | ||||||
111,000 | DBS Group Holdings, Ltd. | 1,714,563 | ||||||
38,540 | HSBC Holdings plc | 364,177 | ||||||
249,352 | HSBC Holdings plc | 2,372,539 | ||||||
104,950 | JPMorgan Chase & Co. | 6,567,771 | ||||||
80,600 | KB Financial Group, Inc. | 2,632,706 | ||||||
48,622 | PNC Financial Services Group, Inc.^ | 4,435,785 | ||||||
9,100 | Royal Bank of Canada | 628,656 | ||||||
7,304 | Societe Generale | 306,887 | ||||||
95,633 | SunTrust Banks, Inc.^ | 4,007,023 | ||||||
364,398 | UniCredit SpA | 2,322,219 | ||||||
60,611 | Wells Fargo & Co. | 3,322,695 | ||||||
|
| |||||||
43,931,526 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Beverages (0.5%): |
| ||||||
6,095 | Coca-Cola Enterprises, Inc. | $ | 269,521 | |||||
37,254 | PepsiCo, Inc. | 3,522,738 | ||||||
|
| |||||||
3,792,259 | ||||||||
|
| |||||||
| Biotechnology (0.5%): |
| ||||||
23,270 | Amgen, Inc. | 3,706,678 | ||||||
1,251 | FCB Financial Holdings, Inc., Class A* | 30,825 | ||||||
5,250 | Gilead Sciences, Inc.* | 494,865 | ||||||
|
| |||||||
4,232,368 | ||||||||
|
| |||||||
| Capital Markets (0.8%): |
| ||||||
130,427 | Credit Suisse Group AG | 3,270,639 | ||||||
74,040 | Morgan Stanley | 2,872,752 | ||||||
|
| |||||||
6,143,391 | ||||||||
|
| |||||||
| Chemicals (1.4%): |
| ||||||
12,000 | Agrium, Inc. | 1,136,640 | ||||||
37,598 | Akzo Nobel NV | 2,606,912 | ||||||
10,000 | BASF SE | 845,237 | ||||||
62,170 | Dow Chemical Co. (The) | 2,835,574 | ||||||
27,620 | E.I. du Pont de Nemours & Co. | 2,042,223 | ||||||
15,000 | LyondellBasell Industries NV, Class A | 1,190,850 | ||||||
16,000 | Mosaic Co. (The) | 730,400 | ||||||
|
| |||||||
11,387,836 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.3%): |
| ||||||
230 | CEVA Group plc* | 177,979 | ||||||
28,550 | Republic Services, Inc., Class A | 1,149,138 | ||||||
216,304 | Serco Group plc^ | 537,843 | ||||||
16,210 | Waste Management, Inc.^ | 831,897 | ||||||
|
| |||||||
2,696,857 | ||||||||
|
| |||||||
| Communications Equipment (1.1%): |
| ||||||
256,049 | Cisco Systems, Inc. | 7,122,003 | ||||||
145,920 | Telefonaktiebolaget LM Ericsson, B Shares | 1,768,396 | ||||||
|
| |||||||
8,890,399 | ||||||||
|
| |||||||
| Construction & Engineering (0.2%): |
| ||||||
31,440 | FLSmidth & Co. A/S^ | 1,379,428 | ||||||
|
| |||||||
| Construction Materials (0.3%): |
| ||||||
111,618 | CRH plc | 2,685,131 | ||||||
|
| |||||||
| Consumer Finance (0.2%): |
| ||||||
44,980 | Ally Financial, Inc.* | 1,062,427 | ||||||
5,950 | Capital One Financial Corp. | 491,173 | ||||||
|
| |||||||
1,553,600 | ||||||||
|
| |||||||
| Containers & Packaging (0.3%): |
| ||||||
47,384 | MeadWestvaco Corp.^ | 2,103,376 | ||||||
|
| |||||||
| Diversified Consumer Services (0.0%): |
| ||||||
7,063 | Cengage Learning Holdings II, LP* | 162,626 | ||||||
|
| |||||||
| Diversified Financial Services (0.5%): |
| ||||||
307,744 | ING Groep NV* | 3,984,077 | ||||||
|
| |||||||
| Diversified Telecommunication Services (1.8%): |
| ||||||
76,170 | AT&T, Inc. | 2,558,551 | ||||||
10,000 | CenturyLink, Inc.^ | 395,800 |
Continued
4
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Telecommunication Services, continued |
| ||||||
27,407 | China Telecom Corp., Ltd., Sponsored ADR | $ | 1,609,065 | |||||
403,330 | Koninklijke (Royal) KPN NV | 1,271,461 | ||||||
548,520 | Singapore Telecommunications, Ltd. | 1,610,534 | ||||||
205,627 | Telefonica SA | 2,940,932 | ||||||
84,310 | Telstra Corp., Ltd. | 409,326 | ||||||
34,930 | Verizon Communications, Inc. | 1,634,025 | ||||||
21,203 | Verizon Communications, Inc. | 987,817 | ||||||
31,132 | Vivendi | 776,501 | ||||||
|
| |||||||
14,194,012 | ||||||||
|
| |||||||
| Electric Utilities (1.6%): |
| ||||||
15,000 | American Electric Power Co., Inc. | 910,800 | ||||||
30,897 | Duke Energy Corp. | 2,581,135 | ||||||
14,000 | Entergy Corp.^ | 1,224,720 | ||||||
85,050 | Exelon Corp.^ | 3,153,654 | ||||||
16,000 | FirstEnergy Corp.^ | 623,840 | ||||||
124,100 | HK Electric Investments, Ltd.(a) | 81,864 | ||||||
22,920 | PPL Corp. | 832,684 | ||||||
65,960 | Southern Co. (The)^ | 3,239,296 | ||||||
|
| |||||||
12,647,993 | ||||||||
|
| |||||||
| Electrical Equipment (0.0%): |
| ||||||
101,615 | Dongfang Electric Corp., Ltd. | 186,203 | ||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.1%): |
| ||||||
49,730 | Flextronics International, Ltd.* | 555,981 | ||||||
|
| |||||||
| Energy Equipment & Services (0.9%): |
| ||||||
55,109 | Baker Hughes, Inc. | 3,089,961 | ||||||
7,189 | Ensco plc, Class A, Sponsored ADR^ | 215,311 | ||||||
7,500 | Halliburton Co. | 294,975 | ||||||
95,250 | Noble Corp. plc | 1,578,292 | ||||||
20,710 | Paragon Offshore plc^ | 57,367 | ||||||
23,389 | Saipem SpA*^ | 245,609 | ||||||
7,000 | Schlumberger, Ltd. | 597,870 | ||||||
6,210 | Technip-Coflexip SA | 370,778 | ||||||
44,144 | Transocean, Ltd.^ | 809,160 | ||||||
|
| |||||||
7,259,323 | ||||||||
|
| |||||||
| Food & Staples Retailing (1.9%): |
| ||||||
47,016 | CVS Health Corp. | 4,528,111 | ||||||
51,529 | Kroger Co. (The) | 3,308,677 | ||||||
57,540 | Metro AG*^ | 1,761,460 | ||||||
514,704 | Tesco plc | 1,497,565 | ||||||
49,803 | Walgreens Boots Alliance, Inc. | 3,794,989 | ||||||
|
| |||||||
14,890,802 | ||||||||
|
| |||||||
| Gas Utilities (0.0%): |
| ||||||
2,870 | AGL Resources, Inc. | 156,444 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (1.9%): |
| ||||||
100,680 | Getinge AB, B Shares | 2,288,342 | ||||||
141,740 | Medtronic, Inc.^ | 10,233,628 | ||||||
26,110 | Stryker Corp. | 2,462,956 | ||||||
|
| |||||||
14,984,926 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Health Care Providers & Services (0.3%): |
| ||||||
24,186 | CIGNA Corp. | $ | 2,488,981 | |||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.0%): |
| ||||||
5,000 | Las Vegas Sands Corp.^ | 290,800 | ||||||
|
| |||||||
| Household Products (0.0%): |
| ||||||
2,533 | Energizer Holdings, Inc. | 325,642 | ||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.5%): |
| ||||||
15,370 | Dynegy, Inc.* | 466,480 | ||||||
16,670 | NextEra Energy, Inc. | 1,771,854 | ||||||
61,463 | NRG Energy, Inc.^ | 1,656,428 | ||||||
|
| |||||||
3,894,762 | ||||||||
|
| |||||||
| Industrial Conglomerates (0.7%): |
| ||||||
115,820 | General Electric Co. | 2,926,771 | ||||||
37,630 | Koninklijke Philips Electronics NV | 1,092,464 | ||||||
14,360 | Siemens AG, Registered Shares | 1,628,378 | ||||||
|
| |||||||
5,647,613 | ||||||||
|
| |||||||
| Insurance (3.6%): |
| ||||||
27,677 | ACE, Ltd. | 3,179,533 | ||||||
5,453 | Alleghany Corp.* | 2,527,466 | ||||||
31,483 | Allstate Corp. (The) | 2,211,681 | ||||||
138,736 | American International Group, Inc. | 7,770,602 | ||||||
251,567 | Aviva plc | 1,884,802 | ||||||
86,573 | AXA SA | 1,999,299 | ||||||
58,751 | MetLife, Inc. | 3,177,842 | ||||||
4,840 | Muenchener Rueckversicherungs-Gesellschaft AG | 969,539 | ||||||
27,000 | NN Group NV*^ | 804,437 | ||||||
22,760 | Swiss Re AG | 1,904,979 | ||||||
980 | White Mountains Insurance Group, Ltd. | 617,508 | ||||||
4,951 | Zurich Insurance Group AG | 1,550,838 | ||||||
|
| |||||||
28,598,526 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.1%): |
| ||||||
34,300 | QIAGEN NV* | 803,147 | ||||||
|
| |||||||
| Machinery (0.6%): |
| ||||||
12,807 | Caterpillar, Inc. | 1,172,225 | ||||||
134,634 | CNH Industrial NV | 1,085,211 | ||||||
8,060 | Deere & Co. | 713,068 | ||||||
3,788 | Federal Signal Corp. | 58,487 | ||||||
41,856 | Navistar International Corp.*^ | 1,401,339 | ||||||
|
| |||||||
4,430,330 | ||||||||
|
| |||||||
| Marine (0.3%): |
| ||||||
1,345 | A.P. Moeller — Maersk A/S, Class B | 2,673,970 | ||||||
|
| |||||||
| Media (3.5%): |
| ||||||
109,077 | British Sky Broadcasting Group plc | 1,517,971 | ||||||
47,115 | CBS Corp., Class B | 2,607,344 | ||||||
80,502 | Comcast Corp., Class A^ | 4,634,097 | ||||||
83,860 | News Corp., Class A* | 1,315,763 | ||||||
59,790 | Reed Elsevier NV | 1,428,736 | ||||||
169,909 | Reed Elsevier plc | 2,890,375 | ||||||
25,671 | Time Warner Cable, Inc. | 3,903,532 |
Continued
5
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
19,939 | Time Warner, Inc. | $ | 1,703,189 | |||||
5,213 | Tribune Co.#*(b) | — | ||||||
3,393 | Tribune Co.*^ | 202,800 | ||||||
2,462 | Tribune Co., B Shares*(c) | 147,154 | ||||||
1,618 | Tribune Publishing Co. | 37,052 | ||||||
63,920 | Twenty-First Century Fox, Inc.^ | 2,454,848 | ||||||
123,684 | Twenty-First Century Fox, Inc., Class B | 4,562,702 | ||||||
7,740 | Walt Disney Co. (The) | 729,031 | ||||||
|
| |||||||
28,134,594 | ||||||||
|
| |||||||
| Metals & Mining (1.8%): |
| ||||||
28,081 | Anglo American plc | 519,489 | ||||||
27,100 | Barrick Gold Corp., ADR | 291,325 | ||||||
65,240 | BHP Billiton plc | 1,395,300 | ||||||
127,985 | Freeport-McMoRan Copper & Gold, Inc. | 2,989,730 | ||||||
33,460 | Goldcorp, Inc. | 619,679 | ||||||
105,428 | Mining and Metallurgical Co. Norilsk Nickel, Sponsored ADR | 1,457,026 | ||||||
8,511 | POSCO | 2,147,635 | ||||||
67,180 | Rio Tinto plc, Registered Shares, Sponsored ADR^ | 3,094,311 | ||||||
60,616 | ThyssenKrupp AG* | 1,558,890 | ||||||
|
| |||||||
14,073,385 | ||||||||
|
| |||||||
| Multiline Retail (0.9%): |
| ||||||
16,021 | Kohl’s Corp.^ | 977,922 | ||||||
156,610 | Marks & Spencer Group plc | 1,156,148 | ||||||
64,120 | Target Corp.^ | 4,867,349 | ||||||
|
| |||||||
7,001,419 | ||||||||
|
| |||||||
| Multi-Utilities (0.9%): |
| ||||||
17,270 | Dominion Resources, Inc. | 1,328,063 | ||||||
55,430 | PG&E Corp. | 2,951,092 | ||||||
22,060 | Public Service Enterprise Group, Inc. | 913,505 | ||||||
11,070 | Sempra Energy | 1,232,755 | ||||||
3,650 | TECO Energy, Inc.^ | 74,789 | ||||||
27,390 | Xcel Energy, Inc. | 983,849 | ||||||
|
| |||||||
7,484,053 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (6.0%): |
| ||||||
13,280 | Anadarko Petroleum Corp. | 1,095,600 | ||||||
40,280 | Apache Corp.^ | 2,524,348 | ||||||
75,548 | BG Group plc | 1,005,475 | ||||||
401,711 | BP plc | 2,550,447 | ||||||
80,765 | BP plc, Sponsored ADR^ | 3,078,762 | ||||||
39,300 | Canadian Oil Sands, Ltd. | 352,567 | ||||||
26,620 | Chevron Corp. | 2,986,231 | ||||||
543,000 | China Shenhua Energy Co., Ltd. | 1,599,292 | ||||||
33,229 | CONSOL Energy, Inc.^ | 1,123,472 | ||||||
7,500 | Devon Energy Corp. | 459,075 | ||||||
124,593 | Eni SpA | 2,175,785 | ||||||
15,580 | Exxon Mobil Corp. | 1,440,371 | ||||||
133,040 | Galp Energia SGPS SA | 1,345,798 | ||||||
12,340 | HollyFrontier Corp. | 462,503 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Oil, Gas & Consumable Fuels, continued | |||||||
1,595,700 | Kunlun Energy Co., Ltd. | $ | 1,511,173 | |||||
84,406 | Marathon Oil Corp. | 2,387,846 | ||||||
22,280 | Murphy Oil Corp.^ | 1,125,586 | ||||||
5,000 | Occidental Petroleum Corp. | 403,050 | ||||||
137,722 | Petroleo Brasileiro SA, Sponsored ADR | 1,043,933 | ||||||
56,209 | Royal Dutch Shell plc, Sponsored ADR | 3,763,192 | ||||||
97,577 | Royal Dutch Shell plc, A Shares | 3,263,296 | ||||||
460 | Royal Dutch Shell plc, A Shares | 15,246 | ||||||
54,908 | Royal Dutch Shell plc, B Shares | 1,886,074 | ||||||
22,490 | Spectra Energy Corp.^ | 816,387 | ||||||
3,020 | Talisman Energy, Inc. | 23,647 | ||||||
108,613 | Talisman Energy, Inc. | 850,440 | ||||||
461,554 | Talisman Energy, Inc. | 3,616,135 | ||||||
52,650 | Total SA | 2,714,271 | ||||||
23,740 | Total SA, Sponsored ADR, Sponsored ADR^ | 1,215,488 | ||||||
23,280 | Williams Cos., Inc. (The) | 1,046,203 | ||||||
|
| |||||||
47,881,693 | ||||||||
|
| |||||||
| Paper & Forest Products (0.4%): |
| ||||||
56,446 | International Paper Co. | 3,024,377 | ||||||
|
| |||||||
| Personal Products (0.1%): |
| ||||||
107,548 | Avon Products, Inc. | 1,009,876 | ||||||
|
| |||||||
| Pharmaceuticals (5.6%): |
| ||||||
5,957 | Actavis, plc* | 1,533,391 | ||||||
56,919 | Eli Lilly & Co. | 3,926,842 | ||||||
117,242 | GlaxoSmithKline plc | 2,508,090 | ||||||
38,211 | Hospira, Inc.* | 2,340,424 | ||||||
10,000 | Johnson & Johnson Co. | 1,045,700 | ||||||
172,224 | Merck & Co., Inc. | 9,780,600 | ||||||
21,980 | Merck KGaA | 2,084,898 | ||||||
177,360 | Pfizer, Inc. | 5,524,764 | ||||||
14,010 | Roche Holding AG | 3,798,423 | ||||||
21,470 | Sanofi-Aventis SA | 1,956,456 | ||||||
15,000 | Sanofi-Aventis SA, Sponsored ADR | 684,150 | ||||||
155,012 | Teva Pharmaceutical Industries, Ltd., Sponsored ADR | 8,914,740 | ||||||
|
| |||||||
44,098,478 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.1%): |
| ||||||
2,556 | Alexander’s, Inc.^ | 1,117,432 | ||||||
|
| |||||||
| Real Estate Management & Development (0.0%): |
| ||||||
13,131 | Canary Wharf Group plc*(c) | 110,688 | ||||||
2,292 | Forestar Group, Inc.* | 35,297 | ||||||
|
| |||||||
145,985 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (1.3%): |
| ||||||
49,140 | Intel Corp.(a) | 1,783,291 | ||||||
6,094 | Samsung Electronics Co., Ltd. | 7,326,305 | ||||||
19,910 | Texas Instruments, Inc. | 1,064,488 | ||||||
12,300 | Xilinx, Inc. | 532,467 | ||||||
|
| |||||||
10,706,551 | ||||||||
|
|
Continued
6
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Software (2.6%): |
| ||||||
42,508 | CA, Inc. | $ | 1,294,369 | |||||
287,440 | Microsoft Corp. | 13,351,587 | ||||||
14,870 | Oracle Corp. | 668,704 | ||||||
12,060 | SAP AG | 852,607 | ||||||
145,068 | Symantec Corp. | 3,721,720 | ||||||
|
| |||||||
19,888,987 | ||||||||
|
| |||||||
| Sovereign Bonds (0.1%): |
| ||||||
85,800 | Bangkok Bank Public Co., Ltd. | 503,801 | ||||||
|
| |||||||
| Specialty Retail (0.5%): |
| ||||||
34,252 | Best Buy Co., Inc. | 1,335,143 | ||||||
503,764 | Kingfisher plc | 2,654,314 | ||||||
|
| |||||||
3,989,457 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (2.0%): |
| ||||||
60,749 | Apple, Inc. | 6,705,474 | ||||||
126,490 | Hewlett-Packard Co. | 5,076,044 | ||||||
166,600 | Konica Minolta Holdings, Inc. | 1,797,343 | ||||||
210,925 | Xerox Corp. | 2,923,421 | ||||||
|
| |||||||
16,502,282 | ||||||||
|
| |||||||
| Tobacco (1.7%): |
| ||||||
55,557 | Altria Group, Inc. | 2,737,293 | ||||||
67,257 | British American Tobacco plc | 3,653,883 | ||||||
51,028 | Imperial Tobacco Group plc | 2,234,402 | ||||||
52,720 | Lorillard, Inc. | 3,318,197 | ||||||
13,457 | Philip Morris International, Inc. | 1,096,073 | ||||||
|
| |||||||
13,039,848 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.9%): |
| ||||||
49,000 | China Mobile, Ltd. | 575,697 | ||||||
7,130 | Mobile TeleSystems, Sponsored ADR | 51,193 | ||||||
164,437 | Turkcell Iletisim Hizmetleri AS, Sponsored ADR* | 2,486,287 | ||||||
1,238,869 | Vodafone Group plc | 4,244,415 | ||||||
|
| |||||||
7,357,592 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $393,051,079) | 460,715,300 | ||||||
|
| |||||||
| Preferred Stocks (0.4%): |
| ||||||
| Automobiles (0.2%): |
| ||||||
5,955 | Volkswagen AG, Preferred Shares | 1,330,022 | ||||||
|
| |||||||
| Banks (0.0%): |
| ||||||
6,800 | GMAC Capital Trust I | 179,384 | ||||||
|
| |||||||
| Capital Markets (0.0%): |
| ||||||
10,000 | Morgan Stanley, Series I | 253,100 | ||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
20,000 | Alcoa, Inc., Series 1 | 1,009,000 | ||||||
|
| |||||||
| Multi-Utilities (0.1%): |
| ||||||
9,300 | Dominion Resources, Inc. | 483,693 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $3,425,443) | 3,255,199 | ||||||
|
| |||||||
| Convertible Preferred Stocks (0.3%): |
| ||||||
| Banks (0.3%): |
| ||||||
800 | Bank of America Corp., Series L | 930,376 | ||||||
416 | Wells Fargo & Co., Series L, Class A, 0.02% | 505,440 | ||||||
|
| |||||||
1,435,816 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Convertible Preferred Stocks, continued | |||||||
| Commercial Services & Supplies (0.0%): |
| ||||||
$ | 6 | CEVA Group plc, Series A-1 | $ | 6,000 | ||||
49 | CEVA Group plc, Series A-2 | 37,626 | ||||||
|
| |||||||
43,626 | ||||||||
|
| |||||||
| Multi-Utilities (0.0%): |
| ||||||
2,500 | Dominion Resources, Inc., Series B | 150,300 | ||||||
2,500 | Dominion Resources, Inc., Series A | 150,025 | ||||||
|
| |||||||
300,325 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.0%): |
| ||||||
100 | Chesapeake Energy Corp., Series A^ | 102,375 | ||||||
3,500 | SandRidge Energy, Inc., 0.51% | 192,938 | ||||||
|
| |||||||
295,313 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.0%): |
| ||||||
2,500 | FelCor Lodging Trust, Inc., Series A, 30.53%^ | 63,867 | ||||||
|
| |||||||
| Total Convertible Preferred Stocks (Cost $1,873,266) | 2,138,947 | ||||||
|
| |||||||
| Convertible Bonds (0.7%): |
| ||||||
| Automobiles (0.4%): |
| ||||||
1,000,000 | Fiat Chrysler Automobiles NV, Series FCAU, 7.88%, 12/15/16 | 1,075,000 | ||||||
1,500,000 | Volkswagen International Finance NV, 5.50%, 11/9/15+(a) | 2,007,235 | ||||||
|
| |||||||
3,082,235 | ||||||||
|
| |||||||
| Banks (0.1%): |
| ||||||
1,000,000 | JPMorgan Chase & Co., Series Q, 5.15%, 12/31/49, Callable 5/1/23 @ 100, Perpetual Bond^(d) | 942,000 | ||||||
|
| |||||||
| Construction Materials (0.0%): |
| ||||||
300,000 | Cemex SAB de C.V., 3.75%, 3/15/18 | 361,688 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.2%): |
| ||||||
2,000,000 | Cobalt International Energy, Inc., 3.13%, 5/15/24^ | 1,343,750 | ||||||
|
| |||||||
| Total Convertible Bonds (Cost $6,159,638) | 5,729,673 | ||||||
|
| |||||||
| Floating Rate Loans (0.6%): |
| ||||||
| Diversified Financial Services (0.1%): |
| ||||||
3,860,813 | Lehman Brothers Holdings, Inc., 0.00%, 12/31/49(d) | 953,157 | ||||||
|
| |||||||
| Electric Utilities (0.0%): |
| ||||||
149,307 | Texas Competitive Electric Holdings Co. LLC, 4.65%, 10/10/17(d)(e) | 96,366 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.1%): |
| ||||||
368,078 | Caesars Entertainment Operating Co., Inc., 9.75%, 3/1/17(d) | 321,608 | ||||||
89,801 | Caesars Entertainment Operating Co., Inc., 4.45%, 1/28/18(d) | 78,184 | ||||||
429,156 | Caesars Entertainment Operating Co., Inc., 5.45%, 1/28/18(d) | 374,245 | ||||||
|
| |||||||
774,037 | ||||||||
|
| |||||||
| Machinery (0.1%): |
| ||||||
483,718 | Navistar International Corp., 5.75%, 8/17/17(d) | 480,090 | ||||||
|
|
Continued
7
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Floating Rate Loans, continued | |||||||
| Media (0.1%): |
| ||||||
$ | 43,780 | Cengage Learning Acquisitions, Inc., 7.00%, 3/31/20(d) | $ | 43,287 | ||||
224 | iHeartCommunications, Inc., 3.81%, 1/19/16(d) | 220 | ||||||
3,371 | iHeartCommunications, Inc., 3.81%, 1/29/16(d) | 3,332 | ||||||
430,631 | iHeartCommunications, Inc., 6.91%, 1/30/19(d) | 405,100 | ||||||
138,444 | iHeartCommunications, Inc., 7.66%, 7/30/19(d) | 131,694 | ||||||
|
| |||||||
583,633 | ||||||||
|
| |||||||
| Oil Gas & Consumable Fuels (0.0%): |
| ||||||
459,113 | Walter Energy, Inc., 7.25%, 4/1/18(d) | 354,793 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.1%): |
| ||||||
1,000,000 | Fieldwood Energy LLC, 8.38%, 9/30/20(d) | 726,250 | ||||||
25,502 | NGPL PipeCo LLC, 6.75%, 9/15/17(d) | 24,705 | ||||||
|
| |||||||
750,955 | ||||||||
|
| |||||||
| Specialty Retail (0.1%): |
| ||||||
883,802 | Toys “R” US, 9.75%, 4/24/20(d) | 804,260 | ||||||
|
| |||||||
| Total Floating Rate Loans (Cost $6,026,588) | 4,797,291 | ||||||
|
| |||||||
| Corporate Bonds (6.8%): |
| ||||||
| Aerospace & Defense (0.0%): |
| ||||||
100,000 | TransDigm Group, Inc., 6.00%, 7/15/22, Callable 7/15/17 @ 104.5 | 99,750 | ||||||
100,000 | TransDigm Group, Inc., 6.50%, 7/15/24, Callable 7/15/19 @ 103.25 | 100,500 | ||||||
|
| |||||||
200,250 | ||||||||
|
| |||||||
| Auto Components (0.2%): |
| ||||||
100,000 | Goodyear Tire & Rubber Co., 8.25%, 8/15/20, Callable 8/15/15 @ 104.13^ | 106,000 | ||||||
1,600,000 | Goodyear Tire & Rubber Co., 6.50%, 3/1/21, Callable 3/1/16 @ 104.88^ | 1,696,000 | ||||||
|
| |||||||
1,802,000 | ||||||||
|
| |||||||
| Automobiles (0.1%): |
| ||||||
200,000 | Chrysler GP / Chrysler CG Co. Issuer, 8.00%, 6/15/19, Callable 6/15/15 @ 104^ | 210,250 | ||||||
400,000 | Chrysler GP / Chrysler CG Co. Issuer, 8.25%, 6/15/21, Callable 6/15/15 @ 104.13 | 443,000 | ||||||
|
| |||||||
653,250 | ||||||||
|
| |||||||
| Banks (0.1%): |
| ||||||
250,000 | JPMorgan Chase & Co., Series 1, 7.90%, 4/29/49, Callable 4/30/18 @ 100(d) | 269,075 | ||||||
200,000 | Wells Fargo & Co., Series S, 5.90%, 12/31/49, Callable 6/15/24 @ 100(d) | 201,500 | ||||||
|
| |||||||
470,575 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.1%): |
| ||||||
475,000 | CEVA Group plc, 4.00%, 5/1/18, Callable 2/9/15 @ 101(a) | 413,250 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Consumer Finance (0.1%): |
| ||||||
$ | 500,000 | OneMain Financial Holdings, Inc., 7.25%, 12/15/21, Callable 12/15/17 @ 103.63^(a) | $ | 512,500 | ||||
|
| |||||||
| Diversified Consumer Services (0.1%): |
| ||||||
500,000 | Laureate Education, Inc., 9.25%, 9/1/19, Callable 9/1/15 @ 106.94(a) | 515,000 | ||||||
|
| |||||||
| Diversified Telecommunication Services (0.3%): |
| ||||||
200,000 | CenturyLink, Inc., Series W, 6.75%, 12/1/23^ | 219,000 | ||||||
1,700,000 | Verizon Communications, Inc., 5.15%, 9/15/23 | 1,877,196 | ||||||
|
| |||||||
2,096,196 | ||||||||
|
| |||||||
| Electric Utilities (0.2%): |
| ||||||
1,000,000 | Dynegy Finance I, Inc., 6.75%, 11/1/19, Callable 5/1/17 @ 103.38(a) | 1,017,500 | ||||||
330,000 | NGL Energy Partners, LP, 6.88%, 10/15/21, Callable 10/15/16 @ 105(a) | 325,050 | ||||||
200,000 | NRG Yield Operating LLC, 5.38%, 8/15/24, Callable 8/15/19 @ 102.69(a) | 203,000 | ||||||
|
| |||||||
1,545,550 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.1%): |
| ||||||
300,000 | JBS USA LLC / JBS USA Finance Corp., 8.25%, 2/1/20, Callable 2/1/15 @ 106.19(a) | 315,750 | ||||||
161,000 | JBS USA LLC / JBS USA Finance Corp., 7.25%, 6/1/21, Callable 6/1/15 @ 105.44(a) | 165,830 | ||||||
200,000 | US Foods, Inc., 8.50%, 6/30/19, Callable 2/9/15 @ 106.38 | 212,000 | ||||||
300,000 | WhiteWave Foods Co., 5.38%, 10/1/22 | 309,000 | ||||||
|
| |||||||
1,002,580 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.4%): |
| ||||||
100,000 | Community Health Systems, Inc., 5.13%, 8/1/21, Callable 2/1/17 @ 103.85 | 103,750 | ||||||
300,000 | Community Health Systems, Inc., 6.88%, 2/1/22, Callable 2/1/18 @ 103.44^ | 317,813 | ||||||
800,000 | HCA, Inc., 7.50%, 2/15/22 | 914,000 | ||||||
500,000 | HCA, Inc., 5.88%, 5/1/23^ | 526,875 | ||||||
1,400,000 | Tenet Healthcare Corp., 8.13%, 4/1/22 | 1,564,500 | ||||||
|
| |||||||
3,426,938 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.1%): |
| ||||||
500,000 | MGM Resorts International, 10.00%, 11/1/16^ | 556,250 | ||||||
200,000 | MGM Resorts International, 6.75%, 10/1/20 | 210,000 | ||||||
|
| |||||||
766,250 | ||||||||
|
| |||||||
| Household Products (0.2%): |
| ||||||
300,000 | Reynolds Group Issuer LLC / Reynolds Group Issuer, Inc., 7.88%, 8/15/19, Callable 8/15/15 @ 103.94 | 316,125 | ||||||
200,000 | Reynolds Group Issuer LLC / Reynolds Group Issuer, Inc., 9.88%, 8/15/19, Callable 8/15/15 @ 104.94 | 212,000 |
Continued
8
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Household Products, continued |
| ||||||
$ | 500,000 | Reynolds Group Issuer LLC / Reynolds Group Issuer, Inc., 5.75%, 10/15/20, Callable 10/15/15 @ 104.31 | $ | 512,500 | ||||
600,000 | Reynolds Group Issuer LLC / Reynolds Group Issuer, Inc., 8.25%, 2/15/21, Callable 2/15/16 @ 104.13^ | 615,000 | ||||||
|
| |||||||
1,655,625 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.5%): |
| ||||||
1,000,000 | AES Corp., 4.88%, 5/15/23, Callable 5/15/18 @ 102.44^ | 992,500 | ||||||
350,000 | Calpine Corp., 7.88%, 1/15/23, Callable 1/15/17 @ 103.94(a) | 385,875 | ||||||
500,000 | Calpine Corp., 5.38%, 1/15/23, Callable 10/15/18 @ 102.69^ | 505,000 | ||||||
500,000 | Calpine Corp., 5.75%, 1/15/25, Callable 10/15/19 @ 102.88^ | 506,250 | ||||||
115,000 | RRI Energy, Inc., 7.88%, 6/15/17^ | 114,425 | ||||||
2,581,000 | Texas Competitive Electric Holdings Co. LLC, 11.50%, 10/1/20, Callable 4/1/16 @ 105.75(a)(e) | 1,826,058 | ||||||
|
| |||||||
4,330,108 | ||||||||
|
| |||||||
| IT Services (0.0%): |
| ||||||
200,000 | SRA International, Inc., 11.00%, 10/1/19, Callable 10/1/15 @ 105.5 | 212,500 | ||||||
|
| |||||||
| Machinery (0.1%): |
| ||||||
245,000 | Aviation Capital Group Corp., 6.75%, 4/6/21(a) | 277,463 | ||||||
400,000 | Navistar International Corp., 8.25%, 11/1/21, Callable 2/9/15 @ 104.13 | 394,500 | ||||||
|
| |||||||
671,963 | ||||||||
|
| |||||||
| Media (1.1%): |
| ||||||
325,000 | Cablevision Systems Corp., 8.63%, 9/15/17 | 361,563 | ||||||
100,000 | Cablevision Systems Corp., 7.75%, 4/15/18 | 110,000 | ||||||
100,000 | CBS Outdoor Americas Capital LLC / CBS Outdoor Americas Capital Corp., 5.25%, 2/15/22, Callable 2/15/17 @ 103.94^(a) | 100,750 | ||||||
100,000 | CBS Outdoor Americas Capital LLC / CBS Outdoor Americas Capital Corp., 5.63%, 2/15/24, Callable 2/15/19 @ 102.81(a) | 100,500 | ||||||
500,000 | CCO Holdings LLC / CCO Holdings Capital Corp., 6.50%, 4/30/21, Callable 4/30/15 @ 104.88 | 525,000 | ||||||
700,000 | CSC Holdings LLC, 6.75%, 11/15/21^ | 773,500 | ||||||
175,000 | Cumulus Media Holdings, Inc., 7.75%, 5/1/19, Callable 5/1/15 @ 103.88^ | 176,750 | ||||||
1,000,000 | Dish DBS Corp., 5.88%, 7/15/22^ | 1,025,000 | ||||||
500,000 | Dish DBS Corp., 5.00%, 3/15/23 | 483,750 | ||||||
1,548,000 | iHeartCommunications, Inc., 9.00%, 12/15/19, Callable 7/15/15 @ 104.5 | 1,524,779 | ||||||
1,000,000 | iHeartCommunications, Inc., 9.00%, 3/1/21, Callable 3/1/16 @ 104.5 | 980,000 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Media, continued | |||||||
$ | 1,500,000 | iHeartCommunications, Inc., 9.00%, 9/15/22, Callable 9/15/17 @ 106.75(a) | $ | 1,470,000 | ||||
200,000 | Sirius XM Radio, Inc., 6.00%, 7/15/24, Callable 7/15/19 @ 103(a) | 205,000 | ||||||
1,000,000 | Univision Communications, Inc., 5.13%, 5/15/23, Callable 5/15/18 @ 102.56(a) | 1,010,000 | ||||||
200,000 | Visant Corp., 10.00%, 10/1/17, Callable 2/9/15 @ 105^ | 173,500 | ||||||
|
| |||||||
9,020,092 | ||||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
500,000 | Dynacast International LLC / Dynacast Finance, Inc., 9.25%, 7/15/19, Callable 7/15/15 @ 104.63 | 536,250 | ||||||
500,000 | Molycorp, Inc., 10.00%, 6/1/20, Callable 6/1/16 @ 105^ | 277,500 | ||||||
|
| |||||||
813,750 | ||||||||
|
| |||||||
| Multiline Retail (0.1%): |
| ||||||
842,243 | J.C. Penney Co., Inc., 6.00%, 5/22/18(d) | 824,699 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.6%): |
| ||||||
200,000 | Alpha Natural Resources, Inc., 7.50%, 8/1/20, Callable 8/1/16 @ 105.63^(a) | 126,000 | ||||||
200,000 | Antero Resources Finance Corp., 5.38%, 11/1/21, Callable 11/1/16 @ 104.03 | 193,500 | ||||||
250,000 | Arch Coal, Inc., 7.00%, 6/15/19, Callable 6/15/15 @ 103.5 | 73,750 | ||||||
750,000 | Arch Coal, Inc., 7.25%, 6/15/21, Callable 6/15/16 @ 103.63 | 218,438 | ||||||
500,000 | Bill Barrett Corp., 7.00%, 10/15/22, Callable 10/15/17 @ 103.5^ | 402,500 | ||||||
200,000 | BreitBurn Energy / BreitBurn Finance, 7.88%, 4/15/22, Callable 1/15/17 @ 103.94^ | 154,500 | ||||||
800,000 | California Resources Corp., 6.00%, 11/15/24, Callable 8/15/24 @ 100^(a) | 676,000 | ||||||
345,000 | Chesapeake Energy Corp., 6.50%, 8/15/17 | 367,425 | ||||||
200,000 | Chesapeake Energy Corp., 7.25%, 12/15/18 | 219,000 | ||||||
1,700,000 | Chesapeake Energy Corp., 5.75%, 3/15/23^(a) | 1,750,999 | ||||||
500,000 | CONSOL Energy, Inc., 5.88%, 4/15/22, Callable 4/15/17 @ 104.41^(a) | 465,000 | ||||||
350,000 | Denbury Resources, Inc., 5.50%, 5/1/22, Callable 5/1/17 @ 104.13^ | 320,250 | ||||||
500,000 | Energy XXI Gulf Coast, Inc., 9.25%, 12/15/17, Callable 2/9/15 @ 104.63^ | 325,000 | ||||||
500,000 | EP Energy/EP Finance, Inc., 9.38%, 5/1/20, Callable 5/1/16 @ 104.69 | 505,000 | ||||||
400,000 | EXCO Resources, Inc., 7.50%, 9/15/18, Callable 2/9/15 @ 103.75 | 305,750 | ||||||
500,000 | Halcon Resources Corp., 9.75%, 7/15/20, Callable 7/15/16 @ 104.88 | 375,000 | ||||||
400,000 | Halcon Resources Corp., 8.88%, 5/15/21, Callable 11/15/16 @ 104.44^ | 301,000 | ||||||
1,300,000 | Kinder Morgan (Delaware), Inc., 5.63%, 11/15/23, Callable 8/15/23 @ 100(a) | 1,391,553 |
Continued
9
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Oil, Gas & Consumable Fuels, continued | |||||||
$ | 100,000 | Linn Energy LLC / Linn Energy Finance Corp., 8.63%, 4/15/20, Callable 4/15/15 @ 104.31 | $ | 87,000 | ||||
325,000 | Midstates Petroleum Co., Inc. / Midstates Petroleum Co. LLC, 10.75%, 10/1/20, Callable 10/1/16 @ 105.38 | 172,250 | ||||||
315,000 | NGPL PipeCo LLC, 7.12%, 12/15/17^(a) | 309,488 | ||||||
469,000 | NGPL PipeCo LLC, 9.63%, 6/1/19, Callable 6/1/15 @ 107.22^(a) | 470,173 | ||||||
200,000 | Peabody Energy Corp., 6.25%, 11/15/21^ | 171,000 | ||||||
100,000 | Regency Energy Partners LP / Regency Energy Finance Corp., 5.88%, 3/1/22, Callable 12/1/21 @ 100 | 99,750 | ||||||
100,000 | Rice Energy, Inc., 6.25%, 5/1/22, Callable 5/1/17 @ 104.69^(a) | 93,000 | ||||||
300,000 | Sabine Pass Liquefaction LLC, 5.75%, 5/15/24, Callable 2/15/24 @ 100 | 294,375 | ||||||
500,000 | Samson Investment Co., 9.75%, 2/15/20, Callable 2/15/16 @ 104.88 | 207,188 | ||||||
900,000 | Sanchez Energy Corp., 7.75%, 6/15/21, Callable 6/15/17 @ 103.88^ | 836,999 | ||||||
500,000 | SandRidge Energy, Inc., 8.75%, 1/15/20, Callable 1/15/15 @ 104.38^ | 337,500 | ||||||
300,000 | SandRidge Energy, Inc., 7.50%, 3/15/21, Callable 3/15/16 @ 103.75^ | 192,000 | ||||||
400,000 | W&T Offshore, Inc., 8.50%, 6/15/19, Callable 6/15/15 @ 104.25 | 262,000 | ||||||
506,000 | Walter Energy, Inc., 9.50%, 10/15/19, Callable 10/15/16 @ 107.12^(a) | 384,560 | ||||||
217,000 | Walter Energy, Inc., 11.00%, 4/1/20, Callable 4/1/17 @ 105.5(a) | 70,525 | ||||||
|
| |||||||
12,158,473 | ||||||||
|
| |||||||
| Professional Services (0.0%): |
| ||||||
100,000 | United Rentals (North America), Inc., 8.38%, 9/15/20, Callable 9/15/15 @ 104.19 | 107,250 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.1%): |
| ||||||
1,000,000 | iStar Financial, Inc., 5.00%, 7/1/19, Callable 7/1/16 @ 102.5 | 970,000 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.1%): |
| ||||||
256,000 | Freescale Semiconductor, Inc., 8.05%, 2/1/20, Callable 6/1/15 @ 104.03^ | 270,080 | ||||||
480,000 | Freescale Semiconductor, Inc., 10.75%, 8/1/20, Callable 8/1/15 @ 105.38 | 524,400 | ||||||
|
| |||||||
794,480 | ||||||||
|
| |||||||
| Software (0.4%): |
| ||||||
500,000 | BMC Software Finance, Inc., 8.13%, 7/15/21, Callable 7/15/16 @ 106.1(a) | 470,000 | ||||||
1,389,000 | First Data Corp., 8.25%, 1/15/21, Callable 1/15/16 @ 104.13^(a) | 1,486,230 | ||||||
600,000 | First Data Corp., 12.63%, 1/15/21, Callable 1/15/16 @ 112.63^ | 712,500 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Software, continued | |||||||
$ | 326,000 | First Data Corp., 11.75%, 8/15/21, Callable 5/15/16 @ 108.81 | $ | 374,085 | ||||
141,000 | First Data Corp., 8.75%, 1/15/22, Callable 1/15/16 @ 104.38(a) | 151,575 | ||||||
200,000 | Infor (US), Inc., 9.38%, 4/1/19, Callable 4/1/15 @ 107.03 | 214,000 | ||||||
|
| |||||||
3,408,390 | ||||||||
|
| |||||||
| Specialty Retail (0.1%): |
| ||||||
400,000 | Academy, Ltd., 9.25%, 8/1/19, Callable 2/9/15 @ 106.94(a) | 420,000 | ||||||
105,000 | Toys “R” US Delaware, Inc., 8.25%, 10/15/19(d) | 103,425 | ||||||
|
| |||||||
523,425 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.0%): |
| ||||||
250,000 | HD Supply, Inc., 5.25%, 12/15/21, Callable 12/15/17 @ 103.94(a) | 254,375 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.6%): |
| ||||||
507,448 | Avaya, Inc., 4.65%, 10/26/17(d) | 485,881 | ||||||
124,796 | Avaya, Inc., 6.50%, 3/31/18(d) | 122,715 | ||||||
339,000 | Avaya, Inc., 7.00%, 4/1/19, Callable 4/1/15 @ 103.5^(a) | 330,525 | ||||||
1,326,000 | Avaya, Inc., 10.50%, 3/1/21, Callable 3/1/17 @ 107.88^(a) | 1,133,731 | ||||||
100,000 | Frontier Communications Corp., 8.50%, 4/15/20^ | 111,500 | ||||||
500,000 | Sprint Communications, Inc., 9.00%, 11/15/18(a) | 568,700 | ||||||
700,000 | Sprint Nextel Corp., 9.13%, 3/1/17^ | 769,965 | ||||||
500,000 | Sprint Nextel Corp., 11.50%, 11/15/21 | 601,250 | ||||||
900,000 | T-Mobile USA, Inc., 6.54%, 4/28/20, Callable 4/28/16 @ 103.27 | 929,250 | ||||||
|
| |||||||
5,053,517 | ||||||||
|
| |||||||
| Total Corporate Bonds (Cost $55,174,121) | 54,202,986 | ||||||
|
| |||||||
| Equity-Linked Securities (0.7%): |
| ||||||
| Banks (0.4%): |
| ||||||
7,000 | Barclays Bank plc, 6.00%(a) | 594,020 | ||||||
6,000 | Credit Suisse NY, 6.00%, MTN(a) | 325,980 | ||||||
60,000 | Goldman Sachs Group, Inc. (The), 1.00%(a) | 1,066,980 | ||||||
8,000 | JPMorgan Chase & Co., 7.00%(a) | 677,360 | ||||||
|
| |||||||
2,664,340 | ||||||||
|
| |||||||
| Capital Markets (0.1%): |
| ||||||
27,000 | Bank of America Corp., 7.00%(a) | 611,550 | ||||||
|
| |||||||
| Diversified Financial Services (0.1%): |
| ||||||
20,000 | Citigroup, Inc., 6.00%(a) | 602,600 | ||||||
13,000 | Citigroup, Inc., 7.00%(a) | 571,350 | ||||||
|
| |||||||
1,173,950 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.1%): |
| ||||||
30,000 | Bank of America Corp., 6.50% | 1,064,100 | ||||||
|
| |||||||
| Total Equity-Linked Securities (Cost $5,568,941) | 5,513,940 | ||||||
|
|
Continued
10
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds (16.0%): |
| ||||||
| Chemicals (0.0%): |
| ||||||
$ | 100,000 | Kerling plc, 10.63%, 2/1/17, Callable 2/1/17 @ 102.66+(a) | $ | 122,249 | ||||
|
| |||||||
| Sovereign Bonds (16.0%): |
| ||||||
12,085,000 | Bank Negara Monetary Notes, Series 0214, 3.03%, 1/8/15+(f) | 3,455,895 | ||||||
3,200,000 | Bank Negara Monetary Notes, Series 0414, 3.22%, 1/20/15+(f) | 914,084 | ||||||
1,140,000 | Bank Negara Monetary Notes, Series 3414, 3.10%, 1/22/15+(f) | 325,590 | ||||||
190,000 | Bank Negara Monetary Notes, Series 5914, 3.32%, 2/10/15+(f) | 54,169 | ||||||
2,150,000 | Bank Negara Monetary Notes, Series 0914, 3.09%, 2/17/15+(f) | 612,571 | ||||||
3,600,000 | Bank Negara Monetary Notes, Series 3614, 3.21%, 3/3/15+(f) | 1,024,373 | ||||||
1,400,000 | Bank Negara Monetary Notes, Series 1114, 3.00%, 3/5/15+(f) | 398,293 | ||||||
150,000 | Bank Negara Monetary Notes, Series 1214, 2.89%, 3/12/15+(f) | 42,647 | ||||||
5,660,000 | Bank Negara Monetary Notes, Series 1314, 3.05%, 3/24/15+(f) | 1,607,404 | ||||||
220,000 | Bank Negara Monetary Notes, Series 4514, 3.16%, 4/7/15+(f) | 62,397 | ||||||
810,000 | Bank Negara Monetary Notes, Series 1614, 2.93%, 4/16/15+(f) | 229,541 | ||||||
1,250,000 | Bank Negara Monetary Notes, Series 4814, 3.24%, 4/23/15+(f) | 353,999 | ||||||
17,220,000 | Bank Negara Monetary Notes, Series 1914, 2.91%, 4/28/15+(f) | 4,874,773 | ||||||
690,000 | Bank Negara Monetary Notes, Series 2014, 2.96%, 5/5/15+(f) | 195,148 | ||||||
8,425,000 | Bank Negara Monetary Notes, Series 2214, 3.06%, 5/19/15+(f) | 2,380,095 | ||||||
930,000 | Bank Negara Monetary Notes, 3.31%, 5/28/15+(f) | 262,503 | ||||||
320,000 | Bank Negara Monetary Notes, Series 2514, 3.07%, 6/3/15+(f) | 90,272 | ||||||
220,000 | Bank Negara Monetary Notes, Series 5814, 3.30%, 6/4/15+(f) | 62,056 | ||||||
680,000 | Bank Negara Monetary Notes, Series 2814, 3.08%, 6/16/15+(f) | 191,589 | ||||||
80,000 | Bank Negara Monetary Notes, Series 3014, 3.19%, 6/30/15+(f) | 22,510 | ||||||
500,000 | Bank Negara Monetary Notes, Series 3014, 3.36%, 6/30/15+(f) | 140,684 | ||||||
1,290,000 | Bank Negara Monetary Notes, Series 3314, 3.04%, 7/16/15+(f) | 362,505 | ||||||
540,000 | Bank Negara Monetary Notes, Series 3514, 3.01%, 8/4/15+(f) | 151,371 | ||||||
510,000 | Bank Negara Monetary Notes, Series 3714, 3.26%, 8/11/15+(f) | 142,913 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 2,510,000 | Bank Negara Monetary Notes, Series 3714, 3.40%, 8/11/15+(f) | $ | 703,358 | ||||
400,000 | Bank Negara Monetary Notes, Series 4014, 3.16%, 8/18/15+(f) | 112,012 | ||||||
370,000 | Bank Negara Monetary Notes, Series 4314, 3.32%, 9/8/15+(f) | 103,397 | ||||||
320,000 | Bank Negara Monetary Notes, Series 4714, 3.15%, 9/22/15+(f) | 89,301 | ||||||
400,000 | Bank Negara Monetary Notes, Series 5014, 3.19%, 10/1/15+(f) | 111,526 | ||||||
120,000 | Bank Negara Monetary Notes, Series 5414, 3.23%, 10/27/15+(f) | 33,371 | ||||||
240,000 | Bank Negara Monetary Notes, Series 5714, 3.23%, 11/3/15+(f) | 66,697 | ||||||
365,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 5/15/15+(g) | 351,301 | ||||||
75,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 10.00%, 8/15/16+(g) | 72,609 | ||||||
3,200,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 1.29%, 1/1/17+(f)(g) | 1,147,096 | ||||||
230,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 8/15/18+(g) | 220,806 | ||||||
4,910,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 0.94%, | 1,707,043 | ||||||
630,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 1.04%, 1/1/21+(f)(g) | 214,149 | ||||||
910,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 8/15/22+(g) | 873,529 | ||||||
1,790,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 1.01%, 1/1/23+(g) | 597,342 | ||||||
140,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 5/15/45+(g) | 130,327 | ||||||
1,922,000 | Canada Treasury Bill, 0.86%, 2/12/15+(f) | 1,653,069 | ||||||
840,000 | Canada Treasury Bill, 0.86%, 3/12/15+(f) | 721,952 | ||||||
230,000 | Canada Treasury Bill, 0.89%, 4/23/15+(f) | 197,457 | ||||||
1,672,000 | Canadian Government, 1.00%, 2/1/15+ | 1,439,446 | ||||||
260,000 | Canadian Government, 1.50%, 8/1/15+ | 224,493 | ||||||
7,800,000 | Hungary Government Bond, Series 15/A, 8.00%, 2/12/15+ | 30,023 | ||||||
15,720,000 | Hungary Government Bond, Series 15/C, 7.75%, 8/24/15+ | 62,566 | ||||||
12,500,000 | Hungary Government Bond, Series 16/C, 5.50%, 2/12/16+ | 49,906 | ||||||
1,257,570,000 | Hungary Government Bond, Series 16/D, 5.50%, 12/22/16+ | 5,138,533 | ||||||
491,980,000 | Hungary Government Bond, Series 17/B, 6.75%, 2/24/17+ | 2,059,764 | ||||||
309,150,000 | Hungary Government Bond, Series 17/A, 6.75%, 11/24/17+ | 1,321,462 | ||||||
141,790,000 | Hungary Government Bond, Series 18/B, 4.00%, 4/25/18+ | 561,048 |
Continued
11
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 333,880,000 | Hungary Government Bond, Series 18/A, 5.50%, 12/20/18+ | $ | 1,398,424 | ||||
204,600,000 | Hungary Government Bond, Series 19/A, 6.50%, 6/24/19+ | 894,488 | ||||||
9,040,000 | Hungary Government Bond, Series 20/A, 7.50%, 11/12/20+ | 42,248 | ||||||
19,760,000 | Hungary Government Bond, Series 22/A, 7.00%, 6/24/22+ | 92,838 | ||||||
387,060,000 | Hungary Government Bond, Series 23/A, 6.00%, 11/24/23+ | 1,755,131 | ||||||
15,660,000 | Hungary Government Bond, Series 25/B, 5.50%, 6/24/25+ | 69,069 | ||||||
561,000,000 | Indonesia Government, Series FR69, 7.88%, 4/15/19+ | 45,598 | ||||||
47,000,000 | Indonesia Government, Series FR31, 11.00%, 11/15/20+ | 4,331 | ||||||
5,300,000,000 | Indonesia Government, Series FR34, 12.80%, 6/15/21+ | 530,600 | ||||||
120,000,000 | Indonesia Government, Series FR53, 8.25%, 7/15/21+ | 9,935 | ||||||
3,200,000,000 | Indonesia Government, Series FR44, 10.00%, 9/15/24+ | 291,179 | ||||||
3,300,000,000 | Indonesia Government, Series FR47, 10.00%, 2/15/28+ | 302,545 | ||||||
921,000 | Irish Government, 5.90%, 10/18/19+ | 1,400,830 | ||||||
324,000 | Irish Government, 4.50%, 4/18/20+ | 472,290 | ||||||
1,251,000 | Irish Government, 5.00%, 10/18/20+ | 1,893,809 | ||||||
958,580 | Irish Government, 5.40%, 3/13/25+ | 1,598,038 | ||||||
732,800,000 | Korea Monetary Stab Bond, Series 0113, 2.06%, 1/13/15+(f) | 666,348 | ||||||
1,013,290,000 | Korea Monetary Stab Bond, Series 1502, 2.74%, 2/2/15+ | 922,469 | ||||||
434,060,000 | Korea Monetary Stab Bond, Series 1504, 2.47%, 4/2/15+ | 395,342 | ||||||
1,618,900,000 | Korea Monetary Stab Bond, Series 1506, 2.76%, 6/2/15+ | 1,477,119 | ||||||
368,750,000 | Korea Monetary Stab Bond, Series 1506, 2.66%, 6/9/15+ | 336,730 | ||||||
2,757,580,000 | Korea Monetary Stab Bond, Series 1508, 2.80%, 8/2/15+ | 2,519,387 | ||||||
6,041,000,000 | Korea Monetary Stab Bond, Series 1510, 2.81%, 10/2/15+ | 5,526,365 | ||||||
508,900,000 | Korea Monetary Stab Bond, Series 1510, 2.13%, 10/8/15+ | 464,771 | ||||||
2,618,100,000 | Korea Monetary Stab Bond, Series 1512, 2.90%, 12/2/15+ | 2,399,542 | ||||||
211,700,000 | Korea Monetary Stab Bond, Series 1602, 2.78%, 2/2/16+ | 194,018 | ||||||
3,372,650,000 | Korea Monetary Stab Bond, Series 1604, 2.80%, 4/2/16+ | 3,095,338 | ||||||
797,300,000 | Korea Monetary Stab Bond, Series 1606, 2.79%, 6/2/16+ | 732,424 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 1,750,600,000 | Korea Monetary Stab Bond, Series 1608, 2.46%, 8/2/16+ | $ | 1,601,528 | ||||
426,200,000 | Korea Monetary Stab Bond, Series 1610, 2.22%, 10/2/16+ | 388,584 | ||||||
767,500,000 | Korea Monetary Stab Bond, Series 1612, 2.07%, 12/2/16+ | 697,897 | ||||||
314,700,000 | Korea Treasury Bond, Series 1506, 3.25%, 6/10/15+ | 287,774 | ||||||
2,224,930,000 | Korea Treasury Bond, Series 1512, 2.75%, 12/10/15+ | 2,036,922 | ||||||
1,053,800,000 | Korea Treasury Bond, Series 1606, 2.75%, 6/10/16+ | 967,496 | ||||||
1,117,200,000 | Korea Treasury Bond, Series 1612, 3.00%, 12/10/16+ | 1,033,639 | ||||||
96,000 | Letra do Tesouro Nacional, Series LTN, 10.13%, 1/1/15+(f)(g) | 36,112 | ||||||
160,000 | Letra do Tesouro Nacional, Series LTN, 11.32%, 10/1/15+(f)(g) | 54,992 | ||||||
2,050,000 | Letra do Tesouro Nacional, Series LTN, 11.91%, 1/1/16+(f)(g) | 682,884 | ||||||
1,500,000 | Letra do Tesouro Nacional, Series LTN, 12.38%, 7/1/16+(f)(g) | 470,013 | ||||||
150,000 | Letra do Tesouro Nacional, Series LTN, 12.15%, 10/1/16+(f)(g) | 45,553 | ||||||
3,160,000 | Letra do Tesouro Nacional, Series LTN, 13.41%, 1/1/17+(f)(g) | 932,567 | ||||||
1,820,000 | Letra do Tesouro Nacional, Series LTN, 14.77%, 1/1/18+(f)(g) | 478,110 | ||||||
1,915,000 | Malaysian Government, Series 0409, 3.74%, 2/27/15+ | 548,198 | ||||||
2,485,000 | Malaysian Government, Series 0110, 3.84%, 8/12/15+ | 712,659 | ||||||
3,105,000 | Malaysian Government, Series 2/05, 4.72%, 9/30/15+ | 895,661 | ||||||
13,730,000 | Malaysian Government, Series 0312, 3.20%, 10/15/15+ | 3,916,640 | ||||||
6,000,000 | Malaysian Government, Series 0113, 3.17%, 7/15/16+ | 1,706,182 | ||||||
16,796,000 | Mexican Cetes, Series BI, 0.00%, 3/19/15+(h) | 113,142 | ||||||
182,810,000 | Mexican Cetes, Series BI, 0.00%, 4/1/15+(h) | 1,230,177 | ||||||
43,258,000 | Mexican Cetes, Series BI, 0.00%, 4/16/15+(h) | 290,719 | ||||||
33,120,000 | Mexican Cetes, Series BI, 0.00%, 5/28/15+(h) | 221,818 | ||||||
33,834,000 | Mexican Cetes, Series BI, 0.00%, 6/11/15+(h) | 226,210 | ||||||
12,010,000 | Mexican Cetes, Series BI, 0.00%, 7/23/15+(h) | 80,042 | ||||||
44,372,000 | Mexican Cetes, Series BI, 0.00%, 9/17/15+(h) | 294,202 | ||||||
25,153,000 | Mexican Cetes, Series BI, 0.00%, 10/1/15+(h) | 166,553 | ||||||
4,168,000 | Mexican Cetes, Series BI, 0.00%, 11/12/15+(h) | 27,468 | ||||||
8,604,000 | Mexican Cetes, Series BI, 0.00%, 12/10/15+(h) | 56,516 | ||||||
1,908,400 | Mexican Udibonos, 5.00%, 6/16/16+(d)(h) | 137,429 | ||||||
1,623,273 | Mexican Udibonos, 3.50%, 12/14/17+(d)(h) | 117,449 |
Continued
12
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 980,288 | Mexican Udibonos, 4.00%, 6/13/19+(d)(h) | $ | 72,523 | ||||
790,555 | Mexican Udibonos, 2.50%, 12/10/20+(d)(h) | 54,875 | ||||||
22,590,000 | Mexico Bonos Desarr, Series M, 6.00%, 6/18/15+(d)(h) | 1,551,787 | ||||||
21,310,000 | Mexico Bonos Desarr, Series M 10, 8.00%, 12/17/15+(d)(h) | 1,508,528 | ||||||
28,886,000 | Mexico Bonos Desarr, Series M, 6.25%, 6/16/16+(d)(h) | 2,031,502 | ||||||
2,407,000 | Mexico Bonos Desarr, Series M 10, 7.25%, 12/15/16+(d)(h) | 174,058 | ||||||
1,010,000 | Monetary Authority of Singapore Bill, Series 84, 0.00%, 1/2/15+(f) | 762,667 | ||||||
540,000 | Monetary Authority of Singapore Bill, 0.27%, 1/9/15+(f) | 407,710 | ||||||
3,100,000 | Monetary Authority of Singapore Bill, Series 168, 0.59%, 1/20/15+(f) | 2,340,088 | ||||||
2,641,000 | Monetary Authority of Singapore Bill, Series 84, 0.62%, 1/30/15+(f) | 1,993,236 | ||||||
2,286,000 | Monetary Authority of Singapore Bill, Series 84, 0.63%, 2/13/15+(f) | 1,724,866 | ||||||
1,690,000 | Monetary Authority of Singapore Bill, Series 87, 0.64%, 2/23/15+(f) | 1,274,928 | ||||||
3,030,000 | Philippine Government International Bond, Series 7-48, 7.00%, 1/27/16+ | 70,887 | ||||||
14,210,000 | Philippine Government International Bond, Series 3-20, 1.63%, 4/25/16+ | 314,363 | ||||||
1,830,000 | Philippine Government International Bond, Series 1042, 9.13%, 9/4/16+ | 45,414 | ||||||
1,800,000 | Philippine Treasury Bill, Series 364, 1.20%, 4/8/15+(f) | 40,035 | ||||||
960,000 | Philippine Treasury Bill, Series 182, 1.36%, 5/6/15+(f) | 21,292 | ||||||
1,470,000 | Philippine Treasury Bill, Series 364, 1.40%, 6/3/15+(f) | 32,577 | ||||||
440,000 | Philippine Treasury Bill, Series 364, 1.43%, 7/8/15+(f) | 9,733 | ||||||
520,000 | Philippine Treasury Bill, Series 364, 1.28%, 8/5/15+(f) | 11,482 | ||||||
1,800,000 | Philippine Treasury Bill, Series 364, 1.49%, 9/2/15+(f) | 39,676 | ||||||
3,580,000 | Philippine Treasury Bill, 1.49%, 10/7/15+(f) | 78,638 | ||||||
1,120,000 | Philippine Treasury Bill, Series 364, 1.36%, 11/4/15+(f) | 24,623 | ||||||
2,780,000 | Philippine Treasury Bill, Series 364, 1.43%, 12/2/15+(f) | 60,926 | ||||||
1,201,000 | Poland Government Bond, Series 0415, 5.50%, 4/25/15+ | 343,575 | ||||||
1,146,000 | Poland Government Bond, Series 0715, 2.91%, 7/25/15+(f) | 320,997 | ||||||
15,863,000 | Poland Government Bond, Series 1015, 6.25%, 10/24/15+ | 4,642,162 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Foreign Bonds, continued |
| ||||||
| Sovereign Bonds, continued |
| ||||||
$ | 7,419,000 | Poland Government Bond, Series 0116, 2.95%, 1/25/16+(f) | $ | 2,058,623 | ||||
3,145,000 | Poland Government Bond, Series 0416, 5.00%, 4/25/16+ | 925,424 | ||||||
6,340,000 | Poland Government Bond, Series 0716, 2.88%, 7/25/16+(f) | 1,742,834 | ||||||
12,465,000 | Poland Government Bond, Series 1016, 4.75%, 10/25/16+ | 3,706,860 | ||||||
3,343,000 | Poland Government Bond, Series 0117, 2.69%, 1/25/17+(d) | 944,895 | ||||||
160,000 | Poland Government Bond, Series 0417, 4.75%, 4/25/17+ | 48,148 | ||||||
3,391,000 | Poland Government Bond, Series 0121, 2.69%, 1/25/21+(d) | 943,805 | ||||||
15,500 | Portugal Obrigacoes do Tesouro, 4.95%, 10/25/23+(a) | 22,185 | ||||||
38,700 | Portugal Obrigacoes do Tesouro, 5.65%, 2/15/24+(a) | 57,922 | ||||||
2,250,000 | Portugal Obrigacoes do Tesouro, 3.88%, 2/15/30+(a) | 2,847,575 | ||||||
180,000 | Republic of Hungary, 4.38%, 7/4/17+(a) | 233,398 | ||||||
260,000 | Republic of Hungary, 5.75%, 6/11/18+(a) | 358,616 | ||||||
70,000 | Republic of Hungary, 6.00%, 1/11/19+ | 98,261 | ||||||
350,000 | Singapore Government , 1.13%, 4/1/16+ | 266,003 | ||||||
200,000 | Singapore Treasury Bill, 0.84%, 3/27/15+(f) | 150,788 | ||||||
34,500,000 | Swedish Government Bond, Series 1049, 4.50%, 8/12/15+ | 4,545,573 | ||||||
100,000 | Ukraine Government, 4.95%, 10/13/15+(a) | 81,669 | ||||||
|
| |||||||
126,923,034 | ||||||||
|
| |||||||
| Total Foreign Bonds (Cost $135,515,888) | 127,045,283 | ||||||
|
| |||||||
| Yankee Dollars (3.3%): |
| ||||||
| Chemicals (0.0%): |
| ||||||
300,000 | INEOS Finance plc, 8.38%, 2/15/19, Callable 2/15/15 @ 106.28(a) | 318,750 | ||||||
200,000 | INEOS Group Holdings SA, 5.88%, 2/15/19, Callable 2/15/16 @ 102.94(a) | 189,500 | ||||||
|
| |||||||
508,250 | ||||||||
|
| |||||||
| Construction & Engineering (0.0%): |
| ||||||
400,000 | Abengoa Finance SAU, 8.88%, 11/1/17(a) | 380,000 | ||||||
|
| |||||||
| Construction Materials (0.1%): |
| ||||||
300,000 | Cemex SAB de C.V., 5.88%, 3/25/19, Callable 3/25/16 @ 102.94(a) | 304,500 | ||||||
500,000 | Cemex SAB de C.V., 7.25%, 1/15/21, Callable 1/15/18 @ 103.63(a) | 523,750 | ||||||
|
| |||||||
828,250 | ||||||||
|
| |||||||
| Containers & Packaging (0.2%): |
| ||||||
700,000 | Ardagh Packaging Finance plc / Ardagh Holdings USA, Inc., 6.25%, 1/31/19, Callable 1/31/16 @ 103.13(a) | 684,250 |
Continued
13
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued | |||||||
| Containers & Packaging, continued | |||||||
$ | 800,000 | Ardagh Packaging Finance plc / Ardagh Holdings USA, Inc., 6.75%, 1/31/21, Callable 1/31/17 @ 103.38^(a) | $ | 796,000 | ||||
|
| |||||||
1,480,250 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.0%): |
| ||||||
400,000 | Intelsat Jackson Holding SA, 5.50%, 8/1/23, Callable 8/1/18 @ 102.75 | 397,560 | ||||||
|
| |||||||
| Energy Equipment & Services (0.2%): |
| ||||||
300,000 | CGGVeritas, 6.50%, 6/1/21, Callable 6/1/16 @ 103.25^ | 228,000 | ||||||
2,000,000 | Ocean Rig UDW, Inc., 7.25%, 4/1/19, Callable 4/1/17 @ 105.44(a) | 1,400,000 | ||||||
|
| |||||||
1,628,000 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.1%): |
| ||||||
1,000,000 | InterGen NV, 7.00%, 6/30/23, Callable 6/30/18 @ 103.5^(a) | 950,000 | ||||||
|
| |||||||
| Marine (0.1%): |
| ||||||
200,000 | Stena AB, 7.00%, 2/1/24^(a) | 183,000 | ||||||
400,000 | Stena International SA, 5.75%, 3/1/24^(a) | 376,000 | ||||||
|
| |||||||
559,000 | ||||||||
|
| |||||||
| Media (0.1%): |
| ||||||
300,000 | Altice SA, 7.75%, 5/15/22, Callable 5/15/17 @ 106(a) | 300,563 | ||||||
500,000 | Numericable Group SA, 6.00%, 5/15/22, Callable 5/15/17 @ 104.5(a) | 502,750 | ||||||
|
| |||||||
803,313 | ||||||||
|
| |||||||
| Metals & Mining (0.2%): |
| ||||||
230,000 | First Quantum Minerals, Ltd., 6.75%, 2/15/20, Callable 2/15/17 @ 103.38^(a) | 208,150 | ||||||
230,000 | First Quantum Minerals, Ltd., 7.00%, 2/15/21, Callable 2/15/18 @ 103.5^(a) | 207,000 | ||||||
222,222 | FMG Resources Pty, Ltd., 6.88%, 2/1/18, Callable 2/9/15 @ 103.44^(a) | 201,667 | ||||||
250,000 | FMG Resources Pty, Ltd., 8.25%, 11/1/19, Callable 11/1/15 @ 104^(a) | 227,500 | ||||||
|
| |||||||
844,317 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.0%): |
| ||||||
500,000 | Niska Gas Storage Canada ULC / Niska Gas Storage Canada Finance Corp., 6.50%, 4/1/19, Callable 10/1/16 @ 103.25^(a) | 376,250 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.1%): |
| ||||||
500,000 | Algeco Scotsman Global Finance plc, 8.50%, 10/15/18, Callable 10/15/15 @ 104.25^(a) | 482,500 | ||||||
|
| |||||||
| Sovereign Bonds (1.8%): |
| ||||||
200,000 | Financing of Infrastructure, 7.40%, 4/20/18(a) | 119,322 | ||||||
430,000 | Republic of Hungary, 4.13%, 2/19/18 | 445,944 | ||||||
1,077,000 | Republic of Hungary, 6.25%, 1/29/20 | 1,210,279 | ||||||
542,000 | Republic of Hungary, 6.38%, 3/29/21 | 619,574 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued | |||||||
| Sovereign Bonds, continued |
| ||||||
$ | 800,000 | Republic of Hungary, 5.38%, 2/21/23 | $ | 862,000 | ||||
240,000 | Republic of Iceland, 5.88%, 5/11/22(a) | 268,972 | ||||||
100,000 | Republic of Lithuania, 7.38%, 2/11/20(a) | 120,613 | ||||||
230,000 | Republic of Lithuania, 7.38%, 2/11/20(a) | 277,409 | ||||||
150,000 | Republic of Lithuania, 6.13%, 3/9/21(a) | 174,470 | ||||||
1,840,000 | Republic of Portugal, 5.13%, 10/15/24(a) | 1,932,953 | ||||||
200,000 | Republic of Serbia, 5.25%, 11/21/17(a) | 205,400 | ||||||
300,000 | Republic of Serbia, 4.88%, 2/25/20(a) | 299,550 | ||||||
320,000 | Republic of Serbia, 7.25%, 9/28/21(a) | 358,426 | ||||||
1,400,000 | Republic of Slovenia, 5.50%, 10/26/22(a) | 1,552,250 | ||||||
1,025,000 | Republic of Slovenia, 5.85%, 5/10/23(a) | 1,158,916 | ||||||
484,700 | Russia Foreign Bond, 7.50%, 3/31/30(a) | 502,634 | ||||||
200,000 | Ukraine Government, 6.25%, 6/17/16(a) | 129,700 | ||||||
100,000 | Ukraine Government, 6.58%, 11/21/16(a) | 62,000 | ||||||
760,000 | Ukraine Government, 9.25%, 7/24/17(a) | 463,600 | ||||||
1,400,000 | Ukraine Government, 6.75%, 11/14/17(a) | 866,320 | ||||||
620,000 | Ukraine Government, 7.75%, 9/23/20(a) | 372,000 | ||||||
1,430,000 | Ukraine Government, 7.95%, 2/23/21(a) | 872,300 | ||||||
1,240,000 | Ukraine Government, 7.80%, 11/28/22(a) | 756,400 | ||||||
2,400,000 | Ukraine Government, 7.50%, 4/17/23(a) | 1,415,999 | ||||||
|
| |||||||
15,047,031 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.4%): |
| ||||||
500,000 | Telecom Italia SpA, 5.30%, 5/30/24(a) | 506,250 | ||||||
1,000,000 | Virgin Media Secured Finance plc, 5.50%, 1/15/25, Callable 1/15/19 @ 102.75(a) | 1,032,500 | ||||||
500,000 | Wind Acquisition Finance SA, 7.38%, 4/23/21, Callable 4/23/17 @ 103.69(a) | 471,900 | ||||||
|
| |||||||
2,010,650 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $28,789,781) | 26,295,371 | ||||||
|
| |||||||
| Municipal Bond (0.1%): |
| ||||||
| Puerto Rico (0.1%): |
| ||||||
569,000 | Puerto Rico Commonwealth, GO, Series A, 8.00%, 7/1/35, Callable 7/1/20 @ 100 | 495,030 | ||||||
|
| |||||||
| Total Municipal Bond (Cost $530,442) | 495,030 | ||||||
|
| |||||||
| U.S. Treasury Obligations (1.0%): |
| ||||||
| U.S. Treasury Bills (1.0%) |
| ||||||
3,000,000 | 0.04%, 1/2/15(f) | 3,000,000 | ||||||
1,000,000 | 0.06%, 1/8/15(f) | 999,998 | ||||||
1,000,000 | 0.06%, 1/22/15(f) | 999,983 | ||||||
1,000,000 | 0.04%, 4/9/15(f) | 999,926 | ||||||
1,000,000 | 0.06%, 4/30/15^(f) | 999,853 | ||||||
1,000,000 | 0.06%, 5/14/15(f) | 999,807 | ||||||
|
| |||||||
7,999,567 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cos$7,999,432) | 7,999,567 | ||||||
|
| |||||||
| U.S. Government Agency Mortgages (2.5%): |
| ||||||
20,000,000 | Federal Home Loan Bank, 0.00%, 1/2/15(f) | 20,000,000 | ||||||
|
| |||||||
| Total U.S. Government Agency Mortgages (Cost $20,000,000) | 20,000,000 | ||||||
|
|
Continued
14
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (9.2%): |
| ||||||
$ | 73,231,722 | Allianz Variable Insurance Products Securities Lending Collateral Trust(i) | $ | 73,231,722 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 73,231,722 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Unaffiliated Investment Company (7.8%): |
| ||||||
$ | 62,395,347 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(f) | $ | 62,395,347 | ||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $62,395,347) | 62,395,347 | ||||||
|
| |||||||
| Total Investment Securities | 853,815,656 | ||||||
| Net other assets (liabilities) — (7.3)% | (58,302,368 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 795,513,288 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
GO—General Obligation
MTN—Medium Term Note
* | Non-income producing security. |
# | Security issued in connection with a pending litigation settlement. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $70,346,825. |
+ | The principal amount is disclosed in local currency and the fair value is disclosed in U.S. Dollars. |
(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 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, 2014, these securities represent 0.00% of the net assets of the fund. |
(c) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2014. The total of all such securities represent 0.03% of the net assets of the fund. |
(d) | Variable rate security. The rate presented represents the rate in effect at December 31, 2014. The date presented represents the final maturity date. |
(e) | Defaulted bond. |
(f) | The rate represents the effective yield at December 31, 2014. |
(g) | Principal amount is stated in 1,000 Brazilian Real Units. |
(h) | Principal amount is stated in 100 Mexican Peso Units. |
(i) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(j) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “_” are either $0 or round to less than $1.
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Australia | 0.2 | % | ||
Bermuda | 0.1 | % | ||
Brazil | 1.0 | % | ||
Canada | 1.5 | % | ||
China | 0.4 | % | ||
Denmark | 0.5 | % | ||
France | 1.9 | % | ||
Germany | 1.8 | % | ||
Hong Kong | 0.3 | % | ||
Hungary | 2.0 | % | ||
Iceland | — | %NM | ||
Indonesia | 0.1 | % | ||
Ireland (Republic of) | 1.1 | % | ||
Israel | 1.0 | % | ||
Italy | 0.7 | % | ||
Japan | 0.7 | % | ||
Korea, Republic Of | 1.0 | % | ||
Lithuania | 0.1 | % | ||
Luxembourg | 0.2 | % | ||
Malaysia | 3.2 | % |
NM | Not meaningful, amount is less than 0.05%. |
Country | Percentage | |||
Marshall Islands | 0.2 | % | ||
Mauritania | — | %NM | ||
Mexico | 1.1 | % | ||
Netherlands | 2.4 | % | ||
Philippines | 0.1 | % | ||
Poland | 1.8 | % | ||
Portugal | 0.7 | % | ||
Republic of Korea (South) | 3.6 | % | ||
Russian Federation | 0.3 | % | ||
Serbia (Republic of) | 0.1 | % | ||
Singapore | 1.5 | % | ||
Slovenia | 0.3 | % | ||
Spain | 0.6 | % | ||
Sweden | 1.1 | % | ||
Switzerland | 1.7 | % | ||
Thailand | 0.1 | % | ||
Turkey | 0.3 | % | ||
Ukraine | 0.5 | % | ||
United Kingdom | 6.3 | % | ||
United States | 59.5 | % | ||
|
| |||
100.0 | % | |||
|
|
Continued
15
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Short Contracts: | ||||||||||||||||||||
British Pound | Bank of America | 2/19/15 | 3,367,179 | $ | 5,580,553 | $ | 5,245,316 | $ | 335,237 | |||||||||||
British Pound | Credit Suisse First Boston | 2/19/15 | 3,094,491 | 5,145,824 | 4,820,533 | 325,291 | ||||||||||||||
British Pound | Deutsche Bank | 2/19/15 | 212,211 | 331,895 | 330,578 | 1,317 | ||||||||||||||
British Pound | HSBC Bank | 2/19/15 | 185,296 | 292,921 | 288,650 | 4,271 | ||||||||||||||
British Pound | State Street | 2/19/15 | 3,515,514 | 5,818,955 | 5,476,391 | 342,564 | ||||||||||||||
European Euro | Deutsche Bank | 1/7/15 | 312,372 | 426,054 | 377,968 | 48,086 | ||||||||||||||
European Euro | Bank of America | 1/20/15 | 1,386,664 | 1,872,103 | 1,678,074 | 194,029 | ||||||||||||||
European Euro | Barclays Bank | 1/20/15 | 18,218 | 22,849 | 22,047 | 802 | ||||||||||||||
European Euro | Credit Suisse First Boston | 1/20/15 | 94,869 | 120,128 | 114,807 | 5,321 | ||||||||||||||
European Euro | Deutsche Bank | 1/20/15 | 121,479 | 155,558 | 147,008 | 8,550 | ||||||||||||||
European Euro | HSBC Bank | 1/20/15 | 136,727 | 175,175 | 165,459 | 9,716 | ||||||||||||||
European Euro | State Street | 1/20/15 | 381,903 | 505,190 | 462,160 | 43,030 | ||||||||||||||
European Euro | Barclays Bank | 1/21/15 | 97,000 | 132,211 | 117,386 | 14,825 | ||||||||||||||
European Euro | Deutsche Bank | 1/26/15 | 1,650,000 | 2,239,380 | 1,996,870 | 242,510 | ||||||||||||||
European Euro | Deutsche Bank | 1/30/15 | 2,630,000 | 3,594,684 | 3,183,027 | 411,657 | ||||||||||||||
European Euro | Deutsche Bank | 2/3/15 | 2,280,000 | 3,090,426 | 2,759,493 | 330,933 | ||||||||||||||
European Euro | Deutsche Bank | 2/9/15 | 1,411,000 | 1,908,660 | 1,707,805 | 200,855 | ||||||||||||||
European Euro | Goldman Sachs | 2/9/15 | 181,000 | 252,267 | 219,074 | 33,193 | ||||||||||||||
European Euro | JPMorgan Chase | 2/19/15 | 30,000 | 41,142 | 36,313 | 4,829 | ||||||||||||||
European Euro | Barclays Bank | 2/20/15 | 210,000 | 288,555 | 254,192 | 34,363 | ||||||||||||||
European Euro | Goldman Sachs | 2/23/15 | 17,000 | 23,395 | 20,578 | 2,817 | ||||||||||||||
European Euro | Deutsche Bank | 2/25/15 | 277,730 | 381,740 | 336,185 | 45,555 | ||||||||||||||
European Euro | Barclays Bank | 2/26/15 | 170,862 | 234,619 | 206,825 | 27,794 | ||||||||||||||
European Euro | Bank of America | 2/27/15 | 76,694 | 104,864 | 92,837 | 12,027 | ||||||||||||||
European Euro | Deutsche Bank | 3/5/15 | 43,000 | 59,282 | 52,054 | 7,228 | ||||||||||||||
European Euro | Barclays Bank | 3/9/15 | 141,063 | 193,749 | 170,772 | 22,977 | ||||||||||||||
European Euro | Deutsche Bank | 3/9/15 | 660,000 | 906,147 | 799,002 | 107,145 | ||||||||||||||
European Euro | HSBC Bank | 3/9/15 | 15,000 | 20,621 | 18,159 | 2,462 | ||||||||||||||
European Euro | Citibank | 3/10/15 | 1,704,605 | 2,359,216 | 2,063,632 | 295,584 | ||||||||||||||
European Euro | Morgan Stanley | 3/10/15 | 43,000 | 59,554 | 52,057 | 7,497 | ||||||||||||||
European Euro | Deutsche Bank | 3/16/15 | 134,000 | 185,857 | 162,234 | 23,623 | ||||||||||||||
European Euro | JPMorgan Chase | 3/16/15 | 15,000 | 20,787 | 18,160 | 2,627 | ||||||||||||||
European Euro | Barclays Bank | 3/17/15 | 10,012 | 13,962 | 12,122 | 1,840 | ||||||||||||||
European Euro | Citibank | 3/17/15 | 10,643 | 14,850 | 12,886 | 1,964 | ||||||||||||||
European Euro | Barclays Bank | 3/23/15 | 9,076 | 12,638 | 10,989 | 1,649 | ||||||||||||||
European Euro | Deutsche Bank | 3/23/15 | 173,000 | 240,816 | 209,466 | 31,350 | ||||||||||||||
European Euro | Deutsche Bank | 3/26/15 | 78,000 | 107,418 | 94,444 | 12,974 | ||||||||||||||
European Euro | Barclays Bank | 3/27/15 | 200,000 | 276,200 | 242,168 | 34,032 | ||||||||||||||
European Euro | Deutsche Bank | 3/31/15 | 4,566 | 6,285 | 5,529 | 756 | ||||||||||||||
European Euro | Goldman Sachs | 3/31/15 | 130,000 | 165,705 | 157,415 | 8,290 | ||||||||||||||
European Euro | Barclays Bank | 4/2/15 | 17,912 | 24,691 | 21,690 | 3,001 | ||||||||||||||
European Euro | Deutsche Bank | 4/7/15 | 192,660 | 265,773 | 233,307 | 32,466 | ||||||||||||||
European Euro | HSBC Bank | 4/10/15 | 73,000 | 100,643 | 88,404 | 12,239 | ||||||||||||||
European Euro | Deutsche Bank | 4/13/15 | 77,961 | 107,607 | 94,415 | 13,192 | ||||||||||||||
European Euro | Standard Charter | 4/13/15 | 37,000 | 51,143 | 44,809 | 6,334 | ||||||||||||||
European Euro | JPMorgan Chase | 4/14/15 | 99,000 | 137,219 | 119,896 | 17,323 | ||||||||||||||
European Euro | Deutsche Bank | 4/15/15 | 370,000 | 513,264 | 448,099 | 65,165 | ||||||||||||||
European Euro | HSBC Bank | 4/16/15 | 78,849 | 109,491 | 95,493 | 13,998 | ||||||||||||||
European Euro | Barclays Bank | 4/22/15 | 16,935 | 23,372 | 20,511 | 2,861 | ||||||||||||||
European Euro | JPMorgan Chase | 4/22/15 | 5,188 | 7,177 | 6,284 | 893 | ||||||||||||||
European Euro | Barclays Bank | 4/30/15 | 11,783 | 16,337 | 14,272 | 2,065 | ||||||||||||||
European Euro | Standard Charter | 4/30/15 | 380,000 | 525,867 | 460,283 | 65,584 |
Continued
16
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
European Euro | Barclays Bank | 5/5/15 | 228,900 | $ | 317,223 | $ | 277,274 | $ | 39,949 | |||||||||||
European Euro | Barclays Bank | 5/7/15 | 112,000 | 155,432 | 135,672 | 19,760 | ||||||||||||||
European Euro | Goldman Sachs | 5/7/15 | 317,570 | 440,832 | 384,691 | 56,141 | ||||||||||||||
European Euro | Deutsche Bank | 5/12/15 | 1,425,000 | 1,973,340 | 1,726,277 | 247,063 | ||||||||||||||
European Euro | Citibank | 5/13/15 | 136,787 | 188,451 | 165,709 | 22,742 | ||||||||||||||
European Euro | Goldman Sachs | 5/13/15 | 142,000 | 195,654 | 172,024 | 23,630 | ||||||||||||||
European Euro | Standard Charter | 5/13/15 | 56,000 | 77,032 | 67,840 | 9,192 | ||||||||||||||
European Euro | Goldman Sachs | 5/14/15 | 87,000 | 119,837 | 105,396 | 14,441 | ||||||||||||||
European Euro | Bank of America | 5/18/15 | 1,201,984 | 1,500,917 | 1,456,202 | 44,715 | ||||||||||||||
European Euro | Barclays Bank | 5/18/15 | 266,076 | 365,248 | 322,351 | 42,897 | ||||||||||||||
European Euro | Credit Suisse First Boston | 5/18/15 | 1,222,355 | 1,526,170 | 1,480,881 | 45,289 | ||||||||||||||
European Euro | Deutsche Bank | 5/18/15 | 1,231,873 | 1,537,755 | 1,492,412 | 45,343 | ||||||||||||||
European Euro | HSBC Bank | 5/18/15 | 52,599 | 65,096 | 63,724 | 1,372 | ||||||||||||||
European Euro | State Street | 5/18/15 | 21,956 | 27,325 | 26,600 | 725 | ||||||||||||||
European Euro | JPMorgan Chase | 5/20/15 | 327,027 | 410,450 | 396,201 | 14,249 | ||||||||||||||
European Euro | Deutsche Bank | 5/21/15 | 130,000 | 163,254 | 157,500 | 5,754 | ||||||||||||||
European Euro | Goldman Sachs | 5/21/15 | 289,000 | 396,742 | 350,134 | 46,608 | ||||||||||||||
European Euro | Barclays Bank | 5/22/15 | 363,741 | 498,734 | 440,690 | 58,044 | ||||||||||||||
European Euro | JPMorgan Chase | 5/26/15 | 172,504 | 235,816 | 209,006 | 26,810 | ||||||||||||||
European Euro | Barclays Bank | 5/29/15 | 72,758 | 99,061 | 88,156 | 10,905 | ||||||||||||||
European Euro | Goldman Sachs | 6/1/15 | 760,000 | 1,034,121 | 920,874 | 113,247 | ||||||||||||||
European Euro | Barclays Bank | 6/5/15 | 237,868 | 323,964 | 288,231 | 35,733 | ||||||||||||||
European Euro | HSBC Bank | 6/8/15 | 1,113,075 | 1,449,602 | 1,348,786 | 100,816 | ||||||||||||||
European Euro | Deutsche Bank | 6/10/15 | 285,500 | 390,079 | 345,966 | 44,113 | ||||||||||||||
European Euro | Deutsche Bank | 6/15/15 | 124,000 | 168,066 | 150,270 | 17,796 | ||||||||||||||
European Euro | Barclays Bank | 6/22/15 | 28,929 | 39,356 | 35,060 | 4,296 | ||||||||||||||
European Euro | Deutsche Bank | 6/22/15 | 420,000 | 571,116 | 509,016 | 62,100 | ||||||||||||||
European Euro | Barclays Bank | 7/16/15 | 82,000 | 112,001 | 99,420 | 12,581 | ||||||||||||||
European Euro | Morgan Stanley | 7/16/15 | 277,000 | 378,205 | 335,844 | 42,361 | ||||||||||||||
European Euro | Deutsche Bank | 7/17/15 | 514,000 | 698,912 | 623,203 | 75,709 | ||||||||||||||
European Euro | Barclays Bank | 7/20/15 | 129,000 | 174,889 | 156,416 | 18,473 | ||||||||||||||
European Euro | Deutsche Bank | 7/20/15 | 360,000 | 488,160 | 436,510 | 51,650 | ||||||||||||||
European Euro | JPMorgan Chase | 7/20/15 | 910,000 | 1,233,568 | 1,103,401 | 130,167 | ||||||||||||||
European Euro | Deutsche Bank | 7/21/15 | 470,000 | 637,250 | 569,899 | 67,351 | ||||||||||||||
European Euro | Deutsche Bank | 7/22/15 | 71,000 | 96,269 | 86,093 | 10,176 | ||||||||||||||
European Euro | Morgan Stanley | 7/22/15 | 366,000 | 495,469 | 443,803 | 51,666 | ||||||||||||||
European Euro | Deutsche Bank | 7/23/15 | 93,795 | 127,062 | 113,736 | 13,326 | ||||||||||||||
European Euro | Deutsche Bank | 7/27/15 | 207,975 | 280,467 | 252,210 | 28,257 | ||||||||||||||
European Euro | Goldman Sachs | 7/27/15 | 197,000 | 265,783 | 238,901 | 26,882 | ||||||||||||||
European Euro | Citibank | 7/28/15 | 60,360 | 81,421 | 73,200 | 8,221 | ||||||||||||||
European Euro | Barclays Bank | 7/29/15 | 19,995 | 26,919 | 24,248 | 2,671 | ||||||||||||||
European Euro | Deutsche Bank | 7/29/15 | 9,978 | 13,442 | 12,101 | 1,341 | ||||||||||||||
European Euro | JPMorgan Chase | 7/31/15 | 380,000 | 510,895 | 460,859 | 50,036 | ||||||||||||||
European Euro | Barclays Bank | 8/4/15 | 97,592 | 130,904 | 118,368 | 12,536 | ||||||||||||||
European Euro | HSBC Bank | 8/4/15 | 380,000 | 509,970 | 460,895 | 49,075 | ||||||||||||||
European Euro | UBS Warburg | 8/4/15 | 380,000 | 509,960 | 460,895 | 49,065 | ||||||||||||||
European Euro | Barclays Bank | 8/5/15 | 229,000 | 307,839 | 277,755 | 30,084 | ||||||||||||||
European Euro | JPMorgan Chase | 8/5/15 | 269,500 | 362,305 | 326,878 | 35,427 | ||||||||||||||
European Euro | Citibank | 8/10/15 | 44,168 | 59,068 | 53,576 | 5,492 | ||||||||||||||
European Euro | Deutsche Bank | 8/11/15 | 180,000 | 241,192 | 218,349 | 22,843 | ||||||||||||||
European Euro | JPMorgan Chase | 8/11/15 | 239,500 | 320,780 | 290,525 | 30,255 | ||||||||||||||
European Euro | Goldman Sachs | 8/12/15 | 61,000 | 81,907 | 73,997 | 7,910 | ||||||||||||||
European Euro | Morgan Stanley | 8/14/15 | 66,000 | 82,431 | 80,066 | 2,365 | ||||||||||||||
European Euro | Morgan Stanley | 8/17/15 | 66,000 | 88,607 | 80,070 | 8,537 | ||||||||||||||
European Euro | Barclays Bank | 8/18/15 | 237,000 | 318,058 | 287,531 | 30,527 | ||||||||||||||
European Euro | Deutsche Bank | 8/20/15 | 133,000 | 178,396 | 161,364 | 17,032 | ||||||||||||||
European Euro | JPMorgan Chase | 8/20/15 | 263,000 | 352,913 | 319,087 | 33,826 |
Continued
17
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
European Euro | Barclays Bank | 8/26/15 | 75,988 | $ | 101,112 | $ | 92,204 | $ | 8,908 | |||||||||||
European Euro | Deutsche Bank | 8/31/15 | 28,980 | 38,330 | 35,168 | 3,162 | ||||||||||||||
European Euro | Deutsche Bank | 9/2/15 | 49,000 | 64,753 | 59,465 | 5,288 | ||||||||||||||
European Euro | Deutsche Bank | 9/8/15 | 137,800 | 181,789 | 167,249 | 14,540 | ||||||||||||||
European Euro | JPMorgan Chase | 9/8/15 | 1,125,000 | 1,463,738 | 1,365,421 | 98,317 | ||||||||||||||
European Euro | Barclays Bank | 9/21/15 | 19,406 | 25,254 | 23,559 | 1,695 | ||||||||||||||
European Euro | Deutsche Bank | 9/23/15 | 229,000 | 295,742 | 278,020 | 17,722 | ||||||||||||||
European Euro | Barclays Bank | 9/24/15 | 45,864 | 59,136 | 55,683 | 3,453 | ||||||||||||||
European Euro | Citibank | 9/28/15 | 13,451 | 17,348 | 16,332 | 1,016 | ||||||||||||||
European Euro | Deutsche Bank | 9/28/15 | 107,000 | 137,798 | 129,917 | 7,881 | ||||||||||||||
European Euro | Barclays Bank | 9/29/15 | 200,000 | 255,361 | 242,841 | 12,520 | ||||||||||||||
European Euro | HSBC Bank | 9/30/15 | 180,000 | 229,362 | 218,561 | 10,801 | ||||||||||||||
European Euro | Deutsche Bank | 10/1/15 | 1,320,000 | 1,683,818 | 1,602,810 | 81,008 | ||||||||||||||
European Euro | Deutsche Bank | 10/9/15 | 420,000 | 532,791 | 510,064 | 22,727 | ||||||||||||||
European Euro | Barclays Bank | 10/14/15 | 1,688,000 | 2,156,167 | 2,050,172 | 105,995 | ||||||||||||||
European Euro | JPMorgan Chase | 10/14/15 | 3,156,000 | 4,032,529 | 3,833,142 | 199,387 | ||||||||||||||
European Euro | Deutsche Bank | 10/15/15 | 320,000 | 406,096 | 388,666 | 17,430 | ||||||||||||||
European Euro | Barclays Bank | 10/16/15 | 1,172,000 | 1,494,886 | 1,423,516 | 71,370 | ||||||||||||||
European Euro | Deutsche Bank | 10/21/15 | 570,000 | 732,678 | 692,392 | 40,286 | ||||||||||||||
European Euro | Barclays Bank | 10/22/15 | 3,724,000 | 4,771,245 | 4,523,712 | 247,533 | ||||||||||||||
European Euro | Deutsche Bank | 10/26/15 | 319,000 | 404,923 | 387,534 | 17,389 | ||||||||||||||
European Euro | Barclays Bank | 10/27/15 | 175,515 | 222,899 | 213,227 | 9,672 | ||||||||||||||
European Euro | Deutsche Bank | 10/30/15 | 1,747,075 | 2,230,927 | 2,122,581 | 108,346 | ||||||||||||||
European Euro | Deutsche Bank | 11/3/15 | 7,376 | 9,342 | 8,962 | 380 | ||||||||||||||
European Euro | Barclays Bank | 11/6/15 | 49,418 | 62,081 | 60,048 | 2,033 | ||||||||||||||
European Euro | Citibank | 11/9/15 | 1,793,000 | 2,245,060 | 2,178,800 | 66,260 | ||||||||||||||
European Euro | Deutsche Bank | 11/9/15 | 3,620,000 | 4,538,756 | 4,398,916 | 139,840 | ||||||||||||||
European Euro | Citibank | 11/12/15 | 1,801,000 | 2,257,337 | 2,188,649 | 68,688 | ||||||||||||||
European Euro | JPMorgan Chase | 11/12/15 | 278,508 | 348,984 | 338,454 | 10,530 | ||||||||||||||
European Euro | Deutsche Bank | 11/16/15 | 335,703 | 420,116 | 407,992 | 12,124 | ||||||||||||||
European Euro | Deutsche Bank | 11/19/15 | 93,863 | 117,333 | 114,082 | 3,251 | ||||||||||||||
European Euro | Deutsche Bank | 11/20/15 | 1,113,000 | 1,396,993 | 1,352,773 | 44,220 | ||||||||||||||
European Euro | Deutsche Bank | 12/4/15 | 100,000 | 124,770 | 121,576 | 3,194 | ||||||||||||||
European Euro | Standard Charter | 12/9/15 | 76,800 | 94,873 | 93,379 | 1,494 | ||||||||||||||
European Euro | Bank of America | 12/15/15 | 433,000 | 538,414 | 526,536 | 11,878 | ||||||||||||||
European Euro | JPMorgan Chase | 12/15/15 | 97,000 | 121,088 | 117,954 | 3,134 | ||||||||||||||
European Euro | Deutsche Bank | 12/17/15 | 525,093 | 655,631 | 638,548 | 17,083 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/7/15 | 5,989,000 | 57,509 | 50,012 | 7,497 | ||||||||||||||
Japanese Yen | Goldman Sachs | 1/8/15 | 23,997,000 | 231,383 | 200,390 | 30,993 | ||||||||||||||
Japanese Yen | Citibank | 1/13/15 | 1,520,000 | 14,533 | 12,694 | 1,839 | ||||||||||||||
Japanese Yen | Standard Charter | 1/14/15 | 4,550,000 | 43,549 | 37,997 | 5,552 | ||||||||||||||
Japanese Yen | Barclays Bank | 1/15/15 | 101,530,000 | 979,037 | 847,893 | 131,144 | ||||||||||||||
Japanese Yen | HSBC Bank | 1/15/15 | 5,640,000 | 54,231 | 47,101 | 7,130 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 1/15/15 | 66,000,000 | 636,362 | 551,177 | 85,185 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/16/15 | 38,540,000 | 372,846 | 321,857 | 50,989 | ||||||||||||||
Japanese Yen | Standard Charter | 1/16/15 | 7,340,000 | 71,040 | 61,298 | 9,742 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 1/20/15 | 33,615,000 | 323,785 | 280,737 | 43,048 | ||||||||||||||
Japanese Yen | Goldman Sachs | 1/27/15 | 7,610,000 | 73,615 | 63,559 | 10,056 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/28/15 | 7,248,281 | 70,992 | 60,539 | 10,453 | ||||||||||||||
Japanese Yen | HSBC Bank | 1/28/15 | 9,353,364 | 91,399 | 78,121 | 13,278 | ||||||||||||||
Japanese Yen | Deutsche Bank | 1/30/15 | 121,466,500 | 1,191,642 | 1,014,523 | 177,119 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/6/15 | 100,100,000 | 991,397 | 836,112 | 155,285 | ||||||||||||||
Japanese Yen | Standard Charter | 2/6/15 | 100,170,000 | 991,807 | 836,697 | 155,110 | ||||||||||||||
Japanese Yen | Barclays Bank | 2/9/15 | 100,180,000 | 991,778 | 836,801 | 154,977 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/9/15 | 100,400,000 | 991,800 | 838,638 | 153,162 | ||||||||||||||
Japanese Yen | Citibank | 2/10/15 | 5,590,000 | 55,059 | 46,694 | 8,365 | ||||||||||||||
Japanese Yen | Goldman Sachs | 2/12/15 | 3,771,000 | 36,934 | 31,500 | 5,434 |
Continued
18
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Japanese Yen | HSBC Bank | 2/12/15 | 53,860,000 | $ | 528,441 | $ | 449,902 | $ | 78,539 | |||||||||||
Japanese Yen | JPMorgan Chase | 2/12/15 | 53,831,000 | 528,776 | 449,660 | 79,116 | ||||||||||||||
Japanese Yen | Citibank | 2/13/15 | 71,350,000 | 700,059 | 596,004 | 104,055 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/13/15 | 35,730,000 | 349,800 | 298,462 | 51,338 | ||||||||||||||
Japanese Yen | Citibank | 2/17/15 | 35,630,000 | 349,177 | 297,636 | 51,541 | ||||||||||||||
Japanese Yen | Goldman Sachs | 2/18/15 | 36,744,860 | 361,981 | 306,951 | 55,030 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/18/15 | 37,560,000 | 369,893 | 313,761 | 56,132 | ||||||||||||||
Japanese Yen | HSBC Bank | 2/24/15 | 4,020,000 | 39,403 | 33,583 | 5,820 | ||||||||||||||
Japanese Yen | Barclays Bank | 2/25/15 | 17,870,000 | 174,469 | 149,287 | 25,182 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 2/25/15 | 4,000,000 | 39,039 | 33,416 | 5,623 | ||||||||||||||
Japanese Yen | Barclays Bank | 2/26/15 | 35,700,000 | 349,086 | 298,243 | 50,843 | ||||||||||||||
Japanese Yen | Deutsche Bank | 2/27/15 | 11,991,000 | 117,640 | 100,175 | 17,465 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 3/3/15 | 9,700,000 | 95,259 | 81,039 | 14,220 | ||||||||||||||
Japanese Yen | HSBC Bank | 3/4/15 | 4,600,000 | 45,076 | 38,431 | 6,645 | ||||||||||||||
Japanese Yen | Barclays Bank | 3/9/15 | 64,145,400 | 627,287 | 535,943 | 91,344 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 3/16/15 | 44,142,850 | 431,188 | 368,850 | 62,338 | ||||||||||||||
Japanese Yen | Citibank | 3/17/15 | 2,260,084 | 22,088 | 18,885 | 3,203 | ||||||||||||||
Japanese Yen | Citibank | 3/19/15 | 46,322,000 | 456,311 | 387,072 | 69,239 | ||||||||||||||
Japanese Yen | Morgan Stanley | 3/19/15 | 7,060,000 | 69,922 | 58,994 | 10,928 | ||||||||||||||
Japanese Yen | Deutsche Bank | 3/24/15 | 20,538,000 | 201,124 | 171,628 | 29,496 | ||||||||||||||
Japanese Yen | Barclays Bank | 3/25/15 | 25,522,830 | 249,904 | 213,287 | 36,617 | ||||||||||||||
Japanese Yen | Citibank | 4/15/15 | 3,500,000 | 34,576 | 29,256 | 5,320 | ||||||||||||||
Japanese Yen | Morgan Stanley | 4/16/15 | 68,447,040 | 673,280 | 572,144 | 101,136 | ||||||||||||||
Japanese Yen | Barclays Bank | 4/17/15 | 32,710,000 | 321,923 | 273,424 | 48,499 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 4/21/15 | 19,660,000 | 192,815 | 164,347 | 28,468 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 4/22/15 | 24,420,000 | 239,547 | 204,140 | 35,407 | ||||||||||||||
Japanese Yen | Citibank | 5/12/15 | 5,590,000 | 55,198 | 46,741 | 8,457 | ||||||||||||||
Japanese Yen | Goldman Sachs | 5/13/15 | 7,475,000 | 73,638 | 62,504 | 11,134 | ||||||||||||||
Japanese Yen | Standard Charter | 5/13/15 | 5,588,000 | 55,098 | 46,725 | 8,373 | ||||||||||||||
Japanese Yen | Citibank | 5/14/15 | 5,587,000 | 54,964 | 46,717 | 8,247 | ||||||||||||||
Japanese Yen | Bank of America | 5/18/15 | 84,777,550 | 835,000 | 708,927 | 126,073 | ||||||||||||||
Japanese Yen | Bank of America | 5/19/15 | 84,522,875 | 835,000 | 706,806 | 128,194 | ||||||||||||||
Japanese Yen | Barclays Bank | 5/19/15 | 84,752,500 | 835,000 | 708,726 | 126,274 | ||||||||||||||
Japanese Yen | Citibank | 5/19/15 | 84,652,200 | 835,000 | 707,887 | 127,113 | ||||||||||||||
Japanese Yen | HSBC Bank | 5/19/15 | 84,820,600 | 835,000 | 709,295 | 125,705 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 5/20/15 | 5,564,000 | 47,420 | 46,528 | 892 | ||||||||||||||
Japanese Yen | Goldman Sachs | 6/1/15 | 48,990,000 | 482,670 | 409,734 | 72,936 | ||||||||||||||
Japanese Yen | Citibank | 6/9/15 | 51,300,000 | 502,291 | 429,096 | 73,195 | ||||||||||||||
Japanese Yen | HSBC Bank | 6/9/15 | 76,900,000 | 752,866 | 643,225 | 109,641 | ||||||||||||||
Japanese Yen | Barclays Bank | 6/10/15 | 60,420,000 | 591,729 | 505,386 | 86,343 | ||||||||||||||
Japanese Yen | Citibank | 6/10/15 | 95,140,000 | 930,355 | 795,803 | 134,552 | ||||||||||||||
Japanese Yen | HSBC Bank | 6/10/15 | 64,350,000 | 630,453 | 538,258 | 92,195 | ||||||||||||||
Japanese Yen | Deutsche Bank | 6/11/15 | 21,300,000 | 208,537 | 178,167 | 30,370 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 6/11/15 | 59,620,000 | 583,583 | 498,700 | 84,883 | ||||||||||||||
Japanese Yen | Citibank | 6/17/15 | 2,416,000 | 23,749 | 20,210 | 3,539 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 6/17/15 | 25,100,000 | 246,755 | 209,968 | 36,787 | ||||||||||||||
Japanese Yen | Deutsche Bank | 6/22/15 | 69,330,000 | 680,841 | 579,998 | 100,843 | ||||||||||||||
Japanese Yen | Barclays Bank | 6/30/15 | 16,411,000 | 161,960 | 137,305 | 24,655 | ||||||||||||||
Japanese Yen | Deutsche Bank | 7/13/15 | 26,073,000 | 257,181 | 218,209 | 38,972 | ||||||||||||||
Japanese Yen | Morgan Stanley | 7/23/15 | 50,187,445 | 497,122 | 420,123 | 76,999 | ||||||||||||||
Japanese Yen | Citibank | 7/24/15 | 74,785,000 | 739,991 | 626,045 | 113,946 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 7/24/15 | 115,000,000 | 1,137,319 | 962,696 | 174,623 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 7/27/15 | 40,100,000 | 396,794 | 335,711 | 61,083 | ||||||||||||||
Japanese Yen | Barclays Bank | 7/29/15 | 8,700,000 | 85,754 | 72,838 | 12,916 | ||||||||||||||
Japanese Yen | Citibank | 8/5/15 | 46,922,100 | 458,559 | 392,905 | 65,654 | ||||||||||||||
Japanese Yen | Barclays Bank | 8/11/15 | 2,240,000 | 21,980 | 18,759 | 3,221 | ||||||||||||||
Japanese Yen | Citibank | 8/11/15 | 2,240,000 | 21,988 | 18,759 | 3,229 |
Continued
19
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Japanese Yen | Deutsche Bank | 8/12/15 | 2,240,000 | $ | 22,072 | $ | 18,760 | $ | 3,312 | |||||||||||
Japanese Yen | JPMorgan Chase | 8/31/15 | 22,800,000 | 220,423 | 191,031 | 29,392 | ||||||||||||||
Japanese Yen | Barclays Bank | 9/18/15 | 2,251,755 | 21,121 | 18,874 | 2,247 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 9/29/15 | 2,255,332 | 20,760 | 18,909 | 1,851 | ||||||||||||||
Japanese Yen | Deutsche Bank | 10/7/15 | 399,565,980 | 3,656,016 | 3,350,616 | 305,400 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 10/7/15 | 329,300,000 | 3,039,926 | 2,761,392 | 278,534 | ||||||||||||||
Japanese Yen | HSBC Bank | 10/9/15 | 163,800,000 | 1,520,221 | 1,373,630 | 146,591 | ||||||||||||||
Japanese Yen | Barclays Bank | 10/13/15 | 82,900,000 | 769,901 | 695,265 | 74,636 | ||||||||||||||
Japanese Yen | Deutsche Bank | 10/13/15 | 81,800,000 | 760,152 | 686,039 | 74,113 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 10/19/15 | 33,615,000 | 318,032 | 281,960 | 36,072 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 10/20/15 | 63,490,000 | 600,520 | 532,562 | 67,958 | ||||||||||||||
Japanese Yen | Barclays Bank | 10/22/15 | 26,770,000 | 251,574 | 224,560 | 27,014 | ||||||||||||||
Japanese Yen | Deutsche Bank | 10/28/15 | 20,662,500 | 192,523 | 173,351 | 19,172 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 11/5/15 | 91,650,000 | 825,862 | 769,053 | 56,809 | ||||||||||||||
Japanese Yen | Barclays Bank | 11/6/15 | 536,000,000 | 4,752,194 | 4,497,782 | 254,412 | ||||||||||||||
Japanese Yen | Citibank | 11/12/15 | 94,163,000 | 823,830 | 790,266 | 33,564 | ||||||||||||||
Japanese Yen | HSBC Bank | 11/12/15 | 3,336,000 | 29,243 | 27,997 | 1,246 | ||||||||||||||
Japanese Yen | JPMorgan Chase | 11/12/15 | 36,450,000 | 320,265 | 305,908 | 14,357 | ||||||||||||||
Japanese Yen | Deutsche Bank | 11/16/15 | 45,848,000 | 399,738 | 384,816 | 14,922 | ||||||||||||||
Japanese Yen | Deutsche Bank | 11/18/15 | 6,194,000 | 53,406 | 51,990 | 1,416 | ||||||||||||||
Japanese Yen | Citibank | 11/19/15 | 7,667,000 | 66,206 | 64,356 | 1,850 | ||||||||||||||
Japanese Yen | Citibank | 11/20/15 | 8,613,000 | 74,314 | 72,298 | 2,016 | ||||||||||||||
Japanese Yen | HSBC Bank | 11/24/15 | 1,616,000 | 13,824 | 13,566 | 258 | ||||||||||||||
Japanese Yen | Morgan Stanley | 12/16/15 | 41,392,500 | 350,514 | 347,657 | 2,857 | ||||||||||||||
Japanese Yen | Deutsche Bank | 12/21/15 | 69,210,000 | 592,450 | 581,364 | 11,086 | ||||||||||||||
Japanese Yen | HSBC Bank | 12/21/15 | 69,320,000 | 592,732 | 582,288 | 10,444 | ||||||||||||||
Japanese Yen | Barclays Bank | 12/22/15 | 34,730,000 | 293,720 | 291,739 | 1,981 | ||||||||||||||
Japanese Yen | Citibank | 12/22/15 | 54,180,000 | 458,841 | 455,123 | 3,718 | ||||||||||||||
Korean Won | Bank of America | 2/12/15 | 723,226,042 | 690,422 | 657,468 | 32,954 | ||||||||||||||
Korean Won | Credit Suisse First Boston | 2/12/15 | 909,682,762 | 876,322 | 826,972 | 49,350 | ||||||||||||||
Korean Won | HSBC Bank | 2/12/15 | 955,832,073 | 922,729 | 868,925 | 53,804 | ||||||||||||||
Korean Won | HSBC Bank | 2/12/15 | 32,868,512 | 29,716 | 29,881 | (165 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 1/8/15 | 86,100 | 26,656 | 24,619 | 2,037 | ||||||||||||||
Malaysian Ringgit | JPMorgan Chase | 1/9/15 | 46,000 | 14,241 | 13,152 | 1,089 | ||||||||||||||
Malaysian Ringgit | JPMorgan Chase | 1/12/15 | 14,000 | 4,333 | 4,002 | 331 | ||||||||||||||
Malaysian Ringgit | JPMorgan Chase | 2/4/15 | 2,661,000 | 822,515 | 759,241 | 63,274 | ||||||||||||||
Malaysian Ringgit | HSBC Bank | 2/18/15 | 1,235,558 | 374,128 | 352,133 | 21,995 | ||||||||||||||
Malaysian Ringgit | HSBC Bank | 2/23/15 | 720,000 | 217,951 | 205,117 | 12,834 | ||||||||||||||
Malaysian Ringgit | HSBC Bank | 3/11/15 | 2,909,811 | 880,027 | 827,859 | 52,168 | ||||||||||||||
Malaysian Ringgit | JPMorgan Chase | 3/12/15 | 735,120 | 226,749 | 209,129 | 17,620 | ||||||||||||||
Malaysian Ringgit | HSBC Bank | 3/31/15 | 500,000 | 151,057 | 142,013 | 9,044 | ||||||||||||||
Malaysian Ringgit | JPMorgan Chase | 4/2/15 | 2,190,750 | 674,928 | 622,148 | 52,780 | ||||||||||||||
Malaysian Ringgit | HSBC Bank | 4/10/15 | 340,000 | 102,657 | 96,505 | 6,152 | ||||||||||||||
Malaysian Ringgit | Deutsche Bank | 5/19/15 | 2,093,018 | 643,135 | 592,535 | 50,600 | ||||||||||||||
Malaysian Ringgit | JPMorgan Chase | 7/2/15 | 988,250 | 302,875 | 278,958 | 23,917 | ||||||||||||||
Malaysian Ringgit | Deutsche Bank | 7/3/15 | 177,180 | 54,303 | 50,009 | 4,294 | ||||||||||||||
Swiss Franc | Bank of America | 2/12/15 | 505,362 | 559,817 | 508,873 | 50,944 | ||||||||||||||
Swiss Franc | Credit Suisse First Boston | 2/12/15 | 15,425 | 16,458 | 15,532 | 926 | ||||||||||||||
Swiss Franc | Deutsche Bank | 2/12/15 | 8,722 | 9,527 | 8,783 | 744 | ||||||||||||||
Swiss Franc | Deutsche Bank | 2/12/15 | 18,943 | 20,130 | 19,075 | 1,055 | ||||||||||||||
Swiss Franc | HSBC Bank | 2/12/15 | 50,597 | 53,139 | 50,948 | 2,191 | ||||||||||||||
Swiss Franc | State Street | 2/12/15 | 51,424 | 53,748 | 51,786 | 1,962 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 155,650,494 | $ | 142,203,602 | $ | 13,446,892 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Long Contracts: | ||||||||||||||||||||
Brazilian Real | Deutsche Bank | 10/30/15 | 435,000 | $ | 159,985 | $ | 150,493 | $ | (9,492 | ) | ||||||||||
British Pound | Bank of America | 2/19/15 | 235,979 | 378,690 | 367,603 | (11,087 | ) |
Continued
20
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
British Pound | Barclays Bank | 2/19/15 | 76,394 | $ | 122,865 | $ | 119,005 | $ | (3,860 | ) | ||||||||||
British Pound | Credit Suisse First Boston | 2/19/15 | 422,337 | 679,245 | 657,907 | (21,338 | ) | |||||||||||||
British Pound | Deutsche Bank | 2/19/15 | 255,408 | 414,909 | 397,868 | (17,041 | ) | |||||||||||||
British Pound | HSBC Bank | 2/19/15 | 803,172 | 1,269,162 | 1,251,164 | (17,998 | ) | |||||||||||||
British Pound | State Street | 2/19/15 | 499,191 | 804,192 | 777,628 | (26,564 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 1/12/15 | 8,700,000 | 15,774 | 14,328 | (1,446 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 1/30/15 | 111,647,000 | 185,325 | 183,509 | (1,816 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 2/2/15 | 110,603,000 | 184,590 | 181,749 | (2,841 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 2/3/15 | 91,616,000 | 152,897 | 150,536 | (2,361 | ) | |||||||||||||
Chilean Peso | Barclays Bank | 2/10/15 | 4,400,000 | 7,569 | 7,226 | (343 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 2/12/15 | 10,560,000 | 18,346 | 17,339 | (1,007 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 2/17/15 | 3,930,000 | 6,840 | 6,450 | (390 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 2/18/15 | 4,400,000 | 7,530 | 7,221 | (309 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 2/20/15 | 2,150,000 | 3,685 | 3,528 | (157 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 2/23/15 | 5,200,000 | 9,104 | 8,530 | (574 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 2/24/15 | 7,300,000 | 12,789 | 11,974 | (815 | ) | |||||||||||||
Chilean Peso | Barclays Bank | 2/25/15 | 153,759,000 | 256,308 | 252,188 | (4,120 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 2/25/15 | 5,600,000 | 9,767 | 9,185 | (582 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 2/26/15 | 3,890,000 | 6,772 | 6,380 | (392 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 3/3/15 | 700,000 | 1,208 | 1,148 | (60 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 3/12/15 | 990,530,400 | 1,708,547 | 1,622,625 | (85,922 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 3/20/15 | 4,300,000 | 7,294 | 7,039 | (255 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 5/11/15 | 4,500,000 | 7,680 | 7,335 | (345 | ) | |||||||||||||
Chilean Peso | Barclays Bank | 6/4/15 | 12,000,000 | 21,116 | 19,521 | (1,595 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 6/5/15 | 2,500,000 | 4,380 | 4,067 | (313 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 7/10/15 | 162,750,000 | 285,652 | 263,975 | (21,677 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 7/20/15 | 305,012,200 | 531,658 | 494,327 | (37,331 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 7/28/15 | 8,010,000 | 13,782 | 12,973 | (809 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 8/12/15 | 4,400,000 | 7,435 | 7,118 | (317 | ) | |||||||||||||
Chilean Peso | Morgan Stanley | 8/18/15 | 4,010,000 | 6,757 | 6,484 | (273 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 8/20/15 | 2,150,000 | 3,624 | 3,476 | (148 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 8/27/15 | 2,610,000 | 4,355 | 4,217 | (138 | ) | |||||||||||||
Chilean Peso | JPMorgan Chase | 8/28/15 | 3,900,000 | 6,509 | 6,301 | (208 | ) | |||||||||||||
Chilean Peso | Deutsche Bank | 9/8/15 | 700,000 | 1,156 | 1,130 | (26 | ) | |||||||||||||
European Euro | Bank of America | 1/20/15 | 10,199 | 12,720 | 12,343 | (377 | ) | |||||||||||||
European Euro | Credit Suisse First Boston | 1/20/15 | 18,463 | 22,901 | 22,344 | (557 | ) | |||||||||||||
European Euro | Deutsche Bank | 1/20/15 | 176,775 | 221,464 | 213,924 | (7,540 | ) | |||||||||||||
European Euro | HSBC Bank | 1/20/15 | 49,110 | 61,080 | 59,431 | (1,649 | ) | |||||||||||||
European Euro | State Street | 1/20/15 | 48,004 | 59,755 | 58,093 | (1,662 | ) | |||||||||||||
European Euro | Deutsche Bank | 1/26/15 | 658,000 | 805,063 | 796,327 | (8,736 | ) | |||||||||||||
Indian Rupee | JPMorgan Chase | 1/14/15 | 5,537,000 | 89,309 | 87,465 | (1,844 | ) | |||||||||||||
Indian Rupee | Deutsche Bank | 1/20/15 | 8,080,848 | 129,450 | 127,483 | (1,967 | ) | |||||||||||||
Indian Rupee | JPMorgan Chase | 1/20/15 | 5,537,000 | 89,059 | 87,351 | (1,708 | ) | |||||||||||||
Indian Rupee | Deutsche Bank | 1/27/15 | 4,760,000 | 75,978 | 74,980 | (998 | ) | |||||||||||||
Indian Rupee | JPMorgan Chase | 1/27/15 | 26,253,400 | 422,013 | 413,545 | (8,468 | ) | |||||||||||||
Indian Rupee | Deutsche Bank | 1/30/15 | 15,866,666 | 255,066 | 249,770 | (5,296 | ) | |||||||||||||
Indian Rupee | Deutsche Bank | 2/2/15 | 7,933,333 | 127,479 | 124,814 | (2,665 | ) | |||||||||||||
Indian Rupee | JPMorgan Chase | 2/4/15 | 14,490,000 | 232,577 | 227,883 | (4,694 | ) | |||||||||||||
Indian Rupee | Citibank | 2/9/15 | 25,456,000 | 407,018 | 399,966 | (7,052 | ) | |||||||||||||
Indian Rupee | HSBC Bank | 2/13/15 | 8,549,600 | 137,079 | 134,230 | (2,849 | ) | |||||||||||||
Indian Rupee | HSBC Bank | 2/20/15 | 8,645,260 | 138,373 | 135,552 | (2,821 | ) | |||||||||||||
Indian Rupee | JPMorgan Chase | 2/23/15 | 26,253,400 | 417,875 | 411,401 | (6,474 | ) | |||||||||||||
Indian Rupee | JPMorgan Chase | 3/13/15 | 5,537,000 | 88,155 | 86,425 | (1,730 | ) | |||||||||||||
Indian Rupee | HSBC Bank | 10/8/15 | 258,409,000 | 3,950,000 | 3,884,291 | (65,709 | ) | |||||||||||||
Korean Won | Bank of America | 2/12/15 | 14,573,214 | 13,535 | 13,248 | (287 | ) | |||||||||||||
Korean Won | Bank of America | 2/12/15 | 37,119,000 | 34,691 | 33,744 | (947 | ) | |||||||||||||
Korean Won | HSBC Bank | 2/12/15 | 161,840,975 | 146,966 | 147,127 | 161 |
Continued
21
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Korean Won | JPMorgan Chase | 5/15/15 | 258,825,900 | $ | 249,015 | $ | 234,912 | $ | (14,103 | ) | ||||||||||
Korean Won | JPMorgan Chase | 5/18/15 | 44,818,000 | 43,045 | 40,675 | (2,370 | ) | |||||||||||||
Korean Won | JPMorgan Chase | 5/20/15 | 213,852,600 | 205,095 | 194,080 | (11,015 | ) | |||||||||||||
Korean Won | JPMorgan Chase | 5/21/15 | 270,144,000 | 259,879 | 245,164 | (14,715 | ) | |||||||||||||
Korean Won | Deutsche Bank | 6/29/15 | 316,000,000 | 305,196 | 286,621 | (18,575 | ) | |||||||||||||
Korean Won | HSBC Bank | 9/30/15 | 317,000,000 | 301,445 | 287,488 | (13,957 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 1/8/15 | 86,100 | 25,695 | 24,619 | (1,076 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 1/9/15 | 46,000 | 13,738 | 13,152 | (586 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 1/12/15 | 14,000 | 4,185 | 4,002 | (183 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 2/4/15 | 2,661,000 | 786,371 | 759,241 | (27,130 | ) | |||||||||||||
Malaysian Ringgit | HSBC Bank | 2/18/15 | 1,235,558 | 365,636 | 352,133 | (13,503 | ) | |||||||||||||
Malaysian Ringgit | HSBC Bank | 2/23/15 | 720,000 | 214,286 | 205,117 | (9,169 | ) | |||||||||||||
Malaysian Ringgit | HSBC Bank | 3/11/15 | 2,909,811 | 876,740 | 827,859 | (48,881 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 3/12/15 | 735,120 | 219,819 | 209,129 | (10,690 | ) | |||||||||||||
Malaysian Ringgit | HSBC Bank | 3/31/15 | 500,000 | 148,907 | 142,013 | (6,894 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 4/2/15 | 1,202,500 | 360,775 | 341,496 | (19,279 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 4/2/15 | 988,250 | 303,293 | 280,652 | (22,641 | ) | |||||||||||||
Malaysian Ringgit | HSBC Bank | 4/10/15 | 340,000 | 102,087 | 96,505 | (5,582 | ) | |||||||||||||
Malaysian Ringgit | Deutsche Bank | 5/19/15 | 2,093,018 | 635,017 | 592,535 | (42,482 | ) | |||||||||||||
Malaysian Ringgit | JPMorgan Chase | 7/2/15 | 988,250 | 301,719 | 278,958 | (22,761 | ) | |||||||||||||
Malaysian Ringgit | Deutsche Bank | 7/3/15 | 177,180 | 54,167 | 50,010 | (4,157 | ) | |||||||||||||
Mexican Peso | Citibank | 1/12/15 | 3,813,785 | 284,187 | 258,364 | (25,823 | ) | |||||||||||||
Mexican Peso | Citibank | 1/20/15 | 2,130,000 | 144,517 | 144,226 | (291 | ) | |||||||||||||
Mexican Peso | HSBC Bank | 3/10/15 | 10,223,640 | 772,062 | 690,167 | (81,895 | ) | |||||||||||||
Mexican Peso | Citibank | 3/13/15 | 1,070,200 | 80,660 | 72,232 | (8,428 | ) | |||||||||||||
Mexican Peso | JPMorgan Chase | 3/13/15 | 28,297,935 | 2,079,507 | 1,909,947 | (169,560 | ) | |||||||||||||
Mexican Peso | Citibank | 3/17/15 | 10,351,100 | 706,098 | 698,464 | (7,634 | ) | |||||||||||||
Mexican Peso | Citibank | 3/24/15 | 2,637,800 | 192,963 | 177,913 | (15,050 | ) | |||||||||||||
Mexican Peso | HSBC Bank | 5/19/15 | 51,197,819 | 3,832,000 | 3,441,282 | (390,718 | ) | |||||||||||||
Mexican Peso | Citibank | 6/8/15 | 2,731,280 | 205,085 | 183,359 | (21,726 | ) | |||||||||||||
Mexican Peso | Citibank | 6/9/15 | 2,728,000 | 205,693 | 183,127 | (22,566 | ) | |||||||||||||
Mexican Peso | Citibank | 6/12/15 | 5,548,030 | 414,899 | 372,363 | (42,536 | ) | |||||||||||||
Mexican Peso | Citibank | 6/15/15 | 2,384,400 | 178,513 | 160,003 | (18,510 | ) | |||||||||||||
Mexican Peso | Citibank | 6/22/15 | 2,146,000 | 160,293 | 143,943 | (16,350 | ) | |||||||||||||
Mexican Peso | Citibank | 7/10/15 | 3,689,235 | 277,115 | 247,166 | (29,949 | ) | |||||||||||||
Mexican Peso | HSBC Bank | 9/4/15 | 11,644,900 | 866,275 | 777,225 | (89,050 | ) | |||||||||||||
Mexican Peso | Deutsche Bank | 10/14/15 | 19,592,000 | 1,432,583 | 1,304,109 | (128,474 | ) | |||||||||||||
Mexican Peso | Citibank | 10/22/15 | 6,418,829 | 463,554 | 427,027 | (36,527 | ) | |||||||||||||
Mexican Peso | HSBC Bank | 11/9/15 | 27,672,950 | 1,991,003 | 1,838,757 | (152,246 | ) | |||||||||||||
Mexican Peso | Citibank | 12/11/15 | 3,316,000 | 225,348 | 219,856 | (5,492 | ) | |||||||||||||
Mexican Peso | Citibank | 12/17/15 | 4,769,000 | 315,252 | 316,063 | 811 | ||||||||||||||
Mexican Peso | Citibank | 12/17/15 | 5,058,000 | 335,300 | 335,217 | (83 | ) | |||||||||||||
Mexican Peso | HSBC Bank | 12/17/15 | 5,003,000 | 331,000 | 331,572 | 572 | ||||||||||||||
Mexican Peso | Citibank | 12/18/15 | 4,161,750 | 275,479 | 275,800 | 321 | ||||||||||||||
Mexican Peso | HSBC Bank | 12/18/15 | 3,143,000 | 207,504 | 208,287 | 783 | ||||||||||||||
Phillipine Peso | JPMorgan Chase | 6/25/15 | 6,140,000 | 139,362 | 136,331 | (3,031 | ) | |||||||||||||
Phillipine Peso | Deutsche Bank | 6/26/15 | 16,461,720 | 373,062 | 365,497 | (7,565 | ) | |||||||||||||
Phillipine Peso | JPMorgan Chase | 6/29/15 | 5,340,000 | 121,121 | 118,548 | (2,573 | ) | |||||||||||||
Phillipine Peso | JPMorgan Chase | 7/1/15 | 9,520,000 | 217,630 | 211,331 | (6,299 | ) | |||||||||||||
Phillipine Peso | Deutsche Bank | 7/20/15 | 28,970,800 | 661,796 | 642,737 | (19,059 | ) | |||||||||||||
Phillipine Peso | JPMorgan Chase | 9/25/15 | 3,020,000 | 67,216 | 66,863 | (353 | ) | |||||||||||||
Singapore Dollar | JPMorgan Chase | 1/26/15 | 348,966 | 281,311 | 263,355 | (17,956 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 2/9/15 | 123,000 | 98,716 | 92,809 | (5,907 | ) | |||||||||||||
Singapore Dollar | Barclays Bank | 2/12/15 | 34,819 | 27,802 | 26,272 | (1,530 | ) | |||||||||||||
Singapore Dollar | Deutsche Bank | 2/12/15 | 246,000 | 196,172 | 185,614 | (10,558 | ) | |||||||||||||
Singapore Dollar | Barclays Bank | 2/17/15 | 103,000 | 82,535 | 77,714 | (4,821 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 2/17/15 | 77,000 | 61,636 | 58,097 | (3,539 | ) |
Continued
22
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Singapore Dollar | HSBC Bank | 2/18/15 | 77,000 | $ | 60,918 | $ | 58,096 | $ | (2,822 | ) | ||||||||||
Singapore Dollar | Deutsche Bank | 2/23/15 | 77,000 | 61,658 | 58,094 | (3,564 | ) | |||||||||||||
Singapore Dollar | Deutsche Bank | 2/27/15 | 172,000 | 137,424 | 129,764 | (7,660 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 3/13/15 | 499,540 | 394,270 | 376,818 | (17,452 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 3/16/15 | 215,700 | 170,741 | 162,703 | (8,038 | ) | |||||||||||||
Singapore Dollar | JPMorgan Chase | 4/30/15 | 1,750,000 | 1,372,872 | 1,319,467 | (53,405 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 5/7/15 | 3,474,156 | 2,693,144 | 2,619,290 | (73,854 | ) | |||||||||||||
Singapore Dollar | Citibank | 5/18/15 | 260,154 | 208,332 | 196,121 | (12,211 | ) | |||||||||||||
Singapore Dollar | Deutsche Bank | 5/19/15 | 77,000 | 61,632 | 58,047 | (3,585 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 5/19/15 | 167,000 | 133,664 | 125,894 | (7,770 | ) | |||||||||||||
Singapore Dollar | JPMorgan Chase | 5/19/15 | 60,863 | 48,706 | 45,882 | (2,824 | ) | |||||||||||||
Singapore Dollar | JPMorgan Chase | 5/20/15 | 229,983 | 183,824 | 173,373 | (10,451 | ) | |||||||||||||
Singapore Dollar | Deutsche Bank | 5/28/15 | 66,000 | 50,861 | 49,751 | (1,110 | ) | |||||||||||||
Singapore Dollar | Deutsche Bank | 5/29/15 | 66,000 | 52,579 | 49,750 | (2,829 | ) | |||||||||||||
Singapore Dollar | JPMorgan Chase | 6/15/15 | 156,000 | 118,902 | 117,574 | (1,328 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 6/22/15 | 190,000 | 144,608 | 143,191 | (1,417 | ) | |||||||||||||
Singapore Dollar | HSBC Bank | 9/21/15 | 252,000 | 199,683 | 189,857 | (9,826 | ) | |||||||||||||
Swiss Franc | Bank of America | 2/12/15 | 59,434 | 61,413 | 59,846 | (1,567 | ) | |||||||||||||
Swiss Franc | Credit Suisse First Boston | 2/12/15 | 97,478 | 101,342 | 98,155 | (3,187 | ) | |||||||||||||
Swiss Franc | Deutsche Bank | 2/12/15 | 72,524 | 75,076 | 73,027 | (2,049 | ) | |||||||||||||
Swiss Franc | HSBC Bank | 2/12/15 | 1,793 | 1,854 | 1,805 | (49 | ) | |||||||||||||
Swiss Franc | HSBC Bank | 2/12/15 | 53,100 | 55,544 | 53,469 | (2,075 | ) | |||||||||||||
Swiss Franc | State Street | 2/12/15 | 102,720 | 106,408 | 103,423 | (2,985 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 45,831,917 | $ | 43,536,679 | $ | (2,295,238 | ) | ||||||||||||||
|
|
|
|
|
|
At December 31, 2014, the Fund’s open forward cross currency contracts were as follows:
Purchase/Sale | Counterparty | Amount Purchased | Amount Sold | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
European Euro/Hungarian Forint | JPMorgan Chase | 84,776 EUR | 26,454,170 HUF | $ | 114,789 | $ | 116,406 | $ | 1,617 | |||||||||||
European Euro/Hungarian Forint | Deutsche Bank | 282,728 EUR | 88,267,600 HUF | 382,823 | 388,052 | 5,229 | ||||||||||||||
European Euro/Hungarian Forint | JPMorgan Chase | 282,893 EUR | 88,280,000 HUF | 383,050 | 388,444 | 5,394 | ||||||||||||||
European Euro/Polish Zloty | Deutsche Bank | 55,635 EUR | 233,000 PLN | 75,310 | 76,895 | 1,585 | ||||||||||||||
European Euro/Polish Zloty | Barclays Bank | 55,606 EUR | 233,000 PLN | 75,271 | 76,823 | 1,552 | ||||||||||||||
European Euro/Polish Zloty | Deutsche Bank | 55,611 EUR | 233,000 PLN | 75,282 | 76,859 | 1,577 | ||||||||||||||
European Euro/Polish Zloty | Morgan Stanley | 21,594 EUR | 91,000 PLN | 29,255 | 29,835 | 580 | ||||||||||||||
European Euro/Swedish Krona | Deutsche Bank | 1,112,265 EUR | 10,280,000 SEK | 1,394,801 | 1,421,190 | 26,389 | ||||||||||||||
Hungarian Forint/Euopean Euro | JPMorgan Chase | 44,021,000 HUF | 138,444 EUR | 193,541 | 194,025 | 484 | ||||||||||||||
Hungarian Forint/European Euro | JPMorgan Chase | 26,454,170 HUF | 82,915 EUR | 115,687 | 116,322 | 635 | ||||||||||||||
Hungarian Forint/European Euro | Deutsche Bank | 88,267,600 HUF | 276,614 EUR | 386,003 | 388,176 | 2,173 | ||||||||||||||
Hungarian Forint/European Euro | JPMorgan Chase | 44,259,000 HUF | 139,192 EUR | 194,587 | 195,074 | 487 | ||||||||||||||
Polish Zloty/European Euro | Deutsche Bank | 233,000 PLN | 54,509 EUR | 74,401 | 74,179 | (222 | ) | |||||||||||||
Polish Zloty/European Euro | Barclays Bank | 233,000 PLN | 54,477 EUR | 74,396 | 74,209 | (187 | ) | |||||||||||||
Polish Zloty/European Euro | Morgan Stanley | 91,000 PLN | 21,321 EUR | 29,245 | 28,995 | (250 | ) | |||||||||||||
Polish Zloty/European Euro | Deutsche Bank | 233,000 PLN | 54,721 EUR | 74,430 | 73,932 | (498 | ) | |||||||||||||
Swedish Krona/European Euro | Deutsche Bank | 10,280,000 SEK | 1,097,435 EUR | 1,403,382 | 1,394,942 | (8,440 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 5,076,253 | $ | 5,114,358 | $ | 38,105 | |||||||||||||||
|
|
|
|
|
|
Continued
23
AZL Franklin Templeton Founding Strategy Plus Fund
Schedule of Portfolio Investments
December 31, 2014
Over-the-Counter Interest Rate Swap Agreements
At December 31, 2014, the Fund’s open over-the-counter interest rate swap agreements were as follows:
Pay/ Receive Floating Rate | Floating Rate Index | Fixed Rate (%) | Expiration Date | Counterparty | Notional Amount (Local) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | |||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 3.018 | 8/22/23 | JPMorgan Chase | 3,910,000 | USD | (297,781 | ) | (297,781 | ) | ||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 3.848 | 8/24/43 | JPMorgan Chase | 2,230,000 | USD | (547,852 | ) | (547,852 | ) | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
(845,633 | ) | (845,633 | ) | |||||||||||||||||||||||||
|
|
|
|
Centrally Cleared Interest Rate Swap Agreements
At December 31, 2014, the Fund’s open centrally cleared interest rate swap agreements were as follows:
Pay/ Receive Floating Rate | Floating Rate Index | Fixed Rate (%) | Expiration Date | Clearing Agent | Notional Amount (Local) | Premiums Paid/ Received ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 0.93 | 10/17/17 | JPMorgan Chase | 9,940,000 | USD | — | 78,081 | 78,081 | |||||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 2.73 | 7/8/24 | JPMorgan Chase | 1,840,000 | USD | — | (37,858 | ) | (37,858 | ) | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
40,223 | 40,223 | |||||||||||||||||||||||||||||||
|
|
|
|
See accompanying notes to the financial statements.
24
AZL Franklin Templeton Founding Strategy Plus Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 799,741,688 | |||
|
| ||||
Investment securities, at value* | $ | 853,815,656 | |||
Cash | 178,925 | ||||
Segregated cash for collateral | 183,776 | ||||
Interest and dividends receivable | 3,817,323 | ||||
Foreign currency, at value (cost $1,327,669) | 1,287,991 | ||||
Unrealized appreciation on forward currency contracts | 13,497,407 | ||||
Receivable for investments sold | 1,206,460 | ||||
Receivable for variation margin on swaps | 12 | ||||
Reclaims receivable | 178,453 | ||||
Prepaid expenses | 6,845 | ||||
|
| ||||
Total Assets | 874,172,848 | ||||
|
| ||||
Liabilities: | |||||
Unrealized depreciation on forward currency contracts | 2,307,648 | ||||
Payable for investments purchased | 387,053 | ||||
Payable for capital shares redeemed | 1,116,426 | ||||
Unrealized depreciation on swap agreements | 845,633 | ||||
Payable for collateral received on loaned securities | 73,231,722 | ||||
Manager fees payable | 474,883 | ||||
Administration fees payable | 23,424 | ||||
Distribution fees payable | 169,601 | ||||
Custodian fees payable | 63,260 | ||||
Administrative and compliance services fees payable | 2,204 | ||||
Trustee fees payable | 44 | ||||
Other accrued liabilities | 37,662 | ||||
|
| ||||
Total Liabilities | 78,659,560 | ||||
|
| ||||
Net Assets | $ | 795,513,288 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 692,032,124 | |||
Accumulated net investment income/(loss) | 20,075,863 | ||||
Accumulated net realized gains/(losses) from investment transactions | 19,068,211 | ||||
Net unrealized appreciation/(depreciation) on investments | 64,337,090 | ||||
|
| ||||
Net Assets | $ | 795,513,288 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 57,990,314 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.72 | |||
|
|
* | Includes securities on loan of $70,346,825. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 16,875,722 | |||
Interest | 11,351,916 | ||||
Income from securities lending | 275,580 | ||||
Foreign withholding tax | (725,658 | ) | |||
|
| ||||
Total Investment Income | 27,777,560 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 5,475,790 | ||||
Administration fees | 279,946 | ||||
Distribution fees | 1,955,633 | ||||
Custodian fees | 291,739 | ||||
Administrative and compliance services fees | 10,719 | ||||
Trustee fees | 39,443 | ||||
Professional fees | 44,844 | ||||
Shareholder reports | 35,840 | ||||
Other expenses | 22,396 | ||||
|
| ||||
Total expenses before reductions | 8,156,350 | ||||
Less expenses paid indirectly | (769 | ) | |||
|
| ||||
Net expenses | 8,155,581 | ||||
|
| ||||
Net Investment Income/(Loss) | 19,621,979 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 18,351,802 | ||||
Net realized gains/(losses) on options contracts | (161,366 | ) | |||
Net realized gains/(losses) on swap agreements | (231,391 | ) | |||
Net realized gains/(losses) on forward currency contracts | 2,606,346 | ||||
Change in net unrealized appreciation/depreciation on investments | (25,275,309 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (4,709,918 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 14,912,061 | |||
|
|
See accompanying notes to the financial statements.
25
Statements of Changes in Net Assets
AZL Franklin Templeton Founding Strategy Plus Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 19,621,979 | $ | 11,578,127 | ||||||
Net realized gains/(losses) on investment transactions | 20,565,391 | 12,463,128 | ||||||||
Change in unrealized appreciation/depreciation on investments | (25,275,309 | ) | 66,386,266 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 14,912,061 | 90,427,521 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (12,323,008 | ) | (9,755,765 | ) | ||||||
From net realized gains | (13,056,696 | ) | (4,135,980 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (25,379,704 | ) | (13,891,745 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 150,487,951 | 286,382,484 | ||||||||
Proceeds from dividends reinvested | 25,379,704 | 13,891,744 | ||||||||
Value of shares redeemed | (81,100,254 | ) | (75,479,718 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 94,767,401 | 224,794,510 | ||||||||
|
|
|
| |||||||
Change in net assets | 84,299,758 | 301,330,286 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 711,213,530 | 409,883,244 | ||||||||
|
|
|
| |||||||
End of period | $ | 795,513,288 | $ | 711,213,530 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 20,075,863 | $ | 11,906,144 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 10,676,240 | 21,891,005 | ||||||||
Dividends reinvested | 1,797,429 | 1,063,686 | ||||||||
Shares redeemed | (5,801,940 | ) | (5,767,982 | ) | ||||||
|
|
|
| |||||||
Change in shares | 6,671,729 | 17,186,709 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
26
AZL Franklin Templeton Founding Strategy Plus Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.86 | $ | 12.01 | $ | 10.75 | $ | 10.99 | $ | 10.20 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.32 | 0.15 | 0.27 | 0.23 | 0.20 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.01 | ) | 2.01 | 1.31 | (0.43 | ) | 0.82 | ||||||||||||||||||
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|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.31 | 2.16 | 1.58 | (0.20 | ) | 1.02 | |||||||||||||||||||
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|
|
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| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.22 | ) | (0.22 | ) | (0.27 | ) | (0.02 | ) | (0.18 | ) | |||||||||||||||
Net Realized Gains | (0.23 | ) | (0.09 | ) | (0.05 | ) | (0.02 | ) | (0.05 | ) | |||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.45 | ) | (0.31 | ) | (0.32 | ) | (0.04 | ) | (0.23 | ) | |||||||||||||||
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|
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| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.72 | $ | 13.86 | $ | 12.01 | $ | 10.75 | $ | 10.99 | |||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 2.14 | % | 18.12 | % | 14.78 | % | (1.83 | )% | 10.02 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 795,513 | $ | 711,214 | $ | 409,883 | $ | 302,592 | $ | 156,980 | |||||||||||||||
Net Investment Income/(Loss) | 2.51 | % | 2.10 | % | 2.80 | % | 2.90 | % | 3.13 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.04 | % | 1.05 | % | 1.09 | % | 1.16 | % | 1.25 | % | |||||||||||||||
Expenses Net of Reductions | 1.04 | % | 1.05 | % | 1.09 | % | 1.16 | % | 1.19 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.04 | % | 1.05 | % | 1.09 | % | 1.16 | % | 1.19 | % | |||||||||||||||
Portfolio Turnover Rate | 23 | % | 24 | % | 19 | % | 17 | % | 17 | % |
(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 any. 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.
27
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Franklin Templeton Founding Strategy Plus Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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.
Structured Notes
The Fund may invest in structured notes, the values of which are based on the price movements of a reference security or index. Structured notes are derivative debt securities, the interest rate or principal of which is determined by an unrelated indicator. The terms of the structured notes may provide that in certain circumstances no principal is due at maturity and therefore, may result in a loss of invested capital. Structured notes may be positively or negatively indexed, so that appreciation of the reference may produce an increase or a decrease in the interest rate or the value of the structured note at maturity may be calculated as a specified multiple of the change in the value of the reference; therefore, the value of such security may be very volatile. Structured notes may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the reference. Structured notes may also be more volatile, less liquid, and more difficult to accurately price than less complex securities or more traditional debt securities.
28
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
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 liquid assets 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.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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, and reclassification of certain 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 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $39.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $27,328 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
29
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $206.6 million as of December 31, 2014. The monthly average amount for these contracts was $ 190 million for the year ended December 31, 2014.
Options Contracts
The Fund may purchase or write put and call options on a security or an index of securities. During the year ended December 31, 2014, the Fund used purchased call options to hedge against security prices (equity risk).
A stock index fluctuates with changes in the fair values of the stocks included in the index, and therefore options on stock indexes and options on stocks involve elements of equity price risk.
Purchased Options Contracts — The Fund pays a premium which is included in “Investments, 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 that 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. The Fund bears the risk of loss of the premium and change in value should the counterparty not perform under the contract.
Realized gains and losses, if any, are reported as “Net realized gains/(losses) on options contracts” on the Statement of Operations.
The Fund had the following transactions in purchased call and put options during the year ended December 31, 2014:
Number of Contracts | Cost | |||||||||
Options outstanding at December 31, 2013 | 152 | $ | 112,029 | |||||||
Options purchased | 98 | 49,337 | ||||||||
Options exercised | — | — | ||||||||
Options expired | — | — | ||||||||
Options closed | (250 | ) | (161,366 | ) | ||||||
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|
|
| |||||||
Options outstanding at December 31, 2014 | — | $ | — | |||||||
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|
|
|
Swap Agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. Swap agreements are privately negotiated in the over-the-counter (“OTC”) market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). The Fund may enter into swap agreements to manage its exposure to market, interest rate and credit risk. The value of swap agreements are equal to the
Fund’s obligations (or rights) under swap agreements, which will generally be equal to the net amounts to be paid or received under the agreements based upon the relative values of the positions held by each party to the agreements. In connection with these arrangements, securities may be identified as collateral in accordance with the terms of the swap agreements to provide assets of value and recourse in the event of default or bankruptcy by the counterparty.
Swaps are marked to market daily using pricing sources approved by the Trustees and the change in value, if any, is recorded as unrealized gain or loss. For OTC swaps, payments received or made at the beginning of the measurement period are recorded as realized gain or loss upon termination or maturity of the OTC swap. A liquidation payment received or made at the termination of the OTC swap is recorded as a realized gain or loss. Net periodic payments received or paid by the Fund are included as part
of realized gains (losses). Upon entering a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or assets determined to be liquid (the amount is subject to the clearing organization that clears the trade). Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable, as applicable, for variation margin on centrally cleared swaps.
Swap agreements involve, to varying degrees, elements of market risk and exposure to loss. The primary risks associated with the use of swap agreements are imperfect correlation between movements in the notional amount and the price of the underlying instruments and the inability of counterparties or clearing house to perform. The counterparty risk for centrally cleared swap agreements is generally lower than for OTC swap agreements because generally a clearing organization becomes substituted for
each counterparty to a centrally cleared swap agreement and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to a clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members will satisfy its obligations to the Fund.
The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement. The Fund bears the risk of loss of the amount expected to be received under a swap agreement (i.e., any unrealized appreciation) in the event of the default or bankruptcy of the swap agreement counterparty. The notional amount and related unrealized appreciation (depreciation) of each swap agreement at period end is disclosed in the swap tables in the Schedule of Portfolio Investments. The Fund is party to International Swap Dealers Association, Inc. Master Agreements (“ISDA Master Agreements”) with select counterparties that govern transactions, such as OTC swap contracts, entered into by the Fund, through the Subsidiary, and those counterparties. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding OTC swap transactions under the applicable ISDA Master Agreement.
30
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional amount and are subject to interest rate risk exposure. Interest rate swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that a Fund is contractually obligated to make. If the other party to an interest rate swap defaults, a Fund’s risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive. As of December 31, 2014, the Fund entered into interest rate swap agreements to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk). The gross notional amount of interest rate swaps outstanding was $17.9 million as of December 31, 2014. The monthly average gross notional amount of interest rate swaps was $9.5 million for the year ended December 31, 2014.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivatives | Liability Derivatives | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value | Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Interest Rate Risk Exposure | ||||||||||||
Interest Rate Swap Agreements | Unrealized appreciation on swap agreements+ | $ | 78,081 | Unrealized depreciation on swap agreements+ | $ | 883,491 | ||||||
Foreign Exchange Rate Risk Exposure | ||||||||||||
Forward Currency Contracts | Unrealized appreciation on forward currency contracts | 13,497,407 | Unrealized depreciation on forward currency contracts | 2,307,648 |
+ | For swap agreements, the amounts represent the cumulative appreciation/(depreciation) of these agreements 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 swaps. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Realized Gain (Loss) on Derivatives Recognized as a Result from Operations | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized as a Result from Operations | |||||||||||||||||||
Net Realized Gains/(Losses) on Swap Agreements | Net Realized Gains/(Losses) on Options Contracts | Net Realized Gains/(Losses) on Forward Currency Contracts | Change in Net Unrealized Appreciation/Depreciation on Investments | |||||||||||||||||
Equity Risk Exposure | $ | — | $ | (161,366 | ) | $ | — | $ | 13,989 | |||||||||||
Interest Rate Risk Exposure | (231,391 | ) | — | — | (704,752 | ) | ||||||||||||||
Foreign Exchange Rate Risk Exposure | — | — | 2,606,346 | 11,270,984 |
Effective January 1, 2013, the Fund adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”) which amended Accounting Standards Codification Subtopic 210-20, Balance Sheet Offsetting. ASU 2013-01 clarified the scope of ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of that entity’s financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2013-01 clarifies the scope of ASU 2011-11 as applying to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset either in accordance with other requirements of U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement.
The Fund is generally subject to master netting agreements that allow for amounts owed between the Fund and the counterparty to be netted. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements do not apply to amounts owed to/from different counterparties. The amounts shown in the Statement of Assets and Liabilities do not take into consideration the effects of legally enforceable master netting agreements. The table below presents the gross and net amounts of these assets and liabilities with any offsets to reflect the Fund’s ability to reflect the master netting agreements at December 31, 2014. For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to master netting arrangements in the Statement of Assets and Liabilities. This table also summarizes the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014.
As of December 31, 2014, the Fund’s derivative assets and liabilities by type are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Forward currency contracts | $ | 13,497,407 | $ | 2,307,648 | ||||||
Swap agreements | 12 | 845,633 | ||||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 13,497,419 | 3,153,281 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (7,681,939 | ) | (1,494,212 | ) | ||||||
|
|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 5,815,480 | $ | 1,659,069 | ||||||
|
|
|
|
31
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a MNA and net of the related collateral received by the Fund as of December 31, 2014:
Counterparty | Derivative Assets Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received* | Cash Collateral Received* | Net Amount of Derivative Assets | ||||||||||||||||||||
Barclays Bank | $ | 2,081,701 | $ | (16,456 | ) | $ | — | $ | (1,270,000 | ) | $ | 795,245 | |||||||||||||
Citibank | 1,293,741 | (270,228 | ) | — | — | 1,023,513 | |||||||||||||||||||
JPMorgan Chase | 2,440,038 | (1,372,385 | ) | — | — | 1,067,653 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 5,815,480 | $ | (1,659,069 | ) | $ | — | $ | (1,270,000 | ) | $ | 2,886,411 | |||||||||||||
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|
The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a MNA and net of the related collateral pledged by the Fund as of December 31, 2014:
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged* | Cash Collateral Pledged* | Net Amount of Derivative Liabilities | ||||||||||||||||||||
Barclays Bank | $ | 16,456 | $ | (16,456 | ) | $ | — | $ | — | $ | — | ||||||||||||||
Citibank | 270,228 | (270,228 | ) | — | — | — | |||||||||||||||||||
JPMorgan Chase | 1,372,385 | (1,372,385 | ) | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 1,659,069 | $ | (1,659,069 | ) | $ | — | $ | — | $ | — | ||||||||||||||
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|
|
* | The actual collateral received or pledged may be in excess of the amounts shown in the table. The table only reflects collateral amounts up to the amount of the financial instrument disclosed on the Statement of Assets and Liabilities. |
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. (“Advisers”), 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 with the Manager and Advisers, the Manager and Franklin Mutual, and the Manager and Global Advisors, and the Trust, Advisers, Franklin Mutual and Global Advisors provide 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services
32
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $9,228 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
Options are generally valued at the average of the closing bid and ask quotations on the principal exchange on which the option is traded, which are then typically categorized as Level 1 in the fair value hierarchy.
Forward 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 and certain options, are generally valued by approved independent pricing services utilizing techniques which take into account factors such as yields, 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
33
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Aerospace & Defense | $ | 7,114,499 | $ | 640,791 | $ | — | $ | 7,755,290 | ||||||||||||
Air Freight & Logistics | 838,222 | 1,356,129 | — | 2,194,351 | ||||||||||||||||
Airlines | — | 5,647,801 | — | 5,647,801 | ||||||||||||||||
Auto Components | — | 2,444,966 | — | 2,444,966 | ||||||||||||||||
Automobiles | 5,765,106 | 3,975,647 | — | 9,740,753 | ||||||||||||||||
Banks | 27,908,747 | 16,022,779 | — | 43,931,526 | ||||||||||||||||
Capital Markets | 2,872,752 | 3,270,639 | — | 6,143,391 | ||||||||||||||||
Chemicals | 7,935,687 | 3,452,149 | — | 11,387,836 | ||||||||||||||||
Commercial Services & Supplies | 1,981,035 | 715,822 | — | 2,696,857 | ||||||||||||||||
Communications Equipment | 7,122,003 | 1,768,396 | — | 8,890,399 | ||||||||||||||||
Construction & Engineering | — | 1,379,428 | — | 1,379,428 | ||||||||||||||||
Construction Materials | — | 2,685,131 | — | 2,685,131 | ||||||||||||||||
Diversified Financial Services | — | 3,984,077 | — | 3,984,077 | ||||||||||||||||
Diversified Telecommunication Services | 6,197,441 | 7,996,571 | — | 14,194,012 | ||||||||||||||||
Electric Utilities | 12,566,129 | 81,864 | — | 12,647,993 | ||||||||||||||||
Electrical Equipment | — | 186,203 | — | 186,203 | ||||||||||||||||
Energy Equipment & Services | 6,642,936 | 616,387 | — | 7,259,323 | ||||||||||||||||
Food & Staples Retailing | 11,631,777 | 3,259,025 | — | 14,890,802 | ||||||||||||||||
Health Care Equipment & Supplies | 12,696,584 | 2,288,342 | — | 14,984,926 | ||||||||||||||||
Industrial Conglomerates | 2,926,771 | 2,720,842 | — | 5,647,613 | ||||||||||||||||
Insurance | 19,484,632 | 9,113,894 | — | 28,598,526 | ||||||||||||||||
Life Sciences Tools & Services | — | 803,147 | — | 803,147 | ||||||||||||||||
Machinery | 3,345,119 | 1,085,211 | — | 4,430,330 | ||||||||||||||||
Marine | — | 2,673,970 | — | 2,673,970 | ||||||||||||||||
Media | 22,150,358 | 5,837,082 | 147,154 | 28,134,594 | ||||||||||||||||
Metals & Mining | 8,452,071 | 5,621,314 | — | 14,073,385 | ||||||||||||||||
Multiline Retail | 5,845,271 | 1,156,148 | — | 7,001,419 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 29,814,836 | 18,066,857 | — | 47,881,693 | ||||||||||||||||
Pharmaceuticals | 33,750,611 | 10,347,867 | — | 44,098,478 | ||||||||||||||||
Real Estate Management & Development | 35,297 | — | 110,688 | 145,985 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 3,380,246 | 7,326,305 | — | 10,706,551 | ||||||||||||||||
Software | 19,036,380 | 852,607 | — | 19,888,987 | ||||||||||||||||
Sovereign Bonds | — | 503,801 | — | 503,801 | ||||||||||||||||
Specialty Retail | 1,335,143 | 2,654,314 | — | 3,989,457 | ||||||||||||||||
Technology Hardware, Storage & Peripherals | 14,704,939 | 1,797,343 | — | 16,502,282 | ||||||||||||||||
Tobacco | 7,151,563 | 5,888,285 | — | 13,039,848 | ||||||||||||||||
Wireless Telecommunication Services | 2,537,480 | 4,820,112 | — | 7,357,592 | ||||||||||||||||
Other Common Stocks+ | 32,192,577 | — | — | 32,192,577 | ||||||||||||||||
Preferred Stocks | ||||||||||||||||||||
Automobiles | — | 1,330,022 | — | 1,330,022 | ||||||||||||||||
Other Preferred Stocks+ | 1,925,177 | — | — | 1,925,177 | ||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||||||
Banks | 930,376 | 505,440 | — | 1,435,816 | ||||||||||||||||
Commercial Services & Supplies | — | 43,626 | — | 43,626 | ||||||||||||||||
Multi-Utilities | 300,325 | — | — | 300,325 | ||||||||||||||||
Oil, Gas & Consumable Fuels | — | 295,313 | — | 295,313 | ||||||||||||||||
Real Estate Investment Trusts (REITs) | — | 63,867 | — | 63,867 | ||||||||||||||||
Convertible Bonds | ||||||||||||||||||||
Automobiles | 1,075,000 | 2,007,235 | — | 3,082,235 | ||||||||||||||||
Banks | — | 942,000 | — | 942,000 | ||||||||||||||||
Construction Materials | — | 361,688 | — | 361,688 | ||||||||||||||||
Oil, Gas & Consumable Fuels | — | 1,343,750 | — | 1,343,750 | ||||||||||||||||
Corporate Bonds+ | — | 54,202,986 | — | 54,202,986 | ||||||||||||||||
Equity-Linked Securities+ | — | 5,513,940 | — | 5,513,940 | ||||||||||||||||
Floating Rate Loans+ | — | 4,797,291 | — | 4,797,291 | ||||||||||||||||
Foreign Bonds+ | — | 127,045,283 | — | 127,045,283 | ||||||||||||||||
Municipal Bond | — | 495,030 | — | 495,030 | ||||||||||||||||
U.S. Government Agency Mortgages | — | 20,000,000 | — | 20,000,000 |
34
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
U.S. Treasury Obligations | $ | — | $ | 7,999,567 | $ | — | $ | 7,999,567 | ||||||||||||
Yankee Dollars+ | — | 26,295,371 | — | 26,295,371 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 73,231,722 | — | 73,231,722 | ||||||||||||||||
Unaffiliated Investment Company | 62,395,347 | — | — | 62,395,347 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 384,042,437 | 469,515,377 | 257,842 | 853,815,656 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Forward Currency Contracts | — | 11,189,759 | — | 11,189,759 | ||||||||||||||||
Over-the Counter Interest Rate Swaps | — | (845,633 | ) | — | (845,633 | ) | ||||||||||||||
Centrally Cleared Interest Rate Swaps | — | 40,223 | — | 40,223 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 384,042,437 | $ | 479,899,726 | $ | 257,842 | $ | 864,200,005 | ||||||||||||
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as forward currency contracts and swaps. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
A reconciliation of assets in which Level 3 inputs are used in determining fair value, along with additional quantitative disclosures, are presented when there are significant Level 3 investments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 219,075,233 | $ | 149,931,340 |
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 Trustees. Not all restricted securities are considered illiquid. The illiquid restricted securities held as of December 31, 2014 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Tribune Co. | 12/31/12 | $ | — | $ | 5,213 | $ | — | — | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
Security Quality Risk (also known as “High Yield Risk”): The Fund may invest in high yield, high risk debt securities and unrated securities of similar credit quality (commonly known as “junk bonds”) may be subject to greater levels of credit and liquidity risk than funds that do not invest in such securities. These securities are
35
AZL Franklin Templeton Founding Strategy Plus Fund
Notes to the Financial Statements
December 31, 2014
considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, the Fund may lose the value of its entire investment.
8. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $800,248,483. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 99,378,441 | ||
Unrealized depreciation | (45,811,268 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 53,567,173 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 14,767,710 | $ | 10,611,994 | $ | 25,379,704 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 11,523,700 | $ | 2,368,045 | $ | 13,891,745 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Franklin Templeton Founding Strategy Plus Fund | $ | 31,655,383 | $ | 19,573,129 | $ | — | $ | 52,252,652 | $ | 103,481,164 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
37
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 29.88% 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, 2014, the Fund declared net long-term capital gain distributions of $10,611,994.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $2,444,673.
38
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.
39
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
40
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003 | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012 | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002 | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001 | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999 | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010 | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014 |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Gateway Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 9
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 18
Other Federal Income Tax Information
Page 19
Other Information
Page 20
Approval of Investment Advisory and Subadvisory Agreements
Page 21
Information about the Board of Trustees and Officers
Page 24
This report is submitted for the general information of the shareholder 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.
AZL® Gateway Fund Review (unaudited)
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 during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Gateway Fund returned 3.09%. That compared to a 13.69% total return for its benchmark, the S&P 500 Index1. The Fund’s performance reflects its hedged-equity strategy, which seeks to reduce wide swings in the portfolio’s value that can be caused by stock market volatility.
The Fund’s objective is to capture the majority of returns of equity market investments, but at a reduced level of risk. To pursue this strategy, the Fund holds a broadly diversified portfolio of stocks while also using index options to generate cash inflow and reduce the risk associated with un-hedged equity market investments. Selling index call options reduces the Fund’s volatility and provides steady cash flow that is an important source of the Fund’s return. However, the use of these options limits the Fund’s ability to profit from increases in the value of its equity portfolio. The Fund also purchases put options to attempt protect against sudden, short-term stock market declines.*
The period was marked by an improving U.S. economy and strong corporate earnings, though central bank policy and geopolitical tensions contributed to market choppiness. The S&P 500 experienced five brief but sharp pullbacks with losses ranging from 3.85% to 7.28%. Meanwhile, volatility remained low in the equity and equity index options markets.
The low levels of volatility during much of the period dragged on the Fund’s returns. The Chicago Board Options Exchange Volatility Index2 (the VIX) averaged just 14.17 while falling as low as 10.32 and spending little time above its long-term average of 20. A lower VIX results in less cash flow for the sale of call options, and that reduced cash flow acts as a headwind against the Fund’s performance.*
As expected, the nature of the Fund’s strategy also limits relative returns in times when the S&P 500 posts strong gains in a short period of time, such as during the fourth quarter of 2014. When the S&P 500 rises far above the level of premiums the Fund earned from selling call options, the Fund’s relative returns suffer. As a result, when the S&P 500 advanced 11.03% from October 15, 2014, through the end of the period, the Fund gained just 3.19%.*
The roughly one-month period between mid-September and mid-October was the weakest for the period. During this period, the S&P 500 returned -7.28%. The Fund’s hedging strategy helped to minimize losses, leading to a return of -3.43%—less than half that of 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, 2014. |
1 | The Standard & Poor’s 500® Index (“S&P 500”) 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® (VIX®) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 Index options. |
1
AZL® Gateway Fund Review (unaudited)
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.
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 investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | Since Inception (4/30/10) | ||||||||||
AZL® Gateway Fund | 3.09 | % | 5.20 | % | 4.41 | % | ||||||
S&P 500 Index | 13.69 | % | 20.41 | % | 14.95 | % |
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 | 1.11 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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”), 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
AZL Gateway Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Gateway Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,007.60 | $ | 5.57 | 1.10 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,019.66 | $ | 5.60 | 1.10 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Information Technology | 20.4 | % | |||
Financials | 16.1 | ||||
Health Care | 14.0 | ||||
Consumer Discretionary | 11.8 | ||||
Industrials | 10.1 | ||||
Consumer Staples | 9.4 | ||||
Energy | 8.3 | ||||
Materials | 3.3 | ||||
Utilities | 3.2 | ||||
Telecommunication Services | 2.1 | ||||
|
| ||||
Total Common Stocks | 98.7 | ||||
Money Market | 2.9 | ||||
Purchased Options | 0.4 | ||||
|
| ||||
Total Investment Securities | 102.0 | ||||
Net other assets (liabilities) | (2.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks+ (98.7%): |
| ||||||
| Aerospace & Defense (2.2%): |
| ||||||
9,900 | Boeing Co. (The) | $ | 1,286,802 | |||||
13,855 | Honeywell International, Inc. | 1,384,392 | ||||||
7,320 | Raytheon Co. | 791,804 | ||||||
11,210 | United Technologies Corp. | 1,289,150 | ||||||
|
| |||||||
4,752,148 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.8%): |
| ||||||
15,195 | United Parcel Service, Inc., Class B | 1,689,228 | ||||||
|
| |||||||
| Airlines (0.3%): |
| ||||||
6,380 | American Airlines Group, Inc. | 342,159 | ||||||
5,430 | United Continental Holdings, Inc.* | 363,213 | ||||||
|
| |||||||
705,372 | ||||||||
|
| |||||||
| Auto Components (0.3%): |
| ||||||
4,775 | Cooper Tire & Rubber Co. | 165,454 | ||||||
4,520 | TRW Automotive Holdings Corp.* | 464,882 | ||||||
|
| |||||||
630,336 | ||||||||
|
| |||||||
| Automobiles (0.5%): |
| ||||||
55,930 | Ford Motor Co. | 866,915 | ||||||
710 | Tesla Motors, Inc.* | 157,911 | ||||||
|
| |||||||
1,024,826 | ||||||||
|
| |||||||
| Banks (5.8%): |
| ||||||
7,645 | Associated Banc-Corp. | 142,426 | ||||||
132,325 | Bank of America Corp. | 2,367,294 | ||||||
39,828 | Citigroup, Inc. | 2,155,093 | ||||||
2,290 | FirstMerit Corp. | 43,258 | ||||||
45,405 | JPMorgan Chase & Co. | 2,841,445 | ||||||
2,940 | Old National Bancorp | 43,747 | ||||||
32,135 | U.S. Bancorp | 1,444,468 | ||||||
64,905 | Wells Fargo & Co. | 3,558,093 | ||||||
|
| |||||||
12,595,824 | ||||||||
|
| |||||||
| Beverages (2.2%): |
| ||||||
51,675 | Coca-Cola Co. (The) | 2,181,719 | ||||||
3,643 | Monster Beverage Corp.* | 394,719 | ||||||
24,440 | PepsiCo, Inc. | 2,311,046 | ||||||
|
| |||||||
4,887,484 | ||||||||
|
| |||||||
| Biotechnology (3.3%): |
| ||||||
3,045 | Alexion Pharmaceuticals, Inc.* | 563,416 | ||||||
10,465 | Amgen, Inc. | 1,666,970 | ||||||
3,265 | Biogen Idec, Inc.* | 1,108,304 | ||||||
12,050 | Celgene Corp.* | 1,347,913 | ||||||
20,940 | Gilead Sciences, Inc.* | 1,973,805 | ||||||
3,650 | Vertex Pharmaceuticals, Inc.* | 433,620 | ||||||
|
| |||||||
7,094,028 | ||||||||
|
| |||||||
| Capital Markets (2.2%): |
| ||||||
2,400 | Affiliated Managers Group, Inc.* | 509,376 | ||||||
25,980 | Charles Schwab Corp. (The) | 784,336 | ||||||
8,600 | Eaton Vance Corp. | 351,998 | ||||||
5,975 | Goldman Sachs Group, Inc. (The) | 1,158,134 | ||||||
9,270 | Legg Mason, Inc. | 494,740 | ||||||
23,805 | Morgan Stanley | 923,634 |
Shares | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Capital Markets, continued | |||||||
9,420 | TD Ameritrade Holding Corp. | $ | 337,048 | |||||
3,600 | Waddell & Reed Financial, Inc., Class A | 179,352 | ||||||
|
| |||||||
4,738,618 | ||||||||
|
| |||||||
| Chemicals (2.2%): |
| ||||||
17,955 | Dow Chemical Co. (The) | 818,928 | ||||||
15,570 | E.I. du Pont de Nemours & Co. | 1,151,246 | ||||||
5,685 | Eastman Chemical Co. | 431,264 | ||||||
8,215 | LyondellBasell Industries NV, Class A | 652,189 | ||||||
8,835 | Monsanto Co. | 1,055,517 | ||||||
7,875 | Olin Corp. | 179,314 | ||||||
2,965 | Potash Corp. of Saskatchewan, Inc. | 104,724 | ||||||
9,510 | RPM International, Inc. | 482,252 | ||||||
|
| |||||||
4,875,434 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.7%): |
| ||||||
4,360 | ADT Corp. (The) | 157,963 | ||||||
270 | R.R. Donnelley & Sons Co. | 4,537 | ||||||
15,750 | Tyco International plc | 690,795 | ||||||
12,015 | Waste Management, Inc. | 616,610 | ||||||
|
| |||||||
1,469,905 | ||||||||
|
| |||||||
| Communications Equipment (1.8%): |
| ||||||
65,755 | Cisco Systems, Inc. | 1,828,975 | ||||||
6,354 | Motorola Solutions, Inc. | 426,226 | ||||||
21,875 | QUALCOMM, Inc. | 1,625,969 | ||||||
1,735 | Telefonaktiebolaget LM Ericsson, Sponsored ADR | 20,994 | ||||||
|
| |||||||
3,902,164 | ||||||||
|
| |||||||
| Consumer Finance (1.0%): |
| ||||||
15,200 | American Express Co. | 1,414,208 | ||||||
11,000 | Discover Financial Services | 720,390 | ||||||
|
| |||||||
2,134,598 | ||||||||
|
| |||||||
| Containers & Packaging (0.4%): |
| ||||||
5,475 | Avery Dennison Corp. | 284,043 | ||||||
10,700 | MeadWestvaco Corp. | 474,973 | ||||||
3,090 | Sonoco Products Co. | 135,033 | ||||||
|
| |||||||
894,049 | ||||||||
|
| |||||||
| Distributors (0.3%): |
| ||||||
6,850 | Genuine Parts Co. | 730,005 | ||||||
|
| |||||||
| Diversified Financial Services (2.4%): |
| ||||||
27,765 | Berkshire Hathaway, Inc., Class B | 4,168,914 | ||||||
6,555 | CME Group, Inc. | 581,100 | ||||||
3,448 | FNFV Group* | 54,272 | ||||||
2,220 | IntercontinentalExchange, Inc. | 486,824 | ||||||
|
| |||||||
5,291,110 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.9%): |
| ||||||
50,830 | AT&T, Inc. | 1,707,380 | ||||||
24,259 | Frontier Communications Corp. | 161,808 | ||||||
48,180 | Verizon Communications, Inc. | 2,253,860 | ||||||
|
| |||||||
4,123,048 | ||||||||
|
|
Continued
4
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Electric Utilities (1.5%): |
| ||||||
15,125 | American Electric Power Co., Inc. | $ | 918,390 | |||||
17,076 | Duke Energy Corp. | 1,426,530 | ||||||
2,580 | Hawaiian Electric Industries, Inc. | 86,378 | ||||||
11,885 | OGE Energy Corp. | 421,680 | ||||||
12,395 | Pepco Holdings, Inc. | 333,797 | ||||||
|
| |||||||
3,186,775 | ||||||||
|
| |||||||
| Electrical Equipment (0.8%): |
| ||||||
8,445 | Eaton Corp. plc | 573,922 | ||||||
12,975 | Emerson Electric Co. | 800,947 | ||||||
2,505 | Hubbell, Inc., Class B | 267,609 | ||||||
|
| |||||||
1,642,478 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.4%): |
| ||||||
23,645 | Corning, Inc. | 542,180 | ||||||
7,235 | TE Connectivity, Ltd. | 457,614 | ||||||
|
| |||||||
999,794 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.6%): |
| ||||||
9,955 | Baker Hughes, Inc. | 558,177 | ||||||
430 | CARBO Ceramics, Inc. | 17,222 | ||||||
3,265 | Diamond Offshore Drilling, Inc. | 119,858 | ||||||
19,950 | Halliburton Co. | 784,633 | ||||||
6,830 | Patterson-UTI Energy, Inc. | 113,310 | ||||||
22,551 | Schlumberger, Ltd. | 1,926,081 | ||||||
1,885 | Seventy Seven Energy, Inc.* | 10,198 | ||||||
|
| |||||||
3,529,479 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.3%): |
| ||||||
21,820 | CVS Caremark Corp. | 2,101,485 | ||||||
14,770 | Walgreens Boots Alliance, Inc. | 1,125,474 | ||||||
21,455 | Wal-Mart Stores, Inc. | 1,842,555 | ||||||
|
| |||||||
5,069,514 | ||||||||
|
| |||||||
| Food Products (1.2%): |
| ||||||
14,175 | ConAgra Foods, Inc. | 514,269 | ||||||
13,445 | Kraft Foods Group, Inc. | 842,464 | ||||||
33,525 | Mondelez International, Inc., Class A | 1,217,795 | ||||||
|
| |||||||
2,574,528 | ||||||||
|
| |||||||
| Gas Utilities (0.3%): |
| ||||||
2,161 | AGL Resources, Inc. | 117,796 | ||||||
3,605 | National Fuel Gas Co. | 250,656 | ||||||
761 | ONE Gas, Inc. | 31,368 | ||||||
3,090 | WGL Holdings, Inc. | 168,776 | ||||||
|
| |||||||
568,596 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (2.2%): |
| ||||||
25,375 | Abbott Laboratories | 1,142,383 | ||||||
9,155 | Baxter International, Inc. | 670,970 | ||||||
35,295 | Boston Scientific Corp.* | 467,659 | ||||||
9,380 | Covidien plc | 959,385 | ||||||
620 | Intuitive Surgical, Inc.* | 327,943 | ||||||
18,185 | Medtronic, Inc. | 1,312,956 | ||||||
|
| |||||||
4,881,296 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Health Care Providers & Services (2.4%): |
| ||||||
8,584 | Aetna, Inc. | $ | 762,517 | |||||
4,430 | Anthem, Inc. | 556,718 | ||||||
12,425 | Express Scripts Holding Co.* | 1,052,025 | ||||||
4,355 | HCA Holdings, Inc.* | 319,613 | ||||||
4,120 | Patterson Cos., Inc. | 198,172 | ||||||
4,360 | Quest Diagnostics, Inc. | 292,382 | ||||||
14,835 | UnitedHealth Group, Inc. | 1,499,670 | ||||||
3,965 | Universal Health Services, Inc., Class B | 441,146 | ||||||
|
| |||||||
5,122,243 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.1%): |
| ||||||
6,770 | International Game Technology | 116,783 | ||||||
2,190 | Las Vegas Sands Corp. | 127,370 | ||||||
17,480 | McDonald’s Corp. | 1,637,876 | ||||||
2,945 | Melco Crown Entertainment, Ltd., Sponsored ADR | 74,803 | ||||||
14,555 | MGM Resorts International* | 311,186 | ||||||
1,852 | Restaurant Brands International, Inc.* | 72,310 | ||||||
12,505 | Wendy’s Co. (The) | 112,920 | ||||||
|
| |||||||
2,453,248 | ||||||||
|
| |||||||
| Household Durables (0.9%): |
| ||||||
13,305 | Leggett & Platt, Inc. | 566,927 | ||||||
14,735 | Newell Rubbermaid, Inc. | 561,256 | ||||||
9,100 | Toll Brothers, Inc.* | 311,857 | ||||||
1,085 | Tupperware Brands Corp. | 68,355 | ||||||
2,095 | Whirlpool Corp. | 405,885 | ||||||
|
| |||||||
1,914,280 | ||||||||
|
| |||||||
| Household Products (2.1%): |
| ||||||
14,265 | Colgate-Palmolive Co. | 986,995 | ||||||
5,820 | Kimberly-Clark Corp. | 672,443 | ||||||
32,295 | Procter & Gamble Co. (The) | 2,941,752 | ||||||
|
| |||||||
4,601,190 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.2%): |
| ||||||
12,125 | 3M Co. | 1,992,380 | ||||||
108,735 | General Electric Co. | 2,747,733 | ||||||
|
| |||||||
4,740,113 | ||||||||
|
| |||||||
| Insurance (3.0%): |
| ||||||
6,580 | AFLAC, Inc. | 401,972 | ||||||
12,325 | Allstate Corp. (The) | 865,831 | ||||||
19,390 | American International Group, Inc. | 1,086,034 | ||||||
6,685 | Aon plc | 633,938 | ||||||
6,020 | Arthur J. Gallagher & Co. | 283,422 | ||||||
7,165 | FNF Group | 246,834 | ||||||
9,580 | Lincoln National Corp. | 552,479 | ||||||
17,570 | Marsh & McLennan Cos., Inc. | 1,005,707 | ||||||
9,905 | Principal Financial Group, Inc. | 514,466 | ||||||
6,120 | Travelers Cos., Inc. (The) | 647,802 | ||||||
7,040 | XL Group plc, | 241,965 | ||||||
|
| |||||||
6,480,450 | ||||||||
|
|
Continued
5
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Internet & Catalog Retail (1.2%): |
| ||||||
5,155 | Amazon.com, Inc.* | $ | 1,599,854 | |||||
577 | Lands’ End, Inc.* | 31,135 | ||||||
810 | Priceline.com, Inc.* | 923,570 | ||||||
|
| |||||||
2,554,559 | ||||||||
|
| |||||||
| Internet Software & Services (3.9%): |
| ||||||
5,245 | Akamai Technologies, Inc.* | 330,225 | ||||||
690 | Baidu, Inc., Sponsored ADR* | 157,299 | ||||||
15,750 | eBay, Inc.* | 883,890 | ||||||
26,440 | Facebook, Inc., Class A* | 2,062,849 | ||||||
3,045 | Google, Inc., Class C* | 1,602,888 | ||||||
4,195 | Google, Inc., Class A* | 2,226,118 | ||||||
625 | LinkedIn Corp., Class A* | 143,569 | ||||||
6,285 | VeriSign, Inc.* | 358,245 | ||||||
14,415 | Yahoo!, Inc.* | 728,102 | ||||||
|
| |||||||
8,493,185 | ||||||||
|
| |||||||
| IT Services (3.2%): |
| ||||||
13,720 | Automatic Data Processing, Inc. | 1,143,836 | ||||||
5,915 | Broadridge Financial Solutions, Inc. | 273,155 | ||||||
11,935 | Cognizant Technology Solutions Corp., Class A* | 628,497 | ||||||
9,350 | Fidelity National Information Services, Inc. | 581,570 | ||||||
10,555 | International Business Machines Corp. | 1,693,444 | ||||||
12,770 | Paychex, Inc. | 589,591 | ||||||
7,000 | Visa, Inc., Class A | 1,835,400 | ||||||
15,190 | Western Union Co. | 272,053 | ||||||
|
| |||||||
7,017,546 | ||||||||
|
| |||||||
| Leisure Products (0.1%): |
| ||||||
10,305 | Mattel, Inc. | 318,888 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.1%): |
| ||||||
890 | Illumina, Inc.* | 164,276 | ||||||
|
| |||||||
| Machinery (2.1%): |
| ||||||
10,210 | Caterpillar, Inc. | 934,522 | ||||||
4,710 | Cummins, Inc. | 679,041 | ||||||
5,600 | Deere & Co. | 495,432 | ||||||
4,780 | Parker Hannifin Corp. | 616,381 | ||||||
5,649 | Pentair, Ltd. | 375,207 | ||||||
3,910 | Snap-On, Inc. | 534,653 | ||||||
2,595 | SPX Corp. | 222,962 | ||||||
5,980 | Stanley Black & Decker, Inc. | 574,558 | ||||||
3,225 | Timken Co. | 137,643 | ||||||
|
| |||||||
4,570,399 | ||||||||
|
| |||||||
| Media (3.7%): |
| ||||||
37,660 | Comcast Corp., Class A | 2,184,657 | ||||||
2,048 | Liberty Global plc, Series C* | 98,939 | ||||||
2,719 | Liberty Global plc, Class A* | 136,507 | ||||||
7,651 | News Corp., Class B* | 115,377 | ||||||
8,555 | Omnicom Group, Inc. | 662,756 | ||||||
78,395 | Sirius XM Holdings, Inc.* | 274,383 | ||||||
14,330 | Time Warner Cable, Inc. | 1,224,069 | ||||||
5,085 | Time Warner Cable, Inc. | 773,225 |
Shares | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Media, continued | |||||||
2,823 | Time, Inc. | $ | 69,474 | |||||
26,705 | Walt Disney Co. (The) | 2,515,343 | ||||||
|
| |||||||
8,054,730 | ||||||||
|
| |||||||
| Metals & Mining (0.6%): |
| ||||||
16,405 | Freeport-McMoRan Copper & Gold, Inc. | 383,221 | ||||||
10,475 | Nucor Corp. | 513,798 | ||||||
4,239 | Southern Copper Corp. | 119,540 | ||||||
12,760 | Steel Dynamics, Inc. | 251,882 | ||||||
1,587 | TimkenSteel Corp. | 58,767 | ||||||
2,295 | Worthington Industries, Inc. | 69,057 | ||||||
|
| |||||||
1,396,265 | ||||||||
|
| |||||||
| Multiline Retail (0.9%): |
| ||||||
8,295 | Macy’s, Inc. | 545,396 | ||||||
7,440 | Nordstrom, Inc. | 590,662 | ||||||
1,555 | Sears Holdings Corp.* | 51,284 | ||||||
9,105 | Target Corp. | 691,160 | ||||||
|
| |||||||
1,878,502 | ||||||||
|
| |||||||
| Multi-Utilities (1.5%): |
| ||||||
15,300 | Ameren Corp. | 705,789 | ||||||
24,020 | CenterPoint Energy, Inc. | 562,789 | ||||||
13,450 | Consolidated Edison, Inc. | 887,834 | ||||||
3,445 | Integrys Energy Group, Inc. | 268,193 | ||||||
21,100 | Public Service Enterprise Group, Inc. | 873,751 | ||||||
|
| |||||||
3,298,356 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (6.7%): |
| ||||||
5,698 | California Resources Corp.* | 31,396 | ||||||
6,020 | Cheniere Energy, Inc.* | 423,808 | ||||||
26,865 | Chevron Corp. | 3,013,716 | ||||||
5,190 | Concho Resources, Inc.* | 517,703 | ||||||
24,200 | ConocoPhillips | 1,671,252 | ||||||
10,740 | CONSOL Energy, Inc. | 363,119 | ||||||
11,550 | Continental Resources, Inc.* | 443,058 | ||||||
53,320 | Exxon Mobil Corp. | 4,929,433 | ||||||
4,730 | Gulfport Energy Corp.* | 197,430 | ||||||
14,235 | Occidental Petroleum Corp. | 1,147,483 | ||||||
6,730 | ONEOK, Inc. | 335,087 | ||||||
13,855 | Phillips 66 | 993,404 | ||||||
16,025 | Southwestern Energy Co.* | 437,322 | ||||||
970 | Statoil ASA, Sponsored ADR | 17,082 | ||||||
|
| |||||||
14,521,293 | ||||||||
|
| |||||||
| Personal Products (0.0%): |
| ||||||
1,145 | Herbalife, Ltd. | 43,167 | ||||||
|
| |||||||
| Pharmaceuticals (6.1%): |
| ||||||
22,000 | Abbvie, Inc. | 1,439,680 | ||||||
4,310 | Actavis, Inc. plc* | 1,109,437 | ||||||
23,360 | Bristol-Myers Squibb Co. | 1,378,941 | ||||||
15,725 | Eli Lilly & Co. | 1,084,868 | ||||||
470 | GlaxoSmithKline plc, Sponsored ADR | 20,088 | ||||||
35,325 | Johnson & Johnson Co. | 3,693,935 |
Continued
6
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Pharmaceuticals, continued | |||||||
36,580 | Merck & Co., Inc. | $ | 2,077,378 | |||||
77,080 | Pfizer, Inc. | 2,401,042 | ||||||
|
| |||||||
13,205,369 | ||||||||
|
| |||||||
| Professional Services (0.1%): |
| ||||||
2,080 | Dun & Bradstreet Corp. | 251,597 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.7%): |
| ||||||
16,980 | American Capital Agency Corp. | 370,673 | ||||||
28,500 | Annaly Capital Management, Inc. | 308,085 | ||||||
33,930 | Duke Realty Corp. | 685,386 | ||||||
7,895 | Hatteras Financial Corp. | 145,505 | ||||||
3,710 | Healthcare Realty Trust, Inc. | 101,357 | ||||||
11,610 | Liberty Property Trust | 436,884 | ||||||
10,190 | Mack-Cali Realty Corp. | 194,221 | ||||||
19,300 | Senior Housing Properties Trust | 426,723 | ||||||
13,363 | Ventas, Inc. | 958,128 | ||||||
|
| |||||||
3,626,962 | ||||||||
|
| |||||||
| Road & Rail (0.9%): |
| ||||||
3,700 | Avis Budget Group, Inc.* | 245,421 | ||||||
1,610 | Canadian Pacific Railway, Ltd. | 310,231 | ||||||
33,040 | CSX Corp. | 1,197,039 | ||||||
7,085 | Hertz Global Holdings, Inc.* | 176,700 | ||||||
|
| |||||||
1,929,391 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.7%): |
| ||||||
14,645 | Advanced Micro Devices, Inc.* | 39,102 | ||||||
7,810 | Altera Corp. | 288,501 | ||||||
4,965 | Analog Devices, Inc. | 275,657 | ||||||
25,740 | Applied Materials, Inc. | 641,441 | ||||||
58,720 | Intel Corp. | 2,130,949 | ||||||
8,210 | Linear Technology Corp. | 374,376 | ||||||
4,725 | Microchip Technology, Inc. | 213,145 | ||||||
14,630 | Micron Technology, Inc.* | 512,196 | ||||||
11,215 | NVIDIA Corp. | 224,861 | ||||||
2,435 | Skyworks Solutions, Inc. | 177,049 | ||||||
14,930 | Texas Instruments, Inc. | 798,232 | ||||||
6,355 | Xilinx, Inc. | 275,108 | ||||||
|
| |||||||
5,950,617 | ||||||||
|
| |||||||
| Software (3.7%): |
| ||||||
5,700 | Activision Blizzard, Inc. | 114,855 | ||||||
10,005 | Adobe Systems, Inc.* | 727,364 | ||||||
7,065 | Autodesk, Inc.* | 424,324 | ||||||
99,050 | Microsoft Corp. | 4,600,872 | ||||||
4,650 | Nuance Communications, Inc.* | 66,356 | ||||||
40,870 | Oracle Corp. | 1,837,923 | ||||||
14,155 | Symantec Corp. | 363,147 | ||||||
|
| |||||||
8,134,841 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks+, continued | |||||||
| Specialty Retail (2.6%): |
| ||||||
370 | Abercrombie & Fitch Co., Class A | $ | 10,597 | |||||
1,445 | American Eagle Outfitters, Inc. | 20,057 | ||||||
5,770 | Foot Locker, Inc. | 324,159 | ||||||
5,690 | Gap, Inc. (The) | 239,606 | ||||||
19,355 | Home Depot, Inc. (The) | 2,031,693 | ||||||
5,365 | L Brands, Inc. | 464,341 | ||||||
19,815 | Lowe’s Cos., Inc. | 1,363,272 | ||||||
4,325 | Tiffany & Co. | 462,170 | ||||||
10,045 | TJX Cos., Inc. (The) | 688,886 | ||||||
|
| |||||||
5,604,781 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (4.5%): |
| ||||||
71,700 | Apple, Inc. | 7,914,246 | ||||||
26,205 | EMC Corp. | 779,337 | ||||||
23,540 | Hewlett-Packard Co. | 944,660 | ||||||
5,525 | Seagate Technology plc | 367,413 | ||||||
|
| |||||||
10,005,656 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.2%): |
| ||||||
6,160 | Michael Kors Holdings, Ltd.* | 462,616 | ||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.1%): |
| ||||||
16,515 | New York Community Bancorp, Inc. | 264,240 | ||||||
|
| |||||||
| Tobacco (1.5%): |
| ||||||
30,040 | Altria Group, Inc. | 1,480,070 | ||||||
16,580 | Philip Morris International, Inc. | 1,350,441 | ||||||
6,625 | Reynolds American, Inc. | 425,789 | ||||||
3,522 | Vector Group, Ltd. | 75,054 | ||||||
|
| |||||||
3,331,354 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.1%): |
| ||||||
2,845 | GATX Corp. | 163,701 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.2%): |
| ||||||
3,590 | SBA Communications Corp., Class A* | 397,628 | ||||||
|
| |||||||
| Total Common Stocks (Cost $154,681,303) | 214,942,080 | ||||||
|
| |||||||
| Purchased Options (0.4%): |
| ||||||
| Total Purchased Options (Cost $1,371,118) | 828,073 | ||||||
|
| |||||||
| Unaffiliated Investment Company (2.9%): |
| ||||||
6,340,456 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(a) | 6,340,456 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $6,340,456) | 6,340,456 | ||||||
|
| |||||||
| Total Investment Securities (Cost $162,392,877)(b) — 102.0% | 222,110,609 | ||||||
| Net other assets (liabilities) — (2.0)% | (4,358,081 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 217,752,528 | |||||
|
|
Continued
7
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2014
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
+ | All or a portion of each common stock has been pledged as collateral for outstanding call options written. |
(a) | The rate represents the effective yield at December 31, 2014. |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Exchange-traded options purchased as of December 31, 2014 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
S&P 500 Index | Put | USD | 1800.00 | 01/16/15 | 188 | $ | 32,430 | |||||||||||||
S&P 500 Index | Put | USD | 1875.00 | 01/16/15 | 169 | 51,968 | ||||||||||||||
S&P 500 Index | Put | USD | 1950.00 | 01/16/15 | 98 | 62,230 | ||||||||||||||
S&P 500 Index | Put | USD | 1825.00 | 02/20/15 | 241 | 218,105 | ||||||||||||||
S&P 500 Index | Put | USD | 1850.00 | 02/20/15 | 163 | 171,965 | ||||||||||||||
S&P 500 Index | Put | USD | 1825.00 | 03/20/15 | 175 | 291,375 | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 828,073 | ||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2014 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
S&P 500 Index | Call | USD | 2060.00 | 01/02/15 | 116 | $ | (85,260 | ) | ||||||||||||
S&P 500 Index | Call | USD | 2090.00 | 01/09/15 | 93 | (42,315 | ) | |||||||||||||
S&P 500 Index | Call | USD | 2025.00 | 01/16/15 | 120 | (586,800 | ) | |||||||||||||
S&P 500 Index | Call | USD | 2000.00 | 01/16/15 | 130 | (904,800 | ) | |||||||||||||
S&P 500 Index | Call | USD | 2050.00 | 01/16/15 | 98 | (297,920 | ) | |||||||||||||
S&P 500 Index | Call | USD | 2025.00 | 02/20/15 | 233 | (1,523,820 | ) | |||||||||||||
S&P 500 Index | Call | USD | 2050.00 | 02/20/15 | 122 | (589,260 | ) | |||||||||||||
S&P 500 Index | Call | USD | 2075.00 | 02/20/15 | 122 | (407,480 | ) | |||||||||||||
|
| |||||||||||||||||||
Total | $ | (4,437,655 | ) | |||||||||||||||||
|
|
See accompanying notes to the financial statements.
8
AZL Gateway Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 162,392,877 | |||
|
| ||||
Investment securities, at value | $ | 222,110,609 | |||
Cash | 1,002 | ||||
Interest and dividends receivable | 307,104 | ||||
Reclaims receivable | 2,350 | ||||
Prepaid expenses | 1,837 | ||||
|
| ||||
Total Assets | 222,422,902 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 23,302 | ||||
Written Options (Premiums received $4,598,555) | 4,437,655 | ||||
Manager fees payable | 148,417 | ||||
Administration fees payable | 5,178 | ||||
Distribution fees payable | 46,380 | ||||
Custodian fees payable | 2,378 | ||||
Administrative and compliance services fees payable | 508 | ||||
Trustee fees payable | 10 | ||||
Other accrued liabilities | 6,546 | ||||
|
| ||||
Total Liabilities | 4,670,374 | ||||
|
| ||||
Net Assets | $ | 217,752,528 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 197,912,125 | |||
Accumulated net investment income/(loss) | 2,484,287 | ||||
Accumulated net realized gains/(losses) from investment transactions | (42,522,516 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 59,878,632 | ||||
|
| ||||
Net Assets | $ | 217,752,528 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 18,347,855 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.87 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 4,800,585 | |||
Foreign withholding tax | (1,294 | ) | |||
|
| ||||
Total Investment Income | 4,799,291 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,713,999 | ||||
Administration fees | 60,272 | ||||
Distribution fees | 535,624 | ||||
Custodian fees | 11,983 | ||||
Administrative and compliance services fees | 2,655 | ||||
Trustee fees | 10,299 | ||||
Professional fees | 11,280 | ||||
Shareholder reports | 5,822 | ||||
Other expenses | 4,809 | ||||
|
| ||||
Total expenses | 2,356,743 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,442,548 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 8,872,640 | ||||
Net realized gains/(losses) on options contracts | (19,332,201 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 14,315,683 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 3,856,122 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 6,298,670 | |||
|
|
See accompanying notes to the financial statements.
9
Statements of Changes in Net Assets
AZL Gateway Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,442,548 | $ | 2,574,178 | ||||||
Net realized gains/(losses) on investment transactions | (10,459,561 | ) | (28,154,431 | ) | ||||||
Change in unrealized appreciation/depreciation on investments | 14,315,683 | 40,871,485 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 6,298,670 | 15,291,232 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (2,524,790 | ) | (1,613,620 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (2,524,790 | ) | (1,613,620 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 27,031,916 | 48,460,939 | ||||||||
Proceeds from dividends reinvested | 2,524,790 | 1,613,620 | ||||||||
Value of shares redeemed | (27,741,916 | ) | (21,384,395 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 1,814,790 | 28,690,164 | ||||||||
|
|
|
| |||||||
Change in net assets | 5,588,670 | 42,367,776 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 212,163,858 | 169,796,082 | ||||||||
|
|
|
| |||||||
End of period | $ | 217,752,528 | $ | 212,163,858 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,484,287 | $ | 2,576,767 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 2,299,425 | 4,277,413 | ||||||||
Dividends reinvested | 212,703 | 142,798 | ||||||||
Shares redeemed | (2,377,336 | ) | (1,891,764 | ) | ||||||
|
|
|
| |||||||
Change in shares | 134,792 | 2,528,447 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
10
AZL Gateway Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | April 30, 2010 to December 31, 2010(a) | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.65 | $ | 10.83 | $ | 10.44 | $ | 10.13 | $ | 10.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.13 | 0.13 | 0.06 | 0.09 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.23 | 0.78 | 0.37 | 0.22 | 0.13 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.36 | 0.91 | 0.43 | 0.31 | 0.20 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.14 | ) | (0.09 | ) | (0.04 | ) | — | (0.07 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.14 | ) | (0.09 | ) | (0.04 | ) | — | (0.07 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 11.87 | $ | 11.65 | $ | 10.83 | $ | 10.44 | $ | 10.13 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 3.09 | % | 8.44 | % | 4.15 | % | 3.06 | % | 1.98 | %(c) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 217,753 | $ | 212,164 | $ | 169,796 | $ | 52,116 | $ | 16,217 | |||||||||||||||
Net Investment Income/(Loss)(d) | 1.14 | % | 1.35 | % | 1.74 | % | 1.37 | % | 1.38 | % | |||||||||||||||
Expenses Before Reductions(d)(e) | 1.10 | % | 1.11 | % | 1.14 | % | 1.25 | % | 1.59 | % | |||||||||||||||
Expenses Net of Reductions(d) | 1.10 | % | 1.10 | % | 1.11 | % | 1.24 | % | 1.25 | % | |||||||||||||||
Expense Net of Reductions, excluding Expense Paid Indirectly(d)(f) | 1.10 | % | 1.11 | % | 1.14 | % | 1.25 | % | 1.25 | % | |||||||||||||||
Portfolio Turnover Rate | 18 | % | 16 | % | 5 | % | 12 | % | 28 | %(c) |
(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. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions, if any. 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. |
See accompanying notes to the financial statements.
11
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Gateway Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
12
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2014
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. The Fund ceased participation in the program in June 2014.
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.
Options Contracts
The Fund may purchase or write put and call options on a security or an index of securities. During the year ended December 31, 2014, the Fund used purchased and written call options to hedge against security prices (equity risk). A stock index fluctuates with changes in the fair values of the stocks included in the index, and therefore options on stock indexes and options on stocks involve elements of equity price risk.
Purchased Options Contracts — The Fund pays a premium which is included in “Investments, 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 that 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. The Fund bears the risk of loss of the premium and change in value should the counterparty not perform under the contract.
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 that expire are treated as realized gains. Premiums received from writing options that are either exercised or closed are offset against the proceeds received or the amount paid on the transaction to determine realized gains or losses. The risk associated with writing an option is that the Fund bears the market risk of an unfavorable change in the price of an underlying asset and is required to buy or sell an underlying asset under the contractual terms of the option at a price different from the current value.
Realized gains and losses, if any, are reported as “Net realized gains/(losses) on options contracts” on the Statement of Operations.
The Fund had the following transactions in purchased call and put options during the year ended December 31, 2014:
Number of Contracts | Cost | |||||||||
Options outstanding at December 31, 2013 | 1,122 | $ | 941,255 | |||||||
Options purchased | 8,716 | 9,036,743 | ||||||||
Options exercised | — | — | ||||||||
Options expired | (552 | ) | (436,320 | ) | ||||||
Options closed | (8,252 | ) | (8,170,560 | ) | ||||||
|
|
|
| |||||||
Options outstanding at December 31, 2014 | 1,034 | $ | 1,371,118 | |||||||
|
|
|
|
The Fund had the following transactions in written call and put options during the year ended December 31, 2014:
Number of Contracts | Premiums Received | |||||||||
Options outstanding at December 31, 2013 | (1,122 | ) | $ | (3,078,945 | ) | |||||
Options written | (13,198 | ) | (37,759,070 | ) | ||||||
Options exercised | — | — | ||||||||
Options expired | 436 | 663,953 | ||||||||
Options closed | 12,850 | 35,575,507 | ||||||||
|
|
|
| |||||||
Options outstanding at December 31, 2014 | (1,034 | ) | $ | (4,598,555 | ) | |||||
|
|
|
|
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value | Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Investment securities, at value (purchased options) | $ | 828,073 | Written options | $ | 4,437,655 |
13
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Contracts | Net realized gains/(losses) on options contracts/Change in unrealized appreciation/depreciation on investments | $ | (19,332,201 | ) | $ | 3,309,051 |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $2,667 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
14
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2014
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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
Options are generally valued at the average of the closing bid and ask quotations on the principal exchange on which the option is traded, which are then typically categorized as Level 1 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. 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 214,942,080 | $ | — | $ | 214,942,080 | |||||||||
Purchased Options | 828,073 | — | 828,073 | ||||||||||||
Unaffiliated Investment Company | 6,340,456 | — | 6,340,456 | ||||||||||||
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Total Investment Securities | 222,110,609 | — | 222,110,609 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Written Options | 160,900 | — | 160,900 | ||||||||||||
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Total Investments | $ | 222,271,509 | $ | — | $ | 222,271,509 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as written options. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 39,140,979 | $ | 53,527,274 |
15
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2014
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $162,950,538. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 61,911,743 | ||
Unrealized depreciation | (2,751,672 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 59,160,071 | ||
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As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs subject to expiration:
Expires 12/31/2018 | |||||
AZL Gateway Fund | $ | 10,170 |
CLCFs not subject to expiration:
Short Term Amount | Long Term Amount | Total Amount | |||||||||||||
AZL Gateway Fund | $ | 22,222,306 | $ | 20,074,988 | $ | 42,297,294 |
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Gateway Fund | $ | 2,524,790 | $ | — | $ | 2,524,790 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Gateway Fund | $ | 1,613,620 | $ | — | $ | 1,613,620 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
16
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2014
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Gateway Fund | $ | 2,444,751 | $ | — | $ | (42,307,464 | ) | $ | 59,703,116 | $ | 19,840,403 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
18
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
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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
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
21
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
24
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
25
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® International Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 16
Statement of Operations
Page 16
Statements of Changes in Net Assets
Page 17
Financial Highlights
Page 18
Notes to the Financial Statements
Page 19
Report of Independent Registered Public Accounting Firm
Page 25
Other Information
Page 26
Approval of Investment Advisory and Subadvisory Agreements
Page 27
Information about the Board of Trustees and Officers
Page 30
This report is submitted for the general information of the shareholder 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.
AZL® International Index Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® International Index Fund returned -6.18%. That compared to a -4.48% total return for its benchmark, the MSCI EAFE Index1.
The Fund attempts to replicate the performance of the MSCI EAFE index, which tracks the performance of 21 international equity markets.
Equity markets in most countries represented in the index declined for the period in U.S. dollar terms. International stocks started the period on a negative note: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve would soon end its stimulus efforts all weighed on investors. Global equity markets declined sharply in January, but soon rebounded—particularly in Europe—on signs that the global economic recovery was strengthening and hopes that the European Central Bank (ECB) would soon take measures to combat very low inflation in the eurozone. The ECB eventually took aggressive action in June, moving to a negative deposit rate. The resulting rebound in equity markets came with an increase in volatility.
A combination of high valuations and persistent uncertainty about global central bank policies left equities vulnerable to bad news. Tensions between Russia and Ukraine weighed on global markets early in the period, while later geopolitical crises—including a ground war in Gaza, the downing of civilian airplane in the Ukraine, and Scotland’s flirtation with independence from the United Kingdom—added to concerns. These factors caused many investors to retreat from risk assets such as stocks.
U.S. economic growth strengthened considerably in the second half of 2014, even as the broader global economy showed signs of slowing. In Europe, most developed economies posted sluggish growth, while equity prices whipsawed under the influence of geopolitical turmoil and hopes for central bank stimulus. The eurozone faced dangerously low inflation rates, while the ongoing Russia-Ukraine crisis and Greece’s failure to successfully elect a new president drove volatility higher.
The impact of currency fluctuations was notable in Asia. Developed Asian economies performed well in local currency terms, but generated negative results on a U.S. dollar basis. The Japanese economy continued to struggle to find firm footing, even as the nation’s equity markets benefited from central bank stimulus. Strong corporate earnings helped push Japanese stocks higher, but the weakening of the yen against the U.S. dollar resulted in Japanese equities having the largest negative effect on the performance of the index.
Later in the year, the strengthening U.S. dollar put pressure on commodity prices. Oil prices in particular declined sharply as global supply fell out of balance with demand. Lower prices harmed oil-exporting economies, but most developed markets benefited from the resulting boost to consumer spending. On an absolute basis (in U.S. dollar terms), Israeli stocks generated the strongest returns for the year.
The Fund’s underperformance of its benchmark was primarily due to the Fund adjusting valuations of international securities to account for anticipated market movement, although fees and expenses also detracted. The Fund’s daily net asset value (NAV) is adjusted based on fair market values to avoid market timing by investors. Meanwhile, the benchmark’s NAV reflects local closing prices. The difference in timing between the close of domestic and international markets can create a short-term difference in performance that corrects itself when trading reopens the next day. Any difference does not impact long-term performance, but it can appear as tracking error when the difference occurs on the last day of the period.
Health care and utilities were the only sectors posting gains in U.S. dollar terms. Utilities shares benefited from the low-interest rate environment, as stocks in that sector offered attractive yields to income-seeking investors. Energy stocks fell due to the steep decline in oil prices, and had the greatest negative effect on the index’s performance. Shares in the materials sector also posted large losses amid falling prices in other commodities.*
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, 2014. |
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
AZL® International Index Fund Review (unaudited)
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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (5/1/09) | |||||||||||||
AZL® International Index Fund | -6.18 | % | 10.35 | % | 4.66 | % | 9.48 | % | ||||||||
MSCI EAFE Index (gross of withholding taxes) | -4.48 | % | 11.56 | % | 5.81 | % | 10.97 | % | ||||||||
MSCI EAFE Index (net of withholding taxes) | -4.90 | % | 11.06 | % | 5.33 | % | 10.48 | % |
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 | 0.76 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contact limiting operating expenses, excluding certain expenses (such as interest expense), to 0.77% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 |
AZL International Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL International Index Fund | $ | 1,000.00 | $ | 897.60 | $ | 3.54 | 0.74 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL International Index Fund | $ | 1,000.00 | $ | 1,021.48 | $ | 3.77 | 0.74 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Japan | 20.8 | % | |||
United Kingdom | 19.7 | ||||
Switzerland | 9.2 | ||||
Germany | 9.1 | ||||
France | 9.1 | ||||
Australia | 7.4 | ||||
Spain | 3.4 | ||||
Netherlands | 3.2 | ||||
Hong Kong | 3.1 | ||||
Sweden | 3.0 | ||||
All other countries | 10.6 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 98.6 | ||||
Rights | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 3.3 | ||||
Money Market | 0.3 | ||||
|
| ||||
Total Investment Securities | 102.2 | ||||
Net other assets (liabilities) | (2.2 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
3
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.0%): |
| ||||||
| Aerospace & Defense (0.9%): |
| ||||||
215,081 | BAE Systems plc | $ | 1,569,905 | |||||
76,147 | Cobham plc | 381,785 | ||||||
40,110 | European Aeronautic Defence & Space Co. NV | 1,991,916 | ||||||
29,968 | Finmeccanica SpA* | 278,221 | ||||||
56,599 | Meggitt plc | 452,360 | ||||||
131,047 | Rolls-Royce Holdings plc | 1,765,126 | ||||||
18,663 | Safran SA | 1,148,552 | ||||||
117,000 | Singapore Technologies Engineering, Ltd. | 299,621 | ||||||
6,454 | Thales SA | 348,191 | ||||||
13,420 | Zodiac Aerospace | 452,839 | ||||||
|
| |||||||
8,688,516 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.4%): |
| ||||||
34,900 | Bollore^ | 158,373 | ||||||
66,624 | Deutsche Post AG | 2,179,588 | ||||||
43,571 | Royal Mail plc | 290,099 | ||||||
32,834 | TNT Express NV^ | 218,118 | ||||||
43,939 | Toll Holdings, Ltd. | 209,082 | ||||||
24,800 | Yamato Holdings Co., Ltd. | 488,404 | ||||||
|
| |||||||
3,543,664 | ||||||||
|
| |||||||
| Airlines (0.2%): |
| ||||||
91,000 | All Nippon Airways Co., Ltd. | 224,023 | ||||||
89,000 | Cathay Pacific Airways, Ltd. | 193,682 | ||||||
16,758 | Deutsche Lufthansa AG, Registered Shares | 280,609 | ||||||
11,214 | easyJet plc | 289,414 | ||||||
69,322 | International Consolidated Airlines Group SA* | 513,057 | ||||||
8,470 | Japan Airlines Co., Ltd. | 247,455 | ||||||
39,055 | Qantas Airways, Ltd.* | 75,709 | ||||||
1,900 | Ryanair Holdings plc, ADR*^ | 135,413 | ||||||
39,000 | Singapore Airlines, Ltd. | 341,071 | ||||||
|
| |||||||
2,300,433 | ||||||||
|
| |||||||
| Auto Components (1.1%): |
| ||||||
12,700 | Aisin Sieki Co., Ltd. | 456,549 | ||||||
44,600 | Bridgestone Corp. | 1,550,147 | ||||||
12,753 | Compagnie Generale des Establissements Michelin SCA, Class B | 1,156,081 | ||||||
7,535 | Continental AG | 1,599,886 | ||||||
33,200 | DENSO Corp. | 1,547,564 | ||||||
115,141 | GKN plc | 610,653 | ||||||
6,600 | Koito Manufacturing Co., Ltd. | 201,331 | ||||||
12,000 | NGK Spark Plug Co., Ltd. | 362,428 | ||||||
9,600 | NHK SPRING Co., Ltd. | 83,771 | ||||||
7,000 | NOK Corp. | 177,812 | ||||||
8,587 | Nokian Renkaat OYJ^ | 210,303 | ||||||
15,275 | Pirelli & C. SpA | 205,117 | ||||||
9,000 | Stanley Electric Co., Ltd. | 194,568 | ||||||
13,500 | Sumitomo Rubber Industries, Ltd. | 201,034 | ||||||
15,000 | The Yokohama Rubber Co., Ltd.^ | 137,064 | ||||||
3,700 | Toyoda Gosei Co., Ltd. | 74,725 | ||||||
10,900 | Toyota Industries Corp. | 557,053 | ||||||
5,282 | Valeo SA | 657,833 | ||||||
|
| |||||||
9,983,919 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Automobiles (3.5%): |
| ||||||
22,972 | Bayerische Motoren Werke AG (BMW) | $ | 2,494,551 | |||||
12,000 | Daihatsu Motor Co., Ltd.^ | 157,433 | ||||||
66,273 | Daimler AG, Registered Shares | 5,528,542 | ||||||
60,814 | Fiat Chrysler Automobiles NV*^ | 697,785 | ||||||
40,200 | Fuji Heavy Industries, Ltd. | 1,415,882 | ||||||
112,500 | Honda Motor Co., Ltd. | 3,272,011 | ||||||
39,500 | Isuzu Motors, Ltd. | 482,005 | ||||||
37,600 | Mazda Motor Corp. | 902,706 | ||||||
42,800 | Mitsubishi Motors Corp. | 392,158 | ||||||
170,200 | Nissan Motor Co., Ltd. | 1,482,731 | ||||||
26,690 | PSA Peugeot Citroen SA* | 325,549 | ||||||
13,217 | Renault SA | 965,725 | ||||||
24,800 | Suzuki Motor Corp. | 745,637 | ||||||
188,100 | Toyota Motor Corp. | 11,731,981 | ||||||
2,081 | Volkswagen AG | 453,385 | ||||||
19,100 | Yamaha Motor Co., Ltd. | 384,192 | ||||||
|
| |||||||
31,432,273 | ||||||||
|
| |||||||
| Banks (13.5%): |
| ||||||
77,000 | Aozora Bank, Ltd. | 239,013 | ||||||
189,741 | Australia & New Zealand Banking Group, Ltd. | 4,934,484 | ||||||
299,489 | Banca Monte dei Paschi di Siena SpA* | 170,273 | ||||||
408,686 | Banco Bilbao Vizcaya Argentaria SA | 3,845,900 | ||||||
2,415,085 | Banco Commercial Portugues SA*^ | 189,889 | ||||||
241,519 | Banco de Sabadell SA | 632,643 | ||||||
23,948 | Banco Popolare SC* | 286,647 | ||||||
125,391 | Banco Popular Espanol SA | 620,773 | ||||||
850,642 | Banco Santander SA | 7,112,076 | ||||||
69,291 | Bank Hapoalim BM | 327,321 | ||||||
89,523 | Bank Leumi Le* | 307,620 | ||||||
87,600 | Bank of East Asia, Ltd. (The) | 351,395 | ||||||
1,884,536 | Bank of Ireland* | 701,692 | ||||||
26,000 | Bank of Kyoto, Ltd. (The) | 217,507 | ||||||
22,737 | Bank of Queensland, Ltd. | 224,633 | ||||||
2,163 | Bank of Queensland, Ltd.* | 21,370 | ||||||
82,000 | Bank of Yokohama, Ltd. (The) | 445,128 | ||||||
311,293 | Bankia SA* | 461,442 | ||||||
46,043 | Bankinter SA | 367,086 | ||||||
1,130,378 | Barclays plc | 4,249,137 | ||||||
29,210 | Bendigo and Adelaide Bank, Ltd. | 303,504 | ||||||
72,913 | BNP Paribas SA | 4,284,173 | ||||||
255,500 | BOC Hong Kong Holdings, Ltd. | 850,757 | ||||||
53,000 | Chiba Bank, Ltd. (The) | 347,912 | ||||||
12,700 | Chugoku Bank, Ltd. (The) | 173,439 | ||||||
226,030 | Chuo Mitsui Trust Holdings, Inc. | 862,761 | ||||||
67,383 | Commerzbank AG* | 895,058 | ||||||
111,591 | Commonwealth Bank of Australia | 7,748,127 | ||||||
70,657 | Credit Agricole SA | 908,237 | ||||||
156,625 | Criteria Caixacorp SA | 813,440 | ||||||
44,898 | Danske Bank A/S | 1,208,638 | ||||||
120,000 | DBS Group Holdings, Ltd. | 1,853,581 | ||||||
67,310 | DnB NOR ASA | 993,123 |
Continued
4
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Banks, continued |
| ||||||
18,715 | Erste Group Bank AG | $ | 429,018 | |||||
57,000 | Fukuoka Financial Group, Inc. | 294,338 | ||||||
26,000 | Gunma Bank, Ltd. (The) | 168,681 | ||||||
28,000 | Hachijuni Bank, Ltd. (The) | 180,264 | ||||||
53,000 | Hang Seng Bank, Ltd. | 881,349 | ||||||
33,000 | Hiroshima Bank, Ltd. (The) | 156,884 | ||||||
84,000 | Hokuhoku Financial Group, Inc. | 169,802 | ||||||
1,317,938 | HSBC Holdings plc | 12,453,616 | ||||||
60,208 | Intesa Sanpaolo | 148,185 | ||||||
803,775 | Intesa Sanpaolo SpA | 2,324,917 | ||||||
17,400 | Iyo Bank, Ltd. (The) | 188,635 | ||||||
45,000 | Joyo Bank, Ltd. (The) | 223,346 | ||||||
17,218 | KBC Groep NV | 955,495 | ||||||
3,930,243 | Lloyds Banking Group plc* | 4,640,525 | ||||||
877,700 | Mitsubishi UFJ Financial Group, Inc. | 4,811,602 | ||||||
8,445 | Mizrahi Tefahot Bank, Ltd.* | 88,726 | ||||||
1,588,639 | Mizuho Financial Group, Inc. | 2,669,834 | ||||||
162,842 | National Australia Bank, Ltd. | 4,435,914 | ||||||
66,332 | Natixis | 436,136 | ||||||
209,566 | Nordea Bank AB^ | 2,421,984 | ||||||
199,899 | Oversea-Chinese Banking Corp., Ltd. | 1,571,495 | ||||||
8,407 | Raiffeisen International Bank-Holding AG^ | 125,595 | ||||||
153,087 | Resona Holdings, Inc. | 772,776 | ||||||
173,570 | Royal Bank of Scotland Group plc* | 1,053,531 | ||||||
41,600 | Seven Bank, Ltd. | 175,114 | ||||||
103,000 | Shinsei Bank, Ltd. | 179,849 | ||||||
35,000 | Shizuoka Bank, Ltd. (The) | 320,201 | ||||||
103,532 | Skandinaviska Enskilda Banken AB, Class A | 1,310,494 | ||||||
49,992 | Societe Generale | 2,100,480 | ||||||
170,361 | Standard Chartered plc | 2,554,590 | ||||||
87,569 | Sumitomo Mitsui Financial Group, Inc. | 3,164,615 | ||||||
13,700 | Suruga Bank, Ltd. | 251,058 | ||||||
34,368 | Svenska Handelsbanken AB, A Shares | 1,605,797 | ||||||
61,767 | Swedbank AB, A Shares | 1,537,961 | ||||||
58,312 | UBI Banca – Unione di Banche Italiane SCPA | 415,037 | ||||||
300,005 | UniCredit SpA | 1,911,857 | ||||||
88,073 | United Overseas Bank, Ltd. | 1,628,711 | ||||||
213,995 | Westpac Banking Corp. | 5,751,574 | ||||||
15,000 | Yamaguchi Financial Group, Inc.^ | 154,554 | ||||||
|
| |||||||
111,613,319 | ||||||||
|
| |||||||
| Beverages (2.4%): |
| ||||||
55,346 | Anheuser-Busch InBev NV | 6,227,552 | ||||||
26,500 | Asahi Breweries, Ltd. | 818,092 | ||||||
7,581 | Carlsberg A/S, Class B | 588,817 | ||||||
41,751 | Coca-Cola Amatil, Ltd. | 315,872 | ||||||
13,540 | Coca-Cola HBC AG | 257,592 | ||||||
172,924 | Diageo plc | 4,959,048 | ||||||
7,264 | Heineken Holding NV | 455,272 | ||||||
15,792 | Heineken NV^ | 1,121,720 | ||||||
56,000 | Kirin Holdings Co., Ltd. | 693,796 | ||||||
14,487 | Pernod Ricard SA | 1,606,084 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Beverages, continued |
| ||||||
1,764 | Remy Cointreau SA | $ | 117,812 | |||||
66,675 | SABMiller plc | 3,450,160 | ||||||
9,100 | Suntory Beverage & Food, Ltd. | 314,255 | ||||||
46,255 | Treasury Wine Estates, Ltd. | 179,894 | ||||||
|
| |||||||
21,105,966 | ||||||||
|
| |||||||
| Biotechnology (0.4%): |
| ||||||
7,171 | Actelion, Ltd., Registered Shares | 825,252 | ||||||
32,479 | CSL, Ltd. | 2,286,321 | ||||||
10,048 | Grifols SA | 399,940 | ||||||
|
| |||||||
3,511,513 | ||||||||
|
| |||||||
| Building Products (0.6%): |
| ||||||
74,000 | Asahi Glass Co., Ltd.^ | 361,411 | ||||||
23,171 | Assa Abloy AB, Class B | 1,225,325 | ||||||
31,613 | Compagnie de Saint-Gobain SA | 1,330,727 | ||||||
16,400 | Daikin Industries, Ltd. | 1,057,932 | ||||||
2,607 | Geberit AG, Registered Shares | 886,213 | ||||||
18,300 | Lixil Group Corp. | 387,074 | ||||||
18,000 | TOTO, Ltd. | 209,397 | ||||||
|
| |||||||
5,458,079 | ||||||||
|
| |||||||
| Capital Markets (1.8%): |
| ||||||
69,769 | 3i Group plc | 484,822 | ||||||
60,954 | Aberdeen Asset Management plc | 407,070 | ||||||
105,107 | Credit Suisse Group AG | 2,635,704 | ||||||
117,300 | Daiwa Securities Group, Inc. | 913,640 | ||||||
95,028 | Deutsche Bank AG, Registered Shares | 2,871,953 | ||||||
38,492 | ICAP plc | 268,455 | ||||||
40,414 | Investec plc | 337,567 | ||||||
15,596 | Julius Baer Group, Ltd. | 711,939 | ||||||
20,082 | Macquarie Group, Ltd. | 947,611 | ||||||
43,892 | Mediobanca SpA | 355,339 | ||||||
248,300 | Nomura Holdings, Inc. | 1,413,208 | ||||||
1,256 | Partners Group Holding AG | 364,359 | ||||||
14,490 | SBI Holdings, Inc. | 157,366 | ||||||
8,833 | Schroders plc | 366,043 | ||||||
251,373 | UBS Group AG* | 4,322,331 | ||||||
|
| |||||||
16,557,407 | ||||||||
|
| |||||||
| Chemicals (3.5%): |
| ||||||
23,720 | Air Liquide SA | 2,926,430 | ||||||
10,000 | Air Water, Inc. | 158,552 | ||||||
16,633 | Akzo Nobel NV | 1,153,273 | ||||||
4,498 | Arkema, Inc. | 298,248 | ||||||
85,000 | Asahi Kasei Corp. | 779,102 | ||||||
63,219 | BASF SE | 5,343,503 | ||||||
9,085 | Croda International plc | 374,292 | ||||||
18,000 | Daicel Chemical Industries, Ltd. | 210,784 | ||||||
568 | Ems-Chemie Holding AG | 230,679 | ||||||
636 | Givaudan SA, Registered Shares | 1,137,547 | ||||||
6,600 | Hitachi Chemical Co., Ltd. | 116,934 | ||||||
123,366 | Incitec Pivot, Ltd. | 318,932 | ||||||
28,383 | Israel Chemicals, Ltd. | 205,057 |
Continued
5
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Chemicals, continued |
| ||||||
163 | Israel Corp., Ltd. (The)* | $ | 77,597 | |||||
14,211 | Johnson Matthey plc | 744,906 | ||||||
11,800 | JSR Corp. | 202,661 | ||||||
11,663 | K+S AG, Registered Shares^ | 323,831 | ||||||
23,000 | Kaneka Corp. | 123,694 | ||||||
16,000 | Kansai Paint Co., Ltd. | 247,315 | ||||||
12,193 | Koninklijke DSM NV | 741,325 | ||||||
22,300 | Kuraray Co., Ltd. | 254,287 | ||||||
6,273 | Lanxess AG | 291,806 | ||||||
12,682 | Linde AG | 2,365,164 | ||||||
90,000 | Mitsubishi Chemical Holdings Corp. | 438,347 | ||||||
25,000 | Mitsubishi Gas Chemical Co., Inc. | 125,608 | ||||||
56,000 | Mitsui Chemicals, Inc. | 159,094 | ||||||
12,000 | Nippon Paint Holdings Co., Ltd.^ | 348,364 | ||||||
11,100 | Nitto Denko Corp. | 620,855 | ||||||
16,112 | Novozymes A/S, B Shares | 676,119 | ||||||
24,762 | Orica, Ltd.^ | 379,403 | ||||||
28,200 | Shin-Etsu Chemical Co., Ltd. | 1,834,920 | ||||||
154 | Sika AG, Bearer Shares | 451,820 | ||||||
4,146 | Solvay SA | 560,023 | ||||||
101,000 | Sumitomo Chemical Co., Ltd. | 399,951 | ||||||
8,392 | Symrise AG | 508,863 | ||||||
6,434 | Syngenta AG, Registered Shares | 2,066,584 | ||||||
10,000 | Taiyo Nippon Sanso Corp.^ | 110,363 | ||||||
62,000 | Teijin, Ltd. | 165,140 | ||||||
101,000 | Toray Industries, Inc. | 809,042 | ||||||
7,101 | Umicore | 285,974 | ||||||
12,073 | Yara International ASA | 540,295 | ||||||
|
| |||||||
29,106,684 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.5%): |
| ||||||
17,509 | Aggreko plc | 407,882 | ||||||
16,312 | Babcock International Group plc | 266,847 | ||||||
105,428 | Brambles, Ltd. | 907,710 | ||||||
41,000 | Dai Nippon Printing Co., Ltd. | 370,095 | ||||||
13,832 | Edenred | 384,029 | ||||||
104,235 | G4S plc | 448,527 | ||||||
6,457 | ISS A/S* | 185,924 | ||||||
6,600 | Park24 Co., Ltd. | 97,210 | ||||||
14,300 | SECOM Co., Ltd. | 821,702 | ||||||
21,326 | Securitas AB, B Shares | 258,562 | ||||||
1,867 | Societe BIC SA | 247,748 | ||||||
37,000 | Toppan Printing Co., Ltd. | 240,913 | ||||||
|
| |||||||
4,637,149 | ||||||||
|
| |||||||
| Communications Equipment (0.7%): |
| ||||||
197,922 | Alcatel-Lucent* | 702,575 | ||||||
260,199 | Nokia OYJ | 2,047,662 | ||||||
209,976 | Telefonaktiebolaget LM Ericsson, B Shares | 2,544,687 | ||||||
|
| |||||||
5,294,924 | ||||||||
|
| |||||||
| Construction & Engineering (0.8%): |
| ||||||
11,849 | ACS, Actividades de Construccion y Servicios SA | 410,222 | ||||||
11,215 | Bouygues SA | 404,649 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Construction & Engineering, continued |
| ||||||
9,000 | Chiyoda Corp. | $ | 74,036 | |||||
28,141 | Ferrovial SA^ | 554,415 | ||||||
15,000 | JGC Corp. | 309,188 | ||||||
58,000 | Kajima Corp. | 239,744 | ||||||
5,932 | Koninklijke Boskalis Westminster NV | 324,273 | ||||||
6,904 | Leighton Holdings, Ltd. | 125,584 | ||||||
46,000 | Obayashi Corp. | 295,691 | ||||||
5,805 | OCI NV* | 201,441 | ||||||
38,000 | Shimizu Corp. | 258,793 | ||||||
26,975 | Skanska AB, B Shares | 577,072 | ||||||
69,000 | TAISEI Corp. | 392,831 | ||||||
33,719 | Vinci SA | 1,844,908 | ||||||
|
| |||||||
6,012,847 | ||||||||
|
| |||||||
| Construction Materials (0.6%): |
| ||||||
53,332 | Boral, Ltd. | 228,708 | ||||||
50,501 | CRH plc | 1,214,874 | ||||||
50,748 | Fletcher Building, Ltd. | 327,216 | ||||||
9,587 | HeidelbergCement AG | 681,922 | ||||||
15,755 | Holcim, Ltd., Registered Shares^ | 1,119,102 | ||||||
2,219 | Imerys SA | 163,619 | ||||||
29,548 | James Hardie Industries SE | 314,544 | ||||||
13,073 | Lafarge SA | 917,411 | ||||||
77,000 | Taiheiyo Cement Corp. | 242,335 | ||||||
|
| |||||||
5,209,731 | ||||||||
|
| |||||||
| Consumer Finance (0.1%): |
| ||||||
30,000 | ACOM Co., Ltd.*^ | 91,295 | ||||||
7,900 | Aeon Credit Service Co., Ltd.^ | 154,464 | ||||||
10,400 | Credit Saison Co., Ltd. | 193,532 | ||||||
|
| |||||||
439,291 | ||||||||
|
| |||||||
| Containers & Packaging (0.1%): |
| ||||||
84,320 | Amcor, Ltd. | 927,672 | ||||||
46,579 | Rexam plc | 327,424 | ||||||
9,800 | Toyo Seikan Kaisha, Ltd. | 120,918 | ||||||
|
| |||||||
1,376,014 | ||||||||
|
| |||||||
| Distributors (0.0%): |
| ||||||
7,000 | Jardine Cycle & Carriage, Ltd. | 224,829 | ||||||
386,000 | Li & Fung, Ltd. | 361,027 | ||||||
|
| |||||||
585,856 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.0%): |
| ||||||
4,900 | Benesse Holdings, Inc. | 145,582 | ||||||
|
| |||||||
| Diversified Financial Services (1.3%): |
| ||||||
13,974 | ASX, Ltd. | 417,017 | ||||||
13,471 | Deutsche Boerse AG | 965,272 | ||||||
2,685 | Eurazeo | 187,530 | ||||||
6,343 | EXOR SpA | 258,747 | ||||||
149,750 | First Pacific Co., Ltd. | 147,836 | ||||||
5,367 | Groupe Bruxelles Lambert SA | 456,771 | ||||||
15,821 | Hargreaves Lansdown plc | 246,646 | ||||||
70,900 | Hong Kong Exchanges & Clearing, Ltd. | 1,559,877 | ||||||
12,449 | Industrivarden AB, C Shares | 216,365 |
Continued
6
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Diversified Financial Services, continued |
| ||||||
266,243 | ING Groep NV* | $ | 3,446,802 | |||||
31,335 | Investor AB, B Shares | 1,136,309 | ||||||
17,300 | Japan Exchange Group, Inc. | 403,129 | ||||||
16,766 | Kinnevik Investment AB, Class B | 544,105 | ||||||
15,016 | London Stock Exchange Group plc | 515,832 | ||||||
34,700 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 164,003 | ||||||
89,900 | ORIX Corp. | 1,124,017 | ||||||
2,449 | Pargesa Holding SA | 188,712 | ||||||
54,000 | Singapore Exchange, Ltd. | 317,587 | ||||||
|
| |||||||
12,296,557 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (3.3%): |
| ||||||
10,188 | Belgacom SA | 368,862 | ||||||
142,170 | Bezeq The Israeli Telecommunication Corp., Ltd. | 253,170 | ||||||
560,832 | BT Group plc | 3,480,972 | ||||||
218,723 | Deutsche Telekom AG, Registered Shares | 3,505,336 | ||||||
9,694 | Elisa OYJ | 263,807 | ||||||
128,022 | France Telecom SA | 2,176,919 | ||||||
175,820 | HKT Trust & HKT, Ltd. | 228,789 | ||||||
1,876 | Iliad SA | 450,597 | ||||||
28,073 | Inmarsat plc | 347,851 | ||||||
222,344 | Koninklijke (Royal) KPN NV | 700,919 | ||||||
25,776 | Nippon Telegraph & Telephone Corp. | 1,326,603 | ||||||
277,000 | PCCW, Ltd. | 188,724 | ||||||
552,000 | Singapore Telecommunications, Ltd. | 1,620,751 | ||||||
1,605 | Swisscom AG, Registered Shares^ | 843,041 | ||||||
54,444 | TDC A/S | 414,976 | ||||||
125,177 | Telecom Corp. of New Zealand, Ltd. | 303,196 | ||||||
680,689 | Telecom Italia SpA^ | 721,799 | ||||||
433,869 | Telecom Italia SpA RSP | 362,600 | ||||||
37,982 | Telefonica Deutschland Holding AG | 202,817 | ||||||
289,990 | Telefonica SA | 4,147,514 | ||||||
3,471 | Telenet Group Holding NV* | 194,922 | ||||||
52,436 | Telenor ASA | 1,058,010 | ||||||
163,818 | TeliaSonera AB | 1,054,202 | ||||||
298,238 | Telstra Corp., Ltd. | 1,447,950 | ||||||
18,376 | TPG Telecom, Ltd. | 100,276 | ||||||
83,648 | Vivendi | 2,086,365 | ||||||
|
| |||||||
27,850,968 | ||||||||
|
| |||||||
| Electric Utilities (2.1%): |
| ||||||
114,914 | AusNet Services | 124,112 | ||||||
41,000 | Cheung Kong Infrastructure Holdings, Ltd. | 302,186 | ||||||
42,900 | Chubu Electric Power Co., Inc.* | 504,779 | ||||||
21,800 | Chugoku Electric Power Co., Inc. (The) | 285,535 | ||||||
131,000 | CLP Holdings, Ltd. | 1,134,355 | ||||||
29,786 | Contact Energy, Ltd. | 148,189 | ||||||
138,634 | E.ON AG | 2,380,337 | ||||||
161,507 | EDP – Energias de Portugal SA | 624,542 | ||||||
17,048 | Electricite de France | 468,063 | ||||||
456,327 | Enel SpA | 2,040,108 | ||||||
30,119 | Fortum OYJ | 650,777 | ||||||
11,200 | Hokuriku Electric Power Co. | 143,052 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Electric Utilities, continued |
| ||||||
94,000 | Hongkong Electric Holdings, Ltd. | $ | 908,196 | |||||
7,525 | Iberdrola SA | 50,596 | ||||||
350,122 | Iberdrola SA | 2,355,403 | ||||||
46,700 | Kansai Electric Power Co., Inc. (The)* | 444,365 | ||||||
28,700 | Kyushu Electric Power Co., Inc.*^ | 287,481 | ||||||
49,648 | Mighty River Power, Ltd. | 115,137 | ||||||
6,231 | Red Electrica Corporacion SA | 546,936 | ||||||
66,914 | Scottish & Southern Energy plc | 1,679,646 | ||||||
11,900 | Shikoku Electric Power Co., Inc.* | 144,282 | ||||||
102,361 | Terna – Rete Elettrica Nationale SpA | 463,650 | ||||||
31,000 | Tohoku Electric Power Co., Inc. | 360,170 | ||||||
98,600 | Tokyo Electric Power Co., Inc. (The)* | 401,850 | ||||||
|
| |||||||
16,563,747 | ||||||||
|
| |||||||
| Electrical Equipment (1.4%): |
| ||||||
151,373 | ABB, Ltd. | 3,202,762 | ||||||
14,320 | Alstom SA* | 461,887 | ||||||
37,000 | Fuji Electric Holdings Co., Ltd. | 147,625 | ||||||
17,924 | Legrand SA | 938,190 | ||||||
3,400 | Mabuchi Motor Co., Ltd. | 134,013 | ||||||
134,000 | Mitsubishi Electric Corp. | 1,595,675 | ||||||
15,000 | Nidec Corp. | 973,100 | ||||||
6,048 | Osram Licht AG* | 238,278 | ||||||
14,919 | Prysmian SpA | 271,512 | ||||||
36,156 | Schneider Electric SA^ | 2,626,850 | ||||||
53,200 | Sumitomo Electric Industries, Ltd. | 663,878 | ||||||
15,153 | Vestas Wind Systems A/S*^ | 547,496 | ||||||
|
| |||||||
11,801,266 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (1.4%): |
| ||||||
21,100 | Citizen Holdings Co., Ltd. | 162,356 | ||||||
31,500 | Fujifilm Holdings Corp. | 950,790 | ||||||
4,800 | Hamamatsu Photonics K.K. | 229,405 | ||||||
18,215 | Hexagon AB, B Shares | 563,668 | ||||||
2,300 | Hirose Electric Co., Ltd.^ | 267,802 | ||||||
5,200 | Hitachi High-Technologies Corp. | 150,062 | ||||||
336,100 | Hitachi, Ltd. | 2,459,742 | ||||||
29,400 | HOYA Corp. | 984,505 | ||||||
7,600 | IBIDEN Co., Ltd. | 111,708 | ||||||
23,600 | Japan Display, Inc.*^ | 72,196 | ||||||
3,070 | Keyence Corp. | 1,360,046 | ||||||
22,100 | Kyocera Corp. | 1,013,096 | ||||||
13,900 | Murata Manufacturing Co., Ltd. | 1,518,600 | ||||||
25,000 | Nippon Electric Glass Co., Ltd. | 112,720 | ||||||
14,400 | Omron Corp. | 645,522 | ||||||
19,796 | Rexel SA | 353,452 | ||||||
17,000 | Shimadzu Corp. | 173,039 | ||||||
8,400 | TDK Corp. | 495,008 | ||||||
17,100 | Yaskawa Electric Corp.^ | 218,765 | ||||||
15,100 | Yokogawa Electric Corp. | 166,246 | ||||||
|
| |||||||
12,008,728 | ||||||||
|
|
Continued
7
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Energy Equipment & Services (0.5%): |
| ||||||
26,412 | AMEC plc | $ | 345,636 | |||||
18,997 | Petrofac, Ltd. | 206,010 | ||||||
17,660 | Saipem SpA*^ | 185,449 | ||||||
27,844 | Seadrill, Ltd.^ | 320,742 | ||||||
18,110 | Subsea 7 SA^ | 184,808 | ||||||
7,375 | Technip-Coflexip SA | 440,336 | ||||||
33,584 | Tenaris SA | 507,212 | ||||||
24,064 | Transocean, Ltd.^ | 441,151 | ||||||
14,329 | WorleyParsons, Ltd. | 118,161 | ||||||
|
| |||||||
2,749,505 | ||||||||
|
| |||||||
| Food & Staples Retailing (1.6%): |
| ||||||
46,000 | Aeon Co., Ltd.^ | 463,087 | ||||||
42,908 | Carrefour SA | 1,303,478 | ||||||
3,732 | Casino Guichard-Perrachon SA | 343,393 | ||||||
4,894 | Colruyt SA | 226,905 | ||||||
6,919 | Delhaize Group | 502,550 | ||||||
41,668 | Distribuidora Internacional de Alimentacion SA | 280,141 | ||||||
3,700 | FamilyMart Co., Ltd. | 138,150 | ||||||
5,357 | ICA Gruppen AB | 209,816 | ||||||
82,141 | J Sainsbury plc | 312,241 | ||||||
15,701 | Jeronimo Martins SGPS SA | 157,355 | ||||||
60,657 | Koninklijke Ahold NV | 1,078,113 | ||||||
4,400 | LAWSON, Inc. | 266,105 | ||||||
57,202 | Metcash, Ltd. | 85,999 | ||||||
11,067 | Metro AG*^ | 338,792 | ||||||
51,400 | Seven & I Holdings Co., Ltd. | 1,854,345 | ||||||
564,438 | Tesco plc | 1,642,270 | ||||||
77,343 | Wesfarmers, Ltd. | 2,617,654 | ||||||
149,018 | William Morrison Supermarkets plc | 424,048 | ||||||
85,972 | Woolworths, Ltd. | 2,141,496 | ||||||
|
| |||||||
14,385,938 | ||||||||
|
| |||||||
| Food Products (4.0%): |
| ||||||
38,000 | Ajinomoto Co., Inc. | 704,248 | ||||||
6,188 | Aryzta AG | 475,614 | ||||||
24,458 | Associated British Foods plc | 1,188,162 | ||||||
146 | Barry Callebaut AG, Registered Shares | 149,575 | ||||||
5,300 | Calbee, Inc. | 182,990 | ||||||
39,887 | Danone SA | 2,623,715 | ||||||
458,382 | Golden Agri-Resources, Ltd. | 159,009 | ||||||
11,026 | Kerry Group plc, Class A | 760,661 | ||||||
10,000 | Kikkoman Corp. | 245,379 | ||||||
69 | Lindt & Spruengli AG | 340,741 | ||||||
7 | Lindt & Spruengli AG, Registered Shares | 401,897 | ||||||
4,126 | Meiji Holdings Co., Ltd. | 375,839 | ||||||
221,941 | Nestle SA, Registered Shares | 16,273,528 | ||||||
12,000 | Nippon Meat Packers, Inc. | 262,522 | ||||||
15,345 | Nisshin Seifun Group, Inc. | 148,707 | ||||||
4,100 | Nissin Foods Holdings Co., Ltd. | 196,239 | ||||||
31,089 | Tate & Lyle plc | 291,998 | ||||||
6,000 | Toyo Suisan Kaisha, Ltd. | 193,767 | ||||||
112,127 | Unilever NV | 4,404,135 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Food Products, continued |
| ||||||
88,377 | Unilever plc | $ | 3,589,499 | |||||
255,000 | WH Group, Ltd.* | 145,578 | ||||||
131,000 | Wilmar International, Ltd. | 319,656 | ||||||
6,000 | Yakult Honsha Co., Ltd.^ | 316,693 | ||||||
8,000 | Yamazaki Baking Co., Ltd.^ | 98,725 | ||||||
|
| |||||||
33,848,877 | ||||||||
|
| |||||||
| Gas Utilities (0.6%): |
| ||||||
75,257 | APA Group | 458,109 | ||||||
11,088 | Enagas | 350,925 | ||||||
23,534 | Gas Natural SDG SA | 591,971 | ||||||
438,829 | Hong Kong & China Gas Co., Ltd. | 999,350 | ||||||
127,000 | Osaka Gas Co., Ltd. | 474,755 | ||||||
135,981 | Snam Rete Gas SpA | 670,732 | ||||||
28,000 | Toho Gas Co., Ltd. | 137,240 | ||||||
161,000 | Tokyo Gas Co., Ltd. | 868,928 | ||||||
|
| |||||||
4,552,010 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.8%): |
| ||||||
3,915 | Cochlear, Ltd. | 247,027 | ||||||
7,790 | Coloplast A/S, Class B | 655,785 | ||||||
27,094 | Elekta AB, B Shares^ | 276,708 | ||||||
13,935 | Essilor International SA Cie Generale d’Optique | 1,551,014 | ||||||
13,459 | Getinge AB, B Shares | 305,908 | ||||||
16,900 | Olympus Co., Ltd.* | 595,586 | ||||||
61,772 | Smith & Nephew plc | 1,133,957 | ||||||
3,787 | Sonova Holding AG, Registered Shares | 555,316 | ||||||
9,600 | Sysmex Corp. | 425,958 | ||||||
20,100 | Terumo Corp. | 457,848 | ||||||
1,418 | William Demant Holding A/S*^ | 107,649 | ||||||
|
| |||||||
6,312,756 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.5%): |
| ||||||
10,800 | Alfresa Holdings Corp. | 130,544 | ||||||
3,756 | Celesio AG | 121,434 | ||||||
14,940 | Fresenius Medical Care AG & Co., KgaA | 1,117,990 | ||||||
26,360 | Fresenius SE & Co. KgaA | 1,376,360 | ||||||
78,492 | Healthscope, Ltd.* | 173,748 | ||||||
11,100 | Medipal Holdings Corp. | 128,925 | ||||||
4,300 | Miraca Holdings, Inc. | 185,338 | ||||||
8,808 | Ramsay Health Care, Ltd. | 408,336 | ||||||
29,544 | Ryman Healthcare, Ltd. | 196,071 | ||||||
27,471 | Sonic Healthcare, Ltd. | 412,447 | ||||||
4,700 | Suzuken Co., Ltd. | 129,916 | ||||||
|
| |||||||
4,381,109 | ||||||||
|
| |||||||
| Health Care Technology (0.0%): |
| ||||||
12,500 | M3, Inc.^ | 207,899 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.3%): |
| ||||||
11,993 | Accor SA | 537,297 | ||||||
12,228 | Carnival plc | 552,049 | ||||||
114,470 | Compass Group plc | 1,950,824 | ||||||
24,349 | Crown, Ltd. | 250,083 | ||||||
3,662 | Flight Centre, Ltd.^ | 96,833 |
Continued
8
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
158,000 | Galaxy Entertainment Group, Ltd. | $ | 879,629 | |||||
407,757 | Genting Singapore plc | 330,464 | ||||||
16,669 | InterContinental Hotels Group plc | 667,880 | ||||||
4,629 | McDonald’s Holdings Co., Ltd.^ | 101,285 | ||||||
35,141 | Merlin Entertainments plc | 216,920 | ||||||
60,400 | MGM China Holdings, Ltd. | 152,280 | ||||||
3,500 | Oriental Land Co., Ltd.^ | 802,753 | ||||||
169,300 | Sands China, Ltd. | 823,532 | ||||||
81,333 | Shangri-La Asia, Ltd. | 111,929 | ||||||
136,000 | SJM Holdings, Ltd. | 215,098 | ||||||
6,348 | Sodexo, Inc. | 622,344 | ||||||
49,758 | Tabcorp Holdings, Ltd. | 167,820 | ||||||
104,744 | Tatts Group, Ltd. | 294,602 | ||||||
30,714 | TUI AG* | 493,494 | ||||||
12,669 | Whitbread plc | 934,819 | ||||||
63,000 | William Hill plc | 354,242 | ||||||
103,600 | Wynn Macau, Ltd.^ | 288,855 | ||||||
|
| |||||||
10,845,032 | ||||||||
|
| |||||||
| Household Durables (0.8%): |
| ||||||
13,600 | Casio Computer Co., Ltd.^ | 208,893 | ||||||
16,240 | Electrolux AB, Series B | 476,817 | ||||||
26,794 | Husqvarna AB, B Shares | 197,183 | ||||||
10,800 | Iida Group Holdings Co., Ltd. | 131,188 | ||||||
150,400 | Panasonic Corp. | 1,767,296 | ||||||
21,578 | Persimmon plc | 527,775 | ||||||
2,300 | Rinnai Corp. | 154,901 | ||||||
31,000 | Sekisui Chemical Co., Ltd. | 373,256 | ||||||
39,600 | Sekisui House, Ltd.^ | 518,759 | ||||||
104,000 | Sharp Corp.*^ | 230,515 | ||||||
71,700 | Sony Corp. | 1,459,972 | ||||||
100,500 | Techtronic Industries Co., Ltd. | 322,107 | ||||||
|
| |||||||
6,368,662 | ||||||||
|
| |||||||
| Household Products (0.6%): |
| ||||||
7,926 | Henkel AG & Co. KgaA | 771,706 | ||||||
44,761 | Reckitt Benckiser Group plc | 3,610,488 | ||||||
26,500 | Unicharm Corp. | 637,819 | ||||||
|
| |||||||
5,020,013 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.0%): |
| ||||||
7,700 | Electric Power Development Co., Ltd. | 260,672 | ||||||
122,358 | Enel Green Power SpA | 254,190 | ||||||
88,932 | Meridian Energy, Ltd. | 121,891 | ||||||
|
| |||||||
636,753 | ||||||||
|
| |||||||
| Industrial Conglomerates (1.4%): |
| ||||||
329 | Delek Group, Ltd. | 82,690 | ||||||
77,000 | Hankyu Hanshin Holdings, Inc. | 414,330 | ||||||
146,000 | Hutchison Whampoa, Ltd. | 1,671,679 | ||||||
35,000 | Keihan Electric Railway Co., Ltd.^ | 186,963 | ||||||
98,200 | Keppel Corp., Ltd. | 655,429 | ||||||
66,266 | Koninklijke Philips Electronics NV | 1,923,816 | ||||||
105,390 | NWS Holdings, Ltd. | 193,297 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Industrial Conglomerates, continued |
| ||||||
55,283 | Orkla ASA | $ | 377,027 | |||||
7,500 | Seibu Holdings, Inc.^ | 153,040 | ||||||
63,000 | SembCorp Industries, Ltd. | 211,325 | ||||||
54,574 | Siemens AG, Registered Shares | 6,188,515 | ||||||
26,718 | Smiths Group plc | 452,149 | ||||||
2,053 | Wendel | 229,414 | ||||||
|
| |||||||
12,739,674 | ||||||||
|
| |||||||
| Insurance (5.6%): |
| ||||||
13,109 | Admiral Group plc | 268,422 | ||||||
126,896 | AEGON NV | 951,988 | ||||||
15,076 | Ageas NV | 534,588 | ||||||
829,000 | AIA Group, Ltd. | 4,565,358 | ||||||
30,734 | Allianz SE, Registered Shares + | 5,105,962 | ||||||
206,349 | AMP, Ltd. | 918,028 | ||||||
80,397 | Assicurazioni Generali SpA | 1,642,754 | ||||||
200,374 | Aviva plc | 1,501,252 | ||||||
125,768 | AXA SA | 2,904,461 | ||||||
3,163 | Baloise Holding AG, Registered Shares | 404,086 | ||||||
11,102 | CNP Assurances | 196,569 | ||||||
74,500 | Dai-ichi Life Insurance Co., Ltd. (The) | 1,130,705 | ||||||
13,649 | Delta Lloyd NV | 299,939 | ||||||
100,611 | Direct Line Insurance Group plc | 453,732 | ||||||
14,068 | Gjensidige Forsikring ASA | 229,306 | ||||||
4,189 | Hannover Rueckversicherung AG, Registered Shares | 379,926 | ||||||
164,881 | Insurance Australia Group, Ltd. | 835,727 | ||||||
406,290 | Legal & General Group plc | 1,560,295 | ||||||
63,211 | Mapfre SA^ | 212,842 | ||||||
185,079 | Medibank Private, Ltd.* | 364,058 | ||||||
35,311 | MS&AD Insurance Group Holdings, Inc. | 838,842 | ||||||
11,910 | Muenchener Rueckversicherungs-Gesellschaft AG | 2,385,788 | ||||||
22,425 | NKSJ Holdings, Inc. | 563,635 | ||||||
8,431 | NN Group NV*^ | 251,193 | ||||||
339,678 | Old Mutual plc | 998,842 | ||||||
176,656 | Prudential plc | 4,064,735 | ||||||
93,865 | QBE Insurance Group, Ltd. | 851,185 | ||||||
100,978 | Resolution, Ltd. | 570,826 | ||||||
72,460 | RSA Insurance Group plc* | 487,588 | ||||||
30,648 | Sampo OYJ, A Shares | 1,436,902 | ||||||
10,667 | SCOR SE | 322,775 | ||||||
13,900 | Sony Financial Holdings, Inc. | 205,004 | ||||||
164,480 | Standard Life plc | 1,013,142 | ||||||
88,880 | Suncorp-Metway, Ltd. | 1,012,553 | ||||||
2,177 | Swiss Life Holding AG, Registered Shares | 514,611 | ||||||
24,246 | Swiss Re AG | 2,029,355 | ||||||
38,336 | T&D Holdings, Inc. | 461,274 | ||||||
47,200 | Tokio Marine Holdings, Inc. | 1,533,063 | ||||||
1,487 | Tryg A/S | 166,285 | ||||||
69,878 | UnipolSai SpA | 187,221 | ||||||
2,681 | Vienna Insurance Group Weiner Staeditische Versicherung AG^ | 119,317 |
Continued
9
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Insurance, continued |
| ||||||
10,287 | Zurich Insurance Group AG | $ | 3,222,273 | |||||
|
| |||||||
47,696,407 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.1%): |
| ||||||
55,600 | Rakuten, Inc. | 774,226 | ||||||
|
| |||||||
| Internet Software & Services (0.1%): |
| ||||||
11,400 | Kakaku.com, Inc. | 163,924 | ||||||
2,600 | mixi, Inc.^ | 97,051 | ||||||
8,224 | United Internet AG, Registered Shares | 372,898 | ||||||
95,500 | Yahoo! Japan Corp.^ | 344,660 | ||||||
|
| |||||||
978,533 | ||||||||
|
| |||||||
| IT Services (0.3%): |
| ||||||
29,736 | Amadeus IT Holding SA | 1,181,486 | ||||||
5,688 | Atos Origin SA | 450,055 | ||||||
9,987 | Cap Gemini SA | 711,270 | ||||||
34,820 | Computershare, Ltd. | 332,928 | ||||||
1,200 | Itochu Techno-Solutions Corp. | 42,528 | ||||||
7,200 | Nomura Research Institute, Ltd. | 221,120 | ||||||
8,600 | NTT Data Corp. | 321,539 | ||||||
2,700 | Otsuka Corp. | 85,462 | ||||||
|
| |||||||
3,346,388 | ||||||||
|
| |||||||
| Leisure Products (0.2%): |
| ||||||
11,400 | Namco Bandai Holdings, Inc. | 242,010 | ||||||
23,100 | Nikon Corp. | 306,774 | ||||||
3,200 | Sankyo Co., Ltd. | 110,304 | ||||||
11,700 | Sega Sammy Holdings, Inc. | 150,129 | ||||||
5,300 | Shimano, Inc. | 685,670 | ||||||
11,800 | Yamaha Corp. | 175,298 | ||||||
|
| |||||||
1,670,185 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): |
| ||||||
3,538 | Lonza Group AG, Registered Shares | 398,843 | ||||||
15,784 | QIAGEN NV* | 369,588 | ||||||
|
| |||||||
768,431 | ||||||||
|
| |||||||
| Machinery (2.5%): |
| ||||||
21,201 | Alfa Laval AB^ | 401,363 | ||||||
23,000 | AMADA Co., Ltd. | 197,231 | ||||||
4,684 | Andritz AG | 257,385 | ||||||
27,394 | Atlas Copco AB, B Shares | 702,404 | ||||||
46,809 | Atlas Copco AB, A Shares | 1,303,891 | ||||||
67,292 | CNH Industrial NV | 542,404 | ||||||
13,300 | Fanuc, Ltd. | 2,195,381 | ||||||
12,900 | GEA Group AG^ | 571,104 | ||||||
17,500 | Hino Motors, Ltd. | 228,974 | ||||||
6,900 | Hitachi Construction Machinery Co., Ltd. | 146,317 | ||||||
100,000 | IHI Corp. | 507,818 | ||||||
19,581 | IMI plc | 383,275 | ||||||
13,200 | JTEKT Corp. | 223,605 | ||||||
96,000 | Kawasaki Heavy Industries, Ltd. | 438,476 | ||||||
64,100 | Komatsu, Ltd. | 1,421,304 | ||||||
21,883 | Kone OYJ, B Shares^ | 993,775 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Machinery, continued |
| ||||||
77,000 | Kubota Corp. | $ | 1,118,323 | |||||
8,300 | Kurita Water Industries, Ltd. | 173,427 | ||||||
8,600 | Makita Corp. | 389,160 | ||||||
2,458 | MAN AG | 274,102 | ||||||
72,910 | Melrose Industries plc | 299,965 | ||||||
7,570 | Metso Corp. OYJ | 225,754 | ||||||
21,000 | Minebea Co., Ltd. | 307,427 | ||||||
209,000 | Mitsubishi Heavy Industries, Ltd. | 1,155,790 | ||||||
7,900 | Nabtesco Corp. | 189,689 | ||||||
18,000 | NGK Insulators, Ltd. | 370,778 | ||||||
34,000 | NSK, Ltd. | 402,744 | ||||||
72,307 | Sandvik AB | 704,496 | ||||||
1,465 | Schindler Holding AG, Registered Shares | 210,184 | ||||||
3,061 | Schindler Holding AG^ | 441,814 | ||||||
66,000 | SembCorp Marine, Ltd.^ | 162,621 | ||||||
26,798 | SKF AB, B Shares | 564,121 | ||||||
3,800 | SMC Corp. | 989,712 | ||||||
1,669 | Sulzer AG, Registered Shares | 177,363 | ||||||
37,000 | Sumitomo Heavy Industries, Ltd. | 198,874 | ||||||
7,200 | THK Co., Ltd. | 173,862 | ||||||
6,864 | Vallourec SA | 187,411 | ||||||
105,749 | Volvo AB, B Shares | 1,142,827 | ||||||
9,900 | Wartsila Corp. OYJ^ | 444,201 | ||||||
15,272 | Weir Group plc (The) | 437,060 | ||||||
134,250 | Yangzijiang Shipbuilding Holdings, Ltd. | 121,956 | ||||||
12,422 | Zardoya Otis SA | 137,449 | ||||||
|
| |||||||
21,515,817 | ||||||||
|
| |||||||
| Marine (0.4%): |
| ||||||
485 | A.P. Moeller – Maersk A/S, Class B | 964,219 | ||||||
270 | A.P. Moller – Maersk A/S, Class A | 516,701 | ||||||
3,866 | Kuehne & Nagel International AG, Registered Shares | 525,669 | ||||||
70,000 | Mitsui O.S.K. Lines, Ltd. | 207,965 | ||||||
116,000 | Nippon Yusen Kabushiki Kaisha | 328,155 | ||||||
|
| |||||||
2,542,709 | ||||||||
|
| |||||||
| Media (1.5%): |
| ||||||
6,203 | Altice SA* | 489,432 | ||||||
2,825 | Axel Springer AG^ | 170,352 | ||||||
72,482 | British Sky Broadcasting Group plc | 1,008,697 | ||||||
15,177 | Dentsu, Inc. | 638,808 | ||||||
10,353 | Eutelsat Communications SA | 334,646 | ||||||
15,400 | Hakuhodo DY Holdings, Inc. | 147,633 | ||||||
265,562 | ITV plc | 884,575 | ||||||
4,332 | JC Decaux SA | 148,740 | ||||||
1,514 | Kabel Deutschland Holding AG* | 205,870 | ||||||
8,346 | Lagardere S.C.A. | 216,580 | ||||||
6,471 | Numericable-SFR* | 319,049 | ||||||
57,072 | Pearson plc | 1,049,723 | ||||||
14,837 | ProSiebenSat.1 Media AG, Registered Share | 624,992 | ||||||
12,723 | Publicis Groupe | 911,154 | ||||||
3,720 | REA Group, Ltd. | 136,639 |
Continued
10
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Media, continued |
| ||||||
47,536 | Reed Elsevier NV | $ | 1,135,916 | |||||
78,408 | Reed Elsevier plc | 1,333,823 | ||||||
2,665 | RTL Group | 253,223 | ||||||
20,594 | SES, Class A | 738,641 | ||||||
98,768 | Singapore Press Holdings, Ltd.^ | 313,814 | ||||||
7,400 | Toho Co., Ltd. | 167,937 | ||||||
21,220 | Wolters Kluwer NV | 647,890 | ||||||
91,077 | WPP plc | 1,889,268 | ||||||
|
| |||||||
13,767,402 | ||||||||
|
| |||||||
| Metals & Mining (3.1%): |
| ||||||
167,224 | Alumina, Ltd.* | 242,272 | ||||||
95,219 | Anglo American plc | 1,761,520 | ||||||
27,562 | Antofagasta plc | 319,963 | ||||||
70,168 | ArcelorMittal^ | 759,916 | ||||||
145,391 | BHP Billiton plc | 3,109,504 | ||||||
221,063 | BHP Billiton, Ltd. | 5,244,222 | ||||||
19,830 | Boliden AB | 316,161 | ||||||
101,346 | Fortescue Metals Group, Ltd.^ | 223,280 | ||||||
14,577 | Fresnillo plc | 172,961 | ||||||
732,381 | Glencore International plc | 3,370,550 | ||||||
15,000 | Hitachi Metals, Ltd. | 255,489 | ||||||
27,328 | Iluka Resources, Ltd. | 131,338 | ||||||
34,600 | JFE Holdings, Inc. | 770,272 | ||||||
203,000 | Kobe Steel, Ltd. | 351,216 | ||||||
2,600 | Maruichi Steel Tube, Ltd.^ | 55,396 | ||||||
83,000 | Mitsubishi Materials Corp. | 275,957 | ||||||
54,054 | Newcrest Mining, Ltd.* | 481,214 | ||||||
520,480 | Nippon Steel Corp. | 1,291,898 | ||||||
90,109 | Norsk Hydro ASA | 507,156 | ||||||
5,847 | Randgold Resources, Ltd. | 395,566 | ||||||
87,589 | Rio Tinto plc | 4,034,952 | ||||||
29,861 | Rio Tinto, Ltd. | 1,400,354 | ||||||
36,000 | Sumitomo Metal & Mining Co., Ltd. | 537,276 | ||||||
31,516 | ThyssenKrupp AG* | 810,512 | ||||||
7,663 | Voestalpine AG | 302,045 | ||||||
2,900 | Yamato Kogyo Co., Ltd. | 81,547 | ||||||
|
| |||||||
27,202,537 | ||||||||
|
| |||||||
| Multiline Retail (0.4%): |
| ||||||
4,000 | Don Quijote Co., Ltd. | 273,262 | ||||||
37,408 | Harvey Norman Holdings, Ltd.^ | 101,978 | ||||||
22,200 | Isetan Mitsukoshi Holdings, Ltd. | 272,201 | ||||||
16,100 | J. Front Retailing Co., Ltd. | 187,521 | ||||||
112,307 | Marks & Spencer Group plc | 829,088 | ||||||
14,500 | MARUI GROUP Co., Ltd. | 131,158 | ||||||
10,579 | Next plc | 1,115,692 | ||||||
5,241 | Pinault Printemps Redoute | 1,007,503 | ||||||
18,000 | Takashimaya Co., Ltd. | 144,382 | ||||||
|
| |||||||
4,062,785 | ||||||||
|
| |||||||
| Multi-Utilities (1.2%): |
| ||||||
47,896 | AGL Energy, Ltd. | 520,551 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Multi-Utilities, continued |
| ||||||
343,426 | Centrica plc | $ | 1,477,910 | |||||
100,263 | GDF Suez | 2,341,395 | ||||||
259,620 | National Grid plc | 3,700,642 | ||||||
33,570 | RWE AG | 1,050,882 | ||||||
19,522 | Suez Environnement Co. | 338,379 | ||||||
28,666 | Veolia Environnement | 509,006 | ||||||
|
| |||||||
9,938,765 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (5.2%): |
| ||||||
235,489 | BG Group plc | 3,134,145 | ||||||
1,267,967 | BP plc | 8,050,271 | ||||||
9,550 | Caltex Australia, Ltd. | 264,207 | ||||||
175,823 | Eni SpA | 3,070,422 | ||||||
4,512 | Fuchs Petrolub AG^ | 181,697 | ||||||
26,084 | Galp Energia SGPS SA | 263,859 | ||||||
6,000 | Idemitsu Kosan Co., Ltd. | 99,436 | ||||||
59,300 | INPEX Corp. | 658,064 | ||||||
159,770 | JX Holdings, Inc. | 622,550 | ||||||
13,881 | Lundin Petroleum AB*^ | 198,617 | ||||||
8,464 | Neste Oil OYJ | 205,066 | ||||||
10,104 | OMV AG | 267,337 | ||||||
77,079 | Origin Energy, Ltd. | 727,221 | ||||||
68,846 | Repsol YPF SA | 1,279,569 | ||||||
271,363 | Royal Dutch Shell plc, A Shares | 8,993,626 | ||||||
167,972 | Royal Dutch Shell plc, B Shares | 5,769,789 | ||||||
65,620 | Santos, Ltd. | 443,239 | ||||||
11,800 | Showa Shell Sekiyu K.K.^ | 116,316 | ||||||
76,852 | Statoil ASA | 1,347,710 | ||||||
19,000 | TonenGeneral Sekiyu K.K. | 162,447 | ||||||
147,325 | Total SA | 7,595,063 | ||||||
59,861 | Tullow Oil plc | 378,710 | ||||||
50,694 | Woodside Petroleum, Ltd. | 1,575,594 | ||||||
|
| |||||||
45,404,955 | ||||||||
|
| |||||||
| Paper & Forest Products (0.2%): |
| ||||||
61,000 | Oji Paper Co., Ltd. | 218,942 | ||||||
36,657 | Stora Enso OYJ, R Shares^ | 326,249 | ||||||
40,555 | Svenska Cellulosa AB, B Shares | 876,406 | ||||||
37,305 | UPM-Kymmene OYJ | 612,501 | ||||||
|
| |||||||
2,034,098 | ||||||||
|
| |||||||
| Personal Products (0.6%): |
| ||||||
6,870 | Beiersdorf AG^ | 560,268 | ||||||
35,500 | Kao Corp. | 1,400,694 | ||||||
17,303 | L’Oreal SA | 2,904,606 | ||||||
24,700 | Shiseido Co., Ltd. | 345,942 | ||||||
|
| |||||||
5,211,510 | ||||||||
|
| |||||||
| Pharmaceuticals (9.3%): |
| ||||||
146,500 | Astellas Pharma, Inc. | 2,039,270 | ||||||
86,902 | AstraZeneca plc | 6,112,426 | ||||||
56,916 | Bayer AG | 7,780,031 | ||||||
14,900 | Chugai Pharmaceutical Co., Ltd. | 366,330 | ||||||
45,000 | Daiichi Sankyo Co., Ltd. | 629,227 |
Continued
11
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Pharmaceuticals, continued |
| ||||||
10,500 | Dainippon Sumitomo Pharma Co., Ltd. | $ | 102,074 | |||||
17,600 | Eisai Co., Ltd.^ | 682,076 | ||||||
333,782 | GlaxoSmithKline plc | 7,140,403 | ||||||
3,900 | Hisamitsu Pharmaceutical Co., Inc. | 122,454 | ||||||
15,000 | Kyowa Hakko Kogyo Co., Ltd. | 141,221 | ||||||
8,990 | Merck KGaA | 852,740 | ||||||
15,200 | Mitsubishi Tanabe Pharma Corp. | 222,779 | ||||||
158,312 | Novartis AG, Registered Shares | 14,563,950 | ||||||
138,136 | Novo Nordisk A/S, B Shares | 5,845,848 | ||||||
5,700 | Ono Pharmaceutical Co., Ltd. | 505,173 | ||||||
6,800 | Orion OYJ, Class B^ | 211,077 | ||||||
27,400 | Otsuka Holdings Co., Ltd. | 821,916 | ||||||
48,353 | Roche Holding AG | 13,109,575 | ||||||
81,853 | Sanofi-Aventis SA | 7,458,864 | ||||||
5,200 | Santen Pharmaceutical Co., Ltd. | 278,329 | ||||||
21,300 | Shionogi & Co., Ltd. | 551,877 | ||||||
40,585 | Shire plc | 2,871,168 | ||||||
2,100 | Taisho Pharmaceutical Holdings Co., Ltd. | 128,128 | ||||||
54,600 | Takeda Pharmacuetical Co., Ltd. | 2,266,044 | ||||||
58,985 | Teva Pharmaceutical Industries, Ltd. | 3,394,418 | ||||||
8,882 | UCB SA | 673,977 | ||||||
|
| |||||||
78,871,375 | ||||||||
|
| |||||||
| Professional Services (0.4%): |
| ||||||
11,833 | Adecco SA, Registered Shares^ | 810,852 | ||||||
27,668 | ALS, Ltd.^ | 119,693 | ||||||
14,704 | Bureau Veritas SA | 324,651 | ||||||
46,010 | Capita Group plc | 770,995 | ||||||
67,852 | Experian plc | 1,144,368 | ||||||
10,611 | Intertek Group plc | 384,589 | ||||||
8,289 | Randstad Holding NV^ | 398,584 | ||||||
9,400 | Recruit Holdings Co., Ltd.*^ | 266,172 | ||||||
371 | SGS SA, Registered Shares^ | 756,676 | ||||||
|
| |||||||
4,976,580 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.6%): |
| ||||||
133,000 | Ascendas Real Estate Investment Trust | 238,804 | ||||||
67,767 | British Land Co. plc | 813,990 | ||||||
135,000 | CapitaCommercial Trust | 178,746 | ||||||
157,000 | CapitaMall Trust | 241,646 | ||||||
4,842 | Corio NV | 236,274 | ||||||
62,079 | Dexus Property Group | 350,954 | ||||||
94,343 | Federation Centres | 219,517 | ||||||
2,139 | Fonciere des Regions SA | 197,909 | ||||||
2,110 | Gecina SA | 264,053 | ||||||
115,163 | GPT Group | 406,767 | ||||||
53,325 | Hammerson plc | 498,341 | ||||||
2,354 | ICADE | 188,472 | ||||||
52 | Japan Prime Realty Investment Corp. | 180,551 | ||||||
84 | Japan Real Estate Investment Corp. | 404,327 | ||||||
168 | Japan Retail Fund Investment Corp. | 354,343 | ||||||
7,322 | Klepierre | 315,345 | ||||||
55,179 | Land Securities Group plc | 987,244 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Real Estate Investment Trusts (REITs), continued |
| ||||||
60,321 | Liberty International plc | $ | 311,894 | |||||
159,500 | Link REIT (The) | 995,757 | ||||||
122,990 | Macquarie Goodman Group | 566,841 | ||||||
266,668 | Mirvac Group | 385,029 | ||||||
94 | Nippon Building Fund, Inc. | 471,034 | ||||||
109 | Nippon Prologis REIT, Inc. | 236,344 | ||||||
159,952 | Novion Property Group^ | 275,305 | ||||||
369,204 | Scentre Group | 1,049,590 | ||||||
48,266 | SERGO plc | 276,638 | ||||||
157,515 | Stockland Trust Group | 526,060 | ||||||
163,000 | Suntec REIT | 241,004 | ||||||
6,790 | Unibail-Rodamco SE | 1,735,233 | ||||||
171 | United Urban Investment Corp. | 268,641 | ||||||
137,646 | Westfield Corp. | 1,006,114 | ||||||
|
| |||||||
14,422,767 | ||||||||
|
| |||||||
| Real Estate Management & Development (2.1%): |
| ||||||
7,260 | AEON Mall Co., Ltd. | 128,406 | ||||||
74,028 | BGP Holdings plc*(a) | — | ||||||
173,000 | CapitaLand, Ltd. | 429,947 | ||||||
96,000 | Cheung Kong Holdings, Ltd. | 1,602,052 | ||||||
26,000 | City Developments, Ltd. | 200,793 | ||||||
4,900 | Daito Trust Construction Co., Ltd. | 554,898 | ||||||
41,400 | Daiwa House Industry Co., Ltd. | 784,070 | ||||||
16,630 | Deutsche Annington Immobilien SE^ | 565,610 | ||||||
19,447 | Deutsche Wohnen AG | 462,011 | ||||||
211,000 | Global Logistic Properties, Ltd. | 394,719 | ||||||
162,000 | Hang Lung Properties, Ltd. | 451,525 | ||||||
74,130 | Henderson Land Development Co., Ltd. | 514,624 | ||||||
18,800 | Hulic Co., Ltd. | 186,928 | ||||||
43,000 | Hysan Development Co., Ltd. | 191,087 | ||||||
7,136 | IMMOEAST AG NPV(BR)* | — | ||||||
60,788 | Immofinanz Immobilien Anlagen AG* | 153,849 | ||||||
56,000 | Keppel Land, Ltd. | 143,995 | ||||||
51,500 | Kerry Properties, Ltd. | 186,082 | ||||||
37,338 | Lend Lease Group | 497,025 | ||||||
87,000 | Mitsubishi Estate Co., Ltd. | 1,841,606 | ||||||
66,000 | Mitsui Fudosan Co., Ltd. | 1,775,401 | ||||||
357,332 | New World Development Co., Ltd.^ | 408,770 | ||||||
8,100 | Nomura Real Estate Holdings, Inc. | 139,213 | ||||||
7,200 | NTT Urban Development Corp. | 72,238 | ||||||
217,600 | Sino Land Co., Ltd. | 349,318 | ||||||
26,000 | Sumitomo Realty & Development Co., Ltd. | 885,850 | ||||||
113,000 | Sun Hung Kai Properties, Ltd. | 1,708,906 | ||||||
45,000 | Swire Pacific, Ltd., Class A | 583,003 | ||||||
82,000 | Swire Properties, Ltd. | 242,025 | ||||||
3,821 | Swiss Prime Site AG^ | 280,056 | ||||||
29,000 | Tokyo Tatemono Co., Ltd. | 211,232 | ||||||
30,800 | Tokyu Fudosan Holdings Corp. | 212,258 | ||||||
31,996 | UOL Group, Ltd. | 167,954 | ||||||
103,300 | Wharf Holdings, Ltd. (The) | 741,904 | ||||||
60,000 | Wheelock & Co., Ltd. | 278,617 | ||||||
|
| |||||||
17,345,972 | ||||||||
|
|
Continued
12
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Road & Rail (0.9%): |
| ||||||
71,622 | Asciano, Ltd. | $ | 350,578 | |||||
152,127 | Aurizon Holdings, Ltd. | 569,830 | ||||||
9,900 | Central Japan Railway Co. | 1,485,464 | ||||||
142,000 | ComfortDelGro Corp., Ltd. | 278,076 | ||||||
12,264 | DSV A/S | 372,631 | ||||||
23,213 | East Japan Railway Co. | 1,739,424 | ||||||
31,000 | Keihin Electric Express Railway Co., Ltd. | 229,636 | ||||||
38,000 | Keio Corp. | 272,763 | ||||||
20,000 | Keisei Electric Railway Co., Ltd. | 243,926 | ||||||
126,000 | Kintetsu Corp. | 415,650 | ||||||
102,500 | MTR Corp., Ltd. | 418,678 | ||||||
54,000 | Nagoya Railroad Co., Ltd.*^ | 201,095 | ||||||
63,000 | Nippon Express Co., Ltd. | 320,460 | ||||||
42,000 | Odakyu Electric Railway Co., Ltd. | 372,761 | ||||||
69,000 | Tobu Railway Co., Ltd. | 294,917 | ||||||
82,000 | Tokyu Corp. | 508,793 | ||||||
11,100 | West Japan Railway Co. | 526,072 | ||||||
|
| |||||||
8,600,754 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.8%): |
| ||||||
10,800 | Advantest Corp.^ | 134,584 | ||||||
96,769 | ARM Holdings plc | 1,489,892 | ||||||
17,400 | ASM Pacific Technology, Ltd.^ | 165,441 | ||||||
24,680 | ASML Holding NV | 2,643,820 | ||||||
77,822 | Infineon Technologies AG | 834,234 | ||||||
6,900 | ROHM Co., Ltd. | 418,684 | ||||||
42,738 | STMicroelectronics NV | 318,685 | ||||||
12,000 | Tokyo Electron, Ltd. | 910,796 | ||||||
|
| |||||||
6,916,136 | ||||||||
|
| |||||||
| Software (0.9%): |
| ||||||
3,500 | Colopl, Inc.* | 78,353 | ||||||
8,965 | Dassault Systemes SA | 545,531 | ||||||
28,100 | Gungho Online Enetertainment, Inc.^ | 102,450 | ||||||
6,900 | Konami Corp. | 127,246 | ||||||
9,400 | Nexon Co., Ltd. | 87,662 | ||||||
4,247 | NICE Systems, Ltd. | 215,337 | ||||||
7,300 | Nintendo Co., Ltd. | 760,943 | ||||||
2,700 | Oracle Corp. | 110,022 | ||||||
72,775 | Sage Group plc | 524,744 | ||||||
63,420 | SAP AG | 4,483,611 | ||||||
7,400 | Trend Micro, Inc.^ | 202,497 | ||||||
|
| |||||||
7,238,396 | ||||||||
|
| |||||||
| Specialty Retail (1.0%): |
| ||||||
2,000 | ABC-Mart, Inc.^ | 96,930 | ||||||
66,038 | Dixons Carphone plc | 475,587 | ||||||
3,700 | Fast Retailing Co., Ltd. | 1,348,253 | ||||||
65,359 | Hennes & Mauritz AB, B Shares | 2,713,002 | ||||||
1,200 | Hikari Tsushin, Inc. | 73,055 | ||||||
74,721 | Industria de Diseno Textil SA | 2,140,723 | ||||||
164,751 | Kingfisher plc | 868,067 | ||||||
4,700 | Nitori Co., Ltd. | 252,613 | ||||||
2,700 | Sanrio Co., Ltd.^ | 67,166 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Specialty Retail, continued |
| ||||||
1,600 | Shimamura Co., Ltd.^ | $ | 137,876 | |||||
18,724 | Sports Direct International* | 205,326 | ||||||
16,500 | USS Co., Ltd. | 253,961 | ||||||
59,900 | Yamada Denki Co., Ltd.^ | 199,962 | ||||||
|
| |||||||
8,832,521 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.8%): |
| ||||||
15,300 | Brother Industries, Ltd. | 277,631 | ||||||
78,100 | Canon, Inc. | 2,481,016 | ||||||
129,000 | Fujitsu, Ltd. | 687,280 | ||||||
5,694 | Gemalto NV^ | 465,063 | ||||||
32,000 | Konica Minolta Holdings, Inc. | 345,228 | ||||||
175,000 | NEC Corp. | 510,263 | ||||||
47,300 | Ricoh Co., Ltd. | 480,582 | ||||||
22,677 | Seek, Ltd.^ | 316,401 | ||||||
8,900 | Seiko Epson Corp. | 373,893 | ||||||
278,000 | Toshiba Corp. | 1,177,359 | ||||||
|
| |||||||
7,114,716 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.5%): |
| ||||||
14,193 | Adidas AG^ | 989,109 | ||||||
10,500 | ASICS Corp. | 250,969 | ||||||
30,994 | Burberry Group plc | 785,249 | ||||||
3,787 | Christian Dior SA | 646,959 | ||||||
35,933 | Compagnie Financiere Richemont SA, Registered Shares | 3,183,810 | ||||||
1,783 | Hermes International SA | 635,696 | ||||||
2,887 | Hugo Boss AG | 354,406 | ||||||
11,734 | Luxottica Group SpA | 642,333 | ||||||
19,223 | LVMH Moet Hennessy Louis Vuitton SA | 3,039,451 | ||||||
7,995 | Pandora A/S | 648,616 | ||||||
2,141 | Swatch Group AG (The)^ | 950,971 | ||||||
3,471 | Swatch Group AG (The), Registered Shares | 300,312 | ||||||
56,500 | Yue Yuen Industrial Holdings, Ltd. | 203,441 | ||||||
|
| |||||||
12,631,322 | ||||||||
|
| |||||||
| Tobacco (1.4%): |
| ||||||
128,296 | British American Tobacco plc | 6,969,960 | ||||||
65,885 | Imperial Tobacco Group plc | 2,884,956 | ||||||
76,300 | Japan Tobacco, Inc. | 2,095,402 | ||||||
13,886 | Swedish Match AB, Class B | 433,405 | ||||||
|
| |||||||
12,383,723 | ||||||||
|
| |||||||
| Trading Companies & Distributors (1.1%): |
| ||||||
34,213 | Ashtead Group plc | 604,785 | ||||||
10,309 | Brenntag AG | 580,012 | ||||||
23,152 | Bunzl plc | 631,042 | ||||||
103,800 | ITOCHU Corp. | 1,109,980 | ||||||
116,200 | Marubeni Corp. | 696,653 | ||||||
94,700 | Mitsubishi Corp. | 1,737,075 | ||||||
117,000 | Mitsui & Co., Ltd. | 1,564,337 | ||||||
294,090 | Noble Group, Ltd. | 252,539 | ||||||
75,600 | Sumitomo Corp. | 776,617 | ||||||
14,500 | Toyota Tsushu Corp. | 335,188 |
Continued
13
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Trading Companies & Distributors, continued |
| ||||||
16,389 | Travis Perkins plc | $ | 471,783 | |||||
18,632 | Wolseley plc | 1,060,559 | ||||||
|
| |||||||
9,820,570 | ||||||||
|
| |||||||
| Transportation Infrastructure (0.4%): |
| ||||||
27,114 | Abertis Infraestructuras SA | 535,601 | ||||||
2,204 | Aeroports de Paris | 267,109 | ||||||
27,758 | Atlantia SpA | 644,647 | ||||||
61,151 | Auckland International Airport, Ltd. | 201,189 | ||||||
2,627 | Fraport AG | 152,171 | ||||||
30,998 | Groupe Eurotunnel SA | 400,093 | ||||||
380,000 | Hutchison Port Holdings Trust | 261,862 | ||||||
16,000 | Kamigumi Co., Ltd. | 142,321 | ||||||
4,863 | Koninklijke Vopak NV | 251,893 | ||||||
8,000 | Mitsubishi Logistics Corp. | 115,680 | ||||||
81,034 | Sydney Airport | 309,644 | ||||||
125,963 | Transurban Group | 880,334 | ||||||
|
| |||||||
4,162,544 | ||||||||
|
| |||||||
| Water Utilities (0.1%): |
| ||||||
16,268 | Severn Trent plc | 504,324 | ||||||
47,472 | United Utilities Group plc | 672,640 | ||||||
|
| |||||||
1,176,964 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (1.6%): |
| ||||||
40,100 | KDDI Corp. | 2,509,485 | ||||||
4,381 | Millicom International Cellular SA, SDR | 326,034 | ||||||
104,300 | NTT DoCoMo, Inc. | 1,527,014 | ||||||
66,100 | SoftBank Corp. | 3,934,416 | ||||||
41,202 | StarHub, Ltd. | 129,057 | ||||||
20,816 | Tele2 AB | 252,170 | ||||||
1,823,970 | Vodafone Group plc | 6,248,995 | ||||||
|
| |||||||
14,927,171 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $750,582,676) | 845,908,920 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Preferred Stocks (0.6%): |
| ||||||
| Automobiles (0.4%): |
| ||||||
3,648 | Bayerische Motoren Werke AG (BMW), Preferred Shares | $ | 299,361 | |||||
10,676 | Porsche Automobil Holding SE, Preferred Shares | 867,333 | ||||||
11,219 | Volkswagen AG, Preferred Shares | 2,505,712 | ||||||
|
| |||||||
3,672,406 | ||||||||
|
| |||||||
| Household Products (0.2%): |
| ||||||
12,436 | Henkel AG & Co. KGaA, Preferred Shares^ | 1,345,099 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $3,641,486) | 5,017,505 | ||||||
|
| |||||||
| Rights (0.0%): |
| ||||||
| Commercial Banks (0.0%): |
| ||||||
401,556 | Banco Bilbao Vizcaya Argentaria SA* | 38,382 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.0%): |
| ||||||
68,846 | Repsol SA* | 38,067 | ||||||
|
| |||||||
| Total Rights (Cost $—) | 76,449 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (3.3%): |
| ||||||
$28,840,160 | Allianz Variable Insurance Products Securities Lending Collateral Trust(b) | 28,840,160 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 28,840,160 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.3%): |
| ||||||
2,428,736 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(c) | 2,428,736 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $2,428,736) | 2,428,736 | ||||||
|
| |||||||
| Total Investment Securities (Cost $785,493,058)(d) — 102.2% | 882,271,770 | ||||||
| Net other assets (liabilities) — (2.2)% | (18,969,926 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 863,301,844 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
SDR—Swedish Depository Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $27,265,099. |
+ | Affiliated Securities |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2014. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(c) | The rate represents the effective yield at December 31, 2014. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
14
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2014
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Australia | 7.2 | % | ||
Austria | 0.2 | % | ||
Belgium | 1.2 | % | ||
Bermuda | 0.1 | % | ||
Cayman Islands | — | %NM | ||
Denmark | 1.5 | % | ||
Finland | 0.9 | % | ||
France | 8.9 | % | ||
Germany | 8.9 | % | ||
Guernsey | 0.1 | % | ||
Hong Kong | 3.0 | % | ||
Ireland (Republic of) | 0.7 | % | ||
Israel | 0.6 | % | ||
Italy | 2.0 | % | ||
Japan | 20.3 | % | ||
Jersey | 0.5 | % | ||
Luxembourg | 0.3 | % | ||
Netherlands | 3.1 | % | ||
New Zealand | 0.2 | % | ||
Norway | 0.6 | % | ||
Portugal | 0.1 | % | ||
Singapore | 1.4 | % | ||
Spain | 3.3 | % | ||
Sweden | 3.0 | % | ||
Switzerland | 9.0 | % | ||
United Kingdom | 19.3 | % | ||
United States | 3.6 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Futures Contracts
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
ASX SPI 200 Index March Futures (Australian Dollar) | Long | 3/20/15 | 11 | $ | 1,208,241 | $ | 52,361 | |||||||||||||
FTSE 100 Index March Futures (British Pounds) | Long | 3/20/15 | 25 | 2,541,181 | 131,633 | |||||||||||||||
SGX NIKKEI 225 Index March Futures (Japanese Yen) | Long | 3/13/15 | 45 | 3,265,281 | 16,778 | |||||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Long | 3/20/15 | 94 | 3,563,199 | 166,827 | |||||||||||||||
|
| |||||||||||||||||||
Total | $ | 367,599 | ||||||||||||||||||
|
|
See accompanying notes to the financial statements.
15
AZL International Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investments in non-affiliates, at cost | $ | 781,692,099 | |||
Investments in affiliates, at cost | 3,800,959 | ||||
|
| ||||
Total Investment securities, at cost | $ | 785,493,058 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 877,165,808 | |||
Investments in affiliates, at value | 5,105,962 | ||||
|
| ||||
Total Investment securities, at value | 882,271,770 | ||||
Segregated cash for collateral | 1,098,446 | ||||
Interest and dividends receivable | 823,081 | ||||
Foreign currency, at value (cost $11,746,902) | 11,677,557 | ||||
Receivable for capital shares issued | 1,703,120 | ||||
Receivable for variation margin on futures contracts | 11,548 | ||||
Reclaims receivable | 330,220 | ||||
Prepaid expenses | 7,309 | ||||
|
| ||||
Total Assets | 897,923,051 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 5,118,070 | ||||
Payable for capital shares redeemed | 36,236 | ||||
Payable for collateral received on loaned securities | 28,840,160 | ||||
Payable for variation margin on futures contracts | 2,505 | ||||
Manager fees payable | 257,696 | ||||
Administration fees payable | 27,348 | ||||
Distribution fees payable | 184,069 | ||||
Custodian fees payable | 64,217 | ||||
Administrative and compliance services fees payable | 2,276 | ||||
Trustee fees payable | 46 | ||||
Other accrued liabilities | 88,584 | ||||
|
| ||||
Total Liabilities | 34,621,207 | ||||
|
| ||||
Net Assets | $ | 863,301,844 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 849,894,779 | |||
Accumulated net investment income/(loss) | 21,347,325 | ||||
Accumulated net realized gains/(losses) from investment transactions | (104,941,106 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 97,000,846 | ||||
|
| ||||
Net Assets | $ | 863,301,844 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 56,492,499 | ||||
Net Asset Value (offering and redemption price per share) | $ | 15.28 | |||
|
|
* | Includes securities on loan of $27,265,099. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 33,387,143 | |||
Dividends from affiliates | 209,812 | ||||
Interest | 27 | ||||
Income from securities lending | 690,987 | ||||
Foreign withholding | (3,670,379 | ) | |||
|
| ||||
Total Investment Income | 30,617,590 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,956,173 | ||||
Administration fees | 334,283 | ||||
Distribution fees | 2,111,557 | ||||
Custodian fees | 300,393 | ||||
Administrative and compliance services fees | 11,820 | ||||
Trustee fees | 45,504 | ||||
Professional fees | 52,558 | ||||
Shareholder reports | 18,752 | ||||
Recoupment of prior expenses reimbursed by the manager | 162,211 | ||||
Other expenses | 310,173 | ||||
|
| ||||
Total expenses | 6,303,424 | ||||
|
| ||||
Net Investment Income/(Loss) | 24,314,166 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (2,070,091 | ) | |||
Net realized gains/(losses) on futures contracts | 326,979 | ||||
Change in net unrealized appreciation/depreciation on investments | (76,247,381 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (77,990,493 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (53,676,327 | ) | ||
|
|
See accompanying notes to the financial statements.
16
Statements of Changes in Net Assets
AZL International Index Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 24,314,166 | $ | 15,044,369 | ||||||
Net realized gains/(losses) on investment transactions | (1,743,112 | ) | (237,865 | ) | ||||||
Change in unrealized appreciation/depreciation on investments | (76,247,381 | ) | 117,539,416 | |||||||
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|
|
| |||||||
Change in net assets resulting from operations | (53,676,327 | ) | 132,345,920 | |||||||
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|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (15,224,243 | ) | (13,742,662 | ) | ||||||
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|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (15,224,243 | ) | (13,742,662 | ) | ||||||
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|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 145,001,811 | 148,440,908 | ||||||||
Proceeds from dividends reinvested | 15,224,243 | 13,742,662 | ||||||||
Value of shares redeemed | (36,219,208 | ) | (39,829,157 | ) | ||||||
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|
| |||||||
Change in net assets resulting from capital transactions | 124,006,846 | 122,354,413 | ||||||||
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| |||||||
Change in net assets | 55,106,276 | 240,957,671 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 808,195,568 | 567,237,897 | ||||||||
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| |||||||
End of period | $ | 863,301,844 | $ | 808,195,568 | ||||||
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| |||||||
Accumulated net investment income/(loss) | $ | 21,347,325 | $ | 12,698,316 | ||||||
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| |||||||
Share Transactions: | ||||||||||
Shares issued | 8,994,284 | 9,792,221 | ||||||||
Dividends reinvested | 926,612 | 892,961 | ||||||||
Shares redeemed | (2,188,320 | ) | (2,632,954 | ) | ||||||
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|
|
| |||||||
Change in shares | 7,732,576 | 8,052,228 | ||||||||
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|
|
|
See accompanying notes to the financial statements.
17
AZL International Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 16.57 | $ | 13.93 | $ | 12.03 | $ | 13.99 | $ | 13.31 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.42 | 0.29 | 0.26 | 0.28 | 0.15 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (1.43 | ) | 2.65 | 1.89 | (2.07 | ) | 0.77 | ||||||||||||||||||
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| ||||||||||||||||
Total from Investment Activities | (0.99 | ) | 2.94 | 2.15 | (1.79 | ) | 0.92 | ||||||||||||||||||
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| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.30 | ) | (0.30 | ) | (0.25 | ) | (0.17 | ) | (0.07 | ) | |||||||||||||||
Net Realized Gains | — | — | — | — | (0.17 | ) | |||||||||||||||||||
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| ||||||||||||||||
Total Dividends | (0.30 | ) | (0.30 | ) | (0.25 | ) | (0.17 | ) | (0.24 | ) | |||||||||||||||
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| ||||||||||||||||
Net Asset Value, End of Period | $ | 15.28 | $ | 16.57 | $ | 13.93 | $ | 12.03 | $ | 13.99 | |||||||||||||||
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| ||||||||||||||||
Total Return(a) | (6.18 | )% | 21.36 | % | 18.04 | % | (12.78 | )% | 7.12 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 863,302 | $ | 808,196 | $ | 567,238 | $ | 380,763 | $ | 340,781 | |||||||||||||||
Net Investment Income/(Loss) | 2.88 | % | 2.23 | % | 2.66 | % | 2.70 | % | 2.07 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.75 | % | 0.76 | % | 0.80 | % | 0.83 | % | 0.83 | % | |||||||||||||||
Expenses Net of Reductions | 0.75 | % | 0.76 | % | 0.77 | % | 0.74 | % | 0.70 | % | |||||||||||||||
Portfolio Turnover Rate(c) | 3 | % | 2 | % | 3 | % | 12 | % | 3 | % |
(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) | The portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
See accompanying notes to the financial statements.
18
AZL International Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL International Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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
AZL International Index Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $34.2 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $68,373 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $10.6 million as of December 31, 2014. The monthly average notional amount for these contracts was $13.3 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 367,599 | Payable for variation margin on futures contracts | $ | — |
* | 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
AZL International Index Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 326,979 | $ | (85,629 | ) |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL International Index Fund | 0.35 | % | 0.77 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $10,408 was paid from the Fund relating to these fees and expenses.
21
AZL International Index Fund
Notes to the Financial Statements
December 31, 2014
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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Airlines | $ | 135,413 | $ | 2,165,020 | $ | — | $ | 2,300,433 | ||||||||||||
Banks | 21,370 | 111,591,949 | — | 111,613,319 | ||||||||||||||||
Capital Markets | 4,322,331 | 12,235,076 | — | 16,557,407 | ||||||||||||||||
Electric Utilities | 148,189 | 16,415,558 | — | 16,563,747 | ||||||||||||||||
Hotels, Restaurants & Leisure | 493,494 | 10,351,538 | — | 10,845,032 | ||||||||||||||||
Insurance | 364,058 | 47,332,349 | — | 47,696,407 | ||||||||||||||||
Real Estate Management & Development | — | 17,345,972 | — | ^ | 17,345,972 | |||||||||||||||
All Other Common Stocks+ | — | 622,986,603 | — | 622,986,603 | ||||||||||||||||
Preferred Stocks+ | — | 5,017,505 | — | 5,017,505 | ||||||||||||||||
Rights | 76,449 | — | — | 76,449 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 28,840,160 | — | 28,840,160 | ||||||||||||||||
Unaffiliated Investment Company | 2,428,736 | — | — | 2,428,736 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 7,990,040 | 874,281,730 | — | ^ | 882,271,770 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 367,599 | — | — | 367,599 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 8,357,639 | $ | 874,281,730 | $ | — | ^ | $ | 882,639,369 | |||||||||||
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|
|
|
|
22
AZL International Index Fund
Notes to the Financial Statements
December 31, 2014
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
^ | Represents interest in securities that were determined to have a value of zero at December 31, 2014. |
A reconciliation of assets in which level 3 inputs are used in determining fair value, along with additional quantitative disclosures, are presented when there are significant level 3 investments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 153,620,902 | $ | 21,932,699 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $793,441,715. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 145,446,723 | ||
Unrealized depreciation | (56,616,668 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 88,830,055 | ||
|
|
As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs subject to expiration:
Expires 12/31/2015 | Expires 12/31/2016 | Total | |||||||||||||
AZL International Index Fund | $ | 42,234,498 | $ | 55,890,176 | $ | 98,124,674 |
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AZL International Index Fund
Notes to the Financial Statements
December 31, 2014
CLCFs not subject to expiration:
Short Term Amount | Long Term Amount | Total Amount | |||||||||||||
AZL International Index Fund | $ | 681,077 | $ | 181,815 | $ | 862,892 |
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL International Index Fund | $ | 15,224,243 | $ | — | $ | 15,224,243 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL International Index Fund | $ | 13,742,662 | $ | — | $ | 13,742,662 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL International Index Fund | $ | 23,639,679 | $ | — | $ | (98,987,566 | ) | $ | 88,754,952 | $ | 13,407,065 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2014, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 50% of the Fund.
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of
Trustees of 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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
27
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
28
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
31
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Invesco Equity and Income Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 13
Statement of Operations
Page 13
Statements of Changes in Net Assets
Page 14
Financial Highlights
Page 15
Notes to the Financial Statements
Page 16
Report of Independent Registered Public Accounting Firm
Page 22
Other Federal Income Tax Information
Page 23
Other Information
Page 24
Approval of Investment Advisory and Subadvisory Agreements
Page 25
Information about the Board of Trustees and Officers
Page 28
This report is submitted for the general information of the shareholder 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.
AZL® Invesco Equity and Income Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Invesco Equity and Income Fund and Invesco Advisers, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Invesco Equity and Income Fund returned 8.50% compared to a 13.69% and 5.97% total return for its benchmarks, the S&P 500 Index1 and the Barclays U.S. Aggregate Bond Index2, respectively.
The 12 months through December 31, 2014, were characterized by steady improvement in the U.S. economy and strong returns for U.S. stocks. Equity markets were volatile for the first four months of the year as investors worried that stocks had risen too far, too fast in 2013. Political upheaval in Ukraine and signs of economic sluggishness in the U.S. and China added to investor uncertainty. However, investors began to show confidence in the economic recovery and stocks rallied through the summer. The Federal Reserve reduced its monthly security purchases throughout the year, finally ending all purchases by October. That action had little impact on the market because it was widely expected. However, stocks suffered again in mid-September when the price of oil began to freefall, finishing 2014 at the lowest point in several years. After another sell-off in the equity markets in December, the S&P 500 Index rallied at the end of the month and finished the year on a positive note.
The Fund maintains a cash allocation to use for investment opportunities. While this allocation was within our typical target range throughout the period, holding cash detracted from relative performance in a strong equity market. Stock selection within health care also hurt performance relative to our equity benchmark. Underweight positions and stock selection in consumer staples and financials dampened relative performance as well. In particular, the Fund’s lack of exposure to REITs3 in the financial sector—adopted because we believed REITs were overvalued— hurt performance when investor demand for yield drove up the prices of those investments.*
Stock selection within utilities boosted relative performance versus the equity benchmark, mainly through holdings of electric utility companies. An allocation to and security selection within convertible bonds also contributed to relative performance versus the S&P 500.
The fixed-income portion of the Fund’s portfolio slightly underperformed the Barclays U.S. Aggregate Index. The Fund’s mandate is to hold higher-grade, shorter-duration bonds than the index in order to provide potential return and mitigate volatility. This allocation posted positive returns but detracted from relative performance when falling bond yields caused lower-duration bonds to experience less price appreciation than higher-duration bonds.*
We used currency forward contracts during the period solely for the purpose of hedging the currency exposure of non-U.S.-based companies held in the portfolio. The use of currency forward contracts had a positive impact on the Fund’s performance relative to the S&P 500 for 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, 2014. |
1 | The Standard & Poor’s 500 Index (“S&P 500”) 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 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. |
3 | The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions. |
Investors cannot invest directly in an index.
1
AZL® Invesco Equity and Income Fund Review (unaudited)
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.
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.
Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.
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.
The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Invesco Equity and Income Fund | 8.50 | % | 14.82 | % | 10.60 | % | 6.71 | % | ||||||||
S&P 500 Index | 13.69 | % | 20.41 | % | 15.45 | % | 7.67 | % | ||||||||
Barclays U.S. Aggregate Bond Index | 5.97 | % | 2.66 | % | 4.45 | % | 4.71 | % |
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® Invesco Equity and Income Fund | 1.07 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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 and Acquired Fund fees and expenses), to 1.20% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 1.06%. |
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 Standard & Poor’s 500 Index (“S&P 500”) and the Barclays U.S. Aggregate Bond Index. The S&P 500 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 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 |
AZL Invesco Equity and Income Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Invesco Equity and Income Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Invesco Equity and Income Fund | $ | 1,000.00 | $ | 1,025.00 | $ | 4.90 | 0.96 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Invesco Equity and Income Fund | $ | 1,000.00 | $ | 1,020.37 | $ | 4.89 | 0.96 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Common Stocks | 64.4 | % | |||
Securities Held as Collateral for Securities on Loan | 17.0 | ||||
U.S. Treasury Obligations | 10.4 | ||||
Corporate Bonds | 8.0 | ||||
Money Market | 7.4 | ||||
Convertible Bonds | 7.2 | ||||
Yankee Dollars | 1.8 | ||||
Convertible Preferred Stocks | 0.6 | ||||
U.S. Government Agency Mortgages | 0.1 | ||||
|
| ||||
Total Investment Securities | 116.9 | ||||
Net other assets (liabilities) | (16.9 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (64.4%): |
| ||||||
| Aerospace & Defense (0.7%): |
| ||||||
65,783 | General Dynamics Corp. | $ | 9,053,056 | |||||
|
| |||||||
| Automobiles (0.8%): | |||||||
290,187 | General Motors Co. | 10,130,428 | ||||||
|
| |||||||
| Banks (11.2%): | |||||||
1,137,728 | Bank of America Corp. | 20,353,954 | ||||||
194,449 | BB&T Corp.^ | 7,562,122 | ||||||
751,253 | Citigroup, Inc. | 40,650,299 | ||||||
246,495 | Citizens Financial Group, Inc.^ | 6,127,866 | ||||||
186,611 | Comerica, Inc. | 8,740,859 | ||||||
387,124 | Fifth Third Bancorp | 7,887,652 | ||||||
132,046 | First Horizon National Corp.^ | 1,793,185 | ||||||
618,298 | JPMorgan Chase & Co. | 38,693,088 | ||||||
170,418 | PNC Financial Services Group, Inc.^ | 15,547,234 | ||||||
|
| |||||||
147,356,259 | ||||||||
|
| |||||||
| Biotechnology (0.9%): | |||||||
75,205 | Amgen, Inc. | 11,979,404 | ||||||
|
| |||||||
| Capital Markets (4.9%): | |||||||
374,964 | Charles Schwab Corp. (The) | 11,320,163 | ||||||
50,119 | Goldman Sachs Group, Inc. (The) | 9,714,566 | ||||||
560,324 | Morgan Stanley | 21,740,570 | ||||||
128,159 | Northern Trust Corp. | 8,637,917 | ||||||
172,359 | State Street Corp. | 13,530,182 | ||||||
|
| |||||||
64,943,398 | ||||||||
|
| |||||||
| Chemicals (0.3%): | |||||||
93,757 | Dow Chemical Co. (The) | 4,276,257 | ||||||
|
| |||||||
| Commercial Services & Supplies (0.7%): | |||||||
215,081 | Tyco International plc | 9,433,453 | ||||||
|
| |||||||
| Communications Equipment (0.9%): | |||||||
440,960 | Cisco Systems, Inc. | 12,265,302 | ||||||
|
| |||||||
| Consumer Finance (0.4%): | |||||||
156,228 | Synchrony Financial* | 4,647,783 | ||||||
|
| |||||||
| Diversified Financial Services (1.4%): | |||||||
78,518 | CME Group, Inc. | 6,960,621 | ||||||
266,178 | Voya Financial, Inc. | 11,280,623 | ||||||
|
| |||||||
18,241,244 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.0%): |
| ||||||
138,734 | France Telecom SA | 2,359,069 | ||||||
620,612 | Koninklijke (Royal) KPN NV | 1,956,422 | ||||||
1,296,092 | Telecom Italia SpA | 1,374,369 | ||||||
90,448 | Telefonica SA | 1,293,612 | ||||||
151,784 | Verizon Communications, Inc. | 7,100,456 | ||||||
|
| |||||||
14,083,928 | ||||||||
|
| |||||||
| Electric Utilities (0.4%): | |||||||
148,055 | FirstEnergy Corp.^ | 5,772,664 | ||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.9%): |
| ||||||
495,936 | Corning, Inc. | 11,371,812 | ||||||
|
| |||||||
| Energy Equipment & Services (1.1%): | |||||||
162,026 | Baker Hughes, Inc. | 9,084,798 | ||||||
179,267 | Ensco plc, Class A, ADR^ | 5,369,047 | ||||||
|
| |||||||
14,453,845 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food & Staples Retailing (0.2%): | |||||||
31,893 | Wal-Mart Stores, Inc. | $ | 2,738,971 | |||||
|
| |||||||
| Food Products (2.2%): |
| ||||||
200,772 | Archer-Daniels-Midland Co. | 10,440,144 | ||||||
283,978 | Mondelez International, Inc., Class A | 10,315,501 | ||||||
173,366 | Unilever NV, NYS | 6,768,209 | ||||||
|
| |||||||
27,523,854 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.6%): | |||||||
109,466 | Medtronic, Inc.^ | 7,903,445 | ||||||
|
| |||||||
| Health Care Providers & Services (1.8%): | |||||||
73,676 | Anthem, Inc.^ | 9,258,863 | ||||||
42,130 | Express Scripts Holding Co.* | 3,567,147 | ||||||
101,187 | UnitedHealth Group, Inc. | 10,228,994 | ||||||
|
| |||||||
23,055,004 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.1%): | |||||||
307,887 | Carnival Corp. | 13,956,518 | ||||||
|
| |||||||
| Household Products (0.8%): | |||||||
122,627 | Procter & Gamble Co. (The) | 11,170,093 | ||||||
|
| |||||||
| Industrial Conglomerates (1.9%): | |||||||
1,001,489 | General Electric Co. | 25,307,627 | ||||||
|
| |||||||
| Insurance (2.2%): | |||||||
95,721 | Aon plc | 9,077,222 | ||||||
214,982 | Marsh & McLennan Cos., Inc.^ | 12,305,570 | ||||||
169,986 | Willis Group Holdings plc | 7,617,073 | ||||||
|
| |||||||
28,999,865 | ||||||||
|
| |||||||
| Internet Software & Services (1.0%): | |||||||
242,615 | eBay, Inc.* | 13,615,554 | ||||||
|
| |||||||
| IT Services (0.7%): | |||||||
191,783 | Amdocs, Ltd. | 8,947,636 | ||||||
|
| |||||||
| Machinery (1.6%): | |||||||
114,558 | Caterpillar, Inc. | 10,485,494 | ||||||
166,125 | Ingersoll-Rand plc | 10,530,663 | ||||||
|
| |||||||
21,016,157 | ||||||||
|
| |||||||
| Media (3.9%): | |||||||
253,370 | Comcast Corp., Class A^ | 14,697,994 | ||||||
187,816 | Thomson Reuters Corp.^ | 7,578,938 | ||||||
64,368 | Time Warner Cable, Inc. | 9,787,798 | ||||||
63,847 | Time Warner Cable, Inc. | 5,453,811 | ||||||
181,728 | Viacom, Inc., Class B | 13,675,032 | ||||||
|
| |||||||
51,193,573 | ||||||||
|
| |||||||
| Metals & Mining (0.4%): | |||||||
221,728 | Freeport-McMoRan Copper & Gold, Inc. | 5,179,566 | ||||||
|
| |||||||
| Multiline Retail (1.2%): | |||||||
208,358 | Target Corp.^ | 15,816,456 | ||||||
|
| |||||||
| Multi-Utilities (0.5%): | |||||||
125,950 | PG&E Corp. | 6,705,578 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (5.5%): | |||||||
83,537 | Anadarko Petroleum Corp.^ | 6,891,803 | ||||||
147,852 | Apache Corp.^ | 9,265,885 |
Continued
4
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
261,759 | Canadian Natural Resources, Ltd. | $ | 8,095,035 | |||||
93,136 | Exxon Mobil Corp. | 8,610,423 | ||||||
96,551 | Occidental Petroleum Corp. | 7,782,976 | ||||||
644,206 | Royal Dutch Shell plc, A Shares | 21,350,542 | ||||||
204,702 | Total SA | 10,553,026 | ||||||
|
| |||||||
72,549,690 | ||||||||
|
| |||||||
| Pharmaceuticals (5.1%): | |||||||
170,598 | Eli Lilly & Co.^ | 11,769,556 | ||||||
72,412 | Hospira, Inc.* | 4,435,235 | ||||||
228,592 | Merck & Co., Inc. | 12,981,739 | ||||||
6,023 | Novartis AG, ADR | 558,091 | ||||||
120,962 | Novartis AG, Registered Shares | 11,127,929 | ||||||
209,330 | Pfizer, Inc. | 6,520,630 | ||||||
88,740 | Sanofi-Aventis SA | 8,086,443 | ||||||
203,977 | Teva Pharmaceutical Industries, Ltd., ADR | 11,730,717 | ||||||
|
| |||||||
67,210,340 | ||||||||
|
| |||||||
| Road & Rail (0.5%): | |||||||
192,003 | CSX Corp. | 6,956,269 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.8%): | |||||||
633,524 | Applied Materials, Inc.^ | 15,787,418 | ||||||
201,626 | Broadcom Corp., Class A | 8,736,455 | ||||||
329,665 | Intel Corp.^ | 11,963,543 | ||||||
|
| |||||||
36,487,416 | ||||||||
|
| |||||||
| Software (2.9%): | |||||||
129,231 | Adobe Systems, Inc.* | 9,395,094 | ||||||
105,549 | Citrix Systems, Inc.* | 6,734,026 | ||||||
223,394 | Microsoft Corp. | 10,376,651 | ||||||
461,284 | Symantec Corp.^ | 11,834,241 | ||||||
|
| |||||||
38,340,012 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.6%): | |||||||
187,182 | NetApp, Inc.^ | 7,758,694 | ||||||
|
| |||||||
| Tobacco (0.7%): | |||||||
110,621 | Philip Morris International, Inc. | 9,010,080 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.6%): | |||||||
248,712 | Vodafone Group plc, ADR | 8,498,489 | ||||||
|
| |||||||
| Total Common Stocks (Cost $659,257,933) | 847,949,720 | ||||||
|
| |||||||
| Convertible Preferred Stocks (0.6%): | |||||||
| Banks (0.2%): | |||||||
13,608 | KeyCorp, Series A^ | 1,746,077 | ||||||
32,000 | Wells Fargo & Co. | 820,800 | ||||||
|
| |||||||
2,566,877 | ||||||||
|
| |||||||
| Capital Markets (0.3%): | |||||||
42,000 | AMG Capital Trust II, 1.04% | 2,593,500 | ||||||
23,135 | State Street Corp., Series D, 0.91% | 598,271 | ||||||
|
| |||||||
3,191,771 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.1%): | |||||||
27,346 | El Paso Energy Capital Trust I | 1,656,998 | ||||||
|
| |||||||
| Total Convertible Preferred Stocks (Cost $6,257,722) | 7,415,646 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Convertible Bonds (7.2%): | |||||||
| Air Freight & Logistics (0.2%): | |||||||
$ | 2,153,000 | UTI Worldwide, Inc., 4.50%, 3/1/19(a) | $ | 2,377,719 | ||||
|
| |||||||
| Biotechnology (0.2%): |
| ||||||
1,987,000 | BioMarin Pharmaceutical, Inc., 1.50%, 10/15/20 | 2,435,317 | ||||||
|
| |||||||
| Capital Markets (0.7%): | |||||||
1,200,000 | Goldman Sachs Group, Inc. (The), 1.00%, 3/15/17, Callable 3/13/15 @ 100(a) | 1,662,264 | ||||||
4,530,000 | Goldman Sachs Group, Inc. (The), 1.00%, 9/28/20(a) | 5,100,191 | ||||||
2,239,000 | Jefferies Group, 3.88%, 11/1/29, Callable 11/1/17 @ 100 | 2,313,167 | ||||||
|
| |||||||
9,075,622 | ||||||||
|
| |||||||
| Communications Equipment (0.3%): | |||||||
1,340,000 | Ciena Corp., 4.00%, 12/15/20 | 1,660,763 | ||||||
2,734,000 | JDS Uniphase Corp., 0.63%, 8/15/33, Callable 8/20/18 @ 200^ | 2,887,787 | ||||||
|
| |||||||
4,548,550 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.2%): | |||||||
2,258,000 | Helix Energy Solutions Group, Inc., 3.25%, 3/15/32, Callable 3/20/18 @ 100 | 2,507,791 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (0.2%): | |||||||
1,899,000 | NuVasive, Inc., 2.75%, 7/1/17 | 2,414,104 | ||||||
|
| |||||||
| Health Care Providers & Services (1.2%): | |||||||
2,281,000 | Brookdale Senior Living, Inc., 2.75%, 6/15/18^ | 3,106,437 | ||||||
2,875,000 | HealthSouth Corp., 2.00%, 12/1/43, Callable 12/1/18 @ 100 | 3,196,641 | ||||||
1,642,000 | Omnicare, Inc., Series OCR, 3.25%, 12/15/35, Callable 1/15/18 @ 100 | 1,899,589 | ||||||
1,407,000 | Omnicare, Inc., 3.50%, 2/15/44, Callable 2/15/19 @ 93.09^ | 1,681,365 | ||||||
4,397,000 | WellPoint, Inc., 2.75%, 10/15/42 | 7,568,335 | ||||||
|
| |||||||
17,452,367 | ||||||||
|
| |||||||
| Insurance (0.4%): | |||||||
726,000 | Old Republic International Corp., 3.75%, 3/15/18^ | 841,253 | ||||||
1,295,000 | Radian Group, Inc., 3.00%, 11/15/17 | 1,978,922 | ||||||
1,141,000 | Radian Group, Inc., 2.25%, 3/1/19 | 1,834,870 | ||||||
|
| |||||||
4,655,045 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.2%): | |||||||
1,462,000 | Liberty Interactive LLC, 0.75%, 3/30/43, Callable 4/5/23 @ 200 | 2,077,868 | ||||||
|
| |||||||
| Media (0.5%): |
| ||||||
5,810,000 | Liberty Media Corp., 1.38%, 10/15/23^(a) | 5,730,113 | ||||||
836,000 | Live National Entertainment, Inc., 2.50%, 5/15/19(a) | 883,025 | ||||||
|
| |||||||
6,613,138 | ||||||||
|
|
Continued
5
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Convertible Bonds, continued |
| ||||||
| Oil, Gas & Consumable Fuels (0.4%): | |||||||
$ | 2,123,000 | Cobalt International Energy, Inc., 2.63%, 12/1/19 | $ | 1,281,761 | ||||
1,989,000 | Peabody Energy Corp., 4.75%, 12/15/41^ | 1,044,225 | ||||||
3,337,000 | Stone Energy Corp., 1.75%, 3/1/17^ | 2,901,105 | ||||||
|
| |||||||
5,227,091 | ||||||||
|
| |||||||
| Pharmaceuticals (0.4%): | |||||||
1,327,000 | Jazz Pharmaceuticals, Inc., 1.88%, 8/15/21^(a) | 1,501,169 | ||||||
2,366,000 | Salix Pharmaceuticals, Ltd., 1.50%, 3/15/19 | 4,313,514 | ||||||
|
| |||||||
5,814,683 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.9%): | |||||||
2,824,000 | Lam Research Corp., 1.25%, 5/15/18^ | 3,992,430 | ||||||
2,730,000 | Micron Technology, Inc., Series G, 3.00%, 11/15/43, Callable 11/20/18 @ 83.04^ | 3,591,655 | ||||||
3,464,000 | NVIDIA Corp., 1.00%, 12/1/18(a) | 3,981,435 | ||||||
|
| |||||||
11,565,520 | ||||||||
|
| |||||||
| Software (0.5%): | |||||||
4,408,000 | Citrix Systems, Inc., 0.50%, 4/15/19^(a) | 4,642,175 | ||||||
2,055,000 | NetSuite, Inc., 0.25%, 6/1/18 | 2,301,600 | ||||||
|
| |||||||
6,943,775 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.4%): | |||||||
4,379,000 | SanDisk Corp., 0.50%, 10/15/20 | 5,260,274 | ||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.5%): | |||||||
3,438,000 | MGIC Investment Corp., 5.00%, 5/1/17 | 3,844,113 | ||||||
1,557,000 | MGIC Investment Corp., 2.00%, 4/1/20 | 2,278,086 | ||||||
|
| |||||||
6,122,199 | ||||||||
|
| |||||||
| Total Convertible Bonds (Cost $83,386,635) | 95,091,063 | ||||||
|
| |||||||
| Corporate Bonds (8.0%): | |||||||
| Aerospace & Defense (0.0%): | |||||||
380,000 | L-3 Communications Holdings Corp., 3.95%, 5/28/24, Callable 2/28/24 @ 100 | 383,144 | ||||||
200,000 | Precision Castparts Corp., 2.50%, 1/15/23, Callable 10/15/22 @ 100 | 192,583 | ||||||
|
| |||||||
575,727 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.1%): | |||||||
360,000 | FedEx Corp., 4.90%, 1/15/34 | 402,072 | ||||||
745,000 | FedEx Corp., 5.10%, 1/15/44 | 860,226 | ||||||
160,000 | United Parcel Service, Inc., 2.45%, 10/1/22^ | 156,849 | ||||||
|
| |||||||
1,419,147 | ||||||||
|
| |||||||
| Airlines (0.1%): | |||||||
410,000 | American Airlines 14-1, Series A, 3.70%, 10/1/26 | 413,608 | ||||||
87,127 | Continental Airlines 2010-A, Series A, 4.75%, 1/12/21 | 92,790 | ||||||
277,852 | Continental Airlines 2012-A, Series A, 4.15%, 4/11/24 | 285,492 | ||||||
59,795 | Delta Air Lines, Inc., 6.20%, 7/2/18 | 65,775 | ||||||
490,000 | United Airlines 2014-2, Series A, 3.75%, 3/3/28 | 493,675 | ||||||
|
| |||||||
1,351,340 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Automobiles (0.0%): | |||||||
$ | 550,000 | Ford Motor Co., 4.75%, 1/15/43^ | $ | 580,316 | ||||
|
| |||||||
| Banks (0.5%): | |||||||
330,000 | Bank of America Corp., 1.25%, 1/11/16, MTN^ | 330,579 | ||||||
295,000 | Bank of America Corp., 5.75%, 12/1/17 | 325,945 | ||||||
175,000 | Bank of America Corp., 5.65%, 5/1/18, MTN | 194,420 | ||||||
995,000 | JPMorgan Chase & Co., Series X, 6.10%, 10/29/49, Callable 10/1/24 @ 100^(b) | 992,513 | ||||||
570,000 | JPMorgan Chase & Co., Series V, 5.00%, 12/29/49, Callable 7/1/19 @ 100^ | 557,709 | ||||||
130,000 | PNC Funding Corp., 5.13%, 2/8/20^ | 146,077 | ||||||
1,945,000 | Regions Financial Corp., 5.75%, 6/15/15 | 1,985,395 | ||||||
250,000 | U.S. Bank NA, 3.78%, 4/29/20, Callable 4/29/15 @ 100(b) | 252,244 | ||||||
110,000 | Wells Fargo & Co., 1.50%, 1/16/18 | 109,398 | ||||||
405,000 | Wells Fargo & Co., 4.10%, 6/3/26, MTN^ | 413,933 | ||||||
1,200,000 | Wells Fargo & Co., 4.65%, 11/4/44, MTN | 1,238,233 | ||||||
|
| |||||||
6,546,446 | ||||||||
|
| |||||||
| Beverages (0.1%): |
| ||||||
135,000 | Anheuser-Busch InBev NV Worldwide, Inc., 3.63%, 4/15/15 | 136,189 | ||||||
175,000 | Anheuser-Busch InBev NV Worldwide, Inc., 0.80%, 7/15/15 | 175,281 | ||||||
175,000 | Brown-Forman Corp., 2.25%, 1/15/23, Callable 10/15/22 @ 100 | 166,316 | ||||||
990,000 | PepsiCo, Inc., 3.60%, 3/1/24, Callable 12/1/23 @ 100^ | 1,034,226 | ||||||
|
| |||||||
1,512,012 | ||||||||
|
| |||||||
| Biotechnology (0.2%): | |||||||
335,000 | Celgene Corp., 4.00%, 8/15/23 | 352,597 | ||||||
1,220,000 | Celgene Corp., 4.63%, 5/15/44, Callable 11/15/43 @ 100 | 1,265,464 | ||||||
560,000 | Gilead Sciences, Inc., 2.05%, 4/1/19^ | 560,080 | ||||||
|
| |||||||
2,178,141 | ||||||||
|
| |||||||
| Capital Markets (0.4%): | |||||||
380,000 | Apollo Management Holdings LP, 4.00%, 5/30/24(a) | 386,737 | ||||||
120,000 | Bear Stearns Co., Inc., 7.25%, 2/1/18 | 138,306 | ||||||
180,000 | Charles Schwab Corp. (The), 4.45%, 7/22/20 | 197,712 | ||||||
1,470,000 | Ford Motor Credit Co. LLC, 2.75%, 5/15/15 | 1,479,836 | ||||||
240,000 | Ford Motor Credit Co. LLC, 2.50%, 1/15/16^ | 242,685 | ||||||
75,000 | General Electric Capital Corp., Series G, 6.00%, 8/7/19, MTN^ | 87,238 | ||||||
115,000 | Goldman Sachs Group, Inc. (The), 6.15%, 4/1/18 | 129,078 | ||||||
520,000 | Goldman Sachs Group, Inc. (The), 2.63%, 1/31/19^ | 523,175 | ||||||
175,000 | Goldman Sachs Group, Inc. (The), 5.25%, 7/27/21 | 197,516 |
Continued
6
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Capital Markets, continued |
| ||||||
$ | 140,000 | Goldman Sachs Group, Inc. (The), 6.75%, 10/1/37 | $ | 176,033 | ||||
200,000 | KKR Group Finance Co. III LLC, 5.13%, 6/1/44, Callable 1/1/44 @ 100(a) | 215,660 | ||||||
235,000 | Morgan Stanley, 4.00%, 7/24/15 | 239,423 | ||||||
295,000 | Morgan Stanley, 3.45%, 11/2/15 | 300,756 | ||||||
365,000 | Morgan Stanley, 6.38%, 7/24/42 | 484,732 | ||||||
90,000 | National Rural Utilities Cooperative Finance Corp., 3.05%, 2/15/22, Callable 11/15/21 @ 100^ | 90,838 | ||||||
|
| |||||||
4,889,725 | ||||||||
|
| |||||||
| Chemicals (0.1%): | |||||||
749,000 | Eastman Chemical Co., 2.70%, 1/15/20, Callable 12/15/19 @ 100 | 753,250 | ||||||
275,000 | Monsanto Co., 2.13%, 7/15/19 | 273,984 | ||||||
190,000 | Monsanto Co., 3.38%, 7/15/24, Callable 4/15/24 @ 100^ | 193,053 | ||||||
200,000 | Monsanto Co., 3.60%, 7/15/42, Callable 1/15/42 @ 100 | 182,186 | ||||||
|
| |||||||
1,402,473 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.0%): | |||||||
430,000 | Pitney Bowes, Inc., 4.63%, 3/15/24, Callable 12/15/23 @ 100^ | 440,154 | ||||||
|
| |||||||
| Communications Equipment (0.0%): | |||||||
290,000 | Juniper Networks, Inc., 4.50%, 3/15/24^ | 292,728 | ||||||
|
| |||||||
| Consumer Finance (0.2%): | |||||||
318,000 | American Express Co., 3.63%, 12/5/24, Callable 11/4/24 @ 100^ | 320,651 | ||||||
1,600,000 | American Express Credit Corp., 2.75%, 9/15/15, MTN | 1,624,684 | ||||||
1,275,000 | Santander Holdings USA, 3.00%, 9/24/15, Callable 8/24/15 @ 100 | 1,290,282 | ||||||
|
| |||||||
3,235,617 | ||||||||
|
| |||||||
| Containers & Packaging (0.1%): | |||||||
905,000 | Packaging Corp. of America, 4.50%, 11/1/23, Callable 8/1/23 @ 100^ | 947,997 | ||||||
|
| |||||||
| Diversified Financial Services (0.6%): | |||||||
551,000 | Bayer US Finance LLC, 3.00%, 10/8/21^(a) | 555,480 | ||||||
710,000 | Citigroup, Inc., 6.01%, 1/15/15 | 711,010 | ||||||
550,000 | Citigroup, Inc., 2.65%, 3/2/15 | 551,621 | ||||||
665,000 | Citigroup, Inc., 3.50%, 5/15/23^ | 647,371 | ||||||
595,000 | Citigroup, Inc., 6.68%, 9/13/43 | 769,367 | ||||||
220,000 | Citigroup, Inc., 5.30%, 5/6/44^ | 241,047 | ||||||
600,000 | General Electric Capital Corp., 5.25%, 12/31/99, Callable 6/15/23 @ 100, Perpetual Bond(b) | 600,562 | ||||||
925,000 | Glencore Funding LLC, 3.13%, 4/29/19^(a) | 927,220 | ||||||
65,000 | JPMorgan Chase & Co., 6.30%, 4/23/19 | 75,502 | ||||||
215,000 | JPMorgan Chase & Co., 4.50%, 1/24/22^ | 234,727 | ||||||
710,000 | JPMorgan Chase & Co., 3.88%, 9/10/24^ | 710,604 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Diversified Financial Services, continued |
| ||||||
$ | 185,000 | JPMorgan Chase & Co., Series S, 6.75%, 12/31/49, Callable 2/1/24 @ 100, Perpetual Bond^(b) | $ | 195,175 | ||||
785,000 | Moody’s Corp., 4.50%, 9/1/22, Callable 6/1/22 @ 100^ | 841,950 | ||||||
500,000 | Moody’s Corp., 4.88%, 2/15/24, Callable 11/15/23 @ 100^ | 550,387 | ||||||
|
| |||||||
7,612,023 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.2%): | |||||||
405,000 | Verizon Communications, Inc., 5.15%, 9/15/23 | 447,214 | ||||||
1,375,000 | Verizon Communications, Inc., 6.40%, 9/15/33 | 1,693,703 | ||||||
305,000 | Verizon Communications, Inc., 4.40%, 11/1/34, Callable 5/1/34 @ 100 | 303,164 | ||||||
498,000 | Verizon Communications, Inc., 5.01%, 8/21/54^(a) | 515,205 | ||||||
|
| |||||||
2,959,286 | ||||||||
|
| |||||||
| Electrical Equipment (0.0%): | |||||||
405,000 | Eaton Corp., 0.95%, 11/2/15 | 405,359 | ||||||
|
| |||||||
| Energy Equipment & Services (0.1%): | |||||||
960,000 | Rowan Cos., Inc., 5.85%, 1/15/44, Callable 7/15/43 @ 100^ | 885,347 | ||||||
|
| |||||||
| Food & Staples Retailing (0.2%): | |||||||
85,000 | Corn Products International, Inc., 6.63%, 4/15/37 | 107,636 | ||||||
335,000 | CVS Caremark Corp., 3.38%, 8/12/24, Callable 5/12/24 @ 100^ | 338,251 | ||||||
1,085,000 | Kroger Co. (The), 3.30%, 1/15/21, Callable 12/15/20 @ 100 | 1,101,049 | ||||||
780,000 | Sysco Corp., 3.50%, 10/2/24, Callable 7/2/24 @ 100 | 802,632 | ||||||
315,000 | Wal-Mart Stores, Inc., 3.30%, 4/22/24, Callable 1/22/24 @ 100 | 325,242 | ||||||
|
| |||||||
2,674,810 | ||||||||
|
| |||||||
| Food Products (0.3%): |
| ||||||
2,185,000 | Bunge, Ltd. Finance Corp., 5.10%, 7/15/15 | 2,232,450 | ||||||
795,000 | General Mills, Inc., 2.20%, 10/21/19^ | 788,321 | ||||||
132,000 | Mondelez International, Inc., 6.50%, 2/9/40 | 175,921 | ||||||
214,000 | Tyson Foods, Inc., 3.95%, 8/15/24, Callable 5/15/24 @ 100^ | 221,216 | ||||||
193,000 | Tyson Foods, Inc., 4.88%, 8/15/34, Callable 2/15/34 @ 100 | 211,715 | ||||||
199,000 | Tyson Foods, Inc., 5.15%, 8/15/44, Callable 2/15/43 @ 100^ | 223,512 | ||||||
|
| |||||||
3,853,135 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.3%): | |||||||
297,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 300,906 | ||||||
465,000 | CareFusion Corp., 3.88%, 5/15/24, Callable 2/15/24 @ 100^ | 479,876 | ||||||
370,000 | CareFusion Corp., 4.88%, 5/15/44, Callable 11/15/43 @ 100 | 394,109 |
Continued
7
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
$ | 525,000 | Edwards Lifesciences Corp., 2.88%, 10/15/18 | $ | 532,211 | ||||
1,017,000 | Medtronic, Inc., 3.15%, 3/15/22(a) | 1,029,891 | ||||||
361,000 | Medtronic, Inc., 4.38%, 3/15/35(a) | 382,969 | ||||||
290,000 | Medtronic, Inc., 4.00%, 4/1/43, Callable 10/1/42 @ 100 | 276,498 | ||||||
465,000 | Medtronic, Inc., 4.63%, 3/15/44, Callable 9/15/43 @ 100 | 500,548 | ||||||
|
| |||||||
3,897,008 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.3%): | |||||||
220,000 | Aetna, Inc., 3.95%, 9/1/20 | 232,303 | ||||||
840,000 | Express Scripts Holding Co., 2.25%, 6/15/19 | 831,005 | ||||||
950,000 | McKesson Corp., 2.28%, 3/15/19^ | 948,016 | ||||||
1,555,000 | WellPoint, Inc., 1.25%, 9/10/15 | 1,561,292 | ||||||
|
| |||||||
3,572,616 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.0%): | |||||||
305,000 | Wyndham Worldwide Corp., 2.95%, 3/1/17, Callable 2/1/17 @ 100 | 311,477 | ||||||
225,000 | Wyndham Worldwide Corp., 5.63%, 3/1/21 | 251,594 | ||||||
|
| |||||||
563,071 | ||||||||
|
| |||||||
| Household Durables (0.0%): | |||||||
635,000 | MDC Holdings, Inc., 6.00%, 1/15/43, Callable 10/15/42 @ 100 | 527,050 | ||||||
|
| |||||||
| Household Products (0.1%): |
| ||||||
695,000 | Tupperware Brands Corp., 4.75%, 6/1/21, Callable 6/1/21 @ 100 | 743,959 | ||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.1%): |
| ||||||
175,000 | Louisville Gas & Electric Co., 1.63%, 11/15/15 | 176,324 | ||||||
520,000 | Oglethorpe Power Corp., 4.55%, 6/1/44 | 548,231 | ||||||
125,000 | Ohio Power Co., Series M, 5.38%, 10/1/21 | 144,598 | ||||||
|
| |||||||
869,153 | ||||||||
|
| |||||||
| Insurance (0.6%): | |||||||
1,000,000 | American Financial Group, Inc., 9.88%, 6/15/19 | 1,284,564 | ||||||
345,000 | American International Group, Inc., 2.30%, 7/16/19, Callable 6/16/19 @ 100^ | 345,351 | ||||||
205,000 | Berkley (WR) Corp., 4.63%, 3/15/22^ | 219,827 | ||||||
115,000 | CNA Financial Corp., 5.88%, 8/15/20^ | 131,277 | ||||||
870,000 | Farmers Exchange Capital III, 5.45%, 10/15/54, Callable 10/15/34 @ 100(a)(b) | 896,100 | ||||||
675,000 | Hartford Financial Services Group, Inc. (The), 4.00%, 3/30/15 | 680,336 | ||||||
660,000 | Liberty Mutual Group, Inc., 4.85%, 8/1/44(a) | 670,873 | ||||||
320,000 | Lincoln National Corp., 4.00%, 9/1/23^ | 331,993 | ||||||
210,000 | Markel Corp., 5.00%, 3/30/43 | 222,998 | ||||||
295,000 | Marsh & McLennan Cos., Inc., 4.05%, 10/15/23, Callable 7/15/23 @ 100 | 311,685 | ||||||
860,000 | Nationwide Financial Services, Inc., 5.30%, 11/18/44(a) | 907,260 | ||||||
75,000 | Pacific Life Corp., 6.00%, 2/10/20(a) | 85,251 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Insurance, continued |
| ||||||
$ | 80,000 | Prudential Financial, Inc., Series D, 4.75%, 9/17/15, MTN | $ | 82,090 | ||||
35,000 | Prudential Financial, Inc., 6.63%, 12/1/37, MTN | 46,192 | ||||||
280,000 | Prudential Financial, Inc., 5.10%, 8/15/43, MTN^ | 315,381 | ||||||
560,000 | Reinsurance Group of America, Inc., 4.70%, 9/15/23 | 601,752 | ||||||
440,000 | Travelers Cos., Inc. (The), 4.60%, 8/1/43^ | 493,947 | ||||||
|
| |||||||
7,626,877 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.1%): |
| ||||||
846,000 | Amazon.com, Inc., 4.80%, 12/5/34, Callable 6/5/34 @ 100 | 888,078 | ||||||
795,000 | QVC, Inc., 5.45%, 8/15/34, Callable 2/15/34 @ 100 | 775,739 | ||||||
|
| |||||||
1,663,817 | ||||||||
|
| |||||||
| IT Services (0.0%): | |||||||
315,000 | Computer Sciences Corp., 4.45%, 9/15/22 | 322,218 | ||||||
|
| |||||||
| Machinery (0.0%): | |||||||
655,000 | Deere & Co., 2.60%, 6/8/22, Callable 3/8/22 @ 100 | 644,373 | ||||||
|
| |||||||
| Media (0.9%): | |||||||
135,000 | Comcast Corp., 5.70%, 5/15/18 | 152,017 | ||||||
415,000 | Comcast Corp., 4.25%, 1/15/33 | 439,455 | ||||||
245,000 | Comcast Corp., 6.45%, 3/15/37 | 325,953 | ||||||
1,520,000 | Cox Communications, Inc., 8.38%, 3/1/39(a) | 2,166,997 | ||||||
240,000 | Cox Communications, Inc., 4.70%, 12/15/42(a) | 239,787 | ||||||
2,185,000 | DIRECTV Holdings LLC / DIRECTV Financing Co., Inc., 5.15%, 3/15/42 | 2,257,891 | ||||||
1,445,000 | Discovery Communications, Inc., 3.70%, 6/1/15 | 1,461,441 | ||||||
200,000 | Interpublic Group of Cos., Inc., 2.25%, 11/15/17 | 200,379 | ||||||
65,000 | NBCUniversal Media LLC, 5.15%, 4/30/20 | 73,762 | ||||||
75,000 | NBCUniversal Media LLC, 5.95%, 4/1/41 | 96,444 | ||||||
2,000,000 | Time Warner Cable, Inc., 5.00%, 2/1/20 | 2,203,970 | ||||||
160,000 | Time Warner Cable, Inc., 5.88%, 11/15/40, Callable 5/15/40 @ 100 | 190,777 | ||||||
40,000 | Time Warner, Inc., 5.88%, 11/15/16 | 43,358 | ||||||
328,000 | Viacom, Inc., 4.85%, 12/15/34, Callable 6/15/34 @ 100 | 335,664 | ||||||
|
| |||||||
10,187,895 | ||||||||
|
| |||||||
| Metals & Mining (0.0%): | |||||||
350,000 | Barrick NA Finance LLC, 5.70%, 5/30/41 | 343,627 | ||||||
215,000 | Newmont Mining Corp., 3.50%, 3/15/22, Callable 12/15/21 @ 100^ | 202,046 | ||||||
72,000 | Southern Copper Corp., 5.25%, 11/8/42^ | 64,321 | ||||||
|
| |||||||
609,994 | ||||||||
|
|
Continued
8
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Multiline Retail (0.0%): |
| ||||||
$ | 330,000 | Dollar General Corp., 3.25%, 4/15/23, Callable 1/15/23 @ 100 | $ | 300,381 | ||||
|
| |||||||
| Multi-Utilities (0.0%): | |||||||
250,000 | Dominion Resources, Inc., 5.75%, 10/1/54, Callable 10/1/24 @ 100^(b) | 260,854 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.0%): | |||||||
335,000 | Chevron Corp., 1.72%, 6/24/18, Callable 5/24/18 @ 100^ | 336,693 | ||||||
808,000 | ConocoPhillips Co., 2.88%, 11/15/21, Callable 9/15/21 @ 100 | 816,056 | ||||||
867,000 | ConocoPhillips Co., 4.15%, 11/15/34, Callable 5/15/34 @ 100 | 889,614 | ||||||
405,000 | Devon Energy Corp., 2.25%, 12/15/18, Callable 11/15/18 @ 100^ | 403,540 | ||||||
385,000 | Devon Energy Corp., 3.25%, 5/15/22, Callable 2/15/22 @ 100^ | 378,207 | ||||||
385,000 | Enable Midstream Partners LP, 2.40%, 5/15/19, Callable 4/15/19 @ 100(a) | 374,452 | ||||||
55,000 | Enterprise Products Operating LP, 5.25%, 1/31/20 | 60,792 | ||||||
75,000 | Enterprise Products Partners LP, 6.50%, 1/31/19^ | 85,962 | ||||||
350,000 | Enterprise Products Partners LP, 2.55%, 10/15/19, Callable 9/15/19 @ 100 | 346,476 | ||||||
503,000 | Kinder Morgan (Delaware), Inc., 5.30%, 12/1/34, Callable 6/1/34 @ 100^ | 510,573 | ||||||
1,670,000 | Marathon Oil Corp., 0.90%, 11/1/15 | 1,665,128 | ||||||
640,000 | Noble Energy, Inc., 5.25%, 11/15/43, Callable 5/15/43 @ 100 | 649,950 | ||||||
190,000 | Phillips 66, 1.95%, 3/5/15 | 190,481 | ||||||
175,000 | Plains All American Pipeline LP, 3.65%, 6/1/22, Callable 3/1/22 @ 100 | 175,946 | ||||||
365,000 | Southwestern Energy Co., 4.10%, 3/15/22, Callable 12/15/21 @ 100^ | 358,208 | ||||||
45,000 | Spectra Energy Capital Corp., 7.50%, 9/15/38 | 54,313 | ||||||
470,000 | Sunoco Logistics Partners LP, 5.50%, 2/15/20 | 514,174 | ||||||
710,000 | Sunoco Logistics Partners LP, 5.30%, 4/1/44, Callable 10/1/43 @ 100^ | 715,645 | ||||||
45,000 | Texas East Transmission, 7.00%, 7/15/32 | 60,414 | ||||||
215,000 | Valmont Industries, Inc., 5.00%, 10/1/44, Callable 4/1/44 @ 100 | 217,447 | ||||||
830,000 | Western Gas Partners LP, 5.45%, 4/1/44, Callable 10/1/43 @ 100 | 874,066 | ||||||
1,200,000 | Williams Partners LP, 3.80%, 2/15/15 | 1,203,428 | ||||||
755,000 | Williams Partners LP, 5.40%, 3/4/44, Callable 9/4/43 @ 100 | 739,143 | ||||||
|
| |||||||
11,620,708 | ||||||||
|
| |||||||
| Paper & Forest Products (0.0%): | |||||||
125,000 | International Paper Co., 6.00%, 11/15/41, Callable 5/15/41 @ 100 | 146,341 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Personal Products (0.0%): | |||||||
$ | 18,000 | Avon Products, Inc., 2.38%, 3/15/16 | $ | 17,820 | ||||
|
| |||||||
| Pharmaceuticals (0.2%): | |||||||
885,000 | AbbVie, Inc., 1.20%, 11/6/15 | 887,601 | ||||||
110,000 | Express Scripts, Inc., 3.13%, 5/15/16 | 113,074 | ||||||
85,000 | GlaxoSmithKline plc, 5.65%, 5/15/18^ | 95,755 | ||||||
75,000 | Medco Health Solutions, Inc., 2.75%, 9/15/15 | 75,984 | ||||||
95,000 | Merck & Co., Inc., 5.00%, 6/30/19^ | 107,245 | ||||||
567,000 | Walgreens Boots Alliance, Inc., 3.30%, 11/18/21, Callable 9/18/21 @ 100 | 570,945 | ||||||
418,000 | Walgreens Boots Alliance, Inc., 4.50%, 11/18/34, Callable 5/18/34 @ 100 | 435,306 | ||||||
213,000 | Zoetis, Inc., 4.70%, 2/1/43, Callable 8/1/42 @ 100 | 216,786 | ||||||
|
| |||||||
2,502,696 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.2%): | |||||||
55,000 | American Tower Corp., 4.63%, 4/1/15 | 55,491 | ||||||
510,000 | American Tower Corp., 3.40%, 2/15/19^ | 519,088 | ||||||
115,000 | Digital Realty Trust LP, 4.50%, 7/15/15^ | 116,092 | ||||||
410,000 | HCP, Inc., 4.20%, 3/1/24, Callable 12/1/23 @ 100 | 426,885 | ||||||
475,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/15/24 @ 100 | 482,513 | ||||||
125,000 | Realty Income Corp., 2.00%, 1/31/18, Callable 12/31/17 @ 100 | 125,230 | ||||||
185,000 | Senior Housing Properties Trust, 4.30%, 1/15/16, Callable 10/15/15 @ 100 | 188,862 | ||||||
240,000 | Ventas Realty LP / Capital Corp., 2.70%, 4/1/20, Callable 1/1/20 @ 100^ | 237,491 | ||||||
95,000 | Ventas Realty LP / Capital Corp., 4.25%, 3/1/22 | 99,818 | ||||||
155,000 | Ventas Realty LP / Capital Corp., 5.70%, 9/30/43, Callable 3/30/43 @ 100^ | 185,945 | ||||||
|
| |||||||
2,437,415 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.0%): | |||||||
510,000 | Piedmont Operating Partnership LP, 4.45%, 3/15/24, Callable 12/15/23 @ 100 | 524,249 | ||||||
|
| |||||||
| Road & Rail (0.3%): | |||||||
1,370,000 | Burlington Northern Santa Fe LLC, 5.15%, 9/1/43, Callable 3/1/43 @ 100^ | 1,579,773 | ||||||
140,000 | CSX Corp., 5.50%, 4/15/41, Callable 10/15/40 @ 100^ | 168,898 | ||||||
845,000 | ERAC USA Finance LLC, 2.35%, 10/15/19(a) | 838,702 | ||||||
105,000 | Ryder System, Inc., 3.15%, 3/2/15, MTN | 105,399 | ||||||
18,000 | Union Pacific Corp., 3.65%, 2/15/24, Callable 11/15/23 @ 100 | 19,051 | ||||||
140,000 | Union Pacific Corp., 3.25%, 1/15/25, Callable 10/1/24 @ 100^ | 143,740 | ||||||
465,000 | Union Pacific Corp., 4.85%, 6/15/44, Callable 12/15/43 @ 100^ | 533,659 | ||||||
400,000 | Union Pacific Corp., 4.15%, 1/15/45, Callable 7/15/44 @ 100 | 416,887 | ||||||
|
| |||||||
3,806,109 | ||||||||
|
|
Continued
9
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Software (0.1%): | |||||||
$ | 75,000 | Adobe Systems, Inc., 4.75%, 2/1/20 | $ | 82,330 | ||||
545,000 | Oracle Corp., 4.30%, 7/8/34, Callable 1/8/34 @ 100^ | 583,516 | ||||||
|
| |||||||
665,846 | ||||||||
|
| |||||||
| Specialty Retail (0.3%): | |||||||
520,000 | Advance Auto Parts, Inc., 4.50%, 12/1/23, Callable 9/1/23 @ 100 | 551,007 | ||||||
638,546 | CVS Pass-Through Trust, 6.04%, 12/10/28 | 744,611 | ||||||
1,400,000 | O’Reilly Automotive, Inc., 4.88%, 1/14/21, Callable 10/14/20 @ 100 | 1,537,146 | ||||||
365,000 | Penske Truck Leasing Co. LP, 2.50%, 3/15/16(a) | 370,023 | ||||||
337,000 | Ross Stores, Inc., 3.38%, 9/15/24, Callable 6/15/24 @ 100^ | 337,298 | ||||||
355,000 | Target Corp., 2.90%, 1/15/22^ | 359,199 | ||||||
15,000 | Wal-Mart Stores, Inc., 6.50%, 8/15/37 | 20,640 | ||||||
|
| |||||||
3,919,924 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.0%): | |||||||
195,000 | Cintas Corp., 2.85%, 6/1/16 | 199,928 | ||||||
|
| |||||||
| Tobacco (0.2%): | |||||||
410,000 | Altria Group, Inc., 4.13%, 9/11/15^ | 419,320 | ||||||
310,000 | Philip Morris International, Inc., 3.60%, 11/15/23^ | 323,535 | ||||||
500,000 | Philip Morris International, Inc., 3.25%, 11/10/24^ | 500,244 | ||||||
925,000 | Philip Morris International, Inc., 4.88%, 11/15/43^ | 1,031,217 | ||||||
|
| |||||||
2,274,316 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.0%): | |||||||
395,000 | Air Lease Corp., 4.25%, 9/15/24, Callable 6/15/24 @ 100 | 397,963 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): | |||||||
1,000 | AT&T, Inc., 8.00%, 11/15/31 | 1,474 | ||||||
28,000 | AT&T, Inc., 5.35%, 9/1/40^ | 30,319 | ||||||
730,000 | Crown Castle Towers LLC, 6.11%, 1/15/20(a) | 838,508 | ||||||
25,000 | SBC Communications, Inc., 6.15%, 9/15/34 | 29,691 | ||||||
120,000 | Verizon Communications, Inc., 6.40%, 2/15/38 | 148,063 | ||||||
|
| |||||||
1,048,055 | ||||||||
|
| |||||||
| Total Corporate Bonds (Cost $101,977,219) | 105,112,419 | ||||||
|
| |||||||
| Yankee Dollars (1.8%): |
| ||||||
| Aerospace & Defense (0.0%): |
| ||||||
275,000 | Heathrow Funding, Ltd., 2.50%, 6/25/15(a) | 275,165 | ||||||
|
| |||||||
| Airlines (0.1%): | |||||||
827,888 | Virgin Australia Holdings, Ltd., 5.00%, 10/23/23(a) | 852,726 | ||||||
|
| |||||||
| Banks (0.8%): | |||||||
430,000 | Banco Inbursa SA, 4.13%, 6/6/24^(a) | 421,400 | ||||||
175,000 | Barclays Bank plc, 6.75%, 5/22/19 | 205,923 | ||||||
615,000 | BBVA Bancomer SA, 4.38%, 4/10/24(a) | 618,075 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Banks, continued |
| ||||||
$ | 490,000 | BNP Paribas, 4.25%, 10/15/24^ | $ | 495,044 | ||||
564,000 | Credit Suisse AG, 6.50%, 8/8/23(a) | 619,115 | ||||||
320,000 | Credit Suisse, NY, 3.63%, 9/9/24 | 325,516 | ||||||
105,000 | HBOS plc, Series G, 6.75%, 5/21/18, MTN(a) | 117,022 | ||||||
200,000 | HSBC Holdings plc, 4.25%, 3/14/24 | 208,116 | ||||||
375,000 | ING Bank NV, 3.75%, 3/7/17(a) | 392,438 | ||||||
435,000 | Lloyds Bank plc, 2.30%, 11/27/18 | 439,109 | ||||||
2,425,000 | Mizuho Finance Group (Cayman) 3, Ltd., 4.60%, 3/27/24(a) | 2,512,716 | ||||||
125,000 | National Australia Bank, 3.75%, 3/2/15(a) | 125,622 | ||||||
1,200,000 | Santander U.S. Debt SA, 3.72%, 1/20/15(a) | 1,201,643 | ||||||
995,000 | Societe Generale SA, 5.00%, 1/17/24(a) | 1,000,453 | ||||||
100,000 | Standard Chartered plc, 3.85%, 4/27/15(a) | 100,954 | ||||||
545,000 | Standard Chartered plc, 5.70%, 3/26/44(a) | 566,906 | ||||||
35,000 | UBS AG Stamford CT, Series BKNT, 5.88%, 12/20/17 | 39,081 | ||||||
120,000 | UBS AG Stamford CT, Series BKNT, 5.75%, 4/25/18 | 134,993 | ||||||
|
| |||||||
9,524,126 | ||||||||
|
| |||||||
| Beverages (0.0%): | |||||||
80,000 | FBG Finance, Ltd., 5.13%, 6/15/15(a) | 81,584 | ||||||
|
| |||||||
| Chemicals (0.1%): | |||||||
650,000 | Montell Finance Co. BV, 8.10%, 3/15/27(a) | 871,042 | ||||||
|
| |||||||
| Diversified Financial Services (0.1%): | |||||||
830,000 | BP Capital Markets plc, 2.24%, 5/10/19^ | 828,993 | ||||||
|
| |||||||
| Diversified Telecommunication Services (0.0%): | |||||||
465,000 | British Telecommunications plc, 1.25%, 2/14/17 | 462,685 | ||||||
320,000 | Telefonica Emisiones SAU, 7.05%, 6/20/36 | 420,954 | ||||||
|
| |||||||
883,639 | ||||||||
|
| |||||||
| Electric Utilities (0.2%): | |||||||
50,000 | Electricite de France SA, 4.60%, 1/27/20(a) | 55,049 | ||||||
765,000 | Electricite de France SA, 4.88%, 1/22/44(a) | 849,029 | ||||||
785,000 | Electricite de France SA, 5.63%, 12/31/49, Callable 1/22/24 @ 100, Perpetual Bond(a)(b) | 827,194 | ||||||
|
| |||||||
1,731,272 | ||||||||
|
| |||||||
| Food Products (0.1%): |
| ||||||
685,000 | Grupo Bimbo SAB de C.V., 3.88%, 6/27/24(a) | 687,692 | ||||||
|
| |||||||
| Industrial Conglomerates (0.0%): | |||||||
350,000 | Pentair Finance SA, 5.00%, 5/15/21, Callable 2/15/21 @ 100 | 389,322 | ||||||
|
| |||||||
| Insurance (0.0%): | |||||||
100,000 | AEGON NV, 4.63%, 12/1/15 | 103,467 | ||||||
|
| |||||||
| Internet Software & Services (0.1%): | |||||||
455,000 | Baidu, Inc., 3.25%, 8/6/18 | 465,107 | ||||||
490,000 | Tencent Holdings, Ltd., 3.38%, 5/2/19(a) | 498,055 | ||||||
|
| |||||||
963,162 | ||||||||
|
| |||||||
| Media (0.0%): | |||||||
400,000 | Grupo Televisa SAB, 5.00%, 5/13/45 | 406,896 | ||||||
|
|
Continued
10
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Metals & Mining (0.1%): | |||||||
$ | 205,000 | ArcelorMittal, 4.25%, 8/5/15 | $ | 208,075 | ||||
145,000 | ArcelorMittal, 9.85%, 6/1/19 | 175,088 | ||||||
30,000 | ArcelorMittal, 7.25%, 3/1/41^ | 30,300 | ||||||
265,000 | Gold Fields Holdings Co., Ltd., 4.88%, 10/7/20(a) | 222,600 | ||||||
100,000 | Rio Tinto Finance (USA), Ltd., 9.00%, 5/1/19 | 126,516 | ||||||
110,000 | Rio Tinto Finance (USA), Ltd., 7.13%, 7/15/28 | 143,290 | ||||||
380,000 | Vale Overseas, Ltd., 5.63%, 9/15/19 | 404,328 | ||||||
65,000 | Vale SA, 5.63%, 9/11/42 | 60,542 | ||||||
230,000 | Xstrata Finance Canada, 1.80%, 10/23/15(a) | 231,497 | ||||||
230,000 | Xstrata Finance Canada, 2.70%, 10/25/17^(a) | 232,692 | ||||||
|
| |||||||
1,834,928 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.0%): | |||||||
150,000 | Husky Energy, Inc., 3.95%, 4/15/22, Callable 1/15/22 @ 100 | 150,522 | ||||||
70,000 | Noble Holding International, Ltd., 2.50%, 3/15/17 | 66,965 | ||||||
390,000 | Petrobras Global Finance Co., 5.63%, 5/20/43 | 317,947 | ||||||
40,000 | Shell International Finance BV, 3.10%, 6/28/15 | 40,507 | ||||||
315,000 | Suncor Energy, Inc., 3.60%, 12/1/24, Callable 9/1/24 @ 100 | 311,269 | ||||||
|
| |||||||
887,210 | ||||||||
|
| |||||||
| Pharmaceuticals (0.1%): | |||||||
850,000 | Actavis Funding SCS, 4.85%, 6/15/44, Callable 12/15/43 @ 100 | 862,525 | ||||||
310,000 | Perrigo Co. plc, 2.30%, 11/8/18 | 309,756 | ||||||
|
| |||||||
1,172,281 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.0%): |
| ||||||
430,000 | Dexus Diversified Trust / Dexus Office Trust, 5.60%, 3/15/21(a) | 488,204 | ||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.1%): | |||||||
665,000 | Seagate HDD Cayman, 5.75%, 12/1/34, Callable 6/1/34 @ 100(a) | 701,332 | ||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.0%): | |||||||
180,000 | Nationwide Building Society, 6.25%, 2/25/20(a) | 211,144 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.0%): | |||||||
200,000 | America Movil SAB de C.V., 2.38%, 9/8/16 | 202,744 | ||||||
335,000 | America Movil SAB de C.V., 4.38%, 7/16/42 | 320,930 | ||||||
75,000 | Deutsche Telekom International Finance BV, 6.00%, 7/8/19 | 87,007 | ||||||
355,000 | Rogers Communications, Inc., 4.50%, 3/15/43, Callable 9/15/42 @ 100 | 356,929 | ||||||
|
| |||||||
967,610 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $23,275,744) | 23,861,795 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages (0.1%): | |||||||
$ | 950,000 | Federal Home Loan Mortgage Corporation, 4.88%, 6/13/18^ | $ | 1,061,981 | ||||
725,000 | Federal National Mortgage Association, 6.63%, 11/15/30 | 832,187 | ||||||
|
| |||||||
1,894,168 | ||||||||
|
| |||||||
| Total U.S. Government Agency Mortgages (Cost $1,744,674) | 1,894,168 | ||||||
|
| |||||||
| U.S. Treasury Obligations (10.4%): | |||||||
| U.S. Treasury Bonds (0.1%) | |||||||
1,220,000 | 3.13%, 8/15/44^ | 1,313,406 | ||||||
|
| |||||||
| U.S. Treasury Notes (10.3%) | |||||||
11,470,000 | 2.25%, 1/31/15^ | 11,489,270 | ||||||
21,879,000 | 0.63%, 12/31/16 | 21,849,945 | ||||||
200,000 | 0.63%, 5/31/17 | 198,859 | ||||||
8,000,000 | 0.75%, 6/30/17^ | 7,970,000 | ||||||
43,495,000 | 1.00%, 12/15/17^ | 43,393,047 | ||||||
13,200,000 | 0.75%, 2/28/18^ | 13,018,500 | ||||||
6,200,000 | 1.25%, 1/31/19 | 6,140,424 | ||||||
16,793,200 | 1.63%, 12/31/19 | 16,768,279 | ||||||
6,000 | 3.63%, 2/15/20 | 6,578 | ||||||
400,000 | 2.63%, 11/15/20 | 417,531 | ||||||
14,279,900 | 2.25%, 11/15/24^ | 14,375,847 | ||||||
|
| |||||||
135,628,280 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $136,969,611) | 136,941,686 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (17.0%): |
| ||||||
224,257,658 | Allianz Variable Insurance Products Securities Lending Collateral Trust(c) | 224,257,658 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 224,257,658 | ||||||
|
| |||||||
| Unaffiliated Investment Company (7.4%): | |||||||
96,897,938 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(d) | 96,897,938 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $96,897,938) | 96,897,938 | ||||||
|
| |||||||
| Total Investment Securities | 1,539,422,093 | ||||||
| Net other assets (liabilities) — (16.9)% | (222,327,339 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 1,317,094,754 | |||||
|
|
Continued
11
AZL Invesco Equity and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
MTN—Medium Term Note
NYS—New York Shares
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $217,877,596. |
(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 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, 2014. The date presented represents the final maturity date. |
(c) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(d) | The rate represents the effective yield at December 31, 2014. |
(e) | 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 investments as of December 31, 2014:
Country | Percentage | |||
— | % | |||
Australia | 0.1 | % | ||
Brazil | — | %NM | ||
British Virgin Islands | 0.2 | % | ||
Canada | 1.1 | % | ||
Cayman Islands | 0.4 | % | ||
France | 1.5 | % | ||
Guernsey | 0.6 | % | ||
Ireland (Republic of) | 1.3 | % | ||
Israel | 0.8 | % | ||
Italy | 0.1 | % | ||
Jersey | — | %NM | ||
Luxembourg | 0.1 | % | ||
Mexico | 0.2 | % | ||
Netherlands | 0.7 | % | ||
Panama | 0.9 | % | ||
Spain | 0.2 | % | ||
Switzerland | 0.9 | % | ||
United Kingdom | 3.5 | % | ||
United States | 87.4 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Short Contracts: |
| |||||||||||||||||||||
British Pound | Bank of New York Mellon | 1/9/15 | 6,720,703 | $ | 10,564,340 | $ | 10,472,822 | $ | 91,518 | |||||||||||||
British Pound | State Street | 1/9/15 | 6,724,180 | 10,572,630 | 10,478,240 | 94,390 | ||||||||||||||||
Canadian Dollar | Bank of New York Mellon | 1/9/15 | 6,888,230 | 6,047,028 | 5,929,297 | 117,731 | ||||||||||||||||
Canadian Dollar | State Street | 1/9/15 | 6,907,539 | 6,063,979 | 5,945,918 | 118,061 | ||||||||||||||||
European Euro | Bank of New York Mellon | 1/9/15 | 10,348,477 | 12,912,415 | 12,521,828 | 390,587 | ||||||||||||||||
European Euro | State Street | 1/9/15 | 10,362,760 | 12,930,393 | 12,539,111 | 391,282 | ||||||||||||||||
Israeli Shekel | Bank of New York Mellon | 1/9/15 | 16,898,963 | 4,309,641 | 4,339,638 | (29,997 | ) | |||||||||||||||
Israeli Shekel | State Street | 1/9/15 | 16,958,438 | 4,321,722 | 4,354,911 | (33,189 | ) | |||||||||||||||
Swiss Franc | Bank of New York Mellon | 1/9/15 | 4,424,887 | 4,593,658 | 4,452,811 | 140,847 | ||||||||||||||||
Swiss Franc | State Street | 1/9/15 | 4,434,139 | 4,602,259 | 4,462,121 | 140,138 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||
$ | 76,918,065 | $ | 75,496,697 | $ | 1,421,368 | |||||||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
12
AZL Invesco Equity and Income Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 1,334,025,134 | |||
|
| ||||
Investment securities, at value* | $ | 1,539,422,093 | |||
Cash | 41,852 | ||||
Interest and dividends receivable | 3,395,115 | ||||
Foreign currency, at value (cost $414,715) | 406,890 | ||||
Unrealized appreciation on forward currency contracts | 1,484,554 | ||||
Receivable for capital shares issued | 227,562 | ||||
Receivable for investments sold | 3,107,460 | ||||
Reclaims receivable | 62,046 | ||||
Prepaid expenses | 10,841 | ||||
|
| ||||
Total Assets | 1,548,158,413 | ||||
|
| ||||
Liabilities: | |||||
Unrealized depreciation on forward currency contracts | 63,186 | ||||
Payable for investments purchased | 4,963,090 | ||||
Payable for capital shares redeemed | 689,544 | ||||
Payable for collateral received on loaned securities | 224,257,658 | ||||
Manager fees payable | 728,721 | ||||
Administration fees payable | 31,915 | ||||
Distribution fees payable | 277,827 | ||||
Custodian fees payable | 10,688 | ||||
Administrative and compliance services fees payable | 2,729 | ||||
Trustee fees payable | 55 | ||||
Other accrued liabilities | 38,246 | ||||
|
| ||||
Total Liabilities | 231,063,659 | ||||
|
| ||||
Net Assets | $ | 1,317,094,754 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,030,996,528 | |||
Accumulated net investment income/(loss) | 26,606,519 | ||||
Accumulated net realized gains/(losses) from investment transactions | 52,688,515 | ||||
Net unrealized appreciation/(depreciation) on investments | 206,803,192 | ||||
|
| ||||
Net Assets | $ | 1,317,094,754 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 79,822,140 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.50 | |||
|
|
* | Includes securities on loan of $217,877,596. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 22,684,270 | |||
Interest | 7,557,508 | ||||
Income from securities lending | 448,732 | ||||
Foreign withholding tax | (378,930 | ) | |||
|
| ||||
Total Investment Income | 30,311,580 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 9,004,823 | ||||
Administration fees | 357,559 | ||||
Distribution fees | 3,001,608 | ||||
Custodian fees | 58,642 | ||||
Administrative and compliance services fees | 15,865 | ||||
Trustee fees | 60,590 | ||||
Professional fees | 68,548 | ||||
Shareholder reports | 43,714 | ||||
Other expenses | 28,085 | ||||
|
| ||||
Total expenses before reductions | 12,639,434 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,125,638 | ) | |||
Less expenses paid indirectly | (1,248 | ) | |||
|
| ||||
Net expenses | 11,512,548 | ||||
|
| ||||
Net Investment Income/(Loss) | 18,799,032 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 57,472,407 | ||||
Net realized gains/(losses) on forward currency contracts | 6,039,733 | ||||
Change in net unrealized appreciation/depreciation on investments | 15,194,631 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 78,706,771 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 97,505,803 | |||
|
|
See accompanying notes to the financial statements.
13
Statements of Changes in Net Assets
AZL Invesco Equity and Income Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 18,799,032 | $ | 9,612,618 | ||||||
Net realized gains/(losses) on investment transactions | 63,512,140 | 36,588,914 | ||||||||
Change in unrealized appreciation/depreciation on investments | 15,194,631 | 120,836,618 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 97,505,803 | 167,038,150 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (9,503,399 | ) | (7,820,810 | ) | ||||||
From net realized gains | (32,152,401 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (41,655,800 | ) | (7,820,810 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 236,866,351 | 381,039,836 | ||||||||
Proceeds from dividends reinvested | 41,655,800 | 7,820,810 | ||||||||
Value of shares redeemed | (89,290,983 | ) | (51,132,119 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 189,231,168 | 337,728,527 | ||||||||
|
|
|
| |||||||
Change in net assets | 245,081,171 | 496,945,867 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 1,072,013,583 | 575,067,716 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,317,094,754 | $ | 1,072,013,583 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 26,606,519 | $ | 8,838,814 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 14,672,295 | 25,992,523 | ||||||||
Dividends reinvested | 2,554,004 | 529,865 | ||||||||
Shares redeemed | (5,547,220 | ) | (3,554,718 | ) | ||||||
|
|
|
| |||||||
Change in shares | 11,679,079 | 22,967,670 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
14
AZL Invesco Equity and Income Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.73 | $ | 12.73 | $ | 11.54 | $ | 11.95 | $ | 10.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.23 | 0.11 | 0.15 | 0.14 | 0.12 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.10 | 3.02 | 1.22 | (0.41 | ) | 1.14 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.33 | 3.13 | 1.37 | (0.27 | ) | 1.26 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.13 | ) | (0.13 | ) | (0.18 | ) | (0.14 | ) | (0.14 | ) | |||||||||||||||
Net Realized Gains | (0.43 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.56 | ) | (0.13 | ) | (0.18 | ) | (0.14 | ) | (0.14 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 16.50 | $ | 15.73 | $ | 12.73 | $ | 11.54 | $ | 11.95 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 8.50 | % | 24.67 | % | 11.91 | % | (2.18 | )%(b) | 11.74 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,317,095 | $ | 1,072,014 | $ | 575,068 | $ | 442,396 | $ | 351,159 | |||||||||||||||
Net Investment Income/(Loss) | 1.57 | % | 1.20 | % | 1.46 | % | 1.57 | % | 1.49 | % | |||||||||||||||
Expenses Before Reductions(c) | 1.05 | % | 1.06 | % | 1.07 | % | 1.09 | % | 1.10 | % | |||||||||||||||
Expenses Net of Reductions | 0.96 | % | 0.97 | % | 0.98 | % | 1.01 | % | 1.02 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 0.96 | % | 0.97 | % | 0.99 | % | 1.01 | % | 1.02 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 119 | % | 52 | % | 29 | % | 28 | % | 37 | % |
(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, 2011, Invesco Advisers, Inc. reimbursed $1,491 to the Fund related to violation of certain investment policies and limitations. The corresponding impact to the return was less than 0.005%. |
(c) | Excludes fee reductions, if any. 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) | The portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
See accompanying notes to the financial statements.
15
AZL Invesco Equity and Income Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Invesco Equity and Income Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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, and reclassification of certain 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.
16
AZL Invesco Equity and Income Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $105.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $44,464 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $76.9 million as of December 31, 2014. The monthly average amount for these contracts was $65.7 million for the year ended December 31, 2014.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value | Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Foreign Exchange Rate Risk Exposure | ||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 1,484,554 | Unrealized depreciation on forward currency contracts | $ | 63,186 |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Foreign Exchange Rate Risk Exposure | ||||||||||
Foreign Currency Contracts | Net realized gains/(losses) on forward currency contracts/ Change in unrealized appreciation/depreciation on investments | $ | 6,039,733 | $ | 1,898,463 |
17
AZL Invesco Equity and Income Fund
Notes to the Financial Statements
December 31, 2014
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL Invesco 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $14,673 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
18
AZL Invesco Equity and Income Fund
Notes to the Financial Statements
December 31, 2014
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
Forward 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Diversified Telecommunication Services | $ | 7,100,456 | $ | 6,983,472 | $ | 14,083,928 | |||||||||
Oil, Gas & Consumable Fuels | 40,646,122 | 31,903,568 | 72,549,690 | ||||||||||||
Pharmaceuticals | 47,995,968 | 19,214,372 | 67,210,340 | ||||||||||||
All Other Common Stocks+ | 694,105,762 | — | 694,105,762 | ||||||||||||
Convertible Bonds+ | — | 95,091,063 | 95,091,063 | ||||||||||||
Convertible Preferred Stocks | |||||||||||||||
Banks | 820,800 | 1,746,077 | 2,566,877 | ||||||||||||
Capital Markets | 598,271 | 2,593,500 | 3,191,771 | ||||||||||||
Oil, Gas & Consumable Fuels | — | 1,656,998 | 1,656,998 | ||||||||||||
Corporate Bonds+ | — | 105,112,419 | 105,112,419 | ||||||||||||
U.S. Government Agency Mortgages | — | 1,894,168 | 1,894,168 | ||||||||||||
U.S. Treasury Obligations | — | 136,941,686 | 136,941,686 | ||||||||||||
Yankee Dollars+ | — | 23,861,795 | 23,861,795 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 224,257,658 | 224,257,658 | ||||||||||||
Unaffiliated Investment Company | 96,897,938 | — | 96,897,938 | ||||||||||||
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Total Investment Securities | 888,165,317 | 651,256,776 | 1,539,422,093 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Forward Currency Contracts | — | 1,421,368 | 1,421,368 | ||||||||||||
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Total Investments | $ | 888,165,317 | $ | 652,678,144 | $ | 1,540,843,461 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as forward currency contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
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AZL Invesco Equity and Income Fund
Notes to the Financial Statements
December 31, 2014
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 Equity and Income Fund | $ | 1,468,243,652 | $ | 1,302,802,837 |
For the year ended December 31, 2014, purchases and sales on long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL Invesco Equity and Income Fund | $ | 994,874,859 | $ | 970,100,807 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
Mortgage-Related and Other Asset-Backed Risk: The Fund may invest in a variety of mortgage-related and other asset-backed securities, which are subject to certain additional risks. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, a Fund that holds mortgage-related securities may exhibit additional volatility. This is known as extension risk. In addition, adjustable and fixed rate mortgage-related securities are subject to call risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. If a Fund purchases mortgage-backed or asset-backed securities that are subordinated to other interests in the same mortgage pool, the Fund may receive payments only after the pool’s obligations to other investors have been satisfied. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may limit substantially the pool’s ability to make payments of principal or interest to the Fund as a holder of such subordinated securities, reducing the values of those securities or in some cases rendering them worthless. An unexpectedly high or low rate of prepayments on a pool’s underlying mortgages may have a similar effect on subordinated securities. A mortgage pool may issue securities subject to various levels of subordination. The risk of non-payment affects securities at each level, although the risk is greater in the case of more highly subordinated securities. A Fund’s investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $1,336,953,404. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 223,125,403 | ||
Unrealized depreciation | (20,656,714 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 202,468,689 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Invesco Equity and Income Fund | $ | 9,503,399 | $ | 32,152,401 | $ | 41,655,800 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
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AZL Invesco Equity and Income Fund
Notes to the Financial Statements
December 31, 2014
The tax character of dividends paid to shareholders during the year ended December 31, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Invesco Equity and Income Fund | $ | 7,820,810 | $ | — | $ | 7,820,810 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Invesco Equity and Income Fund | $ | 32,594,724 | $ | 51,049,948 | $ | — | $ | 202,453,554 | $ | 286,098,226 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Invesco Equity and Income Fund (the Fund) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $32,152,401.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
25
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
28
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
29
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Invesco Growth and Income Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 16
Other Federal Income Tax Information
Page 17
Other Information
Page 18
Approval of Investment Advisory and Subadvisory Agreements
Page 19
Information about the Board of Trustees and Officers
Page 22
This report is submitted for the general information of the shareholder 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.
AZL® Invesco Growth and Income Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Invesco Growth and Income Fund and Invesco Advisers, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Invesco Growth and Income Fund returned 10.00%. That compared to a 13.45% total return for its benchmark, the Russell 1000® Value Index1.
The 12 months through December 31, 2014, were characterized by steady improvement in the U.S. economy and strong returns for U.S. stocks. Equity markets were volatile for the first four months of the year as investors worried that stocks had risen too far, too fast in 2013. Political upheaval in Ukraine and signs of economic sluggishness in the U.S. and China added to investor uncertainty. However, investors began to show confidence in the economic recovery and stocks rallied through the summer. The Federal Reserve reduced its monthly security purchases throughout the year, finally ending all purchases by October. That action had little impact on the market because it was widely expected. However, stocks suffered again in mid-September when the price of oil began to freefall, finishing 2014 at the lowest point in several years. After another sell-off in the equity markets in December, the S&P 500 Index rallied at the end of the month and finished the year on a positive note.
Sectors within the Russell 1000® Value Index were mixed for the reporting period. Some sectors, such as information technology, utilities and health care, returned more than 20%, while others, such as materials and telecommunication services, posted low single-digit returns. Energy was the only sector to post negative returns during the period.
In this environment, stock selection and underweight positions in consumer staples and financials hurt relative performance. In particular, a lack of exposure to REITs2 in the financial sector—adopted because we believed REITs were overvalued—hurt performance when investor demand for yield drove up the prices of those investments.*
Weak stock selection within the consumer discretionary sector also detracted from performance versus the benchmark. The Fund also held a cash position for liquidity purposes. While this allocation was within our typical target range throughout the period, holding cash dampened performance in a strong equity market.*
Stock selection and an underweight position in energy were among the largest contributors to relative performance when energy stocks tumbled on the falling price of oil. Stock selection and an underweight to industrials also helped relative performance, as industrials only posted mid-single digit returns.*
We used currency forward contracts during the period solely for the purpose of hedging the currency exposure of non-U.S.-based companies held in the portfolio. The use of currency forward contracts had a large positive impact on the Fund’s performance relative to its benchmark 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, 2014. |
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. |
2 | The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions. |
1 |
AZL® Invesco Growth and Income Fund Review (unaudited)
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 primarily in income-producing equity securities, including common stocks and convertible 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.
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.
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.
The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Invesco Growth and Income Fund | 10.00 | % | 18.91 | % | 13.12 | % | 7.17 | % | ||||||||
Russell 1000® Value Index | 13.45 | % | 20.89 | % | 15.42 | % | 7.30 | % |
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® Invesco Growth and Income Fund | 1.05 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 |
AZL Invesco Growth and Income Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Invesco Growth and Income Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Invesco Growth and Income Fund | $ | 1,000.00 | $ | 1,031.50 | $ | 4.92 | 0.96 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Invesco Growth and Income Fund | $ | 1,000.00 | $ | 1,020.37 | $ | 4.89 | 0.96 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 29.6 | % | |||
Information Technology | 14.8 | ||||
Health Care | 12.7 | ||||
Consumer Discretionary | 10.5 | ||||
Energy | 10.4 | ||||
Industrials | 8.0 | ||||
Consumer Staples | 5.6 | ||||
Telecommunication Services | 2.5 | ||||
Utilities | 1.5 | ||||
Materials | 1.1 | ||||
|
| ||||
Total Common Stocks | 96.7 | ||||
Securities Held as Collateral for Securities on Loan | 9.0 | ||||
Money Market | 3.1 | ||||
|
| ||||
Total Investment Securities | 108.8 | ||||
Net other assets (liabilities) | (8.8 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Invesco Growth and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (96.7%): |
| ||||||
| Aerospace & Defense (1.0%): |
| ||||||
30,488 | General Dynamics Corp. | $ | 4,195,759 | |||||
|
| |||||||
| Automobiles (1.1%): |
| ||||||
136,007 | General Motors Co. | 4,748,004 | ||||||
|
| |||||||
| Banks (16.5%): |
| ||||||
526,508 | Bank of America Corp. | 9,419,228 | ||||||
92,320 | BB&T Corp.^ | 3,590,325 | ||||||
347,658 | Citigroup, Inc. | 18,811,774 | ||||||
116,740 | Citizens Financial Group, Inc.^ | 2,902,156 | ||||||
90,439 | Comerica, Inc. | 4,236,163 | ||||||
179,150 | Fifth Third Bancorp | 3,650,181 | ||||||
62,308 | First Horizon National Corp.^ | 846,143 | ||||||
305,427 | JPMorgan Chase & Co. | 19,113,622 | ||||||
80,913 | PNC Financial Services Group, Inc. | 7,381,693 | ||||||
|
| |||||||
69,951,285 | ||||||||
|
| |||||||
| Biotechnology (1.4%): |
| ||||||
35,845 | Amgen, Inc. | 5,709,750 | ||||||
|
| |||||||
| Capital Markets (7.4%): |
| ||||||
174,717 | Charles Schwab Corp. (The) | 5,274,706 | ||||||
23,794 | Goldman Sachs Group, Inc. (The) | 4,611,991 | ||||||
288,554 | Morgan Stanley | 11,195,895 | ||||||
65,374 | Northern Trust Corp. | 4,406,208 | ||||||
79,610 | State Street Corp. | 6,249,385 | ||||||
|
| |||||||
31,738,185 | ||||||||
|
| |||||||
| Chemicals (0.5%): |
| ||||||
44,186 | Dow Chemical Co. (The) | 2,015,323 | ||||||
|
| |||||||
| Commercial Services & Supplies (1.0%): |
| ||||||
98,468 | Tyco International plc | 4,318,806 | ||||||
|
| |||||||
| Communications Equipment (1.4%): |
| ||||||
206,257 | Cisco Systems, Inc. | 5,737,038 | ||||||
|
| |||||||
| Consumer Finance (0.5%): |
| ||||||
74,482 | Synchrony Financial* | 2,215,840 | ||||||
|
| |||||||
| Diversified Financial Services (2.0%): |
| ||||||
36,657 | CME Group, Inc. | 3,249,643 | ||||||
123,069 | Voya Financial, Inc. | 5,215,664 | ||||||
|
| |||||||
8,465,307 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.6%): |
| ||||||
63,880 | France Telecom SA | 1,086,232 | ||||||
288,818 | Koninklijke (Royal) KPN NV | 910,472 | ||||||
596,794 | Telecom Italia SpA | 632,837 | ||||||
46,216 | Telefonica SA | 660,994 | ||||||
72,138 | Verizon Communications, Inc. | 3,374,616 | ||||||
|
| |||||||
6,665,151 | ||||||||
|
| |||||||
| Electric Utilities (0.7%): |
| ||||||
70,488 | FirstEnergy Corp.^ | 2,748,327 | ||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (1.2%): |
| ||||||
227,414 | Corning, Inc. | 5,214,603 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Energy Equipment & Services (1.7%): |
| ||||||
86,050 | Baker Hughes, Inc. | $ | 4,824,824 | |||||
81,430 | Ensco plc, Class A, ADR^ | 2,438,829 | ||||||
|
| |||||||
7,263,653 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.3%): |
| ||||||
14,772 | Wal-Mart Stores, Inc. | 1,268,619 | ||||||
|
| |||||||
| Food Products (3.1%): |
| ||||||
92,565 | Archer-Daniels-Midland Co. | 4,813,380 | ||||||
135,958 | Mondelez International, Inc., Class A | 4,938,674 | ||||||
80,167 | Unilever NV, NYS | 3,129,720 | ||||||
|
| |||||||
12,881,774 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.9%): |
| ||||||
51,930 | Medtronic, Inc.^ | 3,749,346 | ||||||
|
| |||||||
| Health Care Providers & Services (2.7%): |
| ||||||
34,682 | Anthem, Inc.^ | 4,358,487 | ||||||
19,711 | Express Scripts Holding Co.* | 1,668,930 | ||||||
51,840 | UnitedHealth Group, Inc. | 5,240,506 | ||||||
|
| |||||||
11,267,923 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.7%): |
| ||||||
158,395 | Carnival Corp. | 7,180,045 | ||||||
|
| |||||||
| Household Products (1.2%): |
| ||||||
57,666 | Procter & Gamble Co. (The) | 5,252,796 | ||||||
|
| |||||||
| Industrial Conglomerates (2.9%): |
| ||||||
477,037 | General Electric Co. | 12,054,725 | ||||||
|
| |||||||
| Insurance (3.2%): |
| ||||||
44,602 | Aon plc | 4,229,608 | ||||||
100,172 | Marsh & McLennan Cos., Inc. | 5,733,845 | ||||||
78,685 | Willis Group Holdings plc | 3,525,875 | ||||||
|
| |||||||
13,489,328 | ||||||||
|
| |||||||
| Internet Software & Services (1.6%): |
| ||||||
116,797 | eBay, Inc.* | 6,554,648 | ||||||
|
| |||||||
| IT Services (1.2%): |
| ||||||
108,145 | Amdocs, Ltd. | 5,045,505 | ||||||
|
| |||||||
| Machinery (2.3%): |
| ||||||
52,304 | Caterpillar, Inc. | 4,787,385 | ||||||
79,593 | Ingersoll-Rand plc | 5,045,401 | ||||||
|
| |||||||
9,832,786 | ||||||||
|
| |||||||
| Media (5.9%): |
| ||||||
120,295 | Comcast Corp., Class A | 6,978,313 | ||||||
92,628 | Thomson Reuters Corp.^ | 3,737,817 | ||||||
31,504 | Time Warner Cable, Inc. | 4,790,498 | ||||||
35,652 | Time Warner Cable, Inc. | 3,045,394 | ||||||
85,857 | Viacom, Inc., Class B | 6,460,739 | ||||||
|
| |||||||
25,012,761 | ||||||||
|
| |||||||
| Metals & Mining (0.6%): |
| ||||||
105,367 | Freeport-McMoRan Copper & Gold, Inc. | 2,461,373 | ||||||
|
| |||||||
| Multiline Retail (1.8%): |
| ||||||
97,481 | Target Corp.^ | 7,399,783 | ||||||
|
|
Continued
4
AZL Invesco Growth and Income Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Multi-Utilities (0.8%): |
| ||||||
61,830 | PG&E Corp. | $ | 3,291,829 | |||||
|
| |||||||
| Oil, Gas & Consumable Fuels (8.7%): |
| ||||||
43,018 | Anadarko Petroleum Corp. | 3,548,985 | ||||||
73,685 | Apache Corp.^ | 4,617,839 | ||||||
142,826 | Canadian Natural Resources, Ltd. | 4,416,969 | ||||||
45,187 | Exxon Mobil Corp. | 4,177,538 | ||||||
49,787 | Occidental Petroleum Corp. | 4,013,330 | ||||||
321,438 | Royal Dutch Shell plc, A Shares | 10,653,230 | ||||||
102,021 | Total SA | 5,259,500 | ||||||
|
| |||||||
36,687,391 | ||||||||
|
| |||||||
| Pharmaceuticals (7.7%): |
| ||||||
82,844 | Eli Lilly & Co. | 5,715,408 | ||||||
33,162 | Hospira, Inc.* | 2,031,173 | ||||||
109,631 | Merck & Co., Inc. | 6,225,944 | ||||||
4,570 | Novartis AG, ADR | 423,456 | ||||||
64,177 | Novartis AG, Registered Shares | 5,903,979 | ||||||
99,769 | Pfizer, Inc. | 3,107,804 | ||||||
41,129 | Sanofi-Aventis SA | 3,747,885 | ||||||
99,051 | Teva Pharmaceutical Industries, Ltd., ADR | 5,696,423 | ||||||
|
| |||||||
32,852,072 | ||||||||
|
| |||||||
| Road & Rail (0.8%): |
| ||||||
88,784 | CSX Corp. | 3,216,644 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (4.0%): |
| ||||||
290,129 | Applied Materials, Inc.^ | 7,230,015 | ||||||
97,348 | Broadcom Corp., Class A | 4,218,089 | ||||||
154,200 | Intel Corp. | 5,595,918 | ||||||
|
| |||||||
17,044,022 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software (4.6%): |
| ||||||
62,098 | Adobe Systems, Inc.* | $ | 4,514,525 | |||||
52,057 | Citrix Systems, Inc.* | 3,321,237 | ||||||
116,267 | Microsoft Corp. | 5,400,602 | ||||||
236,185 | Symantec Corp. | 6,059,326 | ||||||
|
| |||||||
19,295,690 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.8%): |
| ||||||
85,917 | NetApp, Inc. | 3,561,260 | ||||||
|
| |||||||
| Tobacco (1.0%): |
| ||||||
51,555 | Philip Morris International, Inc. | 4,199,155 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.9%): |
| ||||||
114,522 | Vodafone Group plc, ADR | 3,913,217 | ||||||
|
| |||||||
| Total Common Stocks (Cost $290,257,300) | 408,499,723 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (9.0%): |
| ||||||
$ | 38,060,158 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 38,060,158 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 38,060,158 | ||||||
|
| |||||||
| Unaffiliated Investment Company (3.1%): |
| ||||||
12,965,089 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 12,965,089 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $12,965,089) | 12,965,089 | ||||||
|
| |||||||
| Total Investment Securities (Cost $341,282,547)(c) — 108.8% | 459,524,970 | ||||||
| Net other assets (liabilities) — (8.8)% | (37,218,292 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 422,306,678 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
NYS—New York Shares
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $36,807,005. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
5
AZL Invesco Growth and Income Fund
Schedule of Portfolio Investments
December 31, 2014
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Canada | 1.8 | % | ||
France | 2.2 | % | ||
Guernsey | 1.1 | % | ||
Ireland (Republic of) | 2.0 | % | ||
Israel | 1.2 | % | ||
Italy | 0.1 | % | ||
Netherlands | 0.9 | % | ||
Panama | 1.6 | % | ||
Spain | 0.1 | % | ||
Switzerland | 1.4 | % | ||
United Kingdom | 5.4 | % | ||
United States | 82.2 | % | ||
|
| |||
100.0 | % | |||
|
|
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Short Contracts: | ||||||||||||||||||||
British Pound | Bank of New York Mellon | 1/9/15 | 3,288,850 | $ | 5,169,776 | $ | 5,124,991 | $ | 44,785 | |||||||||||
British Pound | State Street | 1/9/15 | 3,290,551 | 5,173,832 | 5,127,641 | 46,191 | ||||||||||||||
Canadian Dollar | Bank of New York Mellon | 1/9/15 | 3,612,004 | 3,170,900 | 3,109,165 | 61,735 | ||||||||||||||
Canadian Dollar | State Street | 1/9/15 | 3,622,129 | 3,179,789 | 3,117,881 | 61,908 | ||||||||||||||
European Euro | Bank of New York Mellon | 1/9/15 | 4,961,247 | 6,190,446 | 6,003,191 | 187,255 | ||||||||||||||
European Euro | State Street | 1/9/15 | 4,968,094 | 6,199,063 | 6,011,476 | 187,587 | ||||||||||||||
Israeli Shekel | Bank of New York Mellon | 1/9/15 | 8,253,581 | 2,104,861 | 2,119,512 | (14,651 | ) | |||||||||||||
Israeli Shekel | State Street | 1/9/15 | 8,282,629 | 2,110,762 | 2,126,971 | (16,209 | ) | |||||||||||||
Swiss Franc | Bank of New York Mellon | 1/9/15 | 2,407,790 | 2,499,626 | 2,422,985 | 76,641 | ||||||||||||||
Swiss Franc | State Street | 1/9/15 | 2,412,825 | 2,504,307 | 2,428,051 | 76,256 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 38,303,362 | $ | 37,591,864 | $ | 711,498 | |||||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
6
AZL Invesco Growth and Income Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 341,282,547 | |||
|
| ||||
Investment securities, at value* | $ | 459,524,970 | |||
Cash | 19,898 | ||||
Interest and dividends receivable | 656,578 | ||||
Foreign currency, at value (cost $210,982) | 205,739 | ||||
Unrealized appreciation on forward currency contracts | 742,358 | ||||
Receivable for investments sold | 1,447,967 | ||||
Reclaims receivable | 38,253 | ||||
Prepaid expenses | 3,572 | ||||
|
| ||||
Total Assets | 462,639,335 | ||||
|
| ||||
Liabilities: | |||||
Unrealized depreciation on forward currency contracts | 30,860 | ||||
Payable for investments purchased | 1,686,909 | ||||
Payable for capital shares redeemed | 195,652 | ||||
Payable for collateral received on loaned securities | 38,060,158 | ||||
Manager fees payable | 236,271 | ||||
Administration fees payable | 10,592 | ||||
Distribution fees payable | 90,057 | ||||
Custodian fees payable | 5,887 | ||||
Administrative and compliance services fees payable | 933 | ||||
Trustee fees payable | 19 | ||||
Other accrued liabilities | 15,319 | ||||
|
| ||||
Total Liabilities | 40,332,657 | ||||
|
| ||||
Net Assets | $ | 422,306,678 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 252,711,437 | |||
Accumulated net investment income/(loss) | 11,095,072 | ||||
Accumulated net realized gains/(losses) from investment transactions | 39,555,900 | ||||
Net unrealized appreciation/(depreciation) on investments | 118,944,269 | ||||
|
| ||||
Net Assets | $ | 422,306,678 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 25,815,033 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.36 | |||
|
|
* | Includes securities on loan of $36,807,005 |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 12,458,020 | |||
Income from securities lending | 78,534 | ||||
Foreign withholding tax | (209,011 | ) | |||
|
| ||||
Total Investment Income | 12,327,543 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,198,821 | ||||
Administration fees | 121,704 | ||||
Distribution fees | 1,072,867 | ||||
Custodian fees | 30,871 | ||||
Administrative and compliance services fees | 5,743 | ||||
Trustee fees | 22,276 | ||||
Professional fees | 23,860 | ||||
Shareholder reports | 19,169 | ||||
Other expenses | 10,372 | ||||
|
| ||||
Total expenses before reductions | 4,505,683 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (384,361 | ) | |||
Less expenses paid indirectly | (709 | ) | |||
|
| ||||
Net expenses | 4,120,613 | ||||
|
| ||||
Net Investment Income/(Loss) | 8,206,930 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 39,703,278 | ||||
Net realized gains/(losses) on forward currency contracts | 3,224,877 | ||||
Change in net unrealized appreciation/depreciation on investments | (10,247,694 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 32,680,461 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 40,887,391 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL Invesco Growth and Income Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 8,206,930 | $ | 4,581,674 | ||||||
Net realized gains/(losses) on investment transactions | 42,928,155 | 24,382,044 | ||||||||
Change in unrealized appreciation/depreciation on investments | (10,247,694 | ) | 81,222,964 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 40,887,391 | 110,186,682 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (4,209,495 | ) | (3,756,211 | ) | ||||||
From net realized gains | (13,527,318 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (17,736,813 | ) | (3,756,211 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 15,127,035 | 45,473,781 | ||||||||
Proceeds from dividends reinvested | 17,736,813 | 3,756,211 | ||||||||
Value of shares redeemed | (73,171,753 | ) | (44,881,583 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (40,307,905 | ) | 4,348,409 | |||||||
|
|
|
| |||||||
Change in net assets | (17,157,327 | ) | 110,778,880 | |||||||
Net Assets: | ||||||||||
Beginning of period | 439,464,005 | 328,685,125 | ||||||||
|
|
|
| |||||||
End of period | $ | 422,306,678 | $ | 439,464,005 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 11,095,072 | $ | 4,524,356 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 954,104 | 3,283,999 | ||||||||
Dividends reinvested | 1,096,218 | 262,856 | ||||||||
Shares redeemed | (4,575,778 | ) | (3,280,232 | ) | ||||||
|
|
|
| |||||||
Change in shares | (2,525,456 | ) | 266,623 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL Invesco Growth and Income Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.51 | $ | 11.71 | $ | 10.39 | $ | 10.70 | $ | 9.61 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.33 | 0.16 | 0.14 | 0.15 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.21 | 3.77 | 1.35 | (0.36 | ) | 1.11 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.54 | 3.93 | 1.49 | (0.21 | ) | 1.18 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.13 | ) | (0.17 | ) | (0.10 | ) | (0.09 | ) | |||||||||||||||
Net Realized Gains | (0.53 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.69 | ) | (0.13 | ) | (0.17 | ) | (0.10 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 16.36 | $ | 15.51 | $ | 11.71 | $ | 10.39 | $ | 10.70 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 10.00 | % | 33.69 | % | 14.33 | % | (1.94 | )%(b) | 12.37 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 422,307 | $ | 439,464 | $ | 328,685 | $ | 251,302 | $ | 267,458 | |||||||||||||||
Net Investment Income/(Loss) | 1.91 | % | 1.17 | % | 1.43 | % | 1.32 | % | 1.03 | % | |||||||||||||||
Expenses Before Reductions(c) | 1.05 | % | 1.05 | % | 1.07 | % | 1.09 | % | 1.10 | % | |||||||||||||||
Expenses Net of Reductions | 0.96 | % | 0.96 | % | 0.97 | % | 0.98 | % | 0.99 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 0.96 | % | 0.96 | % | 0.98 | % | 0.99 | % | 1.00 | % | |||||||||||||||
Portfolio Turnover Rate | 29 | % | 31 | % | 32 | % | 22 | % | 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) | During the year ended December 31, 2011, Invesco Advisers, Inc. reimbursed $1,687 to the Fund related to violation of certain investment policies and limitations. The corresponding impact to the return was less than 0.005%. |
(c) | Excludes fee reductions, if any. 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. |
See accompanying notes to the financial statements.
9
AZL Invesco Growth and Income Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Invesco Growth and Income Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL Invesco Growth and Income Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $16.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $7,781 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $38.3 million as of December 31, 2014. The monthly average amount for these contracts was $36.2 million for the year ended December 31, 2014.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value | Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Foreign Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 742,358 | Unrealized depreciation on forward currency contracts | $ | 30,860 |
11
AZL Invesco Growth and Income Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Foreign Currency Contracts | Net realized gains/(losses) on forward currency contracts/Change in unrealized appreciation/depreciation on investments | $ | 3,224,877 | $ | 998,724 |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL Invesco Growth and Income Fund | 0.78 | % | 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 0.675% and above $100 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $5,347 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
12
AZL Invesco Growth and Income Fund
Notes to the Financial Statements
December 31, 2014
non-interested Trustee receives a $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
Forward 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Diversified Telecommunication Services | $ | 3,374,616 | $ | 3,290,535 | $ | 6,665,151 | |||||||||
Oil, Gas & Consumable Fuels | 20,774,661 | 15,912,730 | 36,687,391 | ||||||||||||
Pharmaceuticals | 23,200,208 | 9,651,864 | 32,852,072 | ||||||||||||
All Other Common Stocks+ | 332,295,109 | — | 332,295,109 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 38,060,158 | 38,060,158 | ||||||||||||
Unaffiliated Investment Company | 12,965,089 | — | 12,965,089 | ||||||||||||
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Total Investment Securities | 392,609,683 | 66,915,287 | 459,524,970 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Forward Currency Contracts | — | 711,498 | 711,498 | ||||||||||||
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Total Investments | $ | 392,609,683 | $ | 67,626,785 | $ | 460,236,468 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as forward currency contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
13
AZL Invesco Growth and Income Fund
Notes to the Financial Statements
December 31, 2014
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 Growth and Income Fund | $ | 121,719,660 | $ | 160,569,443 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $342,110,625. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 124,954,849 | ||
Unrealized depreciation | (7,540,504 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 117,414,345 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Invesco Growth and Income Fund | $ | 4,209,495 | $ | 13,527,318 | $ | 17,736,813 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Invesco Growth and Income Fund | $ | 3,756,211 | $ | — | $ | 3,756,211 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Invesco Growth and Income Fund | $ | 12,540,549 | $ | 39,649,999 | $ | — | $ | 117,404,693 | $ | 169,595,241 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
14
AZL Invesco Growth and Income Fund
Notes to the Financial Statements
December 31, 2014
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Invesco Growth and Income Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $13,527,318.
17
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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
19
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
20
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
21
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
22
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
23
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Invesco International Equity Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 20
This report is submitted for the general information of the shareholder 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.
AZL® Invesco International Equity Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Invesco International Equity Fund returned 0.25%, that compared to a -4.48% and -2.29% total return for its benchmarks, the MSCI EAFE Index1 and the MSCI ACWI Ex-US Growth Index2, respectively.
While 2014 began on an optimistic note, global equity markets pulled back at various points during the year in reaction to economic and geopolitical concerns. These issues included worries about the potential effect of the U.S. Federal Reserve reducing the scope of its asset purchase program, an Argentine sovereign bond default, and eurozone banking concerns. Global equity markets fell as tensions in Ukraine and the Middle East weakened the outlook for global growth. Advanced economies such as the U.K. and the U.S. saw a modest but stronger rebound than Europe, where a nascent recovery stalled. Meanwhile, the Bank of Japan remained committed to extraordinary monetary stimulus. Equity market performance in emerging markets was mixed. China continued to face headwinds and struggled to balance structural reforms with its growth objectives. However, many countries in Asia, including India, Indonesia and the Philippines, experienced strong gains.
In this environment, we continued to construct the portfolio with a bottom-up approach, selecting stocks on an individual basis. This stock selection helped the Fund outperform its benchmark during the period. An overweight position and stock selection in information technology were the leading contributors to relative performance. Stock selection in health care, financials, and materials also boosted relative performance.*
Geographically, exposure to Europe and the Asia/Pacific region were the primary drivers of relative returns, due to strong stock selection. Top country-level contributors were the U.K., Singapore, and Ireland. In each country, stock selection was the primary driver.*
Stock selection in the utilities sector was the leading detractor from the Fund’s relative performance. Investments in the telecommunication services sector, particularly in the wireless services industry, also detracted from performance versus the Fund’s performance indexes. Geographically, portfolio exposure in Hong Kong was the largest detractor from performance versus the indexes. Portfolio exposure in Germany and Switzerland hurt relative performance as well. In each country, stock selection was the primary cause of underperformance.*
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, 2014. |
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 MSCI ACWI Ex-US Growth Index captures large-and mid-cap securities exhibiting overall growth style characteristics across developed and emerging markets countries. |
Investors cannot invest directly in an index.
1
AZL® Invesco International Equity Fund Review (unaudited)
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 equity securities of foreign issuers that 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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Invesco International Equity Fund | 0.25 | % | 11.23 | % | 7.49 | % | 6.69 | % | ||||||||
MSCI EAFE Index (gross of withholding taxes) | -4.48 | % | 11.56 | % | 5.81 | % | 4.91 | % | ||||||||
MSCI EAFE Index (net of withholding taxes) | -4.90 | % | 11.06 | % | 5.33 | % | 4.43 | % | ||||||||
MSCI ACWI Ex-US Growth Index (gross of withholding taxes) | -2.29 | % | 9.84 | % | 5.54 | % | 5.77 | % | ||||||||
MSCI ACWI Ex-US Growth Index (net of withholding taxes) | -2.65 | % | 9.46 | % | 5.19 | % | 5.43 | % |
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® Invesco International Equity Fund | 1.26 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager 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 and Acquired Fund fees and expenses), to 1.45% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 1.24%. |
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 and the Morgan Stanley Capital International All Country World Index Ex-US Growth (“MSCI ACWI Ex-US Growth”) Index. The MSCI EAFE Index 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 MSCI ACWI Ex-US Growth Index is unmanaged and captures large- and mid-cap securities exhibiting overall growth style characteristics across developed and emerging markets countries. The Indexes 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 Indexes 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 |
AZL Invesco International Equity Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Invesco International Equity Fund | $ | 1,000.00 | $ | 941.80 | $ | 5.82 | 1.19 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Invesco International Equity Fund | $ | 1,000.00 | $ | 1,019.21 | $ | 6.06 | 1.19 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
United Kingdom | 15.9 | % | |||
Switzerland | 8.8 | ||||
Japan | 7.8 | ||||
Canada | 7.3 | ||||
Germany | 6.5 | ||||
Singapore | 4.9 | ||||
Hong Kong | 4.8 | ||||
Brazil | 4.2 | ||||
Australia | 3.7 | ||||
France | 2.9 | ||||
All other countries | 25.7 | ||||
|
| ||||
Total Common Stocks | 92.5 | ||||
Money Market | 6.9 | ||||
Securities Held as Collateral for Securities on Loan | 3.0 | ||||
|
| ||||
Total Investment Securities | 102.4 | ||||
Net other assets (liabilities) | (2.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Invesco International Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (92.5%): |
| ||||||
| Air Freight & Logistics (0.8%): |
| ||||||
137,537 | Deutsche Post AG | $ | 4,499,490 | |||||
|
| |||||||
| Auto Components (1.8%): |
| ||||||
82,400 | DENSO Corp. | 3,840,942 | ||||||
28,639 | Hyundai Mobis Co., Ltd. | 6,096,251 | ||||||
|
| |||||||
9,937,193 | ||||||||
|
| |||||||
| Automobiles (3.7%): |
| ||||||
1,664,500 | Great Wall Motor Co. | 9,394,384 | ||||||
171,800 | Toyota Motor Corp. | 10,715,335 | ||||||
|
| |||||||
20,109,719 | ||||||||
|
| |||||||
| Banks (7.2%): |
| ||||||
1,782,574 | Akbank T.A.S. | 6,576,783 | ||||||
764,201 | Banco Bradesco SA, ADR | 10,217,367 | ||||||
8,104,000 | Industrial & Commercial Bank of China | 5,887,694 | ||||||
973,900 | Kasikornbank Public Co., Ltd. | 6,727,039 | ||||||
516,352 | United Overseas Bank, Ltd. | 9,548,766 | ||||||
|
| |||||||
38,957,649 | ||||||||
|
| |||||||
| Beverages (3.4%): |
| ||||||
76,823 | Anheuser-Busch InBev NV | 8,644,152 | ||||||
86,796 | Carlsberg A/S, Class B | 6,741,457 | ||||||
38,112 | Fomento Economico Mexicano SAB de C.V., ADR* | 3,354,999 | ||||||
|
| |||||||
18,740,608 | ||||||||
|
| |||||||
| Biotechnology (0.8%): |
| ||||||
59,405 | CSL, Ltd. | 4,181,746 | ||||||
|
| |||||||
| Capital Markets (3.6%): |
| ||||||
899,853 | Aberdeen Asset Management plc | 6,009,495 | ||||||
135,519 | Julius Baer Group, Ltd. | 6,186,282 | ||||||
441,326 | UBS Group AG* | 7,588,552 | ||||||
|
| |||||||
19,784,329 | ||||||||
|
| |||||||
| Chemicals (1.3%): |
| ||||||
22,424 | Syngenta AG, Registered Shares | 7,202,530 | ||||||
|
| |||||||
| Commercial Services & Supplies (1.1%): |
| ||||||
704,180 | Brambles, Ltd. | 6,062,823 | ||||||
|
| |||||||
| Communications Equipment (1.1%): |
| ||||||
479,409 | Telefonaktiebolaget LM Ericsson, B Shares | 5,809,931 | ||||||
|
| |||||||
| Containers & Packaging (1.8%): |
| ||||||
921,907 | Amcor, Ltd. | 10,142,643 | ||||||
|
| |||||||
| Diversified Financial Services (4.4%): |
| ||||||
2,130,166 | Bm&f Bovespa SA | 7,896,333 | ||||||
119,455 | Deutsche Boerse AG | 8,559,613 | ||||||
220,266 | Investor AB, B Shares | 7,987,562 | ||||||
|
| |||||||
24,443,508 | ||||||||
|
| |||||||
| Electrical Equipment (2.3%): |
| ||||||
335,533 | ABB, Ltd. | 7,099,234 | ||||||
77,451 | Schneider Electric SA | 5,627,066 | ||||||
|
| |||||||
12,726,300 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.7%): |
| ||||||
9,085 | Keyence Corp. | 4,024,763 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food Products (1.9%): |
| ||||||
193,848 | BRF-Brasil Foods SA | $ | 4,628,074 | |||||
150,648 | Unilever NV | 5,917,168 | ||||||
|
| |||||||
10,545,242 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (1.1%): |
| ||||||
331,103 | Smith & Nephew plc | 6,078,105 | ||||||
|
| |||||||
| Hotels Restaurants & Leisure (1.6%): |
| ||||||
523,347 | Compass Group plc | 8,919,002 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.5%): |
| ||||||
1,456,000 | Galaxy Entertainment Group, Ltd. | 8,105,952 | ||||||
|
| |||||||
| Industrial Conglomerates (2.8%): |
| ||||||
877,000 | Hutchison Whampoa, Ltd. | 10,041,527 | ||||||
804,841 | Keppel Corp., Ltd. | 5,371,854 | ||||||
|
| |||||||
15,413,381 | ||||||||
|
| |||||||
| Insurance (1.1%): |
| ||||||
11,625 | Fairfax Financial Holdings, Ltd. | 6,093,041 | ||||||
|
| |||||||
| Internet Software & Services (3.0%): |
| ||||||
47,180 | Baidu, Inc., ADR* | 10,755,625 | ||||||
1,483,700 | Yahoo! Japan Corp.^ | 5,354,684 | ||||||
|
| |||||||
16,110,309 | ||||||||
|
| |||||||
| IT Services (1.1%): |
| ||||||
148,350 | Amadeus IT Holding SA | 5,894,317 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): |
| ||||||
160,422 | Art Advanced Research Technologies, Inc.*(a) | — | ||||||
165,100 | Art Advanced Research Technologies, Inc.*(a) | — | ||||||
50,591 | Art Advanced Research Technologies, Inc.*(a) | — | ||||||
|
| |||||||
— | ||||||||
|
| |||||||
| Machinery (2.2%): |
| ||||||
33,400 | Fanuc, Ltd. | 5,513,211 | ||||||
292,100 | Komatsu, Ltd. | 6,476,800 | ||||||
|
| |||||||
11,990,011 | ||||||||
|
| |||||||
| Media (12.1%): |
| ||||||
995,755 | British Sky Broadcasting Group plc | 13,857,434 | ||||||
218,079 | Grupo Televisa SA, ADR | 7,427,771 | ||||||
550,301 | Informa plc | 4,014,995 | ||||||
157,642 | ProSiebenSat.1 Media AG, Registered Shares | 6,640,489 | ||||||
143,400 | Publicis Groupe | 10,269,546 | ||||||
700,993 | Reed Elsevier plc | 11,924,809 | ||||||
580,606 | WPP plc | 12,043,882 | ||||||
|
| |||||||
66,178,926 | ||||||||
|
| |||||||
| Multiline Retail (0.9%): |
| ||||||
46,138 | Next plc | 4,865,847 | ||||||
|
| |||||||
| Multi-Utilities (0.7%): |
| ||||||
867,819 | Centrica plc | 3,734,598 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (5.2%): |
| ||||||
154,717 | Cenovus Energy, Inc. | 3,192,911 | ||||||
1,624,000 | CNOOC, Ltd. | 2,197,083 | ||||||
355,612 | EnCana Corp. | 4,950,707 |
Continued
4
AZL Invesco International Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
212,861 | Royal Dutch Shell plc, B Shares | $ | 7,311,713 | |||||
350,790 | Suncor Energy, Inc. | 11,144,340 | ||||||
|
| |||||||
28,796,754 | ||||||||
|
| |||||||
| Pharmaceuticals (7.3%): |
| ||||||
70,872 | Novartis AG, Registered Shares | 6,519,887 | ||||||
113,126 | Novo Nordisk A/S, B Shares | 4,787,437 | ||||||
36,638 | Roche Holding AG | 9,933,377 | ||||||
75,313 | Shire plc | 5,327,985 | ||||||
223,805 | Teva Pharmaceutical Industries, Ltd., ADR^ | 12,871,026 | ||||||
|
| |||||||
39,439,712 | ||||||||
|
| |||||||
| Road & Rail (1.0%): |
| ||||||
78,298 | Canadian National Railway Co. | 5,394,237 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (5.7%): |
| ||||||
117,745 | Avago Technologies, Ltd. | 11,843,970 | ||||||
7,154 | Samsung Electronics Co., Ltd. | 8,600,654 | ||||||
457,306 | Taiwan Semiconductor Manufacturing Co., Ltd., ADR^ | 10,234,508 | ||||||
|
| |||||||
30,679,132 | ||||||||
|
| |||||||
| Software (3.8%): |
| ||||||
245,206 | CGI Group, Inc., Class A* | 9,350,128 | ||||||
161,350 | SAP AG | 11,406,979 | ||||||
|
| |||||||
20,757,107 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Specialty Retail (1.4%): |
| ||||||
1,456,156 | Kingfisher plc | $ | 7,672,432 | |||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.8%): |
| ||||||
64,861 | Adidas AG^ | 4,520,159 | ||||||
|
| |||||||
| Tobacco (3.3%): |
| ||||||
213,929 | British American Tobacco plc | 11,622,159 | ||||||
238,700 | Japan Tobacco, Inc. | 6,555,339 | ||||||
|
| |||||||
18,177,498 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $386,685,949) | 505,988,994 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (3.0%): |
| ||||||
$ | 16,684,360 | Allianz Variable Insurance Products Securities Lending Collateral Trust(b) | 16,684,360 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 16,684,360 | ||||||
|
| |||||||
| Unaffiliated Investment Company (6.9%): |
| ||||||
37,691,322 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(c) | 37,691,322 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $37,691,322) | 37,691,322 | ||||||
|
| |||||||
| Total Investment Securities (Cost $441,061,631)(d) — 102.4% | 560,364,676 | ||||||
| Net other assets (liabilities) — (2.4)% | (12,930,690 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 547,433,986 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $16,287,606. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2014. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(c) | The rate represents the effective yield at December 31, 2014. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—” are either $0 or round to less than $1.
Continued
5
AZL Invesco International Equity Fund
Schedule of Portfolio Investments
December 31, 2014
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Australia | 3.6 | % | ||
Belgium | 1.5 | % | ||
Brazil | 4.1 | % | ||
Canada | 7.2 | % | ||
Cayman Islands | 1.9 | % | ||
China | 1.7 | % | ||
Denmark | 2.1 | % | ||
France | 2.8 | % | ||
Germany | 6.4 | % | ||
Hong Kong | 4.7 | % | ||
Ireland (Republic of) | 2.1 | % | ||
Israel | 2.3 | % | ||
Japan | 7.6 | % | ||
Mexico | 1.9 | % | ||
Netherlands | 1.1 | % | ||
Republic of Korea (South) | 2.6 | % | ||
Singapore | 4.8 | % | ||
Spain | 1.1 | % | ||
Sweden | 2.5 | % | ||
Switzerland | 8.6 | % | ||
Taiwan | 1.8 | % | ||
Thailand | 1.2 | % | ||
Turkey | 1.2 | % | ||
United Kingdom | 15.5 | % | ||
United States | 9.7 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
6
AZL Invesco International Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 441,061,631 | |||
|
| ||||
Investment securities, at value* | $ | 560,364,676 | |||
Cash | 41,211 | ||||
Interest and dividends receivable | 575,326 | ||||
Foreign currency, at value (cost $2,486,823) | 2,397,987 | ||||
Receivable for investments sold | 1,483,993 | ||||
Reclaims receivable | 215,158 | ||||
Prepaid expenses | 4,650 | ||||
|
| ||||
Total Assets | 565,083,001 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 196,338 | ||||
Payable for capital shares redeemed | 160,406 | ||||
Payable for collateral received on loaned securities | 16,684,360 | ||||
Manager fees payable | 398,047 | ||||
Administration fees payable | 14,255 | ||||
Distribution fees payable | 117,073 | ||||
Custodian fees payable | 46,715 | ||||
Administrative and compliance services fees payable | 1,676 | ||||
Trustee fees payable | 34 | ||||
Other accrued liabilities | 30,111 | ||||
|
| ||||
Total Liabilities | 17,649,015 | ||||
|
| ||||
Net Assets | $ | 547,433,986 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 396,536,801 | |||
Accumulated net investment income/(loss) | 5,345,753 | ||||
Accumulated net realized gains/(losses) from investment transactions | 26,350,657 | ||||
Net unrealized appreciation/(depreciation) on investments | 119,200,775 | ||||
|
| ||||
Net Assets | $ | 547,433,986 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 29,763,442 | ||||
Net Asset Value (offering and redemption price per share) | $ | 18.39 | |||
|
|
* | Includes securities on loan of $16,287,606. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 15,558,170 | |||
Income from securities lending | 229,965 | ||||
Foreign withholding tax | (1,368,868 | ) | |||
|
| ||||
Total Investment Income | 14,419,267 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 5,190,941 | ||||
Administration fees | 176,073 | ||||
Distribution fees | 1,441,927 | ||||
Custodian fees | 205,736 | ||||
Administrative and compliance services fees | 8,501 | ||||
Trustee fees | 33,148 | ||||
Professional fees | 37,097 | ||||
Shareholder reports | 27,780 | ||||
Other expenses | 20,754 | ||||
|
| ||||
Total expenses before reductions | 7,141,957 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (288,394 | ) | |||
Less expenses paid indirectly | (13,800 | ) | |||
|
| ||||
Net expenses | 6,839,763 | ||||
|
| ||||
Net Investment Income/(Loss) | 7,579,504 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: |
| ||||
Net realized gains/(losses) on securities transactions | 45,532,166 | ||||
Change in net unrealized appreciation/depreciation on investments | (50,756,874 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (5,224,708 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 2,354,796 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL Invesco International Equity Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 7,579,504 | $ | 6,897,535 | ||||||
Net realized gains/(losses) on investment transactions | 45,532,166 | 19,529,354 | ||||||||
Change in unrealized appreciation/depreciation on investments | (50,756,874 | ) | 68,272,980 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 2,354,796 | 94,699,869 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (8,563,231 | ) | (6,852,326 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (8,563,231 | ) | (6,852,326 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 13,070,434 | 32,525,953 | ||||||||
Proceeds from dividends reinvested | 8,563,231 | 6,852,326 | ||||||||
Value of shares redeemed | (60,336,578 | ) | (44,765,774 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (38,702,913 | ) | (5,387,495 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (44,911,348 | ) | 82,460,048 | |||||||
Net Assets: | ||||||||||
Beginning of period | 592,345,334 | 509,885,286 | ||||||||
|
|
|
| |||||||
End of period | $ | 547,433,986 | $ | 592,345,334 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,345,753 | $ | 5,509,413 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 700,821 | 1,914,600 | ||||||||
Dividends reinvested | 448,806 | 395,631 | ||||||||
Shares redeemed | (3,201,602 | ) | (2,630,848 | ) | ||||||
|
|
|
| |||||||
Change in shares | (2,051,975 | ) | (320,617 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL Invesco International Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 18.62 | $ | 15.87 | $ | 13.97 | $ | 15.24 | $ | 13.61 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.27 | 0.22 | 0.16 | 0.28 | 0.12 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.21 | ) | 2.74 | 2.00 | (1.40 | ) | 1.58 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.06 | 2.96 | 2.16 | (1.12 | ) | 1.70 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.29 | ) | (0.21 | ) | (0.26 | ) | (0.15 | ) | (0.07 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.29 | ) | (0.21 | ) | (0.26 | ) | (0.15 | ) | (0.07 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 18.39 | $ | 18.62 | $ | 15.87 | $ | 13.97 | $ | 15.24 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 0.25 | % | 18.78 | % | 15.56 | % | (7.32 | )%(b) | 12.52 | %(c) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 547,434 | $ | 592,345 | $ | 509,885 | $ | 459,529 | $ | 556,045 | |||||||||||||||
Net Investment Income/(Loss) | 1.31 | % | 1.26 | % | 1.12 | % | 1.72 | % | 1.04 | % | |||||||||||||||
Expenses Before Reductions(d) | 1.24 | % | 1.24 | % | 1.25 | % | 1.27 | % | 1.28 | % | |||||||||||||||
Expenses Net of Reductions | 1.19 | % | 1.19 | % | 1.20 | % | 1.19 | % | 1.15 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e) | 1.19 | % | 1.19 | % | 1.20 | % | 1.19 | % | 1.15 | % | |||||||||||||||
Portfolio Turnover Rate | 23 | % | 28 | % | 27 | % | 30 | % | 39 | % |
(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, 2011, Invesco Advisers, Inc. reimbursed $13,257 to the Fund related to violation of certain investment policies and limitations. The corresponding impact to the return was less than 0.005%. |
(c) | 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 return was 0.01%. |
(d) | Excludes fee reductions, if any. 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. |
See accompanying notes to the financial statements.
9
AZL Invesco International Equity Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Invesco International Equity Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL Invesco International Equity Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $14.8 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $22,750 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL Invesco International Equity Fund | 0.90 | % | 1.45 | % |
* | The Manager voluntarily reduced 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and
11
AZL Invesco International Equity Fund
Notes to the Financial Statements
December 31, 2014
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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $7,191 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Banks | $ | 10,217,367 | $ | 28,740,282 | $ | — | $ | 38,957,649 | ||||||||||||
Beverages | 3,354,999 | 15,385,609 | — | 18,740,608 | ||||||||||||||||
Capital Markets | 7,588,552 | 12,195,777 | — | 19,784,329 | ||||||||||||||||
Insurance | 6,093,041 | — | — | 6,093,041 |
12
AZL Invesco International Equity Fund
Notes to the Financial Statements
December 31, 2014
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Internet Software & Services | $ | 10,755,625 | $ | 5,354,684 | $ | — | $ | 16,110,309 | ||||||||||||
Life Sciences Tools & Services | — | — | — | ^ | — | ^ | ||||||||||||||
Media | 7,427,771 | 58,751,155 | — | 66,178,926 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 19,287,958 | 9,508,796 | — | 28,796,754 | ||||||||||||||||
Pharmaceuticals | 12,871,026 | 26,568,686 | — | 39,439,712 | ||||||||||||||||
Road & Rail | 5,394,237 | — | — | 5,394,237 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 22,078,478 | 8,600,654 | — | 30,679,132 | ||||||||||||||||
Software | 9,350,128 | 11,406,979 | — | 20,757,107 | ||||||||||||||||
All Other Common Stocks+ | — | 215,057,190 | — | 215,057,190 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 16,684,360 | — | 16,684,360 | ||||||||||||||||
Unaffiliated Investment Company | 37,691,322 | — | — | 37,691,322 | ||||||||||||||||
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Total Investment Securities | $ | 152,110,504 | $ | 408,254,172 | $ | — | ^ | $ | 560,364,676 | |||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Represents the interest in securities that were determined to have value of zero at December 31, 2014. |
A reconciliation of assets in which Level 3 inputs are used in determining fair value, along with additional quantitative disclosures, are presented when there are significant Level 3 investments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $123,183,876 | $ | 171,186,633 |
6. Investment Risks
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $447,263,566. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 132,549,797 | ||
Unrealized depreciation | (19,448,687 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 113,101,110 | ||
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During the year ended December 31, 2014, the Fund utilized $14,146,699 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Invesco International Equity Fund | $ | 8,563,231 | $ | — | $ | 8,563,231 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
13
AZL Invesco International Equity Fund
Notes to the Financial Statements
December 31, 2014
The tax character of dividends paid to shareholders during the year ended December 31, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Invesco International Equity Fund | $ | 6,852,326 | $ | — | $ | 6,852,326 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Invesco International Equity Fund | $ | 7,971,201 | $ | 29,922,941 | $ | — | $ | 113,003,043 | $ | 150,897,185 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
15
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.
16
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
17
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
18
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
19
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
20
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
21
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® JPMorgan
International Opportunities Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 8
Statement of Operations
Page 8
Statements of Changes in Net Assets
Page 9
Financial Highlights
Page 10
Notes to the Financial Statements
Page 11
Report of Independent Registered Public Accounting Firm
Page 17
Other Information
Page 18
Approval of Investment Advisory and Subadvisory Agreements
Page 19
Information about the Board of Trustees and Officers
Page 22
This report is submitted for the general information of the shareholder 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.
AZL® JPMorgan International Opportunities Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® JPMorgan International Opportunities Fund and J.P. Morgan Investment Management Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® JPMorgan International Opportunities Fund returned -7.39%. That compared to a -4.48% total return for its benchmark, the MSCI EAFE Index1.
Volatility continued to vex global equity markets over the period, as investors juggled good and bad news. U.S. markets surged on the heels of continued economic recovery and improved corporate balance sheets. In Japan, the central bank expanded its bond buyback program and President Shinzo Abe again delayed an increase of the national sales tax. The European Central Bank also confirmed intentions to grow its balance sheets and possibly broaden its asset-purchase programs.
However, investors faced a series of uncertainties in 2014, including anxiety about global growth and the end of the U.S. Fed’s bond repurchase program, as well as fears of Ebola and another European debt crisis. In addition, currency movement whittled away at gains for U.S.-based investors as the recovery of the U.S. economy and the prospect of rising rates strengthened the dollar compared to most other currencies. Finally, emerging markets fared only slightly worse than their developed counterparts, with performance varied by country.
The Fund underperformed its benchmark for the year, largely due to stock selection. At the sector level, the performance of individual stocks in banks, autos, and energy lagged relative to the benchmark. Stock selection in Japan and the Pacific Rim, in addition to an underweight position in the latter, also detracted from relative performance. Specifically, a company that owns and operates casinos in Macau negatively affected the Fund’s relative performance, thanks to a cooling Chinese economy and a government campaign against corruption that has high rollers cutting back on gambling.*
The Fund’s stock selection in health care, industrial cyclical and basic industries contributed to relative performance. The selection of stocks in the U.K. and continental Europe also added value. For example, a Swedish appliance maker was a positive contributor, fuelled by strong demand in the U.S., on-going cost cutting and improved product mix.*
The Fund made use of derivatives to manage cash flow and reduce currency deviations from the benchmark. Those holdings did not materially impact the Fund’s performance over 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, 2014. |
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
AZL® JPMorgan International Opportunities Fund Review (unaudited)
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 primarily in equity securities of companies from developed countries other than the United States.
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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® JPMorgan International Opportunities Fund | -7.39 | % | 10.36 | % | 4.28 | % | 5.16 | % | ||||||||
MSCI EAFE Index (gross of withholding taxes) | -4.48 | % | 11.56 | % | 5.81 | % | 4.91 | % | ||||||||
MSCI EAFE Index (net of withholding taxes) | -4.90 | % | 11.06 | % | 5.33 | % | 4.43 | % |
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 International Opportunities Fund | 1.29 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager 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 1.39% through April 30, 2016. Additional information pertaining to the December 31, 2014 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” does 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
AZL JPMorgan International Opportunities Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL JPMorgan International Opportunities Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL JPMorgan International Opportunities Fund | $ | 1,000.00 | $ | 897.80 | $ | 5.74 | 1.20 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL JPMorgan International Opportunities Fund | $ | 1,000.00 | $ | 1,019.16 | $ | 6.11 | 1.20 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
United Kingdom | 23.7 | % | |||
Japan | 20.4 | ||||
Switzerland | 13.2 | ||||
France | 11.6 | ||||
Germany | 8.4 | ||||
Netherlands | 4.8 | ||||
Australia | 2.5 | ||||
Hong Kong | 2.1 | ||||
Jersey | 1.8 | ||||
Denmark | 1.6 | ||||
All other countries | 8.7 | ||||
|
| ||||
Total Common Stocks and Preferred Stock | 98.8 | ||||
Securities Held as Collateral for Securities on Loan | 4.7 | ||||
Money Market | 1.2 | ||||
|
| ||||
Total Investment Securities | 104.7 | ||||
Net other assets (liabilities) | (4.7 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL JPMorgan International Opportunities Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks (97.3%): | ||||||||
Aerospace & Defense (1.6%): | ||||||||
134,345 | European Aeronautic Defence & Space Co. NV | $ | 6,671,751 | |||||
54,554 | Thales SA | 2,943,168 | ||||||
|
| |||||||
9,614,919 | ||||||||
|
| |||||||
| Air Freight & Logistics (1.3%): |
| ||||||
394,700 | Yamato Holdings Co., Ltd. | 7,773,105 | ||||||
|
| |||||||
| Airlines (1.2%): |
| ||||||
229,400 | Japan Airlines Co., Ltd. | 6,702,027 | ||||||
|
| |||||||
| Auto Components (2.3%): |
| ||||||
26,792 | Continental AG | 5,688,674 | ||||||
60,406 | Valeo SA | 7,523,114 | ||||||
|
| |||||||
13,211,788 | ||||||||
|
| |||||||
| Automobiles (3.2%): |
| ||||||
105,211 | Daimler AG, Registered Shares | 8,776,778 | ||||||
247,800 | Mazda Motor Corp. | 5,949,217 | ||||||
54,746 | Renault SA | 4,000,122 | ||||||
|
| |||||||
18,726,117 | ||||||||
|
| |||||||
| Banks (11.7%): |
| ||||||
395,602 | Australia & New Zealand Banking Group, Ltd. | 10,288,191 | ||||||
164,299 | BNP Paribas SA | 9,653,769 | ||||||
345,012 | Danske Bank A/S | 9,287,600 | ||||||
1,610,967 | HSBC Holdings plc | 15,222,541 | ||||||
1,040,659 | Intesa Sanpaolo SpA | 3,010,104 | ||||||
2,216,900 | Mitsubishi UFJ Financial Group, Inc. | 12,153,174 | ||||||
220,972 | Sumitomo Mitsui Financial Group, Inc. | 7,985,605 | ||||||
|
| |||||||
67,600,984 | ||||||||
|
| |||||||
| Beverages (1.8%): |
| ||||||
165,190 | SABMiller plc | 8,547,910 | ||||||
50,200 | Suntory Beverage & Food, Ltd. | 1,733,585 | ||||||
|
| |||||||
10,281,495 | ||||||||
|
| |||||||
| Building Products (1.9%): |
| ||||||
88,398 | Compagnie de Saint-Gobain SA | 3,721,051 | ||||||
119,900 | Daikin Industries, Ltd.^ | 7,734,519 | ||||||
|
| |||||||
11,455,570 | ||||||||
|
| |||||||
| Capital Markets (1.5%): |
| ||||||
502,814 | UBS Group AG* | 8,645,831 | ||||||
|
| |||||||
| Chemicals (2.2%): |
| ||||||
75,144 | Air Liquide SA | 9,270,813 | ||||||
27,886 | Solvay SA | 3,766,717 | ||||||
|
| |||||||
13,037,530 | ||||||||
|
| |||||||
| Diversified Financial Services (2.3%): |
| ||||||
511,162 | ING Groep NV* | 6,617,542 | ||||||
568,600 | ORIX Corp. | 7,109,194 | ||||||
|
| |||||||
13,726,736 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (2.1%): |
| ||||||
1,942,560 | Koninklijke (Royal) KPN NV | 6,123,741 | ||||||
111,500 | Nippon Telegraph & Telephone Corp. | 5,738,527 | ||||||
|
| |||||||
11,862,268 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Electric Utilities (0.7%): |
| ||||||
231,676 | E.ON AG | $ | 3,977,862 | |||||
|
| |||||||
| Electrical Equipment (0.9%): |
| ||||||
70,962 | Schneider Electric SA | 5,155,619 | ||||||
|
| |||||||
Electronic Equipment, Instruments & Components (2.4%): | ||||||||
947,000 | Hitachi, Ltd. | 6,930,601 | ||||||
16,000 | Keyence Corp. | 7,088,190 | ||||||
|
| |||||||
14,018,791 | ||||||||
|
| |||||||
| Food & Staples Retailing (1.4%): |
| ||||||
168,800 | Seven & I Holdings Co., Ltd. | 6,089,754 | ||||||
2,447,500 | Sun Art Retail Group, Ltd.^ | 2,427,325 | ||||||
|
| |||||||
8,517,079 | ||||||||
|
| |||||||
| Food Products (3.4%): |
| ||||||
240,665 | Nestle SA, Registered Shares | 17,646,440 | ||||||
111,000 | Nippon Meat Packers, Inc. | 2,428,326 | ||||||
|
| |||||||
20,074,766 | ||||||||
|
| |||||||
| Gas Utilities (1.0%): |
| ||||||
966,000 | Enn Energy Holdings, Ltd. | 5,463,429 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (1.6%): |
| ||||||
497,521 | Smith & Nephew plc | 9,133,065 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (2.2%): |
| ||||||
182,316 | InterContinental Hotels Group plc | 7,304,893 | ||||||
1,054,800 | Sands China, Ltd. | 5,130,900 | ||||||
|
| |||||||
12,435,793 | ||||||||
|
| |||||||
| Household Durables (1.4%): |
| ||||||
270,616 | Electrolux AB, Series B | 7,945,467 | ||||||
|
| |||||||
| Insurance (5.1%): |
| ||||||
206,915 | Assicurazioni Generali SpA | 4,227,901 | ||||||
311,217 | AXA SA | 7,187,182 | ||||||
557,105 | Prudential plc | 12,818,610 | ||||||
67,574 | Swiss Re AG | 5,655,847 | ||||||
|
| |||||||
29,889,540 | ||||||||
|
| |||||||
| Machinery (0.9%): |
| ||||||
398,600 | DMG Mori Seiki Co., Ltd. | 4,953,670 | ||||||
|
| |||||||
| Media (2.7%): |
| ||||||
222,800 | Dentsu, Inc. | 9,377,765 | ||||||
91,151 | Publicis Groupe | 6,527,750 | ||||||
|
| |||||||
15,905,515 | ||||||||
|
| |||||||
| Metals & Mining (3.2%): |
| ||||||
248,290 | First Quantum Minerals, Ltd. | 3,529,288 | ||||||
906,410 | Norsk Hydro ASA | 5,101,500 | ||||||
210,338 | Rio Tinto plc | 9,689,617 | ||||||
|
| |||||||
18,320,405 | ||||||||
|
| |||||||
| Multi-Utilities (2.0%): |
| ||||||
302,281 | GDF Suez | 7,059,027 | ||||||
239,995 | Suez Environnement Co. | 4,159,884 | ||||||
|
| |||||||
11,218,911 | ||||||||
|
|
Continued
4
AZL JPMorgan International Opportunities Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Oil, Gas & Consumable Fuels (5.6%): |
| ||||||
589,903 | BG Group plc | $ | 7,851,075 | |||||
640,408 | Oil Search, Ltd. | 4,136,553 | ||||||
522,640 | Royal Dutch Shell plc, A Shares^ | 17,478,803 | ||||||
207,608 | Statoil ASA | 3,640,704 | ||||||
|
| |||||||
33,107,135 | ||||||||
|
| |||||||
| Paper & Forest Products (1.0%): |
| ||||||
418,943 | Stora Enso OYJ, R Shares^ | 3,728,614 | ||||||
137,773 | UPM-Kymmene OYJ | 2,262,058 | ||||||
|
| |||||||
5,990,672 | ||||||||
|
| |||||||
| Pharmaceuticals (10.8%): |
| ||||||
149,051 | AstraZeneca plc | 10,483,799 | ||||||
88,409 | Bayer AG | 12,084,910 | ||||||
194,004 | Novartis AG, Registered Shares | 17,847,445 | ||||||
66,028 | Roche Holding AG | 17,901,661 | ||||||
74,488 | Shire plc | 5,269,620 | ||||||
|
| |||||||
63,587,435 | ||||||||
|
| |||||||
| Real Estate Management & Development (3.8%): |
| ||||||
2,438,000 | China Overseas Land & Investment, Ltd. | 7,195,819 | ||||||
406,000 | Daiwa House Industry Co., Ltd. | 7,689,187 | ||||||
282,000 | Mitsui Fudosan Co., Ltd. | 7,585,803 | ||||||
|
| |||||||
22,470,809 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.3%): |
| ||||||
301,304 | ARM Holdings plc | 4,638,989 | ||||||
79,965 | ASML Holding NV | 8,566,169 | ||||||
4,804 | Samsung Electronics Co., Ltd. | 5,775,446 | ||||||
|
| |||||||
18,980,604 | ||||||||
|
| |||||||
| Software (1.6%): |
| ||||||
133,676 | SAP AG | 9,450,507 | ||||||
|
| |||||||
| Specialty Retail (1.0%): |
| ||||||
1,062,644 | Kingfisher plc | 5,599,032 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Textiles, Apparel & Luxury Goods (1.6%): |
| ||||||
102,369 | Compagnie Financiere Richemont SA, Registered Shares | $ | 9,070,310 | |||||
|
| |||||||
| Tobacco (2.5%): |
| ||||||
199,458 | British American Tobacco plc | 10,835,991 | ||||||
118,000 | Japan Tobacco, Inc. | 3,240,595 | ||||||
|
| |||||||
14,076,586 | ||||||||
|
| |||||||
| Trading Companies & Distributors (1.8%): |
| ||||||
179,540 | Wolseley plc | 10,219,665 | ||||||
|
| |||||||
| Wireless Telecommunication Services (2.3%): |
| ||||||
3,845,364 | Vodafone Group plc | 13,174,372 | ||||||
|
| |||||||
| Total Common Stocks (Cost $527,490,954) | 565,375,409 | ||||||
|
| |||||||
| Preferred Stock (1.5%): |
| ||||||
| Household Products (1.5%): |
| ||||||
78,005 | Henkel AG & Co. KGaA, Preferred Shares^ | 8,437,156 | ||||||
|
| |||||||
| Total Preferred Stock (Cost $5,646,367) | 8,437,156 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (4.7%): |
| ||||||
$ | 27,438,799 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 27,438,799 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 27,438,799 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.2%): |
| ||||||
7,026,454 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 7,026,454 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $7,026,454) | 7,026,454 | ||||||
|
| |||||||
| Total Investment Securities (Cost $567,602,574)(c) — 104.7% | 608,277,818 | ||||||
| Net other assets (liabilities) — (4.7)% | (27,544,445 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 580,733,373 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $26,106,901. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
5
AZL JPMorgan International Opportunities Fund
Schedule of Portfolio Investments
December 31, 2014
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Australia | 2.4 | % | ||
Belgium | 0.6 | % | ||
Canada | 0.6 | % | ||
China | 1.3 | % | ||
Denmark | 1.5 | % | ||
Finland | 1.0 | % | ||
France | 11.0 | % | ||
Germany | 8.0 | % | ||
Hong Kong | 2.0 | % | ||
Italy | 1.2 | % | ||
Japan | 19.4 | % | ||
Jersey | 1.7 | % | ||
Netherlands | 4.6 | % | ||
Norway | 1.4 | % | ||
Republic of Korea (South) | 0.9 | % | ||
Sweden | 1.3 | % | ||
Switzerland | 12.6 | % | ||
United Kingdom | 22.8 | % | ||
United States | 5.7 | % | ||
|
| |||
100.0 | % | |||
|
|
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (LocalCurrency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Short Contracts: | ||||||||||||||||||||
Australian Dollar | Goldman Sachs | 3/11/15 | 5,323,313 | $ | 4,392,015 | $ | 4,322,677 | $ | 69,338 | |||||||||||
British Pound | State Street | 3/11/15 | 5,869,282 | 9,147,136 | 9,141,473 | 5,663 | ||||||||||||||
Canadian Dollar | State Street | 3/11/15 | 3,755,576 | 3,275,457 | 3,228,622 | 46,835 | ||||||||||||||
European Euro | State Street | 3/11/15 | 6,702,685 | 8,217,894 | 8,114,500 | 103,394 | ||||||||||||||
European Euro | UBS Warburg | 3/11/15 | 970,951 | 1,210,179 | 1,175,467 | 34,712 | ||||||||||||||
Hong Kong Dollar | BNP Paribas | 3/11/15 | 43,931,617 | 5,666,760 | 5,665,745 | 1,015 | ||||||||||||||
Japanese Yen | BNP Paribas | 3/11/15 | 335,276,466 | 2,830,828 | 2,801,346 | 29,482 | ||||||||||||||
Japanese Yen | State Street | 3/11/15 | 213,957,815 | 1,799,533 | 1,787,689 | 11,844 | ||||||||||||||
Norwegian Krone | BNP Paribas | 3/11/15 | 30,475,011 | 4,234,093 | 4,083,796 | 150,297 | ||||||||||||||
Swedish Krona | Australia and New Zealand Banking Group | 3/11/15 | 9,975,074 | 1,310,668 | 1,280,807 | 29,861 | ||||||||||||||
Swiss Franc | State Street | 3/11/15 | 21,211,404 | 21,640,536 | 21,370,402 | 270,134 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 63,725,099 | $ | 62,972,524 | $ | 752,575 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Long Contracts: | ||||||||||||||||||||
Australian Dollar | Barclays Bank | 3/11/15 | 41,551,247 | $ | 34,283,103 | $ | 33,740,760 | $ | (542,343 | ) | ||||||||||
Danish Krone | Barclays Bank | 3/11/15 | 13,268,166 | 2,187,322 | 2,157,713 | (29,609 | ) | |||||||||||||
European Euro | BNP Paribas | 3/11/15 | 4,394,323 | 5,411,107 | 5,319,918 | (91,189 | ) | |||||||||||||
Japanese Yen | Barclays Bank | 3/11/15 | 391,094,395 | 3,233,067 | 3,267,724 | 34,657 | ||||||||||||||
Japanese Yen | Credit Suisse First Boston | 3/11/15 | 348,013,469 | 2,879,481 | 2,907,768 | 28,287 | ||||||||||||||
Singapore Dollar | Goldman Sachs | 3/11/15 | 12,439,280 | 9,400,552 | 9,383,533 | (17,019 | ) | |||||||||||||
Swedish Krona | Barclays Bank | 3/11/15 | 89,661,057 | 11,814,047 | 11,512,542 | (301,505 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 69,208,679 | $ | 68,289,958 | $ | (918,721 | ) | ||||||||||||||
|
|
|
|
|
|
Continued
6
AZL JPMorgan International Opportunities Fund
Schedule of Portfolio Investments
December 31, 2014
At December 31, 2014, the Fund’s open forward cross currency contracts were as follows:
Purchase/Sale | Counterparty | Amount Purchased | Amount Sold | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Hong Kong Dollar/European Euro | Toronto Dominion Bank | 30,631,494 HKD | 3,234,654 EUR | $ | 3,945,781 | $ | 3,980,261 | $ | 34,480 | |||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 3,945,781 | $ | 3,980,261 | $ | 34,480 | |||||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
7
AZL JPMorgan International Opportunities Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 567,602,574 | |||
|
| ||||
Investment securities, at value* | $ | 608,277,818 | |||
Interest and dividends receivable | 445,837 | ||||
Unrealized appreciation on forward currency contracts | 849,999 | ||||
Reclaims receivable | 566,524 | ||||
Prepaid expenses | 5,074 | ||||
|
| ||||
Total Assets | 610,145,252 | ||||
|
| ||||
Liabilities: | |||||
Foreign currency, at value (cost $44,710) | 44,456 | ||||
Unrealized depreciation on forward currency contracts | 981,665 | ||||
Payable for capital shares redeemed | 275,866 | ||||
Payable for collateral received on loaned securities | 27,438,799 | ||||
Manager fees payable | 427,484 | ||||
Administration fees payable | 23,646 | ||||
Distribution fees payable | 125,730 | ||||
Custodian fees payable | 52,110 | ||||
Administrative and compliance services fees payable | 2,136 | ||||
Trustee fees payable | 43 | ||||
Other accrued liabilities | 39,944 | ||||
|
| ||||
Total Liabilities | 29,411,879 | ||||
|
| ||||
Net Assets | $ | 580,733,373 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 520,524,415 | |||
Accumulated net investment income/(loss) | 12,259,056 | ||||
Accumulated net realized gains/(losses) from investment transactions | 7,465,786 | ||||
Net unrealized appreciation/(depreciation) on investments | 40,484,116 | ||||
|
| ||||
Net Assets | $ | 580,733,373 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 33,975,166 | ||||
Net Asset Value (offering and redemption price per share) | $ | 17.09 | |||
|
|
* | Includes securities on loan of $26,106,901. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 25,203,836 | |||
Income from securities lending | 525,853 | ||||
Foreign withholding tax | (2,239,352 | ) | |||
|
| ||||
Total Investment Income | 23,490,337 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 6,020,060 | ||||
Administration fees | 196,514 | ||||
Distribution fees | 1,584,223 | ||||
Custodian fees | 226,442 | ||||
Administrative and compliance services fees | 10,451 | ||||
Trustee fees | 40,756 | ||||
Professional fees | 45,223 | ||||
Shareholder reports | 32,122 | ||||
Other expenses | 22,275 | ||||
|
| ||||
Total expenses before reductions | 8,178,066 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (633,684 | ) | |||
Less expenses paid indirectly | (2,283 | ) | |||
|
| ||||
Net expenses | 7,542,099 | ||||
|
| ||||
Net Investment Income/(Loss) | 15,948,238 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 33,882,169 | ||||
Net realized gains/(losses) on futures contracts | | (726,607 | ) | ||
Net realized gains/(losses) on forward currency contracts | (144,857 | ) | |||
Change in net unrealized appreciation/depreciation on investments | (95,854,784 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (62,844,079 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (46,895,841 | ) | ||
|
|
See accompanying notes to the financial statements.
8
Statements of Changes in Net Assets
AZL JPMorgan International Opportunities Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 15,948,238 | $ | 9,219,841 | ||||||
Net realized gains/(losses) on investment transactions | 33,010,705 | 6,067,184 | ||||||||
Change in unrealized appreciation/depreciation on investments | (95,854,784 | ) | 101,600,441 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (46,895,841 | ) | 116,887,466 | |||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (8,522,582 | ) | (13,943,101 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (8,522,582 | ) | (13,943,101 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 17,848,646 | 42,931,802 | ||||||||
Proceeds from dividends reinvested | 8,522,582 | 13,943,101 | ||||||||
Value of shares redeemed | (61,791,725 | ) | (67,038,138 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (35,420,497 | ) | (10,163,235 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (90,838,920 | ) | 92,781,130 | |||||||
Net Assets: | ||||||||||
Beginning of period | 671,572,293 | 578,791,163 | ||||||||
|
|
|
| |||||||
End of period | $ | 580,733,373 | $ | 671,572,293 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 12,259,056 | $ | 5,161,624 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,002,877 | 2,524,365 | ||||||||
Dividends reinvested | 469,563 | 798,574 | ||||||||
Shares redeemed | (3,389,112 | ) | (3,943,254 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,916,672 | ) | (620,315 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
9
AZL JPMorgan International Opportunities Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 18.71 | $ | 15.85 | $ | 13.42 | $ | 15.62 | $ | 14.90 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.48 | 0.27 | 0.26 | 0.21 | 0.27 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (1.85 | ) | 2.98 | 2.44 | (2.31 | ) | 0.61 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | (1.37 | ) | 3.25 | 2.70 | (2.10 | ) | 0.88 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.25 | ) | (0.39 | ) | (0.27 | ) | (0.10 | ) | (0.07 | ) | |||||||||||||||
Net Realized Gains | — | — | — | — | (0.09 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.25 | ) | (0.39 | ) | (0.27 | ) | (0.10 | ) | (0.16 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 17.09 | $ | 18.71 | $ | 15.85 | $ | 13.42 | $ | 15.62 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | (7.39 | )% | 20.69 | % | 20.26 | % | (13.41 | )% | 5.95 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 580,733 | $ | 671,572 | $ | 578,791 | $ | 398,683 | $ | 331,815 | |||||||||||||||
Net Investment Income/(Loss) | 2.52 | % | 1.49 | % | 2.08 | % | 1.88 | % | 1.68 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.29 | % | 1.29 | % | 1.30 | % | 1.32 | % | 1.33 | % | |||||||||||||||
Expenses Net of Reductions | 1.19 | % | 1.19 | % | 1.20 | % | 1.21 | % | 1.18 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.19 | % | 1.19 | % | 1.20 | % | 1.21 | % | 1.18 | % | |||||||||||||||
Portfolio Turnover Rate | 50 | % | 42 | % | 37 | % | 128 | %(d) | 35 | % |
(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 any. 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) | Effective May 1, 2011, the Subadviser changed from Morgan Stanley Management, Inc. to J.P. Morgan Investment Management, Inc. Costs of purchases and proceeds from sales of portfolio securities associated with the change in the Subadviser contributed to a higher portfolio turnover rate for the year ended December 31, 2011 as compared to prior years. |
See accompanying notes to the financial statements.
10
AZL JPMorgan International Opportunities Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL JPMorgan International Opportunities Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
11
AZL JPMorgan International Opportunities Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $20 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $52,045 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $136.9 million as of December 31, 2014. The monthly average amount for these contracts was $193.7 million for the year ended December 31, 2014.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 monthly average notional amount for these contracts was $3.4 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
12
AZL JPMorgan International Opportunities Fund
Notes to the Financial Statements
December 31, 2014
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value | Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Foreign Exchange Rate Risk Exposure | ||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 849,999 | Unrealized depreciation on forward currency contracts | $ | 981,665 |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | Net realized gains/(losses) on futures contracts / Change in unrealized appreciation/depreciation on investments | ($ | 726,607 | ) | $ | — | ||||
Foreign Currency Contracts | Net realized gains/(losses) on forward currency contracts / Change in unrealized appreciation/depreciation on investments | (144,857 | ) | 928,294 |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL JPMorgan International Opportunities Fund | 0.95 | % | 1.39 | % |
* | The Manager voluntarily reduced 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services
13
AZL JPMorgan International Opportunities Fund
Notes to the Financial Statements
December 31, 2014
provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $7,931 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
Futures contracts are valued at the last sales price as of close of the primary exchange and are typically categorized as Level 1 in the fair value hierarchy.
Forward 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
14
AZL JPMorgan International Opportunities Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Capital Markets | $ | 8,645,831 | $ | — | $ | 8,645,831 | |||||||||
Metals & Mining | 3,529,288 | 14,791,117 | 18,320,405 | ||||||||||||
All Other Common Stocks+ | — | 538,409,173 | 538,409,173 | ||||||||||||
Preferred Stock | — | 8,437,156 | 8,437,156 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 27,438,799 | 27,438,799 | ||||||||||||
Unaffiliated Investment Company | 7,026,454 | — | 7,026,454 | ||||||||||||
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Total Investment Securities | 19,201,573 | 589,076,245 | 608,277,818 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Forward Currency Contracts | — | (131,666 | ) | (131,666 | ) | ||||||||||
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Total Investments | $ | 19,201,573 | $ | 588,944,579 | $ | 608,146,152 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as forward currency contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 International Opportunities Fund | $ | 310,243,996 | $ | 336,441,453 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $570,210,394. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 71,558,842 | ||
Unrealized depreciation | (33,491,418 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | 38,067,424 | ||
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15
AZL JPMorgan International Opportunities Fund
Notes to the Financial Statements
December 31, 2014
During the year ended December 31, 2014, the Fund utilized $24,525,058 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL JPMorgan International Opportunities Fund | $ | 8,522,582 | $ | — | $ | 8,522,582 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL JPMorgan International Opportunities Fund | $ | 13,943,101 | $ | — | $ | 13,943,101 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL JPMorgan International Opportunities Fund | $ | 13,524,171 | $ | 8,717,756 | $ | — | $ | 37,967,031 | $ | 60,208,958 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL JPMorgan International Opportunities Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
17
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.
18
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
19
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
20
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
21
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
22
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
23
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® JPMorgan U.S. Equity Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® JPMorgan U.S. Equity Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® JPMorgan U.S. Equity Fund returned 14.18%. That compared to a 13.69% total return for its benchmark, the S&P 500 Index1.
Volatile markets ended in positive territory in 2014, with the S&P 500 hitting 56 new highs over the period and finishing the year close to its record. Overall, large-cap stocks outperformed small caps and defensive sectors outperformed cyclical ones. The market did have three major pullbacks, but equities rebounded each time on the strength of economic and market fundamentals. The year began with concerns about the Federal Reserve’s (the Fed) ability to fight off inflation, though most of the Fed’s actions over the period were in line with expectations.
In March, the Fed chair implied that rate hikes may occur in the second quarter of 2015, which prompted many investors to move out of equities with high growth expectations and into stocks with more attractive valuations and higher dividend yields. As crude oil prices began to fall in the late summer, so too did energy stocks. The price of oil per barrel finished the year down 50% from its mid-June high. The year’s biggest equity sell-off began in September as the possibility of another recession in Europe rose to the forefront. Markets then surged in November on the strength of U.S. economic data as vehicle sales outpaced the prior year, and nonfarm payrolls exceeded economic forecasts.
The Fund outperformed its benchmark. Over the year, the semiconductor, software and services, and health services and systems sectors contributed to relative performance. An overweight position in a semiconductor company, which benefited from an acquisition and the continued strength of non-mobile businesses, contributed to the Fund’s performance. Shares of a media company also rallied on the news of a takeover bid from a rival corporation. Additionally an overweight position in an airline boosted relative returns.*
Meanwhile, an overweight position with an automaker dragged on relative performance, as the company’s stock suffered after numerous recalls. An overweight position in another semiconductor company detracted from relative performance as declining sale prices of chips and phones burdened the stock’s share price over the period. Moreover, in the industrial cyclical space, holdings in an engineering construction company weighed on returns as investors worried that the declining price of oil would delay some of the company’s larger projects.
The Fund used derivatives to gain or reduce exposure to the stock market, maintain liquidity and minimize transaction costs. These holdings had a minimal impact on the Fund’s 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, 2014. |
1 | The Standard & Poor’s 500 Index (“S&P 500”) 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
AZL® JPMorgan U.S. Equity Fund Review (unaudited)
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, primarily in large- and medium-capitalization 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.
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.
Small- to mid-capitalization 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 performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® JPMorgan U.S. Equity Fund | 14.18 | % | 22.34 | % | 15.13 | % | 7.60 | % | ||||||||
S&P 500 Index | 13.69 | % | 20.41 | % | 15.45 | % | 7.67 | % |
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 Ratio | Gross | |||
AZL® JPMorgan U.S. Equity Fund | 1.11 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager has voluntarily reduced the management fee to 0.75% on the first $100 million of assets and 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, 2016. Additional information pertaining to the December 31, 2014 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”), 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 |
AZL JPMorgan U.S. Equity Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 1,000.00 | $ | 1,067.60 | $ | 5.26 | 1.01 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 1,000.00 | $ | 1,020.11 | $ | 5.14 | 1.01 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Information Technology | 21.1 | % | |||
Financials | 17.4 | ||||
Consumer Discretionary | 15.6 | ||||
Health Care | 15.2 | ||||
Industrials | 10.2 | ||||
Energy | 7.6 | ||||
Consumer Staples | 5.6 | ||||
Materials | 3.5 | ||||
Utilities | 1.5 | ||||
Telecommunication Services | 1.0 | ||||
|
| ||||
Total Common Stocks | 98.7 | ||||
Securities Held as Collateral for Securities on Loan | 11.1 | ||||
Money Market | 0.3 | ||||
|
| ||||
Total Investment Securities | 110.1 | ||||
Net other assets (liabilities) | (10.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.7%): |
| ||||||
| Aerospace & Defense (3.5%): |
| ||||||
120,070 | Honeywell International, Inc. | $ | 11,997,395 | |||||
4,807 | L-3 Communications Holdings, Inc. | 606,691 | ||||||
46,019 | United Technologies Corp. | 5,292,185 | ||||||
|
| |||||||
17,896,271 | ||||||||
|
| |||||||
| Airlines (1.6%): |
| ||||||
52,518 | Delta Air Lines, Inc. | 2,583,360 | ||||||
80,407 | United Continental Holdings, Inc.* | 5,378,425 | ||||||
|
| |||||||
7,961,785 | ||||||||
|
| |||||||
| Auto Components (0.4%): |
| ||||||
44,434 | Johnson Controls, Inc. | 2,147,940 | ||||||
|
| |||||||
| Automobiles (2.1%): |
| ||||||
305,999 | General Motors Co. | 10,682,425 | ||||||
|
| |||||||
| Banks (6.8%): |
| ||||||
494,925 | Bank of America Corp. | 8,854,208 | ||||||
5,401 | BB&T Corp.^ | 210,045 | ||||||
155,594 | Citigroup, Inc. | 8,419,191 | ||||||
9,128 | SVB Financial Group* | 1,059,487 | ||||||
290,552 | Wells Fargo & Co.^ | 15,928,060 | ||||||
|
| |||||||
34,470,991 | ||||||||
|
| |||||||
| Beverages (1.4%): |
| ||||||
101,886 | Coca-Cola Co. (The) | 4,301,626 | ||||||
28,303 | Constellation Brands, Inc., Class A* | 2,778,506 | ||||||
|
| |||||||
7,080,132 | ||||||||
|
| |||||||
| Biotechnology (3.5%): |
| ||||||
5,653 | Alexion Pharmaceuticals, Inc.* | 1,045,975 | ||||||
19,967 | Biogen Idec, Inc.* | 6,777,798 | ||||||
39,519 | Celgene Corp.* | 4,420,595 | ||||||
30,085 | Gilead Sciences, Inc.* | 2,835,812 | ||||||
25,145 | Vertex Pharmaceuticals, Inc.* | 2,987,226 | ||||||
|
| |||||||
18,067,406 | ||||||||
|
| |||||||
| Building Products (0.9%): |
| ||||||
63,789 | Fortune Brands Home & Security, Inc.^ | 2,887,728 | ||||||
75,780 | Masco Corp.^ | 1,909,656 | ||||||
|
| |||||||
4,797,384 | ||||||||
|
| |||||||
| Capital Markets (5.4%): |
| ||||||
6,103 | Affiliated Managers Group, Inc.* | 1,295,301 | ||||||
18,796 | Ameriprise Financial, Inc. | 2,485,771 | ||||||
14,835 | BlackRock, Inc., Class A | 5,304,403 | ||||||
85,682 | Charles Schwab Corp. (The) | 2,586,740 | ||||||
17,554 | Goldman Sachs Group, Inc. (The) | 3,402,492 | ||||||
92,943 | Invesco, Ltd. | 3,673,107 | ||||||
200,189 | Morgan Stanley^ | 7,767,332 | ||||||
31,975 | TD Ameritrade Holding Corp.^ | 1,144,066 | ||||||
|
| |||||||
27,659,212 | ||||||||
|
| |||||||
| Chemicals (1.9%): |
| ||||||
20,453 | Axiall Corp.^ | 868,639 | ||||||
44,290 | Dow Chemical Co. (The) | 2,020,067 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Chemicals, continued | |||||||
30,841 | E.I. du Pont de Nemours & Co. | $ | 2,280,384 | |||||
103,956 | Mosaic Co. (The) | 4,745,591 | ||||||
|
| |||||||
9,914,681 | ||||||||
|
| |||||||
| Communications Equipment (0.9%): |
| ||||||
62,907 | QUALCOMM, Inc. | 4,675,877 | ||||||
|
| |||||||
| Construction & Engineering (0.9%): |
| ||||||
74,696 | Fluor Corp.^ | 4,528,818 | ||||||
|
| |||||||
| Construction Materials (0.1%): |
| ||||||
2,323 | Martin Marietta Materials, Inc.^ | 256,273 | ||||||
|
| |||||||
| Consumer Finance (0.1%): |
| ||||||
29,239 | Santander Consumer USA Holdings, Inc.^ | 573,377 | ||||||
|
| |||||||
| Containers & Packaging (0.2%): |
| ||||||
26,304 | Sealed Air Corp.^ | 1,116,079 | ||||||
|
| |||||||
| Diversified Financial Services (0.2%): |
| ||||||
5,221 | IntercontinentalExchange Group, Inc. | 1,144,913 | ||||||
|
| |||||||
| Diversified Telecommunication Services (1.0%): |
| ||||||
112,092 | Verizon Communications, Inc. | 5,243,664 | ||||||
|
| |||||||
| Electric Utilities (0.7%): |
| ||||||
8,570 | Edison International | 561,164 | ||||||
52,842 | Exelon Corp.^ | 1,959,381 | ||||||
22,523 | PPL Corp. | 818,261 | ||||||
|
| |||||||
3,338,806 | ||||||||
|
| |||||||
| Electrical Equipment (0.6%): |
| ||||||
20,003 | Eaton Corp. plc^ | 1,359,404 | ||||||
25,962 | Emerson Electric Co.^ | 1,602,634 | ||||||
|
| |||||||
2,962,038 | ||||||||
|
| |||||||
| Energy Equipment & Services (2.9%): |
| ||||||
42,310 | Baker Hughes, Inc. | 2,372,322 | ||||||
23,856 | Halliburton Co. | 938,256 | ||||||
141,382 | Schlumberger, Ltd. | 12,075,437 | ||||||
|
| |||||||
15,386,015 | ||||||||
|
| |||||||
| Food & Staples Retailing (1.0%): |
| ||||||
6,103 | Costco Wholesale Corp. | 865,100 | ||||||
43,192 | CVS Caremark Corp. | 4,159,822 | ||||||
|
| |||||||
5,024,922 | ||||||||
|
| |||||||
| Food Products (0.8%): |
| ||||||
28,033 | General Mills, Inc.^ | 1,495,000 | ||||||
64,439 | Mondelez International, Inc., Class A | 2,340,747 | ||||||
|
| |||||||
3,835,747 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (1.7%): |
| ||||||
40,509 | Abbott Laboratories | 1,823,715 | ||||||
223,108 | Boston Scientific Corp.* | 2,956,181 | ||||||
7,868 | Covidien plc | 804,739 | ||||||
33,128 | Stryker Corp. | 3,124,964 | ||||||
|
| |||||||
8,709,599 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.8%): |
| ||||||
7,814 | CIGNA Corp. | 804,139 | ||||||
31,075 | Humana, Inc.^ | 4,463,302 |
Continued
4
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Health Care Providers & Services, continued | |||||||
19,805 | McKesson, Inc. | $ | 4,111,122 | |||||
98,105 | UnitedHealth Group, Inc.^ | 9,917,434 | ||||||
|
| |||||||
19,295,997 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.7%): |
| ||||||
18,490 | Carnival Corp. | 838,152 | ||||||
10,658 | Dunkin’ Brands Group, Inc.^ | 454,564 | ||||||
36,237 | Royal Caribbean Cruises, Ltd.^ | 2,987,016 | ||||||
27,186 | Starbucks Corp. | 2,230,611 | ||||||
23,315 | Yum! Brands, Inc. | 1,698,498 | ||||||
|
| |||||||
8,208,841 | ||||||||
|
| |||||||
| Household Durables (1.9%): |
| ||||||
67,714 | D.R. Horton, Inc. | 1,712,487 | ||||||
48,053 | Harman International Industries, Inc.^ | 5,127,736 | ||||||
54,661 | PulteGroup, Inc.^ | 1,173,025 | ||||||
51,852 | Toll Brothers, Inc.*^ | 1,776,968 | ||||||
|
| |||||||
9,790,216 | ||||||||
|
| |||||||
| Household Products (1.7%): |
| ||||||
21,767 | Colgate-Palmolive Co. | 1,506,059 | ||||||
80,587 | Procter & Gamble Co. (The) | 7,340,670 | ||||||
|
| |||||||
8,846,729 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.5%): |
| ||||||
22,487 | NextEra Energy, Inc. | 2,390,143 | ||||||
|
| |||||||
| Industrial Conglomerates (0.2%): |
| ||||||
13,323 | Danaher Corp. | 1,141,914 | ||||||
|
| |||||||
| Insurance (4.5%): |
| ||||||
99,293 | ACE, Ltd. | 11,406,780 | ||||||
36,386 | American International Group, Inc. | 2,037,980 | ||||||
114,273 | Marsh & McLennan Cos., Inc.^ | 6,540,986 | ||||||
51,384 | MetLife, Inc. | 2,779,361 | ||||||
9,362 | Willis Group Holdings plc^ | 419,511 | ||||||
|
| |||||||
23,184,618 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.7%): |
| ||||||
3,169 | Priceline.com, Inc.* | 3,613,325 | ||||||
|
| |||||||
| Internet Software & Services (3.9%): |
| ||||||
87,464 | Facebook, Inc., Class A* | 6,823,941 | ||||||
11,218 | Google, Inc., Class C* | 5,905,155 | ||||||
13,217 | Google, Inc., Class A* | 7,013,734 | ||||||
|
| |||||||
19,742,830 | ||||||||
|
| |||||||
| IT Services (3.7%): |
| ||||||
82,675 | Accenture plc, Class A^ | 7,383,704 | ||||||
6,986 | Alliance Data Systems Corp.* | 1,998,345 | ||||||
33,218 | Cognizant Technology Solutions Corp., Class A*^ | 1,749,260 | ||||||
40,960 | Fidelity National Information Services, Inc. | 2,547,712 | ||||||
22,631 | Visa, Inc., Class A | 5,933,848 | ||||||
|
| |||||||
19,612,869 | ||||||||
|
| |||||||
| Machinery (1.6%): |
| ||||||
22,001 | Ingersoll-Rand plc | 1,394,643 | ||||||
84,638 | PACCAR, Inc.^ | 5,756,230 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Machinery, continued | |||||||
1,500 | Pall Corp.^ | $ | 151,815 | |||||
7,067 | SPX Corp. | 607,197 | ||||||
|
| |||||||
7,909,885 | ||||||||
|
| |||||||
| Media (5.2%): |
| ||||||
41,410 | CBS Corp., Class B | 2,291,629 | ||||||
18,058 | Charter Communications, Inc., Class A* | 3,008,824 | ||||||
49,007 | Comcast Corp., Class A | 2,842,896 | ||||||
31,201 | DISH Network Corp., Class A* | 2,274,241 | ||||||
111,709 | Time Warner Cable, Inc. | 9,542,183 | ||||||
19,625 | Twenty-First Century Fox, Inc., Class B | 723,966 | ||||||
158,540 | Twenty-First Century Fox, Inc.^ | 6,088,729 | ||||||
|
| |||||||
26,772,468 | ||||||||
|
| |||||||
| Metals & Mining (1.3%): |
| ||||||
280,487 | Alcoa, Inc. | 4,428,890 | ||||||
79,200 | United States Steel Corp.^ | 2,117,808 | ||||||
|
| |||||||
6,546,698 | ||||||||
|
| |||||||
| Multiline Retail (0.2%): |
| ||||||
12,333 | Dollar Tree, Inc.* | 867,997 | ||||||
|
| |||||||
| Multi-Utilities (0.3%): |
| ||||||
19,282 | CenterPoint Energy, Inc. | 451,777 | ||||||
15,646 | Dominion Resources, Inc.^ | 1,203,178 | ||||||
|
| |||||||
1,654,955 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (4.7%): |
| ||||||
15,196 | Anadarko Petroleum Corp. | 1,253,670 | ||||||
64,298 | California Resources Corp.*^ | 354,282 | ||||||
11,829 | Chevron Corp. | 1,326,977 | ||||||
2,581 | Concho Resources, Inc.* | 257,455 | ||||||
11,642 | EQT Corp. | 881,299 | ||||||
31,669 | Exxon Mobil Corp. | 2,927,799 | ||||||
15,952 | Marathon Oil Corp. | 451,282 | ||||||
10,929 | Marathon Petroleum Corp. | 986,452 | ||||||
167,210 | Occidental Petroleum Corp. | 13,478,798 | ||||||
22,307 | Phillips 66 | 1,599,412 | ||||||
1,100 | Pioneer Natural Resources Co. | 163,735 | ||||||
14,475 | Southwestern Energy Co.* | 395,023 | ||||||
|
| |||||||
24,076,184 | ||||||||
|
| |||||||
| Pharmaceuticals (6.2%): |
| ||||||
6,247 | Actavis, Inc. plc* | 1,608,040 | ||||||
3,709 | Allergan, Inc. | 788,496 | ||||||
77,418 | Bristol-Myers Squibb Co. | 4,569,985 | ||||||
164,846 | Johnson & Johnson Co. | 17,237,945 | ||||||
114,471 | Merck & Co., Inc. | 6,500,808 | ||||||
5,293 | Perrigo Co. plc | 884,778 | ||||||
|
| |||||||
31,590,052 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.4%): |
| ||||||
3,925 | Boston Properties, Inc. | 505,108 | ||||||
23,982 | ProLogis, Inc. | 1,031,946 | ||||||
4,555 | Vornado Realty Trust | 536,169 | ||||||
|
| |||||||
2,073,223 | ||||||||
|
|
Continued
5
AZL JPMorgan U.S. Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Road & Rail (0.9%): |
| ||||||
80,767 | CSX Corp. | $ | 2,926,189 | |||||
14,655 | Union Pacific Corp. | 1,745,850 | ||||||
|
| |||||||
4,672,039 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (4.5%): |
| ||||||
6,662 | Applied Materials, Inc.^ | 166,017 | ||||||
89,481 | Avago Technologies, Ltd. | 9,000,894 | ||||||
46,793 | Broadcom Corp., Class A | 2,027,541 | ||||||
17,068 | Freescale Semiconductor Holdings I, Ltd.*^ | 430,626 | ||||||
82,272 | KLA-Tencor Corp.^ | 5,785,367 | ||||||
67,829 | Lam Research Corp.^ | 5,381,553 | ||||||
|
| |||||||
22,791,998 | ||||||||
|
| |||||||
| Software (4.4%): |
| ||||||
61,070 | Adobe Systems, Inc.* | 4,439,789 | ||||||
12,045 | Citrix Systems, Inc.* | 768,471 | ||||||
231,660 | Microsoft Corp. | 10,760,607 | ||||||
147,832 | Oracle Corp. | 6,648,005 | ||||||
|
| |||||||
22,616,872 | ||||||||
|
| |||||||
| Specialty Retail (2.7%): |
| ||||||
16,168 | Home Depot, Inc. (The) | 1,697,155 | ||||||
116,613 | Lowe’s Cos., Inc. | 8,022,974 | ||||||
59,774 | TJX Cos., Inc. (The) | 4,099,301 | ||||||
|
| |||||||
13,819,430 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (3.7%): |
| ||||||
162,830 | Apple, Inc. | 17,973,176 | ||||||
26,718 | Hewlett-Packard Co. | 1,072,193 | ||||||
|
| |||||||
19,045,369 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.7%): |
| ||||||
26,160 | Lululemon Athletica, Inc.*^ | 1,459,466 | ||||||
8,624 | PVH Corp. | 1,105,338 | ||||||
5,815 | Ralph Lauren Corp.^ | 1,076,705 | ||||||
|
| |||||||
3,641,509 | ||||||||
|
| |||||||
| Tobacco (0.7%): |
| ||||||
42,688 | Philip Morris International, Inc. | 3,476,938 | ||||||
|
| |||||||
| Total Common Stocks (Cost $393,734,002) | 504,857,454 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (11.1%): |
| ||||||
$ | 56,533,568 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | $ | 56,533,568 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 56,533,568 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.3%): |
| ||||||
1,429,661 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 1,429,661 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $1,429,661) | 1,429,661 | ||||||
|
| |||||||
| Total Investment Securities (Cost $451,697,231)(c) — 110.1% | 562,820,683 | ||||||
| Net other assets (liabilities) — (10.1)% | (51,500,011 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 511,320,672 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $54,715,781. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $110,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/20/15 | 21 | $ | 2,155,020 | $ | (35,272 | ) |
See accompanying notes to the financial statements.
6
AZL JPMorgan U.S. Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 451,697,231 | |||
|
| ||||
Investment securities, at value* | $ | 562,820,683 | |||
Cash | 36,290 | ||||
Segregated cash for collateral | 110,000 | ||||
Interest and dividends receivable | 628,982 | ||||
Receivable for investments sold | 5,454,894 | ||||
Prepaid expenses | 4,338 | ||||
|
| ||||
Total Assets | 569,055,187 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 256,676 | ||||
Payable for capital shares redeemed | 458,010 | ||||
Payable for collateral received on loaned securities | 56,533,568 | ||||
Payable for variation margin on futures contracts | 25,515 | ||||
Manager fees payable | 309,250 | ||||
Administration fees payable | 11,698 | ||||
Distribution fees payable | 108,929 | ||||
Custodian fees payable | 9,456 | ||||
Administrative and compliance services fees payable | 1,327 | ||||
Trustee fees payable | 27 | ||||
Other accrued liabilities | 20,059 | ||||
|
| ||||
Total Liabilities | 57,734,515 | ||||
|
| ||||
Net Assets | $ | 511,320,672 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 415,976,834 | |||
Accumulated net investment income/(loss) | 5,024,825 | ||||
Accumulated net realized gains/(losses) from investment transactions | (20,769,167 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 111,088,180 | ||||
|
| ||||
Net Assets | $ | 511,320,672 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 31,029,717 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.48 | |||
|
|
* | Includes securities on loan of $54,715,781. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 10,204,380 | |||
Income from securities lending | 27,092 | ||||
Foreign withholding tax | (2,142 | ) | |||
|
| ||||
Total Investment Income | 10,229,330 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,029,373 | ||||
Administration fees | 134,536 | ||||
Distribution fees | 1,259,177 | ||||
Custodian fees | 42,367 | ||||
Administrative and compliance services fees | 6,303 | ||||
Trustee fees | 24,386 | ||||
Professional fees | 26,441 | ||||
Shareholder reports | 21,489 | ||||
Other expenses | 12,162 | ||||
|
| ||||
Total expenses before reductions | 5,556,234 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (453,669 | ) | |||
Less expenses paid indirectly | (20,559 | ) | |||
|
| ||||
Net expenses | 5,082,006 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,147,324 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 82,409,034 | ||||
Net realized gains/(losses) on futures contracts | 229,549 | ||||
Change in net unrealized appreciation/depreciation on investments | (20,760,338 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 61,878,245 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 67,025,569 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL JPMorgan U.S. Equity Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,147,324 | $ | 3,759,460 | ||||||
Net realized gains/(losses) on investment transactions | 82,638,583 | 65,723,424 | ||||||||
Change in unrealized appreciation/depreciation on investments | (20,760,338 | ) | 71,200,773 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 67,025,569 | 140,683,657 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (3,723,395 | ) | (4,265,547 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (3,723,395 | ) | (4,265,547 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 17,310,639 | 37,012,375 | ||||||||
Proceeds from dividends reinvested | 3,723,395 | 4,265,547 | ||||||||
Value of shares redeemed | (80,825,498 | ) | (63,611,318 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (59,791,464 | ) | (22,333,396 | ) | ||||||
|
|
|
| |||||||
Change in net assets | 3,510,710 | 114,084,714 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 507,809,962 | 393,725,248 | ||||||||
|
|
|
| |||||||
End of period | $ | 511,320,672 | $ | 507,809,962 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,024,825 | $ | 3,756,523 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,131,047 | 2,983,087 | ||||||||
Dividends reinvested | 236,256 | 327,615 | ||||||||
Shares redeemed | (5,270,647 | ) | (5,089,833 | ) | ||||||
|
|
|
| |||||||
Change in shares | (3,903,344 | ) | (1,779,131 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
8
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, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.54 | $ | 10.72 | $ | 9.22 | $ | 9.50 | $ | 8.46 | |||||||||||||||
|
|
|
|
|
|
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.18 | 0.11 | 0.11 | 0.09 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.88 | 3.83 | 1.47 | (0.30 | ) | 1.02 | |||||||||||||||||||
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Total from Investment Activities | 2.06 | 3.94 | 1.58 | (0.21 | ) | 1.09 | |||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.12 | ) | (0.12 | ) | (0.08 | ) | (0.07 | ) | (0.05 | ) | |||||||||||||||
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Total Dividends | (0.12 | ) | (0.12 | ) | (0.08 | ) | (0.07 | ) | (0.05 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 16.48 | $ | 14.54 | $ | 10.72 | $ | 9.22 | $ | 9.50 | |||||||||||||||
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Total Return(a) | 14.18 | % | 36.90 | %(d) | 17.13 | % | (2.20 | )% | 12.97 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 511,321 | $ | 507,810 | $ | 393,725 | $ | 312,277 | $ | 325,037 | |||||||||||||||
Net Investment Income/(Loss) | 1.02 | % | 0.83 | % | 1.16 | % | 0.90 | % | 0.79 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.10 | % | 1.11 | % | 1.12 | % | 1.13 | % | 1.13 | % | |||||||||||||||
Expenses Net of Reductions | 1.01 | % | 1.01 | % | 1.03 | % | 1.08 | % | 1.08 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.01 | % | 1.02 | % | 1.04 | % | 1.08 | % | 1.08 | % | |||||||||||||||
Portfolio Turnover Rate | 77 | % | 81 | % | 71 | % | 81 | % | 86 | % |
(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 any. 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) | During the year ended December 31, 2013, the Fund received monies related to certain nonrecurring litigation settlements. The corresponding impact to the total return was 0.09%. |
See accompanying notes to the financial statements.
9
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL JPMorgan U.S. Equity Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $13.5 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $2,692 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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, 2014. The monthly average notional amount for these contracts was $0.8 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | — | Payable for variation margin on futures contracts | $ | 35,272 |
* | 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 theStatement 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, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Contracts | Net realized gains/(losses) on futures Contracts/Change in unrealized appreciation Depreciation on investments | $ | 229,549 | $ | (35,272 | ) |
11
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements
December 31, 2014
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL JPMorgan U.S. Equity Fund | 0.80 | % | 1.20 | % |
* | The Manager voluntarily reduced the management fee to 0.75% on the first $100 million of assets and 0.70% on assets above $100 million. The Manager reserves the right to increase the management fee to the amount shown in the table. |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $6,265 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
12
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements
December 31, 2014
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 504,857,454 | $ | — | $ | 504,857,454 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 56,533,568 | 56,533,568 | ||||||||||||
Unaffiliated Investment Company | 1,429,661 | — | 1,429,661 | ||||||||||||
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Total Investment Securities | 506,287,115 | 56,533,568 | 562,820,683 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | (35,272 | ) | — | (35,272 | ) | ||||||||||
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| ||||||||||
Total Investments | $ | 506,251,843 | $ | 56,533,568 | $ | 562,785,411 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 387,909,013 | $ | 447,993,264 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
13
AZL JPMorgan U.S. Equity Fund
Notes to the Financial Statements
December 31, 2014
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $455,424,392. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 116,002,427 | ||
Unrealized depreciation | (8,606,136 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 107,396,291 | ||
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|
As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs subject to expiration:
Expires 12/31/2016 | Expires 12/31/2017 | Total | |||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 3,091,596 | $ | 13,967,218 | $ | 17,058,814 |
During the year ended December 31, 2014, the Fund utilized $82,147,971 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 3,723,395 | $ | — | $ | 3,723,395 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 4,265,547 | $ | — | $ | 4,265,547 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL JPMorgan U.S. Equity Fund | $ | 5,006,361 | $ | — | $ | (17,058,814 | ) | $ | 107,396,291 | $ | 95,343,838 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
15
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
16
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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
20
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® MetWest Total Return Bond Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 2
Schedule of Portfolio Investments
Page 3
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 14
Other Information
Page 15
Approval of Investment Advisory and Subadvisory Agreements
Page 16
Information about the Board of Trustees and Officers
Page 19
This report is submitted for the general information of the shareholder 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.
AZL® MetWest Total Return Bond Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® MetWest Total Return Bond Fund and Metropolitan West Asset Management, LLC serves as Subadviser to the Fund.
The AZL® MetWest Total Return Bond Fund commenced operations on November 17, 2014, and as such, does not have at least six months of operations to include a discussion of fund performance.
1
AZL MetWest Total Return Bond Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL MetWest Total Return Bond Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 11/17/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 11/17/14 - 12/31/14** | Annualized Expense Ratio During Period 11/17/14 - 12/31/14 | |||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,000.00 | $ | 1,007.00 | $ | 1.06 | 0.86 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,000.00 | $ | 1,020.87 | $ | 4.38 | 0.86 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
** | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of the days in the most recent fiscal half-year divided by the number of the days in fiscal year (to reflect one half-year period). Information shown reflects values using the expense ratios for the 45 days of operations during the period, and has been annualized to reflect values for the period November 17, 2014 to December 31, 2014. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Treasury Obligation | 41.5 | % | |||
U.S. Government Agency Mortgages | 33.6 | ||||
Collateralized Mortgage Obligations | 19.3 | ||||
Corporate Bonds | 14.7 | ||||
Asset Backed Securities | 6.6 | ||||
Yankee Dollars | 1.6 | ||||
Municipal Bond | 0.3 | ||||
Preferred Stock | 0.2 | ||||
Paper | 1.0 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 119.0 | ||||
Net other assets (liabilities) | (19.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
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2
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Asset Backed Securities (6.6%): |
| ||||||
$ | 955,000 | Flagship CLO, Class A1, Series 2013-7A, 1.70%, 1/20/26(a)(b) | $ | 947,615 | ||||
2,114,454 | Goal Capital Funding Trust, Class A3, Series 2005-2, 0.40%, 5/28/30(a) | 2,084,304 | ||||||
1,000,000 | Limerock CLO, Class A1, Series 2014-3A, 1.76%, 10/20/26(a)(b) | 994,055 | ||||||
1,000,000 | Magnetite CLO, Ltd., Class A1, Series 2014-9A, 1.70%, 7/25/26(a)(b) | 992,464 | ||||||
1,000,000 | Magnetite CLO, Ltd., Class A1, Series 2014-11A, 1.68%, 1/18/27(a)(b)(c) | 994,303 | ||||||
952,003 | Navient Student Loan Trust, Class A, Series 2014-2, 0.80%, 3/25/43(a) | 943,465 | ||||||
913,067 | Navient Student Loan Trust, Class A, Series 2014-3, 0.78%, 3/25/43(a) | 903,962 | ||||||
619,092 | Navient Student Loan Trust, Class A, Series 2014-4, 0.78%, 3/25/43(a) | 612,730 | ||||||
2,080,000 | Navient Student Loan Trust, Class A3, Series 2014-8, 0.75%, 5/27/31(a) | 2,079,967 | ||||||
1,872,000 | SLC Student Loan Trust, Class A4A, Series 2008-1, 1.84%, 12/15/32(a) | 1,948,754 | ||||||
1,101,376 | SLM Student Loan Trust, Class B, Series 2003-7, 0.81%, 9/15/39(a) | 1,023,602 | ||||||
1,928,730 | SLM Student Loan Trust, Class A5, Series 2003-11, 0.29%, 12/15/22(a)(b) | 1,919,459 | ||||||
2,082,950 | SLM Student Loan Trust, Class A5B, Series 2004-10, 0.63%, 4/25/23(a)(b) | 2,083,881 | ||||||
1,512,467 | SLM Student Loan Trust, Class A, Series 2008-9, 1.73%, 4/25/23(a) | 1,553,389 | ||||||
2,009,236 | SLM Student Loan Trust, Class A, Series 2012-2, 0.87%, 1/25/29(a) | 2,016,505 | ||||||
1,242,384 | SLM Student Loan Trust, Class A, Series 2012-3, 0.82%, 12/26/25(a) | 1,244,526 | ||||||
2,027,015 | SLM Student Loan Trust, Class A, Series 2013-4, 0.71%, 6/25/27(a) | 2,032,158 | ||||||
2,100,000 | SLM Student Loan Trust, Class A2, Series 2014-2, 0.52%, 10/25/21(a) | 2,091,782 | ||||||
830,000 | SLM Student Loan Trust, Class A5, Series 2006-5, 0.34%, 1/25/27(a) | 817,920 | ||||||
|
| |||||||
| Total Asset Backed Securities (Cost $27,283,079) | 27,284,841 | ||||||
|
| |||||||
| Collateralized Mortgage Obligations (19.3%): |
| ||||||
1,150,000 | Ameriquest Mortgage Securities, Inc., Class M2, Series 2005-R5, 0.63%, 7/25/35(a) | 1,096,137 | ||||||
2,095,000 | Ameriquest Mortgage Securities, Inc., Class M2, Series 2005-R5, 0.65%, 4/25/35(a) | 2,075,429 | ||||||
1,782,428 | Bank of America Mortgage Securities, Inc., Class 2A3, Serie 2005-F, 2.64%, 7/25/35(a) | 1,713,350 | ||||||
989,573 | BCAP LLC Trust, Class 5A3, Series 2011-RR10, 0.32%, 1/26/47(a)(b) | 987,522 | ||||||
1,031,101 | CD Commercial Mortgage Trust, Class A1A, Series 2007-CD4, 5.29%, 12/11/49(a) | 1,085,692 | ||||||
2,321,517 | Centex Home Equity, Class M1, Series 2005-D, 0.60%, 10/25/35(a) | 2,315,962 | ||||||
201,641 | Citigroup Commercial Mortgage Trust, Class A4, Series 2005-C3, 4.86%, 5/15/43 | 201,424 | ||||||
2,200,000 | Citigroup Mortgage Loan Trust, Inc., Class A4, Series 2006-WFH3, 0.41%, 10/25/36(a) | 2,118,358 |
Principal Amount | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 2,295,434 | Citigroup Mortgage Loan Trust, Inc., Class 1A1A, Series 2007-AR5, 2.67%, 4/25/37(a) | $ | 2,075,660 | ||||
1,167,411 | Credit Suisse Mortgage Capital Certificates, Class A2E, Series 2007-CB2, 5.68%, 2/25/37(a) | 874,079 | ||||||
1,718,151 | Credit Suisse Mortgage Capital Certificates, Class AAB, Series 2007-C1, 5.34%, 2/15/40 | 1,772,448 | ||||||
1,684,329 | Federal Home Loan Mortgage Corporation, Class A, Series KF01, 0.52%, 4/25/19(a) | 1,685,129 | ||||||
998,309 | Federal Home Loan Mortgage Corporation, Class A, Series KF04, 0.47%, 6/25/21(a) | 996,870 | ||||||
2,099,769 | Federal Home Loan Mortgage Corporation, Class A, Series KF05, 0.51%, 9/25/21(a) | 2,099,769 | ||||||
2,025,000 | Federal Home Loan Mortgage Corporation, Class A2, Series K041, 3.17%, 10/25/24 | 2,100,986 | ||||||
1,590,769 | Federal National Mortgage Association, Class FA, Series 2013-M14, 0.52%, 8/25/18(a) | 1,592,707 | ||||||
1,974,112 | First Franklin Mortgage Loan Trust, Class M1, Series 2005-FFH3, 0.68%, 9/25/35(a) | 1,964,188 | ||||||
2,195,000 | First Franklin Mortgage Loan Trust, Class M1, Series 2005-FF8, 0.66%, 9/25/35(a) | 2,086,398 | ||||||
2,331,037 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 05-AA12, 2.25%, 2/25/36(a) | 1,856,997 | ||||||
1,808,014 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2005-AR3, 2.67%, 8/25/35(a) | 1,668,141 | ||||||
2,345,298 | First Horizon Alternative Mortgage Securities Trust, Class 1A1, Series 2006-AA1, 2.25%, 3/25/36(a) | 1,951,621 | ||||||
2,092,429 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2006-AA1, 2.23%, 4/25/36(a) | 1,747,297 | ||||||
1,988,899 | GE Commercial Mortgage Corp. Trust, Class A3A, Series 2005-C4, 5.49%, 11/10/45(a) | 1,990,858 | ||||||
1,383,692 | GMAC Commercial Mortgage Securities, Inc., Class A5, Series 2005-C1, 4.70%, 5/10/43 | 1,390,772 | ||||||
2,242,745 | GMAC Mortgage Corp. Loan Trust, Class 1A1, Series 2006-AR1, 2.96%, 4/19/36(a) | 1,977,565 | ||||||
2,041,621 | GMAC Mortgage Corp. Loan Trust, Class 3A1, Series 2005-AR5, 2.88%, 9/19/35(a) | 1,958,471 | ||||||
1,058,851 | GS Mortgage Securities Trust, Class A4A, Series 2005-GG4, 4.75%, 7/10/39 | 1,059,872 | ||||||
675,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2005-CB13, 5.42%, 1/12/43(a) | 689,885 | ||||||
944,097 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2005-LDP5, 5.40%, 11/15/15(a) | 959,905 | ||||||
2,175,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2006-LDP7, 6.06%, 4/15/45(a) | 2,271,070 | ||||||
1,253,208 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A1, Series 2010-C1, 3.85%, 6/15/43(b) | 1,259,451 | ||||||
2,111,817 | LB-UBS Commercial Mortgage Trust, Class A2, Series 2006-C7, 5.30%, 11/15/38 | 2,140,206 |
Continued
3
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 724,847 | LB-UBS Commercial Mortgage Trust, Class A5, Series 2005-C2, 5.15%, 4/15/30(a) | $ | 725,950 | ||||
1,315,904 | Merrill Lynch First Franklin Mortgage Loan Trust, Class 2A2, Series 2007-4, 0.29%, 7/25/37(a) | 823,318 | ||||||
2,239,383 | Merrill Lynch Mortgage Trust, Class A1A, Series 2007-C1, 6.03%, 6/12/50(a) | 2,385,437 | ||||||
2,016,682 | Morgan Stanley Mortgage Loan Trust, Class 1A2, Series 2005-6AR, 0.44%, 11/25/35(a) | 2,002,644 | ||||||
2,061,791 | Morgan Stanley Remic Trust, Class 3A, Series 2014-R8, 0.87%, 6/26/47(a)(b) | 1,974,369 | ||||||
2,068,014 | MortgageIT Trust, Class 2A, Series 2005-2, 1.80%, 5/25/35(a) | 2,034,946 | ||||||
2,130,000 | Newcastle Mortgage Securities Trust, Class A4, Series 2006-1, 0.45%, 3/25/36(a) | 2,072,654 | ||||||
1,837,480 | Nomura Asset Acceptance Corp., Class 3A1, Series 2005-AR3, 2.96%, 7/25/35(a) | 1,750,596 | ||||||
2,600,265 | Residential Accredit Loans, Inc., Class A2, Series 2006-QA10, 0.35%, 12/25/36(a) | 1,990,204 | ||||||
1,216,030 | Wachovia Bank Commercial Mortgage Trust, Class A4, Series 2005-C22, 5.27%, 12/15/44(a) | 1,241,991 | ||||||
1,756,987 | WaMu Mortgage Pass-Through Certificates, Class 2A1A, Series 2005-AR6, 0.40%, 4/25/45(a) | 1,633,612 | ||||||
2,011,598 | WaMu Mortgage Pass-Through Certificates, Class 2A1A, Series 2005-AR8, 0.46%, 7/25/45(a) | 1,853,285 | ||||||
2,185,996 | WaMu Mortgage Pass-Through Certificates, Class 4A1, Series 2007-HY1, 2.36%, 2/25/37(a) | 1,915,181 | ||||||
2,069,285 | WaMu Mortgage Pass-Through Certificates, Class A2, Series 2005-AR3, 2.40%, 3/25/35(a) | 2,060,874 | ||||||
2,008,062 | Wells Fargo Mortgage Backed Securities Trust, Class 2A1, Series 2006-AR2, 2.62%, 3/25/36(a) | 1,999,748 | ||||||
2,067,715 | Wells Fargo Mortgage Backed Securities Trust, Class 1A1, Series 2006-AR12, 2.51%, 9/25/36(a) | 1,920,912 | ||||||
|
| |||||||
| Total Collateralized Mortgage Obligations (Cost $80,536,595) | 80,149,940 | ||||||
|
| |||||||
| Corporate Bonds (14.7%): |
| ||||||
| Airlines (0.9%): |
| ||||||
1,626,768 | Continental Airlines 2009-2, Series A, 7.25%, 11/10/19 | 1,878,917 | ||||||
592,304 | U.S. Airways 2001-1G PTT, Class G, Series 2001, 7.08%, 9/20/22 | 650,054 | ||||||
1,083,662 | U.S. Airways 2010-1A PTT, Series A, 6.25%, 10/22/24 | 1,216,411 | ||||||
|
| |||||||
3,745,382 | ||||||||
|
| |||||||
| Automobiles (0.1%): |
| ||||||
400,000 | General Motors Co., 5.20%, 4/1/45 | 422,000 | ||||||
|
| |||||||
| Banks (1.7%): |
| ||||||
2,500,000 | Bank of America NA, 5.30%, 3/15/17 | 2,685,413 | ||||||
350,000 | Bank of America NA, Series BKNT, 6.10%, 6/15/17 | 384,654 | ||||||
1,000,000 | JPMorgan Chase & Co., 1.10%, 10/15/15 | 1,001,798 | ||||||
1,000,000 | U.S. Bank NA, 3.78%, 4/29/20, Callable 4/29/15 @ 100(a) | 1,008,976 | ||||||
550,000 | Wells Fargo & Co., 3.30%, 9/9/24, MTN | 553,441 | ||||||
1,400,000 | Wells Fargo & Co., 4.10%, 6/3/26, MTN | 1,430,880 | ||||||
|
| |||||||
7,065,162 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Capital Markets (1.6%): |
| ||||||
$ | 2,000,000 | Bear Stearns Co., Inc., 7.25%, 2/1/18 | $ | 2,305,099 | ||||
750,000 | Goldman Sachs Group, Inc., 1.60%, 11/23/15, MTN | 753,928 | ||||||
1,500,000 | Goldman Sachs Group, Inc., 5.95%, 1/18/18 | 1,666,452 | ||||||
1,750,000 | Morgan Stanley, 0.97%, 1/5/18(a) | 1,750,445 | ||||||
|
| |||||||
6,475,924 | ||||||||
|
| |||||||
| Consumer Finance (0.7%): |
| ||||||
1,250,000 | Capital One Financial Corp., 1.00%, 11/6/15 | 1,248,810 | ||||||
1,660,000 | Ford Motor Credit Co. LLC, 8.00%, 12/15/16 | 1,857,792 | ||||||
|
| |||||||
3,106,602 | ||||||||
|
| |||||||
| Diversified Financial Services (1.2%): |
| ||||||
575,000 | Berkshire Hathaway, Inc., 4.50%, 2/11/43 | 628,826 | ||||||
2,000,000 | Citigroup, Inc., 0.93%, 11/24/17(a) | 2,000,498 | ||||||
700,000 | Citigroup, Inc., 5.50%, 9/13/25 | 774,554 | ||||||
1,000,000 | General Electric Capital Corp., Series G, 6.88%, 1/10/39, MTN | 1,414,507 | ||||||
|
| |||||||
4,818,385 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.4%): |
| ||||||
1,500,000 | Verizon Communications, Inc., 4.86%, 8/21/46(b) | 1,540,841 | ||||||
|
| |||||||
| Electric Utilities (2.3%): |
| ||||||
780,000 | American Transmission Systems, Inc., 5.00%, 9/1/44, Callable 3/1/44 @ 100(b) | 834,417 | ||||||
1,000,000 | CenterPoint Energy Houston Electric LLC, 4.50%, 4/1/44, Callable 10/1/43 @ 100 | 1,116,134 | ||||||
800,000 | Cleco Power LLC, 6.00%, 12/1/40 | 958,124 | ||||||
1,000,000 | Duke Energy Progress, Inc., 4.15%, 12/1/44, Callable 6/1/44 @ 100 | 1,062,999 | ||||||
936,000 | Duquesne Light Holdings, Inc., 6.40%, 9/15/20(b) | 1,093,067 | ||||||
750,000 | El Paso Electric Co., 5.00%, 12/1/44, Callable 6/1/44 @ 100 | 780,288 | ||||||
400,000 | IPALCO Enterprises, Inc., 7.25%, 4/1/16(b) | 422,000 | ||||||
1,000,000 | IPALCO Enterprises, Inc., 5.00%, 5/1/18, Callable 4/1/18 @ 100 | 1,055,000 | ||||||
750,000 | Jersey Central Power & Light Co., 6.40%, 5/15/36 | 893,927 | ||||||
1,500,000 | Oncor Electric Delivery Co. LLC, 4.10%, 6/1/22, Callable 3/1/22 @ 100 | 1,610,952 | ||||||
|
| |||||||
9,826,908 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.2%): |
| ||||||
625,000 | Medtronic, Inc., 2.50%, 3/15/20(b) | 626,639 | ||||||
|
| |||||||
| Health Care Providers & Services (0.6%): |
| ||||||
1,000,000 | Catholic Health Initiatives, 4.35%, 11/1/42 | 992,812 | ||||||
800,000 | CHS/Community Health Systems, Inc., 5.13%, 8/15/18, Callable 8/15/15 @ 102.6 | 828,000 | ||||||
750,000 | HCA, Inc., 6.50%, 2/15/20 | 840,375 | ||||||
|
| |||||||
2,661,187 | ||||||||
|
| |||||||
| Household Products (0.2%): |
| ||||||
800,000 | Reynolds Group Issuer LLC / Reynolds Group Issuer, Inc., 5.75%, 10/15/20, Callable 10/15/15 @ 104.31 | 820,000 | ||||||
|
| |||||||
| Insurance (0.7%): |
| ||||||
1,900,000 | Farmers Exchange Capital III, 5.45%, 10/15/54, Callable 10/15/34 @ 100(a)(b) | 1,957,000 |
Continued
4
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Shares or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Insurance, continued |
| ||||||
$ | 900,000 | Nationwide Financial Services, Inc., 5.30%, 11/18/44(b) | $ | 949,459 | ||||
|
| |||||||
2,906,459 | ||||||||
|
| |||||||
| Media (0.2%): |
| ||||||
775,000 | CCO Holdings LLC / CCO Holdings Capital Corp., 6.50%, 4/30/21, Callable 4/30/15 @ 104.88 | 813,750 | ||||||
|
| |||||||
| Multi-Utilities (0.2%): |
| ||||||
625,000 | Berkshire Hathaway Energy Co., 4.50%, 2/1/45, Callable 8/1/44 @ 100(b) | 653,968 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.7%): |
| ||||||
350,000 | Anadarko Petroleum Corp., 4.50%, 7/15/44, Callable 1/15/44 @ 100 | 339,666 | ||||||
1,100,000 | Boardwalk Pipeline Partners LP, 4.95%, 12/15/24, Callable 9/15/24 @ 100 | 1,093,607 | ||||||
775,000 | Chesapeake Energy Corp., 6.63%, 8/15/20 | 823,438 | ||||||
1,400,000 | Energy Transfer Partners LP, 5.95%, 10/1/43, Callable 4/1/43 @ 100 | 1,535,517 | ||||||
850,000 | KeySpan Gas East Corp., 5.82%, 4/1/41(b) | 1,092,266 | ||||||
400,000 | MarkWest Energy Partners LP, 4.88%, 12/1/24, Callable 9/1/24 @ 100 | 391,000 | ||||||
780,000 | Rockies Express Pipeline LLC, 6.85%, 7/15/18(b) | 803,400 | ||||||
250,000 | Rockies Express Pipeline LLC, 6.00%, 1/15/19(b) | 250,625 | ||||||
775,000 | Sabine Pass Liquefcation LLC, 6.25%, 3/15/22 | 786,625 | ||||||
|
| |||||||
7,116,144 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.8%): |
| ||||||
875,000 | HCP, Inc., 5.38%, 2/1/21, Callable 11/3/20 @ 100 | 977,118 | ||||||
1,600,000 | Health Care REIT, Inc., 5.25%, 1/15/22, Callable 10/15/21 @ 100 | 1,777,891 | ||||||
1,150,000 | SL Green Realty Corp., 5.00%, 8/15/18, Callable 6/15/18 @ 100 | 1,233,464 | ||||||
2,000,000 | Ventas Realty LP / Capital Corp., 3.13%, 11/30/15 | 2,040,409 | ||||||
1,500,000 | WEA Finance LLC, 2.70%, 9/17/19, Callable 8/17/19 @ 100(b) | 1,499,564 | ||||||
|
| |||||||
7,528,446 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.2%): |
| ||||||
725,000 | Sprint Communications, Inc., 9.00%, 11/15/18(b) | 824,615 | ||||||
|
| |||||||
| Total Corporate Bonds (Cost $60,444,066) | 60,952,412 | ||||||
|
| |||||||
| Preferred Stock(0.2%): |
| ||||||
| Diversified Financial Services (0.2%): |
| ||||||
800,000 | ZFS Finance USA Trust II, 6.45%, 12/15/65, Callable 6/15/16 @ 100(a)(b) | 842,936 | ||||||
|
| |||||||
| Total Preferred Stock (Cost $843,199) | 842,936 | ||||||
|
| |||||||
| Yankee Dollars (1.6%): |
| ||||||
| Aerospace & Defense (0.3%): |
| ||||||
$ | 1,300,000 | Heathrow Funding, Ltd., 2.50%, 6/25/15(b) | 1,300,780 | |||||
|
| |||||||
| Banks (1.3%): |
| ||||||
2,000,000 | Credit Suisse, NY, 0.65%, 12/7/15(a) | 2,001,052 | ||||||
1,100,000 | HBOS plc, Series G, 6.75%, 5/21/18, MTN(b) | 1,225,946 | ||||||
800,000 | Royal Bank of Scotland plc, 4.88%, 3/16/15 | 806,155 | ||||||
1,250,000 | Royal Bank Scotland Group plc, 2.55%, 9/18/15 | 1,262,515 | ||||||
|
| |||||||
5,295,668 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $6,607,390) | 6,596,448 | ||||||
|
|
Shares or Principal Amount | Fair Value | |||||||
| Municipal Bond (0.3%): |
| ||||||
| New York (0.3%): |
| ||||||
$ | 1,125,000 | New York NY, Build America Bonds, GO, 5.05%, 10/1/24 | $ | 1,278,799 | ||||
|
| |||||||
| Total Municipal Bond (Cost $1,273,528) | 1,278,799 | ||||||
|
| |||||||
| U.S. Government Agency Mortgages (33.6%): |
| ||||||
| Federal Home Loan Bank (8.8%) |
| ||||||
16,400,000 | 0.09%, 2/6/15(d) | 16,399,606 | ||||||
10,000,000 | 0.09%, 2/20/15(d) | 9,999,660 | ||||||
10,500,000 | 0.09%, 3/6/15(d) | 10,499,444 | ||||||
|
| |||||||
36,898,710 | ||||||||
|
| |||||||
| Federal Home Loan Mortgage Corporation (1.0%) |
| ||||||
4,015,252 | 3.50%, 4/1/44, Pool#G07848 | 4,195,904 | ||||||
| Federal National Mortgage Association (21.2%) |
| ||||||
859,597 | 5.34%, 6/1/18, Pool#AD0149 | 947,154 | ||||||
1,078,110 | 4.77%, 2/1/20, Pool#AD0791 | 1,199,342 | ||||||
1,142,619 | 4.12%, 4/1/20, Pool#464959 | 1,250,498 | ||||||
1,458,726 | 4.60%, 4/1/20, Pool#AD0910 | 1,612,465 | ||||||
1,005,587 | 3.43%, 10/1/20, Pool#466386 | 1,068,962 | ||||||
1,986,469 | 3.42%, 10/1/20 | 2,104,329 | ||||||
1,886,165 | 3.67%, 10/1/20, Pool#AE0918 | 2,035,977 | ||||||
2,681,492 | 3.76%, 12/1/20, Pool#FN0001 | 2,894,219 | ||||||
1,000,000 | 3.94%, 1/1/21, Pool #466969 | 1,087,333 | ||||||
1,137,679 | 4.62%, 4/1/21, Pool #467731 | 1,278,708 | ||||||
990,624 | 3.93%, 7/1/21, Pool #468518 | 1,075,196 | ||||||
1,245,000 | 3.06%, 5/1/22, Pool #471258 | 1,295,267 | ||||||
2,000,000 | 2.50%, 1/25/29 | 2,036,250 | ||||||
1,000,000 | 3.50%, 1/25/30 | 1,056,406 | ||||||
1,000,000 | 3.00%, 1/25/30 | 1,039,414 | ||||||
1,030,616 | 3.00%, 10/1/33, Pool #MA1676 | 1,064,544 | ||||||
6,730,000 | 4.50%, 1/25/44 | 7,305,205 | ||||||
14,560,000 | 3.50%, 1/25/45 | 15,177,664 | ||||||
16,865,000 | 4.00%, 1/25/45 | 17,999,237 | ||||||
24,195,000 | 3.00%, 1/25/45 | 24,474,756 | ||||||
|
| |||||||
88,002,926 | ||||||||
|
| |||||||
| Government National Mortgage Association (2.6%) |
| ||||||
1,000,000 | 4.50%, 1/20/44 | 1,092,617 | ||||||
5,000,000 | 4.00%, 1/20/45 | 5,360,879 | ||||||
3,000,000 | 3.50%, 1/20/45 | 3,149,063 | ||||||
1,000,000 | 3.00%, 2/20/45 | 1,022,625 | ||||||
|
| |||||||
10,625,184 | ||||||||
|
| |||||||
| Total U.S. Government Agency Mortgages (Cost $139,219,349) | 139,722,724 | ||||||
|
| |||||||
| U.S. Treasury Obligations (41.5%): |
| ||||||
| U.S. Treasury Bonds (2.8%) |
| ||||||
10,105,000 | 3.13%, 8/15/44 | 10,878,659 | ||||||
900,000 | 3.00%, 11/15/44 | 945,844 | ||||||
|
| |||||||
11,824,503 | ||||||||
|
| |||||||
| U.S. Treasury Inflation Index Bonds (1.3%) |
| ||||||
4,695,000 | 1.38%, 2/15/44 | 5,413,527 | ||||||
|
| |||||||
| U.S. Treasury Inflation Index Notes (0.8%) |
| ||||||
3,244,821 | 0.13%, 7/15/24 | 3,124,759 | ||||||
|
| |||||||
| U.S. Treasury Notes (36.6%) |
| ||||||
95,500,000 | 0.50%, 7/31/16 | 95,544,789 | ||||||
18,760,000 | 1.50%, 10/31/19 | 18,645,676 | ||||||
11,670,000 | 2.38%, 8/15/24 | 11,886,082 |
Continued
5
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Shares or Principal Amount | Fair Value | |||||||
| U.S. Treasury Obligations, continued |
| ||||||
| U.S. Treasury Notes, continued |
| ||||||
$ | 26,065,000 | 2.25%, 11/15/24 | $ | 26,240,130 | ||||
|
| |||||||
152,316,677 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $171,864,261) | 172,679,466 | ||||||
|
| |||||||
| Commercial Paper (1.0%): |
| ||||||
3,950,000 | Macquarie Bank, Ltd., 0.22%(b)(d) | 3,948,896 | ||||||
|
| |||||||
| Total Commercial Paper (Cost $3,948,697) | 3,948,896 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.2%): |
| ||||||
931,427 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00% (d) | 931,427 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $931,427) | 931,427 | ||||||
|
| |||||||
| Total Investment Securities (Cost $492,951,591)(e) — 119.0% | 494,387,889 | ||||||
| Net other assets (liabilities) — (19.0)% | (78,801,965 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 415,585,924 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
GO—General Obligation
MTN—Medium Term Note
REMIC—Real Estate Mortgage Investment Conduit
(a) | Variable rate security. The rate presented represents the rate in effect at December 31, 2014. The date presented represents the final maturity date. |
(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 liquid based on procedures approved by the Board of Trustees. |
(c) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2014. The total of all such securities represent 0.20% of the net assets of the fund. |
(d) | The rate represents the effective yield at December 31, 2014. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
6
AZL MetWest Total Return Bond Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 492,951,591 | |||
|
| ||||
Investment securities, at value | $ | 494,387,889 | |||
Interest and dividends receivable | 1,726,585 | ||||
Receivable for investments sold | 16,711,058 | ||||
Prepaid expenses | 3,201 | ||||
|
| ||||
Total Assets | 512,828,733 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 12,103 | ||||
Payable for investments purchased | 96,922,404 | ||||
Manager fees payable | 194,319 | ||||
Administration fees payable | 402 | ||||
Distribution fees payable | 88,327 | ||||
Administrative and compliance services fees payable | 2,448 | ||||
Other accrued liabilities | 22,806 | ||||
|
| ||||
Total Liabilities | 97,242,809 | ||||
|
| ||||
Net Assets | $ | 415,585,924 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 412,585,317 | |||
Accumulated net investment income/(loss) | 401,870 | ||||
Accumulated net realized gains/(losses) from investment transactions | 1,162,439 | ||||
Net unrealized appreciation/(depreciation) on investments | 1,436,298 | ||||
|
| ||||
Net Assets | $ | 415,585,924 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 41,273,178 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.07 | |||
|
|
Statement of Operations
For the Period Ended December 31, 2014(a)
Investment Income: | |||||
Interest | $ | 726,419 | |||
|
| ||||
Total Investment Income | 726,419 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 307,769 | ||||
Administration fees | 652 | ||||
Distribution fees | 128,236 | ||||
Administrative and compliance services fees | 2,152 | ||||
Trustee fees | 10 | ||||
Professional fees | 20,284 | ||||
Shareholder reports | 6,974 | ||||
Other expenses | 715 | ||||
|
| ||||
Total expenses before reductions | 466,792 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (25,648 | ) | |||
|
| ||||
Net expenses | 441,144 | ||||
|
| ||||
Net Investment Income/(Loss) | 285,275 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 1,150,798 | ||||
Change in net unrealized appreciation/depreciation on investments | 1,436,298 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 2,587,096 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 2,872,371 | |||
|
|
(a) | For the period November 17, 2014 (commencement of operations) to December 31, 2014. |
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL MetWest Total Return Bond Fund | |||||
November 17, 2014 to December 31, 2014(a) | |||||
Change In Net Assets: | |||||
Operations: | |||||
Net investment income/(loss) | $ | 285,275 | |||
Net realized gains/(losses) on investment transactions | 1,150,798 | ||||
Change in unrealized appreciation/depreciation on investments | 1,436,298 | ||||
|
| ||||
Change in net assets resulting from operations | 2,872,371 | ||||
|
| ||||
Capital Transactions: | |||||
Proceeds from shares issued | 415,766,530 | ||||
Value of shares redeemed | (3,052,977 | ) | |||
|
| ||||
Change in net assets resulting from capital transactions | 412,713,553 | ||||
|
| ||||
Change in net assets | 415,585,924 | ||||
Net Assets: | |||||
Beginning of period | — | ||||
|
| ||||
End of period | $ | 415,585,924 | |||
|
| ||||
Accumulated net investment income/(loss) | $ | 401,870 | |||
|
| ||||
Share Transactions: | |||||
Shares issued | 41,576,530 | ||||
Shares redeemed | (303,352 | ) | |||
|
| ||||
Change in shares | 41,273,178 | ||||
|
|
(a) | Period from commencement of operations. |
See accompanying notes to the financial statements.
8
AZL MetWest Total Return Bond Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the period indicated)
November 17, 2014 to December 31, 2014(a) | |||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||
|
| ||||
Investment Activities: | |||||
Net Investment Income/(Loss) | 0.01 | ||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.06 | ||||
|
| ||||
Total from Investment Activities | 0.07 | ||||
|
| ||||
Net Asset Value, End of Period | $ | 10.07 | |||
|
| ||||
Total Return(b) | 0.70 | %(c) | |||
Ratios to Average Net Assets/Supplemental Data: | |||||
Net Assets, End of Period (000’s) | $ | 415,586 | |||
Net Investment Income/(Loss)(d) | 0.56 | % | |||
Expenses Before Reductions(d)(e) | 0.91 | % | |||
Expenses Net of Reductions(d) | 0.86 | % | |||
Portfolio Turnover Rate | 27 | %(c) |
(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. |
(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. |
See accompanying notes to the financial statements.
9
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL MetWest Total Return Bond Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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 with Metropolitan West Asset Management, LLC (“MetWest”), MetWest 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 U.S. 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, 2016.
10
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2014
For the period ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL MetWest Total Return Bond Fund | 0.60 | % | 0.91 | % |
* | The Manager voluntarily reduced the management fee to 0.55% 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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
11
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2014
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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Asset Backed Securities | $ | — | $ | 26,290,538 | $ | 994,303 | $ | 27,284,841 | ||||||||||||
Collateralized Mortgage Obligations | — | 80,149,940 | — | 80,149,940 | ||||||||||||||||
Commercial Paper | — | 3,948,896 | — | 3,948,896 | ||||||||||||||||
Corporate Bonds+ | — | 60,952,412 | — | 60,952,412 | ||||||||||||||||
Municipal Bond | — | 1,278,799 | — | 1,278,799 | ||||||||||||||||
Preferred Stock | — | 842,936 | — | 842,936 | ||||||||||||||||
U.S. Government Agency Mortgages | — | 139,722,724 | — | 139,722,724 | ||||||||||||||||
U.S. Treasury Obligations | — | 172,679,466 | — | 172,679,466 | ||||||||||||||||
Yankee Dollars+ | — | 6,596,448 | — | 6,596,448 | ||||||||||||||||
Unaffiliated Investment Company | 931,427 | — | — | 931,427 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | $ | 931,427 | $ | 492,462,159 | $ | 994,303 | $ | 494,387,889 | ||||||||||||
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
A reconciliation of assets in which Level 3 inputs are used in determining fair value, along with additional quantitative disclosures, are presented when there are significant Level 3 investments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MetWest Total Return Bond Fund | $ | 454,911,466 | $ | 93,049,893 |
For the year ended December 31, 2014, purchases and sales on long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL MetWest Total Return Bond Fund | $ | 291,985,046 | $ | 89,391,586 |
6. Investment Risks
Mortgage-Related and Other Asset-Backed Risk: The Fund may invest in a variety of mortgage-related and other asset-backed securities, which are subject to certain additional risks. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, a Fund that holds mortgage-related securities may exhibit additional volatility. This is known as extension risk. In addition, adjustable and fixed rate mortgage-related securities are subject to call risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. If a Fund purchases mortgage-backed or asset-backed securities that are subordinated to other interests in the same mortgage pool, the Fund may receive payments only after the pool’s obligations to other investors have been satisfied. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may limit substantially the pool’s ability to make payments of principal or interest to the Fund as a holder of such subordinated securities, reducing the values of those securities or in some cases rendering them worthless. An unexpectedly high or low rate of prepayments on a pool’s underlying mortgages may have a similar effect on subordinated securities. A mortgage pool may issue securities subject to various levels of subordination. The risk of non-payment affects securities at each level, although the risk is greater in the case of more highly subordinated securities. A Fund’s investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets.
12
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2014
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $492,976,760. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 2,236,987 | ||
Unrealized depreciation | (825,858 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 1,411,129 | ||
|
|
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,589,478 | $ | — | $ | — | $ | 1,411,129 | $ | 3,000,607 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL MetWest Total Return Bond Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, and the related statements of operations and changes in net assets, and the financial highlights for the period November 17, 2014 to December 31, 2014. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, the results of its operations, the changes in its net assets, and the financial highlights for the period November 17, 2014 to December 31, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
14
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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of | Principal Occupation(s) | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® MFS Investors Trust Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® MFS Investors Trust Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® MFS Investors Trust Fund returned 10.75%. That compared to a 13.69% total return for its benchmark, the S&P 500 Index1.
U.S. stocks performed well during the period, despite a temporary setback at the start of the year. Stocks fell early in the first quarter due to concerns about slowing global growth, a soft December 2013 labor market report, and a pause in U.S. economic growth, which was partially caused by extreme weather events. The stock market soon recovered, however, as investors regained their appetite for riskier investments from February into the summer. Any market setbacks during this time were short-lived as improving economic growth in the U.S., coupled with easier monetary policy abroad, helped support increased demand for stocks.
Near the end of the year the U.S. equity market approached all-time highs. At this point, a rapid and severe decline in energy prices created a great deal of stock-market volatility.
The Fund performed well in absolute terms during the period but underperformed its benchmark. Stock selection and an underweight position in the technology sector detracted from the Fund’s relative performance. In particular, a smaller-than-benchmark position in a strong-performing consumer electronics maker weighed on relative results. An overweight position in an Internet services and products company also dragged on performance as the stock underperformed the benchmark.*
Stock selection in the health care, basic materials, and consumer staples sectors also weighed on relative performance, with holdings of an international food producer notably underperforming the benchmark. Currency exposure was another factor in the Fund’s underperformance. The U.S. dollar strengthened throughout the period, causing the Fund to be hurt by its greater-than-benchmark exposure to holdings of securities denominated in foreign currencies.*
The Fund benefited from strong stock selection in both the leisure and autos and housing sectors. Within the leisure sector, an overweight position in a large media company supported relative results as the stock delivered solid performance during the period. In the autos and housing sector, an overweight position in a paint company that posted strong gains for the period help to boost relative performance. Overweight positions in a medical equipment and supplies company as well as a computer and personal electronics maker also aided relative performance, as those stocks outpaced the 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, 2014. |
1 | The Standard & Poor’s 500 Index (“S&P 500”) 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
AZL® MFS Investors Trust Fund Review (unaudited)
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (4/29/05) | |||||||||||||
AZL® MFS Investors Trust Fund | 10.75 | % | 20.18 | % | 13.51 | % | 10.58 | % | ||||||||
S&P 500 Index | 13.69 | % | 20.41 | % | 15.45 | % | 8.40 | % |
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® MFS Investors Trust Fund | 1.06 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 (“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
AZL MFS Investors Trust Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MFS Investors Trust Fund | $ | 1,000.00 | $ | 1,055.50 | $ | 5.28 | 1.02 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MFS Investors Trust Fund | $ | 1,000.00 | $ | 1,020.06 | $ | 5.19 | 1.02 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Information Technology | 19.1 | % | |||
Financials | 17.3 | ||||
Consumer Discretionary | 17.1 | ||||
Health Care | 14.2 | ||||
Industrials | 11.6 | ||||
Consumer Staples | 7.1 | ||||
Energy | 6.0 | ||||
Materials | 4.9 | ||||
Utilities | 1.9 | ||||
|
| ||||
Total Common Stocks and Preferred Stock | 99.2 | ||||
Securities Held as Collateral for Securities on Loan | 12.7 | ||||
Money Market | 0.9 | ||||
|
| ||||
Total Investment Securities | 112.8 | ||||
Net other assets (liabilities) | (12.8 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL MFS Investors Trust Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.9%): |
| ||||||
| Aerospace & Defense (5.0%): |
| ||||||
61,692 | Honeywell International, Inc. | $ | 6,164,265 | |||||
20,834 | Precision Castparts Corp. | 5,018,494 | ||||||
64,121 | United Technologies Corp. | 7,373,915 | ||||||
|
| |||||||
18,556,674 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.8%): |
| ||||||
28,151 | United Parcel Service, Inc., Class B^ | 3,129,547 | ||||||
|
| |||||||
| Auto Components (0.5%): |
| ||||||
24,241 | Delphi Automotive plc | 1,762,806 | ||||||
|
| |||||||
| Banks (6.4%): |
| ||||||
277,862 | Bank of America Corp. | 4,970,951 | ||||||
177,041 | JPMorgan Chase & Co. | 11,079,225 | ||||||
140,787 | Wells Fargo & Co. | 7,717,943 | ||||||
|
| |||||||
23,768,119 | ||||||||
|
| |||||||
| Beverages (1.7%): |
| ||||||
90,541 | Diageo plc | 2,596,500 | ||||||
34,701 | Pernod Ricard SA | 3,847,085 | ||||||
|
| |||||||
6,443,585 | ||||||||
|
| |||||||
| Capital Markets (5.3%): |
| ||||||
16,579 | BlackRock, Inc., Class A | 5,927,987 | ||||||
23,530 | Franklin Resources, Inc.^ | 1,302,856 | ||||||
35,438 | Goldman Sachs Group, Inc. (The) | 6,868,948 | ||||||
89,158 | Morgan Stanley | 3,459,330 | ||||||
29,296 | State Street Corp. | 2,299,736 | ||||||
|
| |||||||
19,858,857 | ||||||||
|
| |||||||
| Chemicals (3.7%): |
| ||||||
7,676 | FMC Corp.^ | 437,762 | ||||||
14,409 | Linde AG | 2,687,245 | ||||||
23,049 | Praxair, Inc. | 2,986,228 | ||||||
16,257 | Sherwin Williams Co.^ | 4,276,242 | ||||||
37,730 | W.R. Grace & Co.* | 3,599,065 | ||||||
|
| |||||||
13,986,542 | ||||||||
|
| |||||||
| Construction & Engineering (0.6%): |
| ||||||
37,687 | Fluor Corp.^ | 2,284,963 | ||||||
|
| |||||||
| Consumer Finance (1.9%): |
| ||||||
74,538 | American Express Co. | 6,935,016 | ||||||
|
| |||||||
| Containers & Packaging (1.2%): |
| ||||||
84,376 | Crown Holdings, Inc.*^ | 4,294,738 | ||||||
|
| |||||||
| Diversified Financial Services (1.0%): |
| ||||||
75,521 | NASDAQ OMX Group, Inc. (The) | 3,621,987 | ||||||
|
| |||||||
| Electric Utilities (0.7%): |
| ||||||
42,432 | American Electric Power Co., Inc. | 2,576,471 | ||||||
|
| |||||||
| Energy Equipment & Services (2.8%): |
| ||||||
58,769 | Cameron International Corp.* | 2,935,512 | ||||||
38,319 | National-Oilwell Varco, Inc.^ | 2,511,044 | ||||||
56,694 | Schlumberger, Ltd. | 4,842,235 | ||||||
|
| |||||||
10,288,791 | ||||||||
|
| |||||||
| Food Products (2.5%): |
| ||||||
56,809 | Danone SA | 3,736,822 |
Shares | Fair Value | |||||||
| Common Stock, continued |
| ||||||
| Food Products, continued |
| ||||||
27,353 | General Mills, Inc.^ | $ | 1,458,735 | |||||
115,302 | Mondelez International, Inc., Class A | 4,188,346 | ||||||
|
| |||||||
9,383,903 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (3.5%): |
| ||||||
75,810 | Abbott Laboratories | 3,412,966 | ||||||
36,768 | Covidien plc | 3,760,631 | ||||||
40,254 | St. Jude Medical, Inc.^ | 2,617,718 | ||||||
36,254 | Stryker Corp. | 3,419,840 | ||||||
|
| |||||||
13,211,155 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.9%): |
| ||||||
16,748 | McKesson, Inc. | 3,476,550 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.1%): |
| ||||||
43,075 | McDonald’s Corp. | 4,036,128 | ||||||
|
| |||||||
| Household Durables (0.9%): |
| ||||||
85,837 | Newell Rubbermaid, Inc. | 3,269,531 | ||||||
|
| |||||||
| Household Products (2.9%): |
| ||||||
44,361 | Colgate-Palmolive Co. | 3,069,338 | ||||||
85,329 | Procter & Gamble Co. (The) | 7,772,618 | ||||||
|
| |||||||
10,841,956 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.8%): |
| ||||||
122,010 | Danaher Corp. | 10,457,477 | ||||||
|
| |||||||
| Insurance (0.9%): |
| ||||||
27,645 | ACE, Ltd. | 3,175,858 | ||||||
|
| |||||||
| Internet Software & Services (2.8%): |
| ||||||
8,843 | Google, Inc., Class C* | 4,654,955 | ||||||
11,032 | Google, Inc., Class A* | 5,854,241 | ||||||
|
| |||||||
10,509,196 | ||||||||
|
| |||||||
| IT Services (8.6%): |
| ||||||
64,074 | Accenture plc, Class A^ | 5,722,448 | ||||||
106,929 | Cognizant Technology Solutions Corp., Class A* | 5,630,881 | ||||||
82,595 | Fidelity National Information Services, Inc. | 5,137,409 | ||||||
65,601 | MasterCard, Inc., Class A | 5,652,182 | ||||||
36,262 | Visa, Inc., Class A | 9,507,896 | ||||||
|
| |||||||
31,650,816 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (1.7%): |
| ||||||
50,093 | Thermo Fisher Scientific, Inc. | 6,276,152 | ||||||
|
| |||||||
| Media (6.9%): |
| ||||||
117,332 | Comcast Corp., Class A | 6,806,429 | ||||||
76,226 | Time Warner Cable, Inc. | 6,511,225 | ||||||
122,154 | Twenty-First Century Fox, Inc.^ | 4,691,324 | ||||||
80,351 | Walt Disney Co. (The) | 7,568,260 | ||||||
|
| |||||||
25,577,238 | ||||||||
|
| |||||||
| Multiline Retail (2.1%): |
| ||||||
60,549 | Kohl’s Corp.^ | 3,695,911 | ||||||
55,288 | Target Corp.^ | 4,196,912 | ||||||
|
| |||||||
7,892,823 | ||||||||
|
| |||||||
| Multi-Utilities (0.9%): |
| ||||||
92,041 | CMS Energy Corp. | 3,198,425 | ||||||
|
|
Continued
4
AZL MFS Investors Trust Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels (3.2%): |
| ||||||
58,104 | EOG Resources, Inc. | $ | 5,349,635 | |||||
73,792 | Noble Energy, Inc. | 3,499,955 | ||||||
35,635 | Occidental Petroleum Corp. | 2,872,537 | ||||||
|
| |||||||
11,722,127 | ||||||||
|
| |||||||
| Pharmaceuticals (8.1%): |
| ||||||
54,848 | Abbvie, Inc. | 3,589,253 | ||||||
8,529 | Actavis, Inc. plc* | 2,195,450 | ||||||
57,784 | Bristol-Myers Squibb Co. | 3,410,990 | ||||||
25,970 | Eli Lilly & Co. | 1,791,670 | ||||||
49,506 | Endo International plc* | 3,570,373 | ||||||
74,495 | Johnson & Johnson Co. | 7,789,942 | ||||||
65,572 | Pfizer, Inc. | 2,042,568 | ||||||
39,195 | Valeant Pharmaceuticals International, Inc.* | 5,609,196 | ||||||
|
| |||||||
29,999,442 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.8%): |
| ||||||
66,683 | American Tower Corp. | 6,591,615 | ||||||
|
| |||||||
| Road & Rail (1.3%): |
| ||||||
71,504 | Canadian National Railway Co. | 4,927,341 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.4%): |
| ||||||
109,858 | Altera Corp.^ | 4,058,155 | ||||||
108,817 | Microchip Technology, Inc. | 4,908,734 | ||||||
|
| |||||||
8,966,889 | ||||||||
|
| |||||||
| Software (1.1%): |
| ||||||
39,907 | Citrix Systems, Inc.* | 2,546,067 | ||||||
37,069 | Oracle Corp. | 1,666,993 | ||||||
|
| |||||||
4,213,060 | ||||||||
|
| |||||||
| Specialty Retail (3.2%): |
| ||||||
63,562 | Bed Bath & Beyond, Inc.*^ | 4,841,518 | ||||||
37,684 | L Brands, Inc. | 3,261,550 | ||||||
40,217 | Ross Stores, Inc.^ | 3,790,854 | ||||||
|
| |||||||
11,893,922 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Technology Hardware, Storage & Peripherals (4.2%): |
| ||||||
35,629 | Apple, Inc. | $ | 3,932,729 | |||||
270,811 | EMC Corp.^ | 8,053,919 | ||||||
93,101 | Hewlett-Packard Co. | 3,736,143 | ||||||
|
| |||||||
15,722,791 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (2.4%): |
| ||||||
163 | Hermes International SA | 57,967 | ||||||
18,429 | LVMH Moet Hennessy Louis Vuitton SA | 2,913,907 | ||||||
23,914 | Nike, Inc., Class B | 2,299,331 | ||||||
47,735 | V.F. Corp. | 3,575,352 | ||||||
|
| |||||||
8,846,557 | ||||||||
|
| |||||||
| Trading Companies & Distributors (1.1%): |
| ||||||
15,473 | W.W. Grainger, Inc.^ | 3,943,913 | ||||||
|
| |||||||
| Total Common Stocks (Cost $235,431,431) | 367,292,961 | ||||||
|
| |||||||
| Preferred Stock (0.3%): |
| ||||||
| Electric Utilities (0.3%): |
| ||||||
20,030 | Exelon Corp., Preferred Shares^ | 1,051,575 | ||||||
|
| |||||||
| Total Preferred Stock (Cost $1,013,350) | 1,051,575 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (12.7%): |
| ||||||
$ | 47,071,960 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 47,071,960 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 47,071,960 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.9%): |
| ||||||
3,440,489 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 3,440,489 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $3,440,489) | 3,440,489 | ||||||
|
| |||||||
| Total Investment Securities (Cost $286,957,230)(c) — 112.8% | 418,856,985 | ||||||
| Net other assets (liabilities) — (12.8)% | (47,531,994 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 371,324,991 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $45,717,004. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
5
AZL MFS Investors Trust Fund
Schedule of Portfolio Investments
December 31, 2014
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Canada | 2.5 | % | ||
France | 2.5 | % | ||
Germany | 0.6 | % | ||
Ireland (Republic of) | 3.1 | % | ||
Netherlands | 1.2 | % | ||
Switzerland | 0.8 | % | ||
United Kingdom | 1.0 | % | ||
United States | 88.3 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
6
AZL MFS Investors Trust Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 286,957,230 | |||
|
| ||||
Investment securities, at value* | $ | 418,856,985 | |||
Cash | 13,213 | ||||
Interest and dividends receivable | 403,583 | ||||
Foreign currency, at value (cost $365) | 364 | ||||
Reclaims receivable | 390 | ||||
Prepaid expenses | 3,041 | ||||
|
| ||||
Total Assets | 419,277,576 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 541,386 | ||||
Payable for collateral received on loaned securities | 47,071,960 | ||||
Manager fees payable | 225,482 | ||||
Administration fees payable | 8,568 | ||||
Distribution fees payable | 79,013 | ||||
Custodian fees payable | 5,767 | ||||
Administrative and compliance services fees payable | 1,121 | ||||
Trustee fees payable | 22 | ||||
Other accrued liabilities | 19,266 | ||||
|
| ||||
Total Liabilities | 47,952,585 | ||||
|
| ||||
Net Assets | $ | 371,324,991 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 193,102,040 | |||
Accumulated net investment income/(loss) | 2,561,773 | ||||
Accumulated net realized gains/(losses) from investment transactions | 43,761,460 | ||||
Net unrealized appreciation/(depreciation) on investments | 131,899,718 | ||||
|
| ||||
Net Assets | $ | 371,324,991 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 16,181,191 | ||||
Net Asset Value (offering and redemption price per share) | $ | 22.95 | |||
|
|
* | Includes securities on loan of $45,717,004. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 6,657,557 | |||
Income from securities lending | 74,841 | ||||
Foreign withholding tax | (120,289 | ) | |||
|
| ||||
Total Investment Income | 6,612,109 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,850,388 | ||||
Administration fees | 102,515 | ||||
Distribution fees | 950,129 | ||||
Custodian fees | 24,807 | ||||
Administrative and compliance services fees | 5,164 | ||||
Trustee fees | 19,920 | ||||
Professional fees | 21,143 | ||||
Shareholder reports | 18,074 | ||||
Other expenses | 9,499 | ||||
|
| ||||
Total expenses before reductions | 4,001,639 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (140,030 | ) | |||
Less expenses paid indirectly | (895 | ) | |||
|
| ||||
Net expenses | 3,860,714 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,751,395 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 44,563,564 | ||||
Change in net unrealized appreciation/depreciation on investments | (9,693,290 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 34,870,274 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 37,621,669 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL MFS Investors Trust Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,751,395 | $ | 2,875,276 | ||||||
Net realized gains/(losses) on investment transactions | 44,563,564 | 23,945,686 | ||||||||
Change in unrealized appreciation/depreciation on investments | (9,693,290 | ) | 74,525,722 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 37,621,669 | 101,346,684 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (2,658,955 | ) | (2,913,024 | ) | ||||||
From net realized gains | (7,435,736 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (10,094,691 | ) | (2,913,024 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 5,266,323 | 26,030,545 | ||||||||
Proceeds from dividends reinvested | 10,094,691 | 2,913,024 | ||||||||
Value of shares redeemed | (78,415,581 | ) | (47,016,565 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (63,054,567 | ) | (18,072,996 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (35,527,589 | ) | 80,360,664 | |||||||
Net Assets: | ||||||||||
Beginning of period | 406,852,580 | 326,491,916 | ||||||||
|
|
|
| |||||||
End of period | $ | 371,324,991 | $ | 406,852,580 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,561,773 | $ | 2,874,774 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 238,552 | 1,415,289 | ||||||||
Dividends reinvested | 459,895 | 151,169 | ||||||||
Shares redeemed | (3,619,091 | ) | (2,501,123 | ) | ||||||
|
|
|
| |||||||
Change in shares | (2,920,644 | ) | (934,665 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL MFS Investors Trust Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 21.30 | $ | 16.29 | $ | 13.79 | $ | 14.20 | $ | 12.81 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.19 | 0.16 | 0.15 | 0.12 | 0.10 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.07 | 5.00 | 2.46 | (0.44 | ) | 1.31 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 2.26 | 5.16 | 2.61 | (0.32 | ) | 1.41 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.15 | ) | (0.11 | ) | (0.09 | ) | (0.02 | ) | |||||||||||||||
Net Realized Gains | (0.45 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.61 | ) | (0.15 | ) | (0.11 | ) | (0.09 | ) | (0.02 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 22.95 | $ | 21.30 | $ | 16.29 | $ | 13.79 | $ | 14.20 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 10.75 | % | 31.77 | % | 18.95 | % | (2.22 | )% | 11.01 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 371,325 | $ | 406,853 | $ | 326,492 | $ | 272,336 | $ | 314,596 | |||||||||||||||
Net Investment Income/(Loss) | 0.72 | % | 0.77 | % | 1.01 | % | 0.79 | % | 0.62 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.05 | % | 1.06 | % | 1.07 | % | 1.09 | % | 1.10 | % | |||||||||||||||
Expenses Net of Reductions | 1.02 | % | 1.02 | % | 1.03 | % | 1.05 | % | 1.06 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.02 | % | 1.02 | % | 1.03 | % | 1.05 | % | 1.06 | % | |||||||||||||||
Portfolio Turnover Rate | 21 | % | 21 | % | 31 | % | 22 | % | 21 | %(d) |
(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 any. 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) | Effective October 26, 2010, the Subadviser changed from Jennison Associates LLC to Massachusetts 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. |
See accompanying notes to the financial statements.
9
AZL MFS Investors Trust Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL MFS Investors Trust Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL MFS Investors Trust Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $13.5 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $7,416 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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. 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 0.01% of daily average net assets over $8 billion. The overall Trust-wide fees are accrued daily and paid monthly and
11
AZL MFS Investors Trust Fund
Notes to the Financial Statements
December 31, 2014
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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $4,769 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
12
AZL MFS Investors Trust Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Beverages | $ | — | $ | 6,443,585 | $ | 6,443,585 | |||||||||
Chemicals | 11,299,297 | 2,687,245 | 13,986,542 | ||||||||||||
Food Products | 5,647,081 | 3,736,822 | 9,383,903 | ||||||||||||
Textiles, Apparel & Luxury Goods | 5,874,683 | 2,971,874 | 8,846,557 | ||||||||||||
All Other Common Stocks+ | 328,632,374 | — | 328,632,374 | ||||||||||||
Preferred Stock | 1,051,575 | — | 1,051,575 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 47,071,960 | 47,071,960 | ||||||||||||
Unaffiliated Investment Company | 3,440,489 | — | 3,440,489 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | $ | 355,945,499 | $ | 62,911,486 | $ | 418,856,985 | |||||||||
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 78,668,371 | $ | 147,833,289 |
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $288,572,111. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 133,416,525 | ||
Unrealized depreciation | (3,131,651 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 130,284,874 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MFS Investors Trust Fund | $ | 2,658,955 | $ | 7,435,736 | $ | 10,094,691 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MFS Investors Trust Fund | $ | 2,913,024 | $ | — | $ | 2,913,024 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
13
AZL MFS Investors Trust Fund
Notes to the Financial Statements
December 31, 2014
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL MFS Investors Trust Fund | $ | 4,268,208 | $ | 43,669,906 | $ | — | $ | 130,284,837 | $ | 178,222,951 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
15
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $7,435,736.
16
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.
17
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
18
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
19
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
20
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
21
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
22
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® MFS Mid Cap Value Fund
(formerly AZL® Columbia Mid Cap Value Fund)
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® MFS Mid Cap Value Fund Review (unaudited)
(formerly AZL® Columbia Mid Cap Value Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® MFS Mid Cap Value Fund and MFS Investment Management serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® MFS Mid Cap Value Fund returned 10.90%, which compared to a 14.75% total return for its benchmark, the Russell Midcap® Value Index1.
The Fund changed subadvisors from Columbia Management Investment Advisers to MFS Investment Management on February 4, 2014.
U.S. stocks performed well during the period, despite a temporary setback at the start of the year. Stocks fell early in the first quarter due to concerns about slowing global growth, a soft December 2013 labor market report and a pause in U.S. economic growth, which was partially caused by extreme weather events. The stock market soon recovered, however, as investors regained their appetite for riskier investments from February into the summer. Any market setbacks during this time were short-lived as improving economic growth in the U.S., coupled with easier monetary policy abroad, helped support increased demand for stocks.
Near the end of the year the U.S. equity market approached all-time highs. At this point a rapid and severe decline in energy prices created a great deal of stock-market volatility.
The Fund underperformed its benchmark for the period, due primarily to its overweight position in the energy sector. Stock selection in this sector also detracted from relative performance, with off-benchmark holdings of an independent energy company, a drilling services provider and an offshore drilling company all suffering from the precipitous decline in energy prices. Stock selection in the basic materials and financial services sectors also dragged on results. Holdings of a diversified chemical company and a graphite and steel producer were notable detractors; they were not held by the benchmark and they underperformed for the period.*
The Fund’s cash holdings also detracted from relative performance given the strong absolute return of the fully invested benchmark.*
An overweight position in the retailing sector contributed positively to relative performance as that sector outperformed the benchmark. Stock selection was also a positive contributor, most notably in the case of a strong-performing off-benchmark apparel retailer. A larger-than-benchmark position in the consumer staples sector also boosted relative performance, as did stock selection elsewhere in the portfolio. In particular, holdings of a diversified communications company and a semiconductor company contributed positively to relative performance as shares of both companies performed strongly for 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, 2014. |
1 | 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
AZL® MFS Mid Cap Value Fund Review (unaudited)
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.
Small- to mid-capitalization 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.
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 investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (5/1/06) | |||||||||||||
AZL® MFS Mid Cap Value Fund | 10.90 | % | 20.18 | % | 15.48 | % | 3.73 | % | ||||||||
Russell Midcap® Value Index | 14.75 | % | 21.98 | % | 17.43 | % | 8.43 | % |
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 Mid Cap Value Fund | 1.06 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 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 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
AZL MFS Mid Cap Value Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL MFS Mid Cap Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MFS Mid Cap Value Fund | $ | 1,000.00 | $ | 1,012.40 | $ | 5.38 | 1.06 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MFS Mid Cap Value Fund | $ | 1,000.00 | $ | 1,019.86 | $ | 5.40 | 1.06 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Financials | 24.4 | % | |||
Consumer Discretionary | 13.7 | ||||
Industrials | 12.2 | ||||
Materials | 9.1 | ||||
Health Care | 8.9 | ||||
Information Technology | 8.6 | ||||
Utilities | 7.5 | ||||
Consumer Staples | 7.0 | ||||
Energy | 6.7 | ||||
Telecommunication Services | 1.5 | ||||
|
| ||||
Total Common Stocks and Convertible Preferred Stock | 99.6 | ||||
Securities Held as Collateral for Securities on Loan | 22.6 | ||||
Money Market | 0.5 | ||||
|
| ||||
Total Investment Securities | 122.7 | ||||
Net other assets (liabilities) | (22.7 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL MFS Mid Cap Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (99.3%): |
| ||||||
| Aerospace & Defense (0.9%): |
| ||||||
11,874 | Mtu Aero Engines AG | $ | 1,036,639 | |||||
18,863 | Triumph Group, Inc. | 1,267,971 | ||||||
|
| |||||||
2,304,610 | ||||||||
|
| |||||||
| Airlines (1.2%): |
| ||||||
19,670 | Alaska Air Group, Inc. | 1,175,479 | ||||||
34,830 | Delta Air Lines, Inc. | 1,713,288 | ||||||
|
| |||||||
2,888,767 | ||||||||
|
| |||||||
| Auto Components (2.3%): |
| ||||||
53,842 | Allison Transmission Holdings, Inc. | 1,825,244 | ||||||
29,696 | BorgWarner, Inc. | 1,631,795 | ||||||
24,123 | Delphi Automotive plc | 1,754,225 | ||||||
|
| |||||||
5,211,264 | ||||||||
|
| |||||||
| Automobiles (0.6%): |
| ||||||
21,488 | Harley-Davidson, Inc. | 1,416,274 | ||||||
|
| |||||||
| Banks (7.5%): |
| ||||||
56,581 | BB&T Corp.^ | 2,200,435 | ||||||
29,158 | Comerica, Inc. | 1,365,761 | ||||||
115,549 | Fifth Third Bancorp | 2,354,312 | ||||||
26,694 | First Republic Bank | 1,391,291 | ||||||
191,317 | Huntington Bancshares, Inc. | 2,012,655 | ||||||
127,908 | KeyCorp | 1,777,921 | ||||||
11,100 | M&T Bank Corp.^ | 1,394,382 | ||||||
53,659 | PrivateBancorp, Inc. | 1,792,211 | ||||||
32,299 | SunTrust Banks, Inc. | 1,353,328 | ||||||
102,936 | TCF Financial Corp. | 1,635,653 | ||||||
|
| |||||||
17,277,949 | ||||||||
|
| |||||||
| Beverages (1.6%): |
| ||||||
29,394 | Coca-Cola Enterprises, Inc. | 1,299,803 | ||||||
31,328 | Molson Coors Brewing Co., Class B | 2,334,562 | ||||||
|
| |||||||
3,634,365 | ||||||||
|
| |||||||
| Building Products (1.4%): |
| ||||||
31,397 | Armstrong World Industries, Inc.* | 1,605,014 | ||||||
33,847 | Fortune Brands Home & Security, Inc.^ | 1,532,254 | ||||||
|
| |||||||
3,137,268 | ||||||||
|
| |||||||
| Capital Markets (1.7%): |
| ||||||
6,822 | Affiliated Managers Group, Inc.* | 1,447,901 | ||||||
14,134 | State Street Corp. | 1,109,519 | ||||||
35,260 | TD Ameritrade Holding Corp. | 1,261,603 | ||||||
|
| |||||||
3,819,023 | ||||||||
|
| |||||||
| Chemicals (6.0%): |
| ||||||
21,741 | Akzo Nobel NV | 1,507,444 | ||||||
23,676 | Albemarle Corp.^ | 1,423,638 | ||||||
73,230 | Axalta Coating Systems, Ltd.*^ | 1,905,445 | ||||||
26,407 | Celanese Corp., Series A | 1,583,364 | ||||||
21,467 | FMC Corp.^ | 1,224,263 | ||||||
32,044 | H.B. Fuller Co.^ | 1,426,919 | ||||||
15,314 | Rockwood Holdings, Inc. | 1,206,743 | ||||||
22,418 | Sensient Technologies Corp. | 1,352,702 | ||||||
23,684 | Valspar Corp. (The) | 2,048,192 | ||||||
|
| |||||||
13,678,710 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Commercial Services & Supplies (0.9%): |
| ||||||
45,195 | Tyco International plc | $ | 1,982,253 | |||||
|
| |||||||
| Consumer Finance (1.0%): |
| ||||||
35,692 | Discover Financial Services | 2,337,469 | ||||||
|
| |||||||
| Containers & Packaging (2.8%): |
| ||||||
52,552 | Crown Holdings, Inc.* | 2,674,897 | ||||||
92,966 | Graphic Packaging Holding Co.* | 1,266,197 | ||||||
23,393 | Greif, Inc., Class A | 1,104,851 | ||||||
54,064 | Owens-Illinois, Inc.* | 1,459,187 | ||||||
|
| |||||||
6,505,132 | ||||||||
|
| |||||||
| Diversified Financial Services (1.3%): |
| ||||||
62,520 | NASDAQ OMX Group, Inc. (The) | 2,998,459 | ||||||
|
| |||||||
| Diversified Telecommunication Services (1.2%): |
| ||||||
269,618 | Colt Group SA* | 557,663 | ||||||
223,208 | Frontier Communications Corp.^ | 1,488,797 | ||||||
113,265 | Windstream Holdings, Inc.^ | 933,304 | ||||||
|
| |||||||
2,979,764 | ||||||||
|
| |||||||
| Electric Utilities (2.1%): |
| ||||||
33,729 | Northeast Utilities | 1,805,176 | ||||||
30,564 | OGE Energy Corp. | 1,084,411 | ||||||
29,445 | Pinnacle West Capital Corp. | 2,011,388 | ||||||
|
| |||||||
4,900,975 | ||||||||
|
| |||||||
| Electrical Equipment (1.4%): |
| ||||||
26,956 | Eaton Corp. plc | 1,831,930 | ||||||
17,211 | Regal-Beloit Corp. | 1,294,267 | ||||||
|
| |||||||
3,126,197 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (1.4%): |
| ||||||
62,187 | Ingram Micro, Inc., Class A* | 1,718,849 | ||||||
44,726 | Keysight Technologies, Inc.* | 1,510,397 | ||||||
|
| |||||||
3,229,246 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.3%): |
| ||||||
25,381 | Cameron International Corp.* | 1,267,781 | ||||||
24,647 | Ensco plc, Class A, ADR^ | 738,178 | ||||||
112,432 | Pacific Drilling SA* | 521,684 | ||||||
16,777 | Tidewater, Inc.^ | 543,743 | ||||||
|
| |||||||
3,071,386 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.5%): |
| ||||||
15,233 | Empire Co., Ltd., Class A | 1,149,131 | ||||||
|
| |||||||
| Food Products (4.9%): |
| ||||||
19,772 | Bunge, Ltd. | 1,797,473 | ||||||
77,790 | Flowers Foods, Inc.^ | 1,492,790 | ||||||
23,738 | Ingredion, Inc.^ | 2,013,932 | ||||||
19,117 | J.M. Smucker Co. (The)^ | 1,930,435 | ||||||
50,069 | Pinnacle Foods, Inc. | 1,767,436 | ||||||
164,596 | Rite AID Corp.* | 1,237,762 | ||||||
33,019 | Snyders-Lance, Inc.^ | 1,008,730 | ||||||
|
| |||||||
11,248,558 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (3.1%): |
| ||||||
6,901 | Cooper Cos., Inc. (The)^ | 1,118,583 | ||||||
34,661 | DENTSPLY International, Inc.^ | 1,846,391 |
Continued
4
AZL MFS Mid Cap Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
27,823 | St. Jude Medical, Inc. | $ | 1,809,330 | |||||
11,237 | STERIS Corp.^ | 728,719 | ||||||
13,880 | Teleflex, Inc.^ | 1,593,702 | ||||||
|
| |||||||
7,096,725 | ||||||||
|
| |||||||
| Health Care Providers & Services (2.4%): |
| ||||||
20,610 | AmerisourceBergen Corp. | 1,858,198 | ||||||
33,001 | Quest Diagnostics, Inc.^ | 2,213,047 | ||||||
12,355 | Universal Health Services, Inc., Class B | 1,374,617 | ||||||
|
| |||||||
5,445,862 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.5%): |
| ||||||
7,390 | Wynn Resorts, Ltd. | 1,099,336 | ||||||
|
| |||||||
| Household Durables (1.4%): |
| ||||||
82,119 | Newell Rubbermaid, Inc. | 3,127,913 | ||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (2.0%): |
| ||||||
136,300 | AES Corp. (The) | 1,876,851 | ||||||
34,317 | Dynegy, Inc.* | 1,041,521 | ||||||
60,464 | NRG Energy, Inc.^ | 1,629,505 | ||||||
|
| |||||||
4,547,877 | ||||||||
|
| |||||||
| Insurance (7.5%): |
| ||||||
37,436 | Arthur J. Gallagher & Co. | 1,762,487 | ||||||
11,074 | Everest Re Group, Ltd. | 1,885,902 | ||||||
15,261 | Hanover Insurance Group, Inc. (The) | 1,088,415 | ||||||
29,890 | Hartford Financial Services Group, Inc. (The) | 1,246,114 | ||||||
34,141 | HCC Insurance Holdings, Inc. | 1,827,226 | ||||||
36,812 | Lincoln National Corp. | 2,122,949 | ||||||
69,593 | Symetra Financial Corp.^ | 1,604,119 | ||||||
67,786 | Third Point Reinsurance, Ltd.* | 982,219 | ||||||
57,809 | UnumProvident Corp. | 2,016,378 | ||||||
38,827 | Validus Holdings, Ltd. | 1,613,650 | ||||||
40,149 | XL Group plc, Class B | 1,379,921 | ||||||
|
| |||||||
17,529,380 | ||||||||
|
| |||||||
| IT Services (1.5%): |
| ||||||
29,087 | Fidelity National Information Services, Inc. | 1,809,211 | ||||||
85,755 | Sabre Corp.^ | 1,738,254 | ||||||
|
| |||||||
3,547,465 | ||||||||
|
| |||||||
| Leisure Products (0.6%): |
| ||||||
44,121 | Mattel, Inc. | 1,365,324 | ||||||
|
| |||||||
| Life Sciences Tools & Services (1.6%): |
| ||||||
37,236 | Agilent Technologies, Inc. | 1,524,442 | ||||||
51,762 | PerkinElmer, Inc. | 2,263,552 | ||||||
|
| |||||||
3,787,994 | ||||||||
|
| |||||||
| Machinery (4.0%): |
| ||||||
9,137 | Cummins, Inc. | 1,317,281 | ||||||
20,909 | Joy Global, Inc.^ | 972,687 | ||||||
30,361 | Oshkosh Corp. | 1,477,063 | ||||||
26,228 | Pentair, Ltd. | 1,742,064 | ||||||
13,935 | SPX Corp. | 1,197,295 | ||||||
24,483 | Stanley Black & Decker, Inc. | 2,352,326 | ||||||
|
| |||||||
9,058,716 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media (2.1%): |
| ||||||
17,948 | AMC Networks, Inc., Class A* | $ | 1,144,544 | |||||
32,637 | Cinemark Holdings, Inc. | 1,161,224 | ||||||
81,038 | Interpublic Group of Cos., Inc. (The) | 1,683,160 | ||||||
37,863 | Quebecor, Inc., Class B | 1,041,192 | ||||||
|
| |||||||
5,030,120 | ||||||||
|
| |||||||
| Metals & Mining (0.3%): |
| ||||||
27,817 | United States Steel Corp.^ | 743,827 | ||||||
|
| |||||||
| Multiline Retail (1.1%): |
| ||||||
24,823 | Burlington Stores, Inc.* | 1,173,135 | ||||||
24,021 | Kohl’s Corp.^ | 1,466,242 | ||||||
|
| |||||||
2,639,377 | ||||||||
|
| |||||||
| Multi-Utilities (3.4%): |
| ||||||
54,662 | CMS Energy Corp. | 1,899,505 | ||||||
18,265 | DTE Energy Co. | 1,577,548 | ||||||
29,132 | NiSource, Inc. | 1,235,779 | ||||||
25,740 | NorthWestern Corp. | 1,456,369 | ||||||
43,573 | Public Service Enterprise Group, Inc.^ | 1,804,358 | ||||||
|
| |||||||
7,973,559 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (5.4%): |
| ||||||
9,171 | Cimarex Energy Co. | 972,126 | ||||||
74,622 | Cobalt International Energy, Inc.* | 663,390 | ||||||
33,960 | CONSOL Energy, Inc.^ | 1,148,188 | ||||||
21,884 | Energen Corp.^ | 1,395,324 | ||||||
14,252 | EQT Corp. | 1,078,876 | ||||||
28,922 | HollyFrontier Corp. | 1,083,997 | ||||||
24,199 | Noble Energy, Inc. | 1,147,759 | ||||||
20,271 | PDC Energy, Inc.*^ | 836,584 | ||||||
49,438 | Peabody Energy Corp.^ | 382,650 | ||||||
54,427 | Plains GP Holdings, LP*^ | 1,397,685 | ||||||
26,722 | SM Energy Co.^ | 1,030,935 | ||||||
38,919 | Spectra Energy Corp.^ | 1,412,759 | ||||||
|
| |||||||
12,550,273 | ||||||||
|
| |||||||
| Pharmaceuticals (1.8%): |
| ||||||
28,865 | Endo International plc* | 2,081,743 | ||||||
20,591 | Hospira, Inc.* | 1,261,199 | ||||||
31,952 | Impax Laboratories, Inc.*^ | 1,012,239 | ||||||
|
| |||||||
4,355,181 | ||||||||
|
| |||||||
| Professional Services (0.6%): |
| ||||||
18,153 | Equifax, Inc. | 1,468,033 | ||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (4.7%): |
| ||||||
70,899 | Annaly Capital Management, Inc. | 766,418 | ||||||
58,825 | Corporate Office Properties Trust | 1,668,866 | ||||||
69,819 | DDR Corp.^ | 1,281,877 | ||||||
28,623 | EPR Properties^ | 1,649,543 | ||||||
21,416 | Equity Lifestyle Properties, Inc. | 1,103,995 | ||||||
106,817 | Medical Properties Trust, Inc.^ | 1,471,938 | ||||||
20,525 | Mid-America Apartment Communities, Inc.^ | 1,532,807 | ||||||
34,896 | Plum Creek Timber Co., Inc.^ | 1,493,200 | ||||||
|
| |||||||
10,968,644 | ||||||||
|
|
Continued
5
AZL MFS Mid Cap Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Management & Development (0.7%): |
| ||||||
36,082 | Realogy Holdings Corp.* | $ | 1,605,288 | |||||
|
| |||||||
| Road & Rail (0.6%): |
| ||||||
47,086 | Swift Transportation Co.*^ | 1,348,072 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.7%): |
| ||||||
40,897 | Altera Corp. | 1,510,735 | ||||||
32,868 | Analog Devices, Inc. | 1,824,831 | ||||||
6,216 | Avago Technologies, Ltd. | 625,267 | ||||||
24,754 | Freescale Semiconductor Holdings I, Ltd.*^ | 624,543 | ||||||
33,761 | Microchip Technology, Inc.^ | 1,522,959 | ||||||
|
| |||||||
6,108,335 | ||||||||
|
| |||||||
| Software (1.3%): |
| ||||||
32,107 | NICE Systems, Ltd., ADR | 1,626,220 | ||||||
53,115 | Symantec Corp. | 1,362,665 | ||||||
|
| |||||||
2,988,885 | ||||||||
|
| |||||||
| Specialty Retail (3.8%): |
| ||||||
3,077 | AutoZone, Inc.*^ | 1,905,001 | ||||||
26,567 | Bed Bath & Beyond, Inc.*^ | 2,023,608 | ||||||
15,387 | Children’s Place Retail Stores, Inc. (The)^ | 877,059 | ||||||
24,507 | L Brands, Inc. | 2,121,081 | ||||||
60,782 | Sally Beauty Holdings, Inc.* | 1,868,439 | ||||||
|
| |||||||
8,795,188 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.7%): |
| ||||||
46,997 | NCR Corp.*^ | 1,369,493 | ||||||
191,602 | Xerox Corp. | 2,655,603 | ||||||
|
| |||||||
4,025,096 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.3%): |
| ||||||
11,697 | PVH Corp. | 1,499,204 | ||||||
8,460 | Ralph Lauren Corp.^ | 1,566,454 | ||||||
|
| |||||||
3,065,658 | ||||||||
|
| |||||||
| Trading Companies & Distributors (1.2%): |
| ||||||
21,211 | Brenntag AG | 1,193,388 | ||||||
18,615 | WESCO International, Inc.*^ | 1,418,649 | ||||||
|
| |||||||
2,612,037 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $208,268,559) | 229,780,965 | ||||||
|
| |||||||
| Convertible Preferred Stock (0.3%): | |||||||
| Wireless Telecommunication Services (0.3%): | |||||||
13,362 | T-Mobile US, Inc., Series A, 5.50%* | 708,052 | ||||||
|
| |||||||
| Total Convertible Preferred Stock (Cost $666,721) | 708,052 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (22.6%): |
| ||||||
$ | 52,207,604 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | $ | 52,207,604 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 52,207,604 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.5%): |
| ||||||
1,189,661 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 1,189,661 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $1,189,661) | 1,189,661 | ||||||
|
| |||||||
| Total Investment Securities (Cost $262,332,545)(c) — 122.7% | 283,886,282 | ||||||
| Net other assets (liabilities) — (22.7)% | (52,443,584 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 231,442,698 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $50,553,280. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
6
AZL MFS Mid Cap Value Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 262,332,545 | |||
|
| ||||
Investment securities, at value* | $ | 283,886,282 | |||
Interest and dividends receivable | 264,714 | ||||
Receivable for capital shares issued | 326,353 | ||||
Reclaims receivable | 4,259 | ||||
Prepaid expenses | 1,934 | ||||
|
| ||||
Total Assets | 284,483,542 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 461,338 | ||||
Payable for capital shares redeemed | 163,976 | ||||
Payable for collateral received on loaned securities | 52,207,604 | ||||
Manager fees payable | 146,740 | ||||
Administration fees payable | 202 | ||||
Distribution fees payable | 48,914 | ||||
Custodian fees payable | 5,370 | ||||
Administrative and compliance services fees payable | 499 | ||||
Trustee fees payable | 10 | ||||
Other accrued liabilities | 6,191 | ||||
|
| ||||
Total Liabilities | 53,040,844 | ||||
|
| ||||
Net Assets | $ | 231,442,698 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 149,339,582 | |||
Accumulated net investment income/(loss) | 1,705,099 | ||||
Accumulated net realized gains/(losses) from investment transactions | 58,844,821 | ||||
Net unrealized appreciation/(depreciation) on investments | 21,553,196 | ||||
|
| ||||
Net Assets | $ | 231,442,698 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 18,447,494 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.55 | |||
|
|
* | Includes securities on loan of $50,553,280. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 4,159,074 | |||
Income from securities lending | 48,112 | ||||
Foreign withholding tax | (25,082 | ) | |||
|
| ||||
Total Investment Income | 4,182,104 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,731,287 | ||||
Administration fees | 63,251 | ||||
Distribution fees | 577,096 | ||||
Custodian fees | 24,202 | ||||
Administrative and compliance services fees | 2,630 | ||||
Trustee fees | 10,145 | ||||
Professional fees | 10,967 | ||||
Shareholder reports | 10,492 | ||||
Other expenses | 5,033 | ||||
|
| ||||
Total expenses before reductions | 2,435,103 | ||||
Less expenses paid indirectly | (2,776 | ) | |||
|
| ||||
Net expenses | 2,432,327 | ||||
|
| ||||
Net Investment Income/(Loss) | 1,749,777 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 59,237,701 | ||||
Change in net unrealized appreciation/depreciation on investments | (37,538,859 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 21,698,842 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 23,448,619 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL MFS Mid Cap Value Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | �� | |||||||||
Net investment income/(loss) | $ | 1,749,777 | $ | 769,884 | ||||||
Net realized gains/(losses) on investment transactions | 59,237,701 | 24,239,007 | ||||||||
Change in unrealized appreciation/depreciation on investments | (37,538,859 | ) | 34,739,768 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 23,448,619 | 59,748,659 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (780,255 | ) | (1,337,872 | ) | ||||||
From net realized gains | (9,762,977 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (10,543,232 | ) | (1,337,872 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 18,286,111 | 28,141,862 | ||||||||
Proceeds from dividends reinvested | 10,543,232 | 1,337,872 | ||||||||
Value of shares redeemed | (41,425,355 | ) | (25,888,263 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (12,596,012 | ) | 3,591,471 | |||||||
|
|
|
| |||||||
Change in net assets | 309,375 | 62,002,258 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 231,133,323 | 169,131,065 | ||||||||
|
|
|
| |||||||
End of period | $ | 231,442,698 | $ | 231,133,323 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 1,705,099 | $ | 758,631 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,482,792 | 2,749,328 | ||||||||
Dividends reinvested | 858,569 | 125,152 | ||||||||
Shares redeemed | (3,400,902 | ) | (2,494,993 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,059,541 | ) | 379,487 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL MFS Mid Cap Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.85 | $ | 8.84 | $ | 7.66 | $ | 8.02 | $ | 6.58 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.10 | 0.04 | 0.07 | 0.05 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.18 | 3.04 | 1.16 | (0.34 | ) | 1.41 | |||||||||||||||||||
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Total from Investment Activities | 1.28 | 3.08 | 1.23 | (0.29 | ) | 1.48 | |||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.04 | ) | (0.07 | ) | (0.05 | ) | (0.07 | ) | (0.04 | ) | |||||||||||||||
Net Realized Gains | (0.54 | ) | — | — | — | — | |||||||||||||||||||
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Total Dividends | (0.58 | ) | (0.07 | ) | (0.05 | ) | (0.07 | ) | (0.04 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 12.55 | $ | 11.85 | $ | 8.84 | $ | 7.66 | $ | 8.02 | |||||||||||||||
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Total Return(a) | 10.90 | % | 34.91 | % | 16.03 | % | (3.57 | )% | 22.66 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 231,443 | $ | 231,133 | $ | 169,131 | $ | 132,790 | $ | 133,340 | |||||||||||||||
Net Investment Income/(Loss) | 0.76 | % | 0.38 | % | 0.88 | % | 0.62 | % | 1.12 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.05 | % | 1.06 | % | 1.07 | % | 1.08 | % | 1.10 | % | |||||||||||||||
Expenses Net of Reductions | 1.05 | % | 1.05 | % | 1.05 | % | 1.06 | % | 1.04 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.05 | % | 1.06 | % | 1.07 | % | 1.08 | % | 1.10 | % | |||||||||||||||
Portfolio Turnover Rate | 136 | %(d) | 59 | % | 50 | % | 53 | % | 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 any. 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) | Effective January 24, 2014, the Sub adviser changed from Columbia Management Investment Advisers, LLC to Massachusetts Financial Services Company. Cost of purchases and proceeds from sales of portfolio securities associated with the change in the Subadviser contributed to a higher portfolio turnover rate for the year ended December 31, 2014 as compared to prior years. |
See accompanying notes to the financial statements.
9
AZL MFS Mid Cap Value Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL MFS Mid Cap Value Fund (formerly the AZL Columbia Mid Cap Value Fund) (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL MFS Mid Cap Value Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $18.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $4,771 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 January 24, 2014 with 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 January 24, 2014, the Fund was Subadvised by Columbia Management Investment Advisers , 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MFS 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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
11
AZL MFS Mid Cap Value Fund
Notes to the Financial Statements
December 31, 2014
written policies and procedures comprising the Fund’s compliance program. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $2,860 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, there were no level 3 investments for which significant unobservable inputs were used to determine fair value.
12
AZL MFS Mid Cap Value Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Aerospace & Defense | $ | 1,267,971 | $ | 1,036,639 | $ | 2,304,610 | |||||||||
Chemicals | 12,171,266 | 1,507,444 | 13,678,710 | ||||||||||||
Diversified Telecommunication Services | 2,422,101 | 557,663 | 2,979,764 | ||||||||||||
Trading Companies & Distributors | 1,418,649 | 1,193,388 | 2,612,037 | ||||||||||||
All Other Common Stock+ | 208,205,844 | — | 208,205,844 | ||||||||||||
Convertible Preferred Stock | 708,052 | — | 708,052 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 52,207,604 | 52,207,604 | ||||||||||||
Unaffiliated Investment Company | 1,189,661 | — | 1,189,661 | ||||||||||||
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Total Investment Securities | $ | 227,383,544 | $ | 56,502,738 | $ | 283,886,282 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 Mid Cap Value Fund | $ | 309,004,869 | $ | 319,251,119 |
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $263,039,618. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 29,499,536 | ||
Unrealized depreciation | (8,652,872 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 20,846,664 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MFS Mid Cap Value Fund | $ | 780,255 | $ | 9,762,977 | $ | 10,543,232 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MFS Mid Cap Value Fund | $ | 1,337,872 | $ | — | $ | 1,337,872 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
13
AZL MFS Mid Cap Value Fund
Notes to the Financial Statements
December 31, 2014
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL MFS Mid Cap Value Fund | $ | 19,758,264 | $ | 41,498,730 | $ | — | $ | 20,846,122 | $ | 82,103,116 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL MFS Mid Cap Value Fund (formerly 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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
15
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $9,762,977.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® MFS Value Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® MFS Value Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® MFS Value Fund and Massachusetts Financial Services Company serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® MFS Value Fund returned 10.26%, which compared to a 13.45% total return for its benchmark, the Russell 1000® Value Index1.
U.S. stocks performed well during the period, despite a temporary setback at the start of the year. Stocks fell early in the first quarter due to concerns about slowing global growth, a soft December 2013 labor market report and a pause in U.S. economic growth, which was partially caused by extreme weather events. The stock market soon recovered, however, as investors regained their appetite for riskier investments from February into the summer. Any market setbacks during this time were short-lived as improving economic growth in the U.S., coupled with easier monetary policy abroad, helped support increased demand for stocks.
Near the end of the year the U.S. equity market approached all-time highs. At this point a rapid and severe decline in energy prices created a great deal of stock-market volatility.
The Fund underperformed its benchmark for the period. In the technology sector, a combination of weak stock selection and an underweight position detracted from relative performance. In particular, holdings of an off-benchmark diversified technology products and services company dragged on results. A smaller-than-benchmark position in a semiconductor firm during the first quarter and the subsequent liquidation of that position also detracted, as the company performed strongly for the period. Stock selection in the utilities and communications sector was another factor in the Fund’s relative underperformance, as shares of another off-benchmark telecommunications company underperformed the benchmark.*
Currency exposure was another factor in the Fund’s underperformance. The U.S. dollar strengthened throughout the period, causing the Fund to be hurt by its greater-than-benchmark exposure to holdings of securities denominated in foreign currencies.*
An underweight position to the energy sector contributed positively to relative performance. A smaller-than-benchmark position in an integrated oil and gas company particularly helped, as that stock underperformed the benchmark. Stock selection in the industrial goods and services sector also benefited relative returns, receiving a boost from holdings of a defense contractor that performed well. An overweight position in a retail pharmacy chain also helped to boost the Fund’s relative performance, as did underweight positions in a telecommunications company and a financial services company.*
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, 2014. |
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
AZL® MFS Value Fund Review (unaudited)
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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® MFS Value Fund | 10.26 | % | 20.33 | % | 12.82 | % | 5.67 | % | ||||||||
Russell 1000® Value Index | 13.45 | % | 20.89 | % | 15.42 | % | 7.30 | % |
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® MFS Value Fund | 1.05 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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
AZL MFS Value Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL MFS Value Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MFS Value Fund | $ | 1,000.00 | $ | 1,053.40 | $ | 5.23 | 1.01 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL MFS Value Fund | $ | 1,000.00 | $ | 1,020.11 | $ | 5.14 | 1.01 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited) |
Investments | Percent of Net Assets | ||||
Financials | 25.8 | % | |||
Industrials | 16.4 | ||||
Health Care | 14.4 | ||||
Consumer Staples | 13.1 | ||||
Consumer Discretionary | 11.4 | ||||
Information Technology | 7.0 | ||||
Energy | 5.8 | ||||
Telecommunication Services | 2.5 | ||||
Materials | 2.2 | ||||
Utilities | 0.2 | ||||
|
| ||||
Total Common Stocks and Convertible Preferred Stock | 98.8 | ||||
Securities Held as Collateral for Securities on Loan | 11.1 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 110.1 | ||||
Net other assets (liabilities) | (10.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL MFS Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks (98.7%): | ||||||||
Aerospace & Defense (7.0%): | ||||||||
113,364 | Honeywell International, Inc. | $ | 11,327,331 | |||||
55,956 | Lockheed Martin Corp. | 10,775,447 | ||||||
28,671 | Northrop Grumman Corp. | 4,225,819 | ||||||
94,108 | United Technologies Corp. | 10,822,420 | ||||||
|
| |||||||
37,151,017 | ||||||||
|
| |||||||
| Air Freight & Logistics (1.6%): |
| ||||||
76,928 | United Parcel Service, Inc., Class B | 8,552,086 | ||||||
|
| |||||||
| Auto Components (1.7%): |
| ||||||
51,927 | Delphi Automotive plc | 3,776,131 | ||||||
104,339 | Johnson Controls, Inc. | 5,043,748 | ||||||
|
| |||||||
8,819,879 | ||||||||
|
| |||||||
| Banks (10.8%): |
| ||||||
34,921 | Citigroup, Inc. | 1,889,575 | ||||||
358,819 | JPMorgan Chase & Co. | 22,454,894 | ||||||
46,617 | PNC Financial Services Group, Inc. | 4,252,869 | ||||||
228,699 | U.S. Bancorp^ | 10,280,020 | ||||||
316,197 | Wells Fargo & Co. | 17,333,920 | ||||||
|
| |||||||
56,211,278 | ||||||||
|
| |||||||
| Beverages (1.5%): |
| ||||||
243,677 | Diageo plc | 6,988,076 | ||||||
14,190 | Dr Pepper Snapple Group, Inc. | 1,017,139 | ||||||
|
| |||||||
8,005,215 | ||||||||
|
| |||||||
| Capital Markets (6.4%): |
| ||||||
161,271 | Bank of New York Mellon Corp. (The) | 6,542,764 | ||||||
14,461 | BlackRock, Inc., Class A | 5,170,675 | ||||||
118,259 | Franklin Resources, Inc.^ | 6,548,001 | ||||||
52,403 | Goldman Sachs Group, Inc. (The) | 10,157,273 | ||||||
64,487 | State Street Corp. | 5,062,230 | ||||||
|
| |||||||
33,480,943 | ||||||||
|
| |||||||
| Chemicals (1.7%): |
| ||||||
17,375 | E.I. du Pont de Nemours & Co. | 1,284,708 | ||||||
33,541 | PPG Industries, Inc. | 7,753,001 | ||||||
|
| |||||||
9,037,709 | ||||||||
|
| |||||||
| Commercial Services & Supplies (1.2%): |
| ||||||
139,094 | Tyco International plc | 6,100,663 | ||||||
|
| |||||||
| Containers & Packaging (0.5%): |
| ||||||
51,823 | Crown Holdings, Inc.*^ | 2,637,791 | ||||||
|
| |||||||
| Diversified Financial Services (0.7%): |
| ||||||
81,799 | NASDAQ OMX Group, Inc. (The) | 3,923,080 | ||||||
|
| |||||||
| Diversified Telecommunication Services (1.9%): |
| ||||||
42,770 | AT&T, Inc. | 1,436,644 | ||||||
139,437 | Verizon Communications, Inc. | 6,522,863 | ||||||
46,113 | Verizon Communications, Inc. | 2,148,338 | ||||||
|
| |||||||
10,107,845 | ||||||||
|
| |||||||
| Electric Utilities (0.2%): |
| ||||||
15,405 | Duke Energy Corp. | 1,286,934 | ||||||
|
| |||||||
| Electrical Equipment (0.8%): |
| ||||||
64,913 | Eaton Corp. plc | 4,411,487 | ||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Energy Equipment & Services (0.8%): |
| ||||||
16,278 | Baker Hughes, Inc. | $ | 912,707 | |||||
39,494 | Schlumberger, Ltd. | 3,373,183 | ||||||
|
| |||||||
4,285,890 | ||||||||
|
| |||||||
Food & Staples Retailing (1.8%): | ||||||||
100,432 | CVS Caremark Corp. | 9,672,606 | ||||||
|
| |||||||
| Food Products (4.1%): |
| ||||||
56,105 | Danone SA | 3,690,513 | ||||||
144,163 | General Mills, Inc.^ | 7,688,213 | ||||||
22,900 | Kellogg Co. | 1,498,576 | ||||||
115,766 | Nestle SA, Registered Shares | 8,488,388 | ||||||
|
| |||||||
21,365,690 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (4.0%): |
| ||||||
142,282 | Abbott Laboratories | 6,405,536 | ||||||
42,101 | Covidien plc | 4,306,090 | ||||||
94,157 | Medtronic, Inc.^ | 6,798,135 | ||||||
54,875 | St. Jude Medical, Inc. | 3,568,521 | ||||||
|
| |||||||
21,078,282 | ||||||||
|
| |||||||
| Health Care Providers & Services (1.1%): |
| ||||||
65,289 | Express Scripts Holding Co.* | 5,528,020 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.9%): |
| ||||||
53,140 | McDonald’s Corp. | 4,979,218 | ||||||
|
| |||||||
| Household Products (0.5%): |
| ||||||
31,404 | Procter & Gamble Co. (The) | 2,860,590 | ||||||
|
| |||||||
| Industrial Conglomerates (3.4%): |
| ||||||
66,287 | 3M Co. | 10,892,280 | ||||||
79,096 | Danaher Corp. | 6,779,318 | ||||||
|
| |||||||
17,671,598 | ||||||||
|
| |||||||
| Insurance (7.9%): |
| ||||||
51,176 | ACE, Ltd. | 5,879,099 | ||||||
64,462 | Aon plc | 6,112,931 | ||||||
39,206 | Chubb Corp. (The)^ | 4,056,645 | ||||||
183,566 | MetLife, Inc. | 9,929,086 | ||||||
59,016 | Prudential Financial, Inc. | 5,338,587 | ||||||
92,552 | Travelers Cos., Inc. (The)^ | 9,796,629 | ||||||
|
| |||||||
41,112,977 | ||||||||
|
| |||||||
| IT Services (4.8%): |
| ||||||
131,445 | Accenture plc, Class A | 11,739,353 | ||||||
42,199 | Fidelity National Information Services, Inc. | 2,624,778 | ||||||
51,451 | Fiserv, Inc.* | 3,651,477 | ||||||
44,907 | International Business Machines Corp. | 7,204,879 | ||||||
|
| |||||||
25,220,487 | ||||||||
|
| |||||||
| Leisure Products (0.6%): |
| ||||||
43,044 | Hasbro, Inc.^ | 2,366,990 | ||||||
23,528 | Mattel, Inc. | 728,074 | ||||||
|
| |||||||
3,095,064 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (1.1%): |
| ||||||
45,064 | Thermo Fisher Scientific, Inc. | 5,646,069 | ||||||
|
|
Continued
4
AZL MFS Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Machinery (1.5%): |
| ||||||
25,399 | Illinois Tool Works, Inc. | $ | 2,405,285 | |||||
31,421 | Pentair, Ltd. | 2,086,983 | ||||||
32,498 | Stanley Black & Decker, Inc. | 3,122,408 | ||||||
|
| |||||||
7,614,676 | ||||||||
|
| |||||||
| Media (5.3%): |
| ||||||
106,373 | Comcast Corp., Class A^ | 6,123,361 | ||||||
25,657 | McGraw-Hill Cos., Inc. (The) | 2,282,960 | ||||||
79,566 | Omnicom Group, Inc.^ | 6,163,977 | ||||||
52,766 | Time Warner Cable, Inc. | 4,507,272 | ||||||
5,642 | Time, Inc.^ | 138,850 | ||||||
47,821 | Viacom, Inc., Class B | 3,598,530 | ||||||
56,019 | Walt Disney Co. (The) | 5,276,430 | ||||||
|
| |||||||
28,091,380 | ||||||||
|
| |||||||
| Multiline Retail (1.9%): |
| ||||||
21,130 | Kohl’s Corp.^ | 1,289,775 | ||||||
113,127 | Target Corp.^ | 8,587,471 | ||||||
|
| |||||||
9,877,246 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (5.0%): |
| ||||||
68,931 | Chevron Corp. | 7,732,680 | ||||||
32,876 | EOG Resources, Inc. | 3,026,893 | ||||||
108,607 | Exxon Mobil Corp. | 10,040,717 | ||||||
69,189 | Occidental Petroleum Corp. | 5,577,325 | ||||||
|
| |||||||
26,377,615 | ||||||||
|
| |||||||
| Pharmaceuticals (8.2%): |
| ||||||
175,898 | Johnson & Johnson Co. | 18,393,653 | ||||||
123,340 | Merck & Co., Inc. | 7,004,479 | ||||||
17,892 | Novartis AG, Registered Shares | 1,645,979 | ||||||
476,004 | Pfizer, Inc. | 14,827,524 | ||||||
5,134 | Roche Holding AG | 1,391,942 | ||||||
|
| |||||||
43,263,577 | ||||||||
|
| |||||||
| Professional Services (0.2%): |
| ||||||
10,851 | Equifax, Inc. | 877,520 | ||||||
|
| |||||||
| Road & Rail (0.6%): |
| ||||||
46,298 | Canadian National Railway Co. | 3,190,395 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Semiconductors & Semiconductor Equipment (1.2%): |
| ||||||
115,215 | Texas Instruments, Inc. | $ | 6,159,970 | |||||
|
| |||||||
| Software (1.0%): |
| ||||||
120,529 | Oracle Corp. | 5,420,189 | ||||||
|
| |||||||
| Specialty Retail (1.0%): |
| ||||||
22,467 | Advance Auto Parts, Inc. | 3,578,544 | ||||||
18,418 | Bed Bath & Beyond, Inc.*^ | 1,402,899 | ||||||
|
| |||||||
4,981,443 | ||||||||
|
| |||||||
| Tobacco (5.2%): |
| ||||||
59,812 | Altria Group, Inc. | 2,946,937 | ||||||
24,024 | Imperial Tobacco Group plc | 1,051,957 | ||||||
85,766 | Lorillard, Inc. | 5,398,112 | ||||||
214,552 | Philip Morris International, Inc. | 17,475,261 | ||||||
|
| |||||||
26,872,267 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.6%): |
| ||||||
853,018 | Vodafone Group plc | 2,922,474 | ||||||
|
| |||||||
| Total Common Stocks (Cost $358,289,755) | 517,891,170 | ||||||
|
| |||||||
| Convertible Preferred Stock (0.1%): |
| ||||||
| Aerospace & Defense (0.1%): |
| ||||||
7,000 | United Technologies Corp., 0.49% | 429,310 | ||||||
|
| |||||||
| Total Convertible Preferred Stock (Cost $403,403) | 429,310 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (11.1%): |
| ||||||
$ | 58,253,255 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 58,253,255 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 58,253,255 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.2%): |
| ||||||
871,051 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 871,051 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $871,051) | 871,051 | ||||||
|
| |||||||
| Total Investment Securities (Cost $417,817,464)(c) — 110.1% | 577,444,786 | ||||||
| Net other assets (liabilities) — (10.1)% | (53,183,282 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 524,261,504 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $56,552,113. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
5
AZL MFS Value Fund
Schedule of Portfolio Investments
December 31, 2014
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Canada | 0.6 | % | ||
France | 0.6 | % | ||
Ireland (Republic of) | 5.1 | % | ||
Netherlands | 0.5 | % | ||
Switzerland | 3.0 | % | ||
United Kingdom | 3.7 | % | ||
United States | 86.5 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
6
AZL MFS Value Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 417,817,464 | |||
|
| ||||
Investment securities, at value* | $ | 577,444,786 | |||
Cash | 8,609 | ||||
Interest and dividends receivable | 877,261 | ||||
Receivable for capital shares issued | 110,303 | ||||
Receivable for investments sold | 4,935,593 | ||||
Reclaims receivable | 74,592 | ||||
Prepaid expenses | 4,443 | ||||
|
| ||||
Total Assets | 583,455,587 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 53,838 | ||||
Payable for capital shares redeemed | 411,795 | ||||
Payable for collateral received on loaned securities | 58,253,255 | ||||
Manager fees payable | 316,876 | ||||
Administration fees payable | 13,210 | ||||
Distribution fees payable | 112,076 | ||||
Custodian fees payable | 6,546 | ||||
Administrative and compliance services fees payable | 1,475 | ||||
Trustee fees payable | 30 | ||||
Other accrued liabilities | 24,982 | ||||
|
| ||||
Total Liabilities | 59,194,083 | ||||
|
| ||||
Net Assets | $ | 524,261,504 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 387,465,167 | |||
Accumulated net investment income/(loss) | 10,556,246 | ||||
Accumulated net realized gains/(losses) from investment transactions | (33,377,578 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 159,617,669 | ||||
|
| ||||
Net Assets | $ | 524,261,504 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 40,238,789 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.03 | |||
|
|
* | Includes securities on loan of $56,552,113. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 16,172,497 | |||
Income from securities lending | 41,009 | ||||
Foreign withholding tax | (138,243 | ) | |||
|
| ||||
Total Investment Income | 16,075,263 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,930,262 | ||||
Administration fees | 148,879 | ||||
Distribution fees | 1,330,677 | ||||
Custodian fees | 30,707 | ||||
Administrative and compliance services fees | 7,170 | ||||
Trustee fees | 27,750 | ||||
Professional fees | 29,759 | ||||
Shareholder reports | 25,427 | ||||
Other expenses | 13,120 | ||||
|
| ||||
Total expenses before reductions | 5,543,751 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (170,569 | ) | |||
Less expenses paid indirectly | (50 | ) | |||
|
| ||||
Net expenses | 5,373,132 | ||||
|
| ||||
Net Investment Income/(Loss) | 10,702,131 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 31,438,896 | ||||
Change in net unrealized appreciation/depreciation on investments | 9,252,894 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 40,691,790 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 51,393,921 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL MFS Value Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 10,702,131 | $ | 7,183,079 | ||||||
Net realized gains/(losses) on investment transactions | 31,438,896 | 17,240,418 | ||||||||
Change in unrealized appreciation/depreciation on investments | 9,252,894 | 122,989,459 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 51,393,921 | 147,412,956 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (7,189,322 | ) | (7,468,004 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (7,189,322 | ) | (7,468,004 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 8,875,243 | 41,951,702 | ||||||||
Proceeds from dividends reinvested | 7,189,322 | 7,468,004 | ||||||||
Value of shares redeemed | (85,707,375 | ) | (63,453,634 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (69,642,810 | ) | (14,033,928 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (25,438,211 | ) | 125,911,024 | |||||||
Net Assets: | ||||||||||
Beginning of period | 549,699,715 | 423,788,691 | ||||||||
|
|
|
| |||||||
End of period | $ | 524,261,504 | $ | 549,699,715 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 10,556,246 | $ | 7,224,526 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 742,171 | 3,999,588 | ||||||||
Dividends reinvested | 577,456 | 688,930 | ||||||||
Shares redeemed | (6,947,248 | ) | (6,034,797 | ) | ||||||
|
|
|
| |||||||
Change in shares | (5,627,621 | ) | (1,346,279 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL MFS Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.98 | $ | 8.98 | $ | 7.79 | $ | 8.24 | $ | 7.59 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.28 | 0.16 | 0.15 | 0.13 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.94 | 3.00 | 1.15 | (0.50 | ) | 0.67 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.22 | 3.16 | 1.30 | (0.37 | ) | 0.74 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.17 | ) | (0.16 | ) | (0.11 | ) | (0.08 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.17 | ) | (0.16 | ) | (0.11 | ) | (0.08 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.03 | $ | 11.98 | $ | 8.98 | $ | 7.79 | $ | 8.24 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 10.26 | % | 35.42 | % | 16.67 | % | (4.45 | )% | 9.83 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 524,262 | $ | 549,700 | $ | 423,789 | $ | 436,251 | $ | 484,333 | |||||||||||||||
Net Investment Income/(Loss) | 2.01 | % | 1.46 | % | 1.59 | % | 1.40 | % | 1.02 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.04 | % | 1.05 | % | 1.06 | % | 1.07 | % | 1.08 | % | |||||||||||||||
Expenses Net of Reductions | 1.01 | % | 1.01 | % | 1.02 | % | 1.04 | % | 1.05 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.01 | % | 1.02 | % | 1.02 | % | 1.04 | % | 1.05 | % | |||||||||||||||
Portfolio Turnover Rate | 12 | % | 17 | % | 95 | %(d) | 49 | % | 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 any. 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) | Effective September 15, 2012, the Subadviser changed from Eaton Vance Management to Massachusetts Financial Services Company. Costs of purchases and proceeds from sales of portfolio securities associates with the change in the Subadviser contributed to a higher portfolio turnover rate for the year ended December 31, 2012 as compared to prior years. |
See accompanying notes to the financial statements.
9
AZL MFS Value Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL MFS Value Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL MFS Value Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $19.1 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $4,075 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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. 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL MFS Value Fund | 0.78 | % | 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%, the next $400 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02%
11
AZL MFS Value Fund
Notes to the Financial Statements
December 31, 2014
of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $6,640 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
During the year ended December 31, 2014, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
12
AZL MFS Value Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Beverages | $ | 1,017,139 | $ | 6,988,076 | $ | 8,005,215 | |||||||||
Diversified Telecommunication Services | 7,959,507 | 2,148,338 | 10,107,845 | ||||||||||||
Food Products | 9,186,789 | 12,178,901 | 21,365,690 | ||||||||||||
Pharmaceuticals | 40,225,656 | 3,037,921 | 43,263,577 | ||||||||||||
Tobacco | 25,820,310 | 1,051,957 | 26,872,267 | ||||||||||||
Wireless Telecommunication Services | — | 2,922,474 | 2,922,474 | ||||||||||||
All Other Common Stocks+ | 405,354,102 | — | 405,354,102 | ||||||||||||
Convertible Preferred Stock | 429,310 | — | 429,310 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 58,253,255 | 58,253,255 | ||||||||||||
Unaffiliated Investment Company | 871,051 | — | 871,051 | ||||||||||||
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|
|
|
| ||||||||||
Total Investment Securities | $ | 490,863,864 | $ | 86,580,922 | $ | 577,444,786 | |||||||||
|
|
|
|
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|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 Value Fund | $ | 62,647,558 | $ | 128,078,113 |
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
Security Quality Risk (also known as “High Yield Risk”): The Fund may invest in high yield, high risk debt securities and unrated securities of similar credit quality (commonly known as “junk bonds”) may be subject to greater levels of credit and liquidity risk than funds that do not invest in such securities. These securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, the Fund may lose the value of its entire investment.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $420,444,067. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 161,943,868 | ||
Unrealized depreciation | (4,943,149 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 157,000,719 | ||
|
|
As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs subject to expiration:
Expires 12/31/2017 | Expires 12/31/2018 | Total | |||||||||||||
AZL MFS Value Fund | $ | 25,265,828 | $ | 5,491,128 | $ | 30,756,956 |
13
AZL MFS Value Fund
Notes to the Financial Statements
December 31, 2014
During the year ended December 31, 2014, the Fund utilized $31,245,433 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MFS Value Fund | $ | 7,189,322 | $ | — | $ | 7,189,322 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MFS Value Fund | $ | 7,468,004 | $ | — | $ | 7,468,004 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL MFS Value Fund | $ | 10,562,811 | $ | — | $ | (30,756,956 | ) | $ | 156,990,482 | $ | 136,796,337 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL MFS Value Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
15
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
16
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.
17
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
18
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
19
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Mid Cap Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 10
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 18
Other Federal Income Tax Information
Page 19
Other Information
Page 20
Approval of Investment Advisory and Subadvisory Agreements
Page 21
Information about the Board of Trustees and Officers
Page 24
This report is submitted for the general information of the shareholder 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.
AZL® Mid Cap Index Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Mid Cap Index Fund returned 9.21%, which compared to a 9.77% total return for its benchmark, the S&P MidCap 400 Index1.
The Fund attempts to replicate the performance of the S&P Mid Cap 400 index of U.S. mid-cap stocks.
U.S. equities moved higher in 2014 as domestic economic growth gained momentum and interest rates remained low. The period started out on a negative note, however: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve would soon end its stimulus efforts all weighed on investors. Equity markets declined sharply in January, but the sell-off was short-lived. Investors soon learned that the recent weakness in the U.S. economic data was weather-related, and therefore temporary. Meanwhile, the Federal Reserve shifted its position, announcing a more cautious approach to raising short-term rates.
U.S. equities moved higher throughout the period, but volatility increased through the period. A combination of high valuations and persistent expectations of higher interest rates left stocks vulnerable to bad news. Tensions between Russia and Ukraine weighed on global markets early in the period, while later geopolitical crises—including a ground war in Gaza—added to concerns.
U.S. economic growth strengthened considerably in the second half of 2014, even as the broader global economy showed signs of slowing. U.S. stocks recovered from a September sell-off to post impressive gains through the fourth quarter of 2014 as economic data continued to impress investors and helped to fuel a positive corporate earnings season. A sharp decline in oil prices later in the period contributed to uncertainty about global growth, but helped buoy U.S. stocks as it led to a pickup in consumer spending.
The Fund slightly underperformed its benchmark due in large part to the effect of fees and expenses. These negatives were partially offset by gains from slight differences in weightings between the holdings in the Fund and the index.*
Consumer staples was the top performing sector of the period as many investors turned to more defensive holdings as volatility increased during the period. Sectors with ties to cyclical growth also performed well, including the telecommunications services and health care sectors. The industrials and materials sectors underperformed the index, in large part due to a decline in commodity prices, including oil, and weakness in the energy sector. Oil’s decline had the largest impact on the energy sector, however, which posted a large loss for 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, 2014. |
1 | The Standard & Poor’s MidCap 400 Index (“S&P 400”) 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
AZL® Mid Cap Index Fund Review (unaudited)
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”) 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 and in derivative instruments linked to the S&P 400, 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.
Small- to mid-capitalization 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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (5/1/09) | |||||||||||||
AZL® Mid Cap Index Fund | 9.21 | % | 19.32 | % | 15.65 | % | 19.21 | % | ||||||||
S&P MidCap 400 Index | 9.77 | % | 19.99 | % | 16.54 | % | 20.12 | % |
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 Ratio1 | Gross | |||
AZL® Mid Cap Index Fund | 0.60 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 0.71% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 0.58%. |
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 MidCap 400 Index (“S&P 400”), 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 |
AZL Mid Cap Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Mid Cap Index Fund | $ | 1,000.00 | $ | 1,018.50 | $ | 2.90 | 0.57 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Mid Cap Index Fund | $ | 1,000.00 | $ | 1,022.33 | $ | 2.91 | 0.57 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 22.1 | % | |||
Information Technology | 17.0 | ||||
Industrials | 15.0 | ||||
Consumer Discretionary | 13.0 | ||||
Health Care | 9.8 | ||||
Materials | 7.1 | ||||
Utilities | 4.7 | ||||
Energy | 3.9 | ||||
Consumer Staples | 3.2 | ||||
Telecommunication Services | 0.1 | ||||
|
| ||||
Total Common Stocks | 95.9 | ||||
Securities Held as Collateral for Securities on Loan | 13.6 | ||||
Money Market | 4.3 | ||||
|
| ||||
Total Investment Securities | 113.8 | ||||
Net other assets (liabilities) | (13.8 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (95.9%): |
| ||||||
| Aerospace & Defense (1.6%): |
| ||||||
10,389 | Alliant Techsystems, Inc. | $ | 1,207,721 | |||||
34,252 | BE Aerospace, Inc.* | 1,987,301 | ||||||
10,392 | Esterline Technologies Corp.*^ | 1,139,795 | ||||||
60,720 | Exelis, Inc. | 1,064,422 | ||||||
15,701 | Huntington Ingalls Industries, Inc. | 1,765,734 | ||||||
17,136 | KLX, Inc.* | 706,860 | ||||||
16,513 | Triumph Group, Inc. | 1,110,004 | ||||||
|
| |||||||
8,981,837 | ||||||||
|
| |||||||
| Airlines (0.7%): |
| ||||||
742,777 | Alaska Air Group, Inc. | 2,556,354 | ||||||
79,747 | JetBlue Airways Corp.*^ | 1,264,787 | ||||||
|
| |||||||
3,821,141 | ||||||||
|
| |||||||
| Auto Components (0.3%): |
| ||||||
47,618 | Gentex Corp. | 1,720,438 | ||||||
|
| |||||||
| Automobiles (0.2%): |
| ||||||
15,115 | Thor Industries, Inc. | 844,475 | ||||||
|
| |||||||
| Banks (4.6%): |
| ||||||
49,417 | Associated Banc-Corp.^ | 920,639 | ||||||
27,839 | BancorpSouth, Inc.^ | 626,656 | ||||||
14,266 | Bank of Hawaii Corp.^ | 846,116 | ||||||
24,129 | Cathay General Bancorp | 617,461 | ||||||
15,599 | City National Corp. | 1,260,555 | ||||||
26,941 | Commerce Bancshares, Inc.^ | 1,171,671 | ||||||
17,848 | Cullen/Frost Bankers, Inc. | 1,260,783 | ||||||
46,694 | East West Bancorp, Inc. | 1,807,525 | ||||||
76,490 | First Horizon National Corp.^ | 1,038,734 | ||||||
115,166 | First Niagara Financial Group, Inc. | 970,849 | ||||||
53,816 | FirstMerit Corp. | 1,016,584 | ||||||
60,238 | Fulton Financial Corp. | 744,542 | ||||||
26,522 | Hancock Holding Co. | 814,225 | ||||||
18,838 | International Bancshares Corp. | 499,961 | ||||||
30,693 | PacWest Bancorp | 1,395,304 | ||||||
19,522 | Prosperity Bancshares, Inc. | 1,080,738 | ||||||
16,366 | Signature Bank* | 2,061,460 | ||||||
16,540 | SVB Financial Group* | 1,919,798 | ||||||
44,405 | Synovus Financial Corp. | 1,202,931 | ||||||
54,419 | TCF Financial Corp. | 864,718 | ||||||
21,957 | Trustmark Corp.^ | 538,825 | ||||||
70,683 | Umpqua Holdings Corp. | 1,202,318 | ||||||
71,576 | Valley National Bancorp^ | 695,003 | ||||||
29,365 | Webster Financial Corp. | 955,243 | ||||||
|
| |||||||
25,512,639 | ||||||||
|
| |||||||
| Biotechnology (0.8%): |
| ||||||
24,814 | Cubist Pharmaceuticals, Inc.* | 2,497,529 | ||||||
15,447 | United Therapeutics Corp.* | 2,000,232 | ||||||
|
| |||||||
4,497,761 | ||||||||
|
| |||||||
| Building Products (0.9%): |
| ||||||
24,457 | A.O. Smith Corp. | 1,379,619 | ||||||
51,298 | Fortune Brands Home & Security, Inc. | 2,322,261 | ||||||
14,370 | Lennox International, Inc.^ | 1,366,156 | ||||||
|
| |||||||
5,068,036 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets (1.6%): |
| ||||||
38,452 | Eaton Vance Corp.^ | $ | 1,573,840 | |||||
30,936 | Federated Investors, Inc., Class B^ | 1,018,722 | ||||||
47,775 | Janus Capital Group, Inc.^ | 770,611 | ||||||
40,975 | Raymond James Financial, Inc. | 2,347,459 | ||||||
42,412 | SEI Investments Co. | 1,698,176 | ||||||
27,187 | Waddell & Reed Financial, Inc., Class A | 1,354,456 | ||||||
|
| |||||||
8,763,264 | ||||||||
|
| |||||||
| Chemicals (2.9%): |
| ||||||
25,455 | Albemarle Corp.^ | 1,530,609 | ||||||
20,750 | Ashland, Inc. | 2,485,019 | ||||||
20,825 | Cabot Corp. | 913,385 | ||||||
23,450 | Cytec Industries, Inc. | 1,082,687 | ||||||
11,230 | Minerals Technologies, Inc. | 779,924 | ||||||
3,464 | NewMarket Corp.^ | 1,397,828 | ||||||
25,424 | Olin Corp.^ | 578,904 | ||||||
29,559 | PolyOne Corp. | 1,120,582 | ||||||
43,413 | RPM International, Inc. | 2,201,473 | ||||||
14,437 | Scotts Miracle-Gro Co. (The) | 899,714 | ||||||
15,670 | Sensient Technologies Corp. | 945,528 | ||||||
24,794 | Valspar Corp. (The) | 2,144,185 | ||||||
|
| |||||||
16,079,838 | ||||||||
|
| |||||||
| Commercial Services & Supplies (1.8%): |
| ||||||
17,737 | Clean Harbors, Inc.*^ | 852,263 | ||||||
36,988 | Copart, Inc.* | 1,349,692 | ||||||
37,890 | Corrections Corp. of America^ | 1,376,923 | ||||||
16,156 | Deluxe Corp. | 1,005,711 | ||||||
19,364 | Herman Miller, Inc. | 569,883 | ||||||
14,435 | HNI Corp. | 737,051 | ||||||
10,239 | MSA Safety, Inc.^ | 543,589 | ||||||
65,008 | R.R. Donnelley & Sons Co. | 1,092,459 | ||||||
20,846 | Rollins, Inc. | 690,003 | ||||||
40,373 | Waste Connections, Inc. | 1,776,007 | ||||||
|
| |||||||
9,993,581 | ||||||||
|
| |||||||
| Communications Equipment (1.1%): |
| ||||||
42,862 | Arris Group, Inc.* | 1,294,004 | ||||||
34,687 | Ciena Corp.*^ | 673,275 | ||||||
12,097 | InterDigital, Inc. | 639,931 | ||||||
75,436 | JDS Uniphase Corp.* | 1,034,982 | ||||||
13,970 | Plantronics, Inc. | 740,689 | ||||||
44,404 | Polycom, Inc.* | 599,454 | ||||||
50,433 | Riverbed Technology, Inc.* | 1,029,338 | ||||||
|
| |||||||
6,011,673 | ||||||||
|
| |||||||
| Construction & Engineering (0.5%): |
| ||||||
50,038 | Aecom Technology Corp.* | 1,519,654 | ||||||
11,731 | Granite Construction, Inc.^ | 446,013 | ||||||
47,215 | KBR, Inc. | 800,294 | ||||||
|
| |||||||
2,765,961 | ||||||||
|
| |||||||
| Construction Materials (0.2%): |
| ||||||
16,352 | Eagle Materials, Inc. | 1,243,243 | ||||||
|
|
Continued
4
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Consumer Finance (0.3%): |
| ||||||
137,660 | SLM Corp. | $ | 1,402,755 | |||||
|
| |||||||
| Containers & Packaging (2.0%): |
| ||||||
21,046 | AptarGroup, Inc. | 1,406,715 | ||||||
32,491 | Bemis Co., Inc. | 1,468,918 | ||||||
11,035 | Greif, Inc., Class A | 521,183 | ||||||
31,998 | Packaging Corp. of America | 2,497,444 | ||||||
45,537 | Rock-Tenn Co., Class A | 2,776,846 | ||||||
14,179 | Silgan Holdings, Inc. | 759,994 | ||||||
32,924 | Sonoco Products Co. | 1,438,779 | ||||||
|
| |||||||
10,869,879 | ||||||||
|
| |||||||
| Distributors (0.5%): |
| ||||||
98,556 | LKQ Corp.* | 2,771,395 | ||||||
|
| |||||||
| Diversified Consumer Services (1.0%): |
| ||||||
31,405 | Apollo Group, Inc., Class A* | 1,071,225 | ||||||
18,708 | DeVry, Inc. | 888,069 | ||||||
1,433 | Graham Holdings Co., Class B | 1,237,696 | ||||||
67,514 | Service Corp. International | 1,532,567 | ||||||
19,982 | Sotheby’s^ | 862,823 | ||||||
|
| |||||||
5,592,380 | ||||||||
|
| |||||||
| Diversified Financial Services (0.6%): |
| ||||||
27,442 | CBOE Holdings, Inc. | 1,740,372 | ||||||
36,426 | MSCI, Inc., Class A | 1,728,049 | ||||||
|
| |||||||
3,468,421 | ||||||||
|
| |||||||
| Electric Utilities (1.7%): |
| ||||||
19,644 | Cleco Corp. | 1,071,384 | ||||||
50,052 | Great Plains Energy, Inc. | 1,421,977 | ||||||
33,368 | Hawaiian Electric Industries, Inc.^ | 1,117,161 | ||||||
16,355 | IDACORP, Inc. | 1,082,537 | ||||||
64,828 | OGE Energy Corp. | 2,300,098 | ||||||
25,923 | PNM Resources, Inc. | 768,098 | ||||||
42,526 | Westar Energy, Inc. | 1,753,772 | ||||||
|
| |||||||
9,515,027 | ||||||||
|
| |||||||
| Electrical Equipment (1.1%): |
| ||||||
14,107 | Acuity Brands, Inc. | 1,975,968 | ||||||
13,921 | Belden CDT, Inc. | 1,097,114 | ||||||
17,669 | Hubbell, Inc., Class B | 1,887,579 | ||||||
14,530 | Regal-Beloit Corp. | 1,092,656 | ||||||
|
| |||||||
6,053,317 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (3.2%): |
| ||||||
31,509 | Arrow Electronics, Inc.* | 1,824,056 | ||||||
44,561 | Avnet, Inc. | 1,917,014 | ||||||
28,319 | Cognex Corp.* | 1,170,424 | ||||||
13,510 | FEI Co. | 1,220,629 | ||||||
50,727 | Ingram Micro, Inc., Class A* | 1,402,094 | ||||||
11,547 | IPG Photonics Corp.*^ | 865,101 | ||||||
12,700 | Itron, Inc.* | 537,083 | ||||||
62,881 | Jabil Circuit, Inc. | 1,372,692 | ||||||
54,483 | Keysight Technologies, Inc.* | 1,839,891 | ||||||
27,686 | Knowles Corp.*^ | 652,005 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electronic Equipment, Instruments & Components, continued |
| ||||||
32,795 | National Instruments Corp. | $ | 1,019,597 | |||||
12,450 | Tech Data Corp.* | 787,214 | ||||||
84,215 | Trimble Navigation, Ltd.* | 2,235,066 | ||||||
44,160 | Vishay Intertechnology, Inc.^ | 624,864 | ||||||
|
| |||||||
17,467,730 | ||||||||
|
| |||||||
| Energy Equipment & Services (2.0%): |
| ||||||
19,486 | Atwood Oceanics, Inc.* | 552,818 | ||||||
6,375 | CARBO Ceramics, Inc.^ | 255,319 | ||||||
24,931 | Dresser-Rand Group, Inc.* | 2,039,355 | ||||||
12,834 | Dril-Quip, Inc.* | 984,753 | ||||||
31,947 | Helix Energy Solutions Group, Inc.* | 693,250 | ||||||
34,144 | Oceaneering International, Inc. | 2,008,009 | ||||||
17,289 | Oil States International, Inc.* | 845,432 | ||||||
47,651 | Patterson-UTI Energy, Inc. | 790,530 | ||||||
40,526 | Rowan Cos. plc, Class A | 945,066 | ||||||
49,478 | Superior Energy Services, Inc. | 996,982 | ||||||
16,192 | Tidewater, Inc.^ | 524,783 | ||||||
15,012 | Unit Corp.* | 511,909 | ||||||
|
| |||||||
11,148,206 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.3%): |
| ||||||
67,148 | Supervalu, Inc.* | 651,336 | ||||||
16,230 | United Natural Foods, Inc.*^ | 1,254,984 | ||||||
|
| |||||||
1,906,320 | ||||||||
|
| |||||||
| Food Products (1.8%): |
| ||||||
30,544 | Dean Foods Co.^ | 591,943 | ||||||
60,103 | Flowers Foods, Inc. | 1,153,377 | ||||||
32,826 | Hain Celestial Group, Inc.*^ | 1,913,428 | ||||||
23,366 | Ingredion, Inc. | 1,982,370 | ||||||
6,320 | Lancaster Colony Corp. | 591,805 | ||||||
14,603 | Post Holdings, Inc.*^ | 611,720 | ||||||
6,491 | Tootsie Roll Industries, Inc.^ | 198,949 | ||||||
13,771 | TreeHouse Foods, Inc.* | 1,177,834 | ||||||
56,712 | WhiteWave Foods Co., Class A* | 1,984,352 | ||||||
|
| |||||||
10,205,778 | ||||||||
|
| |||||||
| Gas Utilities (1.6%): |
| ||||||
32,655 | Atmos Energy Corp. | 1,820,190 | ||||||
27,384 | National Fuel Gas Co.^ | 1,904,010 | ||||||
16,942 | ONE Gas, Inc.^ | 698,349 | ||||||
56,237 | Questar Corp. | 1,421,671 | ||||||
56,082 | UGI Corp. | 2,129,994 | ||||||
16,163 | WGL Holdings, Inc. | 882,823 | ||||||
|
| |||||||
8,857,037 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (3.1%): |
| ||||||
23,495 | Align Technology, Inc.* | 1,313,605 | ||||||
15,703 | Cooper Cos., Inc. (The) | 2,545,300 | ||||||
15,149 | Halyard Health, Inc.* | 688,825 | ||||||
18,717 | Hill-Rom Holdings, Inc. | 853,870 | ||||||
78,854 | Hologic, Inc.* | 2,108,556 | ||||||
15,508 | IDEXX Laboratories, Inc.*^ | 2,299,371 | ||||||
45,340 | ResMed, Inc. | 2,541,761 |
Continued
5
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
18,012 | Sirona Dental Systems, Inc.* | $ | 1,573,708 | |||||
19,331 | STERIS Corp.^ | 1,253,615 | ||||||
13,472 | Teleflex, Inc.^ | 1,546,855 | ||||||
17,883 | Thoratec Corp.* | 580,482 | ||||||
|
| |||||||
17,305,948 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.3%): |
| ||||||
19,083 | Centene Corp.* | 1,981,770 | ||||||
37,822 | Community Health Systems, Inc.* | 2,039,362 | ||||||
25,335 | Health Net, Inc.* | 1,356,183 | ||||||
27,382 | Henry Schein, Inc.* | 3,728,059 | ||||||
28,577 | HMS Holdings Corp.*^ | 604,118 | ||||||
14,730 | LifePoint Hospitals, Inc.* | 1,059,234 | ||||||
32,660 | MEDNAX, Inc.* | 2,159,153 | ||||||
31,836 | Omnicare, Inc.^ | 2,321,799 | ||||||
20,531 | Owens & Minor, Inc.^ | 720,843 | ||||||
27,353 | VCA Antech, Inc.* | 1,334,006 | ||||||
14,276 | WellCare Health Plans, Inc.* | 1,171,489 | ||||||
|
| |||||||
18,476,016 | ||||||||
|
| |||||||
| Health Care Technology (0.1%): |
| ||||||
55,151 | Allscripts Healthcare Solutions, Inc.* | 704,278 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.5%): |
| ||||||
20,665 | Brinker International, Inc. | 1,212,829 | ||||||
14,980 | Cheesecake Factory, Inc. (The)^ | 753,644 | ||||||
17,892 | Domino’s Pizza, Inc. | 1,684,890 | ||||||
80,481 | International Game Technology | 1,388,297 | ||||||
9,121 | International Speedway Corp., Class A | 288,680 | ||||||
11,716 | Life Time Fitness, Inc.*^ | 663,360 | ||||||
8,333 | Panera Bread Co., Class A*^ | 1,456,608 | ||||||
89,073 | Wendy’s Co. (The) | 804,329 | ||||||
|
| |||||||
8,252,637 | ||||||||
|
| |||||||
| Household Durables (1.7%): |
| ||||||
58,187 | Jarden Corp.* | 2,785,994 | ||||||
29,650 | KB Home^ | 490,708 | ||||||
12,732 | M.D.C. Holdings, Inc.^ | 337,016 | ||||||
1,265 | NVR, Inc.* | 1,613,292 | ||||||
19,818 | Tempur-Pedic International, Inc.* | 1,088,206 | ||||||
52,663 | Toll Brothers, Inc.* | 1,804,761 | ||||||
16,389 | Tupperware Brands Corp.^ | 1,032,507 | ||||||
|
| |||||||
9,152,484 | ||||||||
|
| |||||||
| Household Products (1.1%): |
| ||||||
43,505 | Church & Dwight Co., Inc. | 3,428,629 | ||||||
20,196 | Energizer Holdings, Inc. | 2,596,398 | ||||||
|
| |||||||
6,025,027 | ||||||||
|
| |||||||
| Industrial Conglomerates (0.3%): |
| ||||||
20,871 | Carlisle Cos., Inc. | 1,883,399 | ||||||
|
| |||||||
| Insurance (4.6%): |
| ||||||
5,237 | Alleghany Corp.* | 2,427,350 | ||||||
23,999 | American Financial Group, Inc. | 1,457,219 | ||||||
52,485 | Arthur J. Gallagher & Co. | 2,470,994 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance, continued |
| ||||||
20,235 | Aspen Insurance Holdings, Ltd. | $ | 885,686 | |||||
38,330 | Brown & Brown, Inc. | 1,261,440 | ||||||
14,712 | Everest Re Group, Ltd. | 2,505,454 | ||||||
34,898 | First American Financial Corp.^ | 1,183,042 | ||||||
14,326 | Hanover Insurance Group, Inc. (The) | 1,021,730 | ||||||
31,474 | HCC Insurance Holdings, Inc. | 1,684,488 | ||||||
16,288 | Kemper Corp. | 588,160 | ||||||
9,895 | Mercury General Corp. | 560,750 | ||||||
78,937 | Old Republic International Corp. | 1,154,848 | ||||||
17,278 | Primerica, Inc. | 937,504 | ||||||
25,651 | Protective Life Corp. | 1,786,592 | ||||||
22,344 | Reinsurance Group of America, Inc. | 1,957,781 | ||||||
12,528 | RenaissanceRe Holdings, Ltd. | 1,217,972 | ||||||
13,669 | StanCorp Financial Group, Inc. | 954,916 | ||||||
33,011 | W.R. Berkley Corp. | 1,692,144 | ||||||
|
| |||||||
25,748,070 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.1%): |
| ||||||
10,566 | HSN, Inc. | 803,016 | ||||||
|
| |||||||
| Internet Software & Services (1.3%): |
| ||||||
25,324 | AOL, Inc.* | 1,169,209 | ||||||
17,822 | Equinix, Inc. | 4,040,783 | ||||||
38,756 | Rackspace Hosting, Inc.*^ | 1,814,168 | ||||||
|
| |||||||
7,024,160 | ||||||||
|
| |||||||
| IT Services (2.8%): |
| ||||||
25,055 | Acxiom Corp.* | 507,865 | ||||||
39,038 | Broadridge Financial Solutions, Inc. | 1,802,775 | ||||||
32,627 | Convergys Corp.^ | 664,612 | ||||||
29,178 | CoreLogic, Inc.* | 921,733 | ||||||
9,528 | DST Systems, Inc. | 897,061 | ||||||
28,622 | Gartner, Inc.* | 2,410,259 | ||||||
21,992 | Global Payments, Inc. | 1,775,414 | ||||||
26,589 | Jack Henry & Associates, Inc. | 1,652,240 | ||||||
20,245 | Leidos Holdings, Inc. | 881,062 | ||||||
17,152 | NeuStar, Inc., Class A*^ | 476,826 | ||||||
13,162 | Science Applications International Corp. | 651,914 | ||||||
36,780 | VeriFone Systems, Inc.* | 1,368,216 | ||||||
12,612 | Wex, Inc.* | 1,247,579 | ||||||
|
| |||||||
15,257,556 | ||||||||
|
| |||||||
| Leisure Products (0.8%): |
| ||||||
30,238 | Brunswick Corp. | 1,550,000 | ||||||
19,866 | Polaris Industries, Inc.^ | 3,004,534 | ||||||
|
| |||||||
4,554,534 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (1.4%): |
| ||||||
6,691 | Bio-Rad Laboratories, Inc., Class A* | 806,667 | ||||||
12,063 | Bio-Techne Corp. | 1,114,621 | ||||||
15,267 | Charles River Laboratories International, Inc.* | 971,592 | ||||||
18,405 | Covance, Inc.* | 1,911,175 | ||||||
9,282 | Mettler-Toledo International, Inc.* | 2,807,434 | ||||||
|
| |||||||
7,611,489 | ||||||||
|
|
Continued
6
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Machinery (4.5%): |
| ||||||
27,215 | AGCO Corp.^ | $ | 1,230,118 | |||||
16,298 | CLARCOR, Inc.^ | 1,086,099 | ||||||
16,122 | Crane Co. | 946,361 | ||||||
41,520 | Donaldson Co., Inc.^ | 1,603,918 | ||||||
19,336 | Graco, Inc. | 1,550,360 | ||||||
26,316 | Harsco Corp. | 497,109 | ||||||
25,816 | IDEX Corp. | 2,009,518 | ||||||
29,801 | ITT Corp. | 1,205,748 | ||||||
25,741 | Kennametal, Inc. | 921,270 | ||||||
25,257 | Lincoln Electric Holdings, Inc. | 1,745,006 | ||||||
19,089 | Nordson Corp. | 1,488,178 | ||||||
25,963 | Oshkosh Corp. | 1,263,100 | ||||||
13,354 | SPX Corp. | 1,147,376 | ||||||
35,246 | Terex Corp. | 982,658 | ||||||
24,222 | Timken Co. | 1,033,795 | ||||||
50,637 | Trinity Industries, Inc. | 1,418,342 | ||||||
8,006 | Valmont Industries, Inc.^ | 1,016,762 | ||||||
31,305 | Wabtec Corp. | 2,720,092 | ||||||
18,994 | Woodward, Inc. | 935,075 | ||||||
|
| |||||||
24,800,885 | ||||||||
|
| |||||||
| Marine (0.4%): |
| ||||||
14,762 | Alexander & Baldwin, Inc. | 579,556 | ||||||
18,560 | Kirby Corp.* | 1,498,535 | ||||||
|
| |||||||
2,078,091 | ||||||||
|
| |||||||
| Media (1.5%): |
| ||||||
19,237 | AMC Networks, Inc., Class A* | 1,226,743 | ||||||
33,879 | Cinemark Holdings, Inc. | 1,205,415 | ||||||
23,585 | DreamWorks Animation SKG, Inc., Class A*^ | 526,653 | ||||||
15,267 | John Wiley & Sons, Inc., Class A | 904,417 | ||||||
25,958 | Lamar Advertising Co., Class A^ | 1,392,388 | ||||||
47,002 | Live Nation, Inc.* | 1,227,223 | ||||||
11,864 | Meredith Corp.^ | 644,452 | ||||||
42,570 | New York Times Co. (The), Class A^ | 562,775 | ||||||
35,479 | Time, Inc. | 873,138 | ||||||
|
| |||||||
8,563,204 | ||||||||
|
| |||||||
| Metals & Mining (1.7%): |
| ||||||
17,325 | Carpenter Technology Corp.^ | 853,256 | ||||||
49,910 | Cliffs Natural Resources, Inc.^ | 356,357 | ||||||
38,462 | Commercial Metals Co. | 626,546 | ||||||
10,929 | Compass Minerals International, Inc. | 948,965 | ||||||
25,398 | Reliance Steel & Aluminum Co. | 1,556,136 | ||||||
21,209 | Royal Gold, Inc. | 1,329,804 | ||||||
78,205 | Steel Dynamics, Inc. | 1,543,767 | ||||||
12,486 | TimkenSteel Corp. | 462,357 | ||||||
47,328 | United States Steel Corp.^ | 1,265,551 | ||||||
16,502 | Worthington Industries, Inc. | 496,545 | ||||||
|
| |||||||
9,439,284 | ||||||||
|
| |||||||
| Multiline Retail (0.2%): |
| ||||||
17,380 | Big Lots, Inc. | 695,548 | ||||||
99,228 | J.C. Penney Co., Inc.*^ | 642,997 | ||||||
|
| |||||||
1,338,545 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Multi-Utilities (1.1%): |
| ||||||
36,081 | Alliant Energy Corp. | $ | 2,396,500 | |||||
14,533 | Black Hills Corp. | 770,830 | ||||||
63,144 | MDU Resources Group, Inc. | 1,483,884 | ||||||
26,852 | Vectren Corp. | 1,241,368 | ||||||
|
| |||||||
5,892,582 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.9%): |
| ||||||
99,278 | California Resources Corp.* | 547,022 | ||||||
23,814 | Energen Corp. | 1,518,381 | ||||||
27,828 | Gulfport Energy Corp.* | 1,161,541 | ||||||
63,643 | HollyFrontier Corp. | 2,385,340 | ||||||
88,347 | Peabody Energy Corp.^ | 683,806 | ||||||
20,030 | Rosetta Resources, Inc.* | 446,869 | ||||||
21,938 | SM Energy Co.^ | 846,368 | ||||||
23,727 | Western Refining, Inc. | 896,406 | ||||||
23,427 | World Fuel Services Corp.^ | 1,099,429 | ||||||
66,188 | WPX Energy, Inc.*^ | 769,766 | ||||||
|
| |||||||
10,354,928 | ||||||||
|
| |||||||
| Paper & Forest Products (0.3%): |
| ||||||
20,962 | Domtar Corp. | 843,092 | ||||||
46,283 | Louisiana-Pacific Corp.*^ | 766,446 | ||||||
|
| |||||||
1,609,538 | ||||||||
|
| |||||||
| Pharmaceuticals (1.1%): |
| ||||||
49,989 | Endo International plc* | 3,605,207 | ||||||
20,725 | Salix Pharmaceuticals, Ltd.*^ | 2,382,132 | ||||||
|
| |||||||
5,987,339 | ||||||||
|
| |||||||
| Professional Services (1.0%): |
| ||||||
10,932 | Corporate Executive Board Co. (The) | 792,898 | ||||||
13,358 | FTI Consulting, Inc.* | 516,020 | ||||||
25,732 | Manpower, Inc. | 1,754,150 | ||||||
22,739 | Towers Watson & Co., Class A | 2,573,373 | ||||||
|
| |||||||
5,636,441 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (9.2%): |
| ||||||
23,421 | Alexandria Real Estate Equities, Inc. | 2,078,380 | ||||||
34,196 | American Campus Communities, Inc. | 1,414,347 | ||||||
64,230 | BioMed Realty Trust, Inc. | 1,383,514 | ||||||
28,101 | Camden Property Trust | 2,074,978 | ||||||
30,108 | Corporate Office Properties Trust | 854,164 | ||||||
111,142 | Duke Realty Corp. | 2,245,068 | ||||||
24,990 | Equity One, Inc. | 633,746 | ||||||
35,945 | Extra Space Storage, Inc. | 2,107,815 | ||||||
22,158 | Federal Realty Investment Trust | 2,957,207 | ||||||
29,692 | Highwoods Properties, Inc.^ | 1,314,762 | ||||||
18,663 | Home Properties, Inc. | 1,224,293 | ||||||
48,739 | Hospitality Properties Trust | 1,510,909 | ||||||
27,308 | Kilroy Realty Corp. | 1,886,164 | ||||||
36,325 | LaSalle Hotel Properties | 1,470,073 | ||||||
48,318 | Liberty Property Trust | 1,818,206 | ||||||
27,249 | Mack-Cali Realty Corp. | 519,366 | ||||||
24,478 | Mid-America Apartment Communities, Inc. | 1,828,017 | ||||||
42,901 | National Retail Properties, Inc.^ | 1,689,012 |
Continued
7
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Investment Trusts, continued |
| ||||||
41,450 | Omega Healthcare Investors, Inc.^ | $ | 1,619,452 | |||||
13,216 | Potlatch Corp. | 553,354 | ||||||
41,231 | Rayonier, Inc. | 1,151,994 | ||||||
72,420 | Realty Income Corp.^ | 3,455,157 | ||||||
30,329 | Regency Centers Corp. | 1,934,384 | ||||||
66,292 | Senior Housing Properties Trust | 1,465,716 | ||||||
31,382 | SL Green Realty Corp. | 3,735,085 | ||||||
31,200 | Tanger Factory Outlet Centers, Inc. | 1,153,152 | ||||||
20,522 | Taubman Centers, Inc. | 1,568,291 | ||||||
83,005 | UDR, Inc. | 2,558,214 | ||||||
50,492 | Washington Prime Group, Inc.^ | 869,472 | ||||||
36,597 | Weingarten Realty Investors^ | 1,277,967 | ||||||
|
| |||||||
50,352,259 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.4%): |
| ||||||
14,578 | Jones Lang LaSalle, Inc. | 2,185,680 | ||||||
|
| |||||||
| Road & Rail (1.5%): |
| ||||||
18,847 | Con-way, Inc. | 926,895 | ||||||
16,651 | Genesee & Wyoming, Inc., Class A* | 1,497,258 | ||||||
30,101 | J.B. Hunt Transport Services, Inc.^ | 2,536,010 | ||||||
14,555 | Landstar System, Inc. | 1,055,674 | ||||||
22,142 | Old Dominion Freight Line, Inc.* | 1,719,105 | ||||||
14,509 | Werner Enterprises, Inc.^ | 451,955 | ||||||
|
| |||||||
8,186,897 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.4%): |
| ||||||
204,470 | Advanced Micro Devices, Inc.*^ | 545,935 | ||||||
135,756 | Atmel Corp.* | 1,139,672 | ||||||
38,837 | Cree, Inc.*^ | 1,251,328 | ||||||
48,280 | Cypress Semiconductor Corp.^ | 689,438 | ||||||
38,618 | Fairchild Semiconductor International, Inc.* | 651,872 | ||||||
48,368 | Integrated Device Technology, Inc.* | 948,013 | ||||||
23,276 | International Rectifier Corp.* | 928,712 | ||||||
42,161 | Intersil Corp., Class A | 610,070 | ||||||
189,849 | RF Micro Devices, Inc.* | 3,149,595 | ||||||
21,704 | Semtech Corp.* | 598,379 | ||||||
12,815 | Silicon Laboratories, Inc.* | 610,250 | ||||||
62,000 | Skyworks Solutions, Inc. | 4,508,021 | ||||||
81,973 | SunEdison, Inc.*^ | 1,599,293 | ||||||
70,428 | Teradyne, Inc. | 1,393,770 | ||||||
|
| |||||||
18,624,348 | ||||||||
|
| |||||||
| Software (4.2%): |
| ||||||
37,406 | ACI Worldwide, Inc.*^ | 754,479 | ||||||
14,480 | Advent Software, Inc. | 443,667 | ||||||
29,892 | Ansys, Inc.* | 2,451,143 | ||||||
95,215 | Cadence Design Systems, Inc.*^ | 1,806,229 | ||||||
52,246 | CDK Global, Inc. | 2,129,547 | ||||||
14,001 | CommVault Systems, Inc.* | 723,712 | ||||||
12,624 | FactSet Research Systems, Inc.^ | 1,776,828 | ||||||
10,449 | Fair Isaac Corp. | 755,463 | ||||||
45,050 | Fortinet, Inc.* | 1,381,233 | ||||||
35,334 | Informatica Corp.* | 1,347,462 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software, continued |
| ||||||
31,844 | Mentor Graphics Corp. | $ | 698,020 | |||||
37,715 | PTC, Inc.* | 1,382,255 | ||||||
30,834 | Rovi Corp.* | 696,540 | ||||||
21,410 | Solarwinds, Inc.* | 1,066,860 | ||||||
22,184 | Solera Holdings, Inc. | 1,135,377 | ||||||
50,682 | Synopsys, Inc.* | 2,203,147 | ||||||
10,747 | Tyler Technologies, Inc.* | 1,176,152 | ||||||
9,230 | Ultimate Software Group, Inc. (The)* | 1,355,102 | ||||||
|
| |||||||
23,283,216 | ||||||||
|
| |||||||
| Specialty Retail (4.1%): |
| ||||||
20,997 | Aaron’s, Inc. | 641,878 | ||||||
23,230 | Abercrombie & Fitch Co., Class A^ | 665,307 | ||||||
23,739 | Advance Auto Parts, Inc. | 3,781,149 | ||||||
56,966 | American Eagle Outfitters, Inc.^ | 790,688 | ||||||
14,882 | Ann, Inc.* | 542,895 | ||||||
42,880 | Ascena Retail Group, Inc.* | 538,573 | ||||||
15,500 | Cabela’s, Inc., Class A*^ | 817,005 | ||||||
49,769 | Chico’s FAS, Inc. | 806,755 | ||||||
25,268 | CST Brands, Inc. | 1,101,937 | ||||||
31,899 | Dick’s Sporting Goods, Inc. | 1,583,785 | ||||||
46,199 | Foot Locker, Inc. | 2,595,461 | ||||||
20,818 | Guess?, Inc. | 438,843 | ||||||
13,987 | Murphy USA, Inc.* | 963,145 | ||||||
157,703 | Office Depot, Inc.* | 1,352,303 | ||||||
17,222 | Rent-A-Center, Inc. | 625,503 | ||||||
26,075 | Signet Jewelers, Ltd. | 3,430,688 | ||||||
27,846 | Williams-Sonoma, Inc. | 2,107,386 | ||||||
|
| |||||||
22,783,301 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.0%): |
| ||||||
34,015 | 3D Systems Corp.*^ | 1,118,073 | ||||||
21,034 | Diebold, Inc.^ | 728,618 | ||||||
20,092 | Lexmark International, Inc., Class A^ | 829,197 | ||||||
54,780 | NCR Corp.* | 1,596,289 | ||||||
16,566 | Zebra Technologies Corp., Class A* | 1,282,374 | ||||||
|
| |||||||
5,554,551 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.3%): |
| ||||||
17,202 | Carter’s, Inc. | 1,501,907 | ||||||
11,269 | Deckers Outdoor Corp.*^ | 1,025,930 | ||||||
32,486 | Hanesbrands, Inc. | 3,626,086 | ||||||
41,353 | Kate Spade & Co.* | 1,323,710 | ||||||
|
| |||||||
7,477,633 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.6%): |
| ||||||
28,607 | Astoria Financial Corp. | 382,190 | ||||||
143,969 | New York Community Bancorp, Inc.^ | 2,303,504 | ||||||
31,923 | Washington Federal, Inc.^ | 707,094 | ||||||
|
| |||||||
3,392,788 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.7%): |
| ||||||
14,371 | GATX Corp.^ | 826,907 | ||||||
16,425 | MSC Industrial Direct Co., Inc., Class A^ | 1,334,532 |
Continued
8
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Trading Companies & Distributors, continued |
| ||||||
34,840 | NOW, Inc.*^ | $ | 896,433 | |||||
8,881 | Watsco, Inc. | 950,267 | ||||||
|
| |||||||
4,008,139 | ||||||||
|
| |||||||
| Water Utilities (0.3%): |
| ||||||
57,423 | Aqua America, Inc. | 1,533,194 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
31,927 | Telephone & Data Systems, Inc. | 806,157 | ||||||
|
| |||||||
| Total Common Stocks (Cost $380,356,474) | 531,249,746 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (13.6%): |
| ||||||
$75,634,895 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 75,634,895 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 75,634,895 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Unaffiliated Investment Company (4.3%): |
| ||||||
$24,089,424 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | $ | 24,089,424 | |||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $24,089,424) | 24,089,424 | ||||||
|
| |||||||
| Total Investment Securities (Cost $480,080,793)(c) — 113.8% | 630,974,065 | ||||||
| Net other assets (liabilities) — (13.8)% | (76,534,488 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 554,439,577 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $73,253,598. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $1,240,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P 400 Index E-Mini March Futures | Long | 3/20/15 | 164 | $ | 23,757,040 | $ | 618,881 |
See accompanying notes to the financial statements.
9
AZL Mid Cap Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 480,080,793 | |||
|
| ||||
Investment securities, at value* | $ | 630,974,065 | |||
Segregated cash for collateral | 1,240,000 | ||||
Interest and dividends receivable | 496,324 | ||||
Receivable for capital shares issued | 66,340 | ||||
Receivable for variation margin on futures contracts | 22,302 | ||||
Prepaid expenses | 4,588 | ||||
|
| ||||
Total Assets | 632,803,619 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 14,329 | ||||
Payable for investments purchased | 1,580,584 | ||||
Payable for capital shares redeemed | 468,292 | ||||
Payable for collateral received on loaned securities | 75,634,895 | ||||
Payable for variation margin on futures contracts | 329,120 | ||||
Manager fees payable | 116,990 | ||||
Administration fees payable | 12,832 | ||||
Distribution fees payable | 116,990 | ||||
Custodian fees payable | 4,546 | ||||
Administrative and compliance services fees payable | 1,564 | ||||
Trustee fees payable | 31 | ||||
Other accrued liabilities | 83,869 | ||||
|
| ||||
Total Liabilities | 78,364,042 | ||||
|
| ||||
Net Assets | $ | 554,439,577 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 375,573,110 | |||
Accumulated net investment income/(loss) | 4,560,046 | ||||
Accumulated net realized gains/(losses) from investment transactions | 22,794,268 | ||||
Net unrealized appreciation/(depreciation) on investments | 151,512,153 | ||||
|
| ||||
Net Assets | $ | 554,439,577 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 23,602,090 | ||||
Net Asset Value (offering and redemption price per share) | $ | 23.49 | |||
|
|
* | Includes securities on loan of $73,253,598. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 7,231,419 | |||
Income from securities lending | 317,498 | ||||
|
| ||||
Total Investment Income | 7,548,917 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,303,874 | ||||
Administration fees | 142,973 | ||||
Distribution fees | 1,303,874 | ||||
Custodian fees | 20,397 | ||||
Administrative and compliance services fees | 6,914 | ||||
Trustee fees | 26,388 | ||||
Professional fees | 29,358 | ||||
Shareholder reports | 16,647 | ||||
Other expenses | 113,168 | ||||
|
| ||||
Total expenses | 2,963,593 | ||||
|
| ||||
Net Investment Income/(Loss) | 4,585,324 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 22,711,018 | ||||
Net realized gains/(losses) on futures contracts | 1,558,577 | ||||
Change in net unrealized appreciation/depreciation on investments | 17,590,975 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 41,860,570 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 46,445,894 | |||
|
|
See accompanying notes to the financial statements.
10
Statements of Changes in Net Assets
AZL Mid Cap Index Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 4,585,324 | $ | 3,489,829 | ||||||
Net realized gains/(losses) on investment transactions | 24,269,595 | 18,046,913 | ||||||||
Change in unrealized appreciation/depreciation on investments | 17,590,975 | 89,611,391 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 46,445,894 | 111,148,133 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (3,512,445 | ) | (2,749,544 | ) | ||||||
From net realized gains | (18,594,993 | ) | (6,424,726 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (22,107,438 | ) | (9,174,270 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 54,240,054 | 95,250,096 | ||||||||
Proceeds from dividends reinvested | 22,107,438 | 9,174,270 | ||||||||
Value of shares redeemed | (39,240,020 | ) | (25,383,256 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 37,107,472 | 79,041,110 | ||||||||
|
|
|
| |||||||
Change in net assets | 61,445,928 | 181,014,973 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 492,993,649 | 311,978,676 | ||||||||
|
|
|
| |||||||
End of period | $ | 554,439,577 | $ | 492,993,649 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 4,560,046 | $ | 3,473,538 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 2,379,889 | 4,734,634 | ||||||||
Dividends reinvested | 964,127 | 448,839 | ||||||||
Shares redeemed | (1,718,067 | ) | (1,276,597 | ) | ||||||
|
|
|
| |||||||
Change in shares | 1,625,949 | 3,906,876 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
11
AZL Mid Cap Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 22.43 | $ | 17.27 | $ | 15.10 | $ | 16.17 | $ | 13.09 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.19 | 0.14 | 0.14 | 0.07 | 0.05 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.85 | 5.47 | 2.45 | (0.47 | ) | 3.16 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 2.04 | 5.61 | 2.59 | (0.40 | ) | 3.21 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.14 | ) | (0.07 | ) | (0.06 | ) | (0.04 | ) | |||||||||||||||
Net Realized Gains | (0.82 | ) | (0.31 | ) | (0.35 | ) | (0.61 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.98 | ) | (0.45 | ) | (0.42 | ) | (0.67 | ) | (0.13 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 23.49 | $ | 22.43 | $ | 17.27 | $ | 15.10 | $ | 16.17 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 9.21 | % | 32.71 | % | 17.22 | % | (2.32 | )% | 24.67 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 554,440 | $ | 492,994 | $ | 311,979 | $ | 209,586 | $ | 154,995 | |||||||||||||||
Net Investment Income/(Loss) | 0.88 | % | 0.86 | % | 1.04 | % | 0.66 | % | 0.71 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.57 | % | 0.58 | % | 0.60 | % | 0.63 | % | 0.61 | % | |||||||||||||||
Expenses Net of Reductions | 0.57 | % | 0.58 | % | 0.60 | % | 0.61 | % | 0.60 | % | |||||||||||||||
Portfolio Turnover Rate(c) | 13 | % | 12 | % | 9 | % | 15 | % | 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) | The portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
See accompanying notes to the financial statements.
12
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Mid Cap Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
13
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $29.3 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $31,427 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $23.8 million as of December 31, 2014. The monthly average notional amount for these contracts was $20.1 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 618,881 | Payable for variation margin on futures contracts | $ | — |
* | 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. |
14
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 1,558,577 | $ | 162,448 |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Mid Cap Index Fund | 0.25 | % | 0.71 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $6,421 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
15
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2014
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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 531,249,746 | $ | — | $ | 531,249,746 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 75,634,895 | 75,634,895 | ||||||||||||
Unaffiliated Investment Company | 24,089,424 | — | 24,089,424 | ||||||||||||
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Total Investment Securities | 555,339,170 | 75,634,895 | 630,974,065 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 618,881 | — | 618,881 | ||||||||||||
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Total Investments | $ | 555,958,051 | $ | 75,634,895 | $ | 631,592,946 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 81,605,648 | $ | 67,759,185 |
16
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2014
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $482,604,745. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 162,198,989 | ||
Unrealized depreciation | (13,829,669 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 148,369,320 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Mid Cap Index Fund | $ | 6,714,812 | $ | 15,392,626 | $ | 22,107,438 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Mid Cap Index Fund | $ | 4,058,929 | $ | 5,115,341 | $ | 9,174,270 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Mid Cap Index Fund | $ | 6,630,030 | $ | 23,867,117 | $ | — | $ | 148,369,320 | $ | 178,866,467 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
18
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 62.32% 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, 2014, the Fund declared net long-term capital gain distributions of $15,392,626.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $3,202,367.
19
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
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
21
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Money Market Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 12
Other Federal Income Tax Information
Page 13
Other Information
Page 14
Approval of Investment Advisory and Subadvisory Agreements
Page 15
Information about the Board of Trustees and Officers
Page 18
This report is submitted for the general information of the shareholder 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.
AZL® Money Market Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Money Market Fund and BlackRock Advisors, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
Money market securities faced a challenging environment during the period. Interest rates remained low due in part to ongoing accommodative monetary policy by central banks such as the U.S. Federal Reserve. The LIBOR1, which is used as a benchmark rate for short-term loans, was virtually unchanged during the period. What’s more, increased regulation contributed to a decline in supply, as banks and other issuers had to contend with higher liquidity requirements.
In an effort to maintain competitive yields, we pursued a strategy of targeting securities with relatively longer weighted average maturity and weighted average life. This was accomplished primarily through the purchase of fixed- and floating-rate securities issued by highly rated financial institutions and government entities.
Very short-dated securities, such as those held to satisfy the liquidity requirements mandated under the new money market fund regulations, were generally lower-yielding and dragged on the Fund’s performance. The Fund enhanced its liquidity and diversification through holdings of municipal variable-rate demand notes, and, at times, an allocation to U.S. Treasuries.*
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, 2014. |
1 | London Inter-Bank Offer Rate (“LIBOR”) is the interest rate that the largest international banks charge each other for loans. |
1
AZL® Money Market Fund Review (unaudited)
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Years | |||||||||||||
AZL® Money Market Fund | 0.01 | % | 0.00 | % | 0.00 | % | 1.43 | % | ||||||||
Three-Month U.S. Treasury Bill Index | 0.03 | % | 0.06 | % | 0.08 | % | 1.43 | % |
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 | 0.65 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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, 2014
7 Day Average | 7 Day Effective | 30 Day Average | ||||||||||
AZL® Money Market Fund | 0.00 | % | 0.00 | % | 0.00 | % |
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 December 31, 2014 and more closely reflects the current earnings of the Fund than the total return quotation.
The Fund’s performance is measured against the Three-Month U.S. Treasury Bill Index. The Treasury Bill Index is an unmanaged index 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 |
AZL Money Market Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Money Market Fund | $ | 1,000.00 | $ | 1,000.10 | $ | 1.01 | 0.20 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Money Market Fund | $ | 1,000.00 | $ | 1,024.20 | $ | 1.02 | 0.20 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Commercial Paper | 55.6 | % | |||
Certificates of Deposit | 34.7 | ||||
Municipal Bond | 6.3 | ||||
U.S. Treasury Obligation | 1.4 | ||||
Corporate Bonds | 1.1 | ||||
Yankee Dollar | 0.9 | ||||
|
| ||||
Total Investment Securities | 100.0 | ||||
Net other assets (liabilities) | — | ^ | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
3
AZL Money Market Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Certificates of Deposit (34.7%): |
| ||||||
| Banks (33.6%) |
| ||||||
$ | 8,000,000 | Bank of Montreal Chicago, 0.24%, 5/29/15 | $ | 8,000,000 | ||||
8,000,000 | Bank of Montreal Chicago, 0.24%, 7/16/15(a) | 8,000,000 | ||||||
7,000,000 | Bank of Montreal Chicago, 0.24%, 4/9/15(a) | 7,000,000 | ||||||
5,000,000 | Bank of Nova Scotia, 0.68%, 9/11/15(a) | 5,014,203 | ||||||
8,000,000 | Bank of Nova Scotia, 0.26%, 6/24/15(a) | 8,000,000 | ||||||
19,000,000 | Bank of Tokyo-Mitsubishi UFJ, NY, 1.00%, 3/27/15(a) | 19,032,119 | ||||||
5,000,000 | BNP Paribas, NY, 0.30%, 2/4/15 | 5,000,000 | ||||||
6,750,000 | Canadian Imperial Bank of Commerce, 0.34%, 6/1/15(a) | 6,750,000 | ||||||
14,000,000 | Citibank NA, 0.25%, 2/6/15 | 14,000,000 | ||||||
10,000,000 | Citibank NA, 0.25%, 5/11/15 | 10,000,000 | ||||||
10,000,000 | Credit Agricole CIB, NY, 0.26%, 3/2/15 | 10,000,000 | ||||||
12,000,000 | National Australia Bank, Ltd., 0.23%, 7/10/15(a) | 12,000,000 | ||||||
5,000,000 | National Bank of Canada, NY, 0.26%, 7/20/15(a) | 5,000,000 | ||||||
8,000,000 | National Bank of Canada, NY, 0.30%, 10/23/15(a) | 8,000,000 | ||||||
3,000,000 | Natixis, NY, 0.25%, 2/2/15 | 3,000,000 | ||||||
11,000,000 | Rabobank Nederland NV, NY, 0.28%, 9/16/15(a) | 11,000,000 | ||||||
7,000,000 | Rabobank Nederland NV, NY, 0.35%, 1/12/15 | 7,000,000 | ||||||
8,000,000 | Rabobank Nederland NV, NY, 0.28%, 5/6/15(a) | 8,000,000 | ||||||
8,000,000 | Skandinav Enskilda Bank, NY, 0.25%, 3/3/15 | 8,000,000 | ||||||
8,000,000 | Skandinav Enskilda Bank, NY, 0.25%, 2/6/15 | 8,000,000 | ||||||
5,000,000 | Societe Generale, NY, 0.25%, 2/2/15 | 5,000,000 | ||||||
3,000,000 | State Street Bank & Trust Co., 0.28%, 10/23/15(a) | 3,000,000 | ||||||
10,000,000 | State Street Bank & Trust Co., 0.28%, 10/1/15(a) | 10,000,000 | ||||||
4,500,000 | Sumitomo Mitsui Bank, NY, 0.25%, 3/17/15 | 4,500,000 | ||||||
15,000,000 | Sumitomo Mitsui Bank, NY, 0.25%, 2/6/15 | 15,000,000 | ||||||
7,000,000 | Sumitomo Trust & Banking Co., Ltd., 0.27%, 4/15/15 | 7,000,000 | ||||||
12,000,000 | Toronto Dominion Bank, NY, 0.25%, 10/6/15(a) | 12,000,000 | ||||||
8,000,000 | Toronto Dominion Bank, NY, 0.30%, 7/15/15 | 7,999,994 | ||||||
|
| |||||||
235,296,316 | ||||||||
|
| |||||||
| Diversified Financial Services (1.1%) |
| ||||||
5,000,000 | Credit Industriel Et Commercial, NY, 0.30%, 4/8/15 | 5,000,000 | ||||||
3,000,000 | Credit Industriel Et Commercial, NY, 0.30%, 1/8/15 | 3,000,000 | ||||||
|
| |||||||
8,000,000 | ||||||||
|
| |||||||
| Total Certificates of Deposit (Cost $243,296,316) | 243,296,316 | ||||||
|
| |||||||
| Commercial Paper (55.6%): |
| ||||||
| Banks (13.7%) |
| ||||||
20,000,000 | Commonwealth Bank of Australia, 0.24%, 5/18/15(a)(b) | 20,000,525 | ||||||
7,000,000 | Commonwealth Bank of Australia, 0.25%, 5/15/15(a)(b) | 7,000,000 | ||||||
10,000,000 | DNB Bank ASA, 0.23%, 4/28/15(b)(c) | 9,992,525 | ||||||
8,000,000 | DNB Bank ASA, 0.22%, 1/20/15(b)(c) | 7,999,071 | ||||||
7,000,000 | HSBC Bank plc, 0.26%, 10/23/15(a)(b) | 7,000,000 | ||||||
9,000,000 | Macquarie Bank, Ltd., 0.32%, 2/19/15(b)(c) | 8,996,080 | ||||||
25,000,000 | Natixis, NY, 0.10%, 1/2/15(c) | 24,999,931 |
Principal Amount | Fair Value | |||||||
| Commercial Paper, continued |
| ||||||
| Banks, continued |
| ||||||
$ | 10,000,000 | Westpac Banking Corp., NY, 0.24%, 4/17/15(a)(b) | $ | 10,000,000 | ||||
|
| |||||||
95,988,132 | ||||||||
|
| |||||||
| Diversified Financial Services (41.9%) |
| ||||||
10,000,000 | Antalis US Funding Corp., 0.23%, 1/6/15(b)(c) | 9,999,681 | ||||||
5,000,000 | Bedford Row Funding Corp., 0.29%, 11/20/15(a)(b) | 5,000,000 | ||||||
10,000,000 | Bedford Row Funding Corp., 0.28%, 1/28/15(b)(c) | 9,997,900 | ||||||
12,000,000 | CAFCO LLC, 0.25%, 2/2/15(c) | 11,997,333 | ||||||
30,000,000 | Caisse Centrale Desjardins du Quebec, 0.13%, 1/5/15(b)(c) | 29,999,568 | ||||||
13,000,000 | Chariot Funding LLC, 0.26%, 8/13/15(b)(c) | 12,978,969 | ||||||
12,000,000 | Charta LLC, 0.25%, 2/6/15(c) | 11,997,000 | ||||||
8,466,000 | Charta LLC, 0.25%, 5/12/15(c) | 8,458,298 | ||||||
8,000,000 | Collateralized CP Co. LLC, 0.30%, 3/9/15(c) | 7,995,533 | ||||||
10,000,000 | Collateralized CP Co. LLC, 0.30%, 3/16/15(c) | 9,993,833 | ||||||
7,000,000 | Collateralized CP Co. LLC, 0.30%, 2/2/15(c) | 6,998,133 | ||||||
9,000,000 | CRC Funding LLC, 0.25%, 2/4/15(c) | 8,997,875 | ||||||
9,000,000 | General Electric Capital Corp., 0.22%, 6/4/15(c) | 8,991,530 | ||||||
10,000,000 | General Electric Capital Corp., 0.20%, 2/2/15(c) | 9,998,222 | ||||||
12,000,000 | Gotham Funding Corp., 0.11%, 1/2/15(b)(c) | 11,999,963 | ||||||
9,000,000 | ING (US) Funding LLC, 0.24%, 1/16/15(c) | 8,999,100 | ||||||
10,000,000 | Kells Funding LLC, 0.24%, 9/22/15(a) | 9,999,217 | ||||||
10,000,000 | Kells Funding LLC, 0.24%, 2/13/15(a) | 10,000,066 | ||||||
15,000,000 | LMA Americas LLC, 0.11%, 1/2/15(b)(c) | 14,999,954 | ||||||
15,000,000 | Nederlandse Waterschapsbank NV, 0.24%, 10/1/15(a)(b) | 15,000,000 | ||||||
11,960,000 | Nieuw Amsterdam Receivables Corp., 0.10%, 1/2/15(b)(c) | 11,959,967 | ||||||
3,000,000 | Old Line Funding LLC, 0.22%, 3/6/15(b)(c) | 2,998,827 | ||||||
32,000,000 | Victory Receivables Corp., 0.11%, 1/2/15(b)(c) | 31,999,903 | ||||||
21,280,000 | Working Capital Management, 0.13%, 1/6/15(b)(c) | 21,279,616 | ||||||
|
| |||||||
292,640,488 | ||||||||
|
| |||||||
| Total Commercial Paper (Cost $388,628,620) | 388,628,620 | ||||||
|
| |||||||
| Corporate Bond (1.1%): |
| ||||||
| Hotels, Restaurants & Leisure (1.1%) |
| ||||||
8,000,000 | Jets Stadium Development LLC, Series A-4C, 0.09%, 4/1/47, Callable 3/4/15 @ 100.00(a)(d) | 8,000,000 | ||||||
|
| |||||||
| Total Corporate Bond (Cost $8,000,000) | 8,000,000 | ||||||
|
| |||||||
| Municipal Bonds (6.3%): |
| ||||||
| California (2.6%): |
| ||||||
600,000 | California Housing Finance Agency Revenue, Series E-1, 0.03%, 2/1/23, LOC: Freddie Mac, Fannie Mae, AMT(a) | 600,000 | ||||||
8,500,000 | Los Angeles Community Redevelopment Agency Multi-Family Housing Revenue, Series A, 0.06%, 4/15/42, LIQ FAC: Fannie Mae, AMT(a) | 8,500,000 | ||||||
9,300,000 | San Francisco City & County Redevelopment Agency Multi-Family Housing Revenue, Series A, 0.05%, 6/15/35, LIQ FAC: Fannie Mae(a) | 9,300,000 | ||||||
|
| |||||||
18,400,000 | ||||||||
|
|
Continued
4
AZL Money Market Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount | Fair Value | |||||||
| Municipal Bonds, continued |
| ||||||
| New York (2.1%): |
| ||||||
$ | 15,000,000 | New York City Housing Development Corp. Multi-Family Rent Revenue, Series A, 0.02%, 3/15/36, LIQ FAC: Fannie Mae(a) | $ | 15,000,000 | ||||
|
| |||||||
| Pennsylvania (1.6%): |
| ||||||
10,900,000 | Pennsylvania Housing Finance Agency Single Family Mortgage Revenue, Series 83C, 0.04%, 10/1/35, SPA: Bank of Tokyo-Mitsubishi UFJ, AMT(a) | 10,900,000 | ||||||
|
| |||||||
| Total Municipal Bonds (Cost $44,300,000) | 44,300,000 | ||||||
|
|
Principal Amount | Fair Value | |||||||
| U.S. Treasury Obligation (1.4%): |
| ||||||
| U.S. Treasury Notes (1.4%) |
| ||||||
$ | 10,000,000 | 0.11%, 4/30/16(a) | $ | 10,000,000 | ||||
|
| |||||||
| Total U.S. Treasury Obligation (Cost $10,000,000) | 10,000,000 | ||||||
|
| |||||||
| Yankee Dollar (0.9%): |
| ||||||
| Banks (0.9%) |
| ||||||
6,100,000 | Svenska Handelsbanken AB, 0.31%, 8/15/14(a) | 6,100,000 | ||||||
|
| |||||||
| Total Yankee Dollar (Cost $6,100,000) | 6,100,000 | ||||||
|
| |||||||
| Total Investment Securities (Cost $700,324,936)(e) — 100.0% | 700,324,936 | ||||||
| Net other assets (liabilities) — 0.0% | 9,838 | ||||||
|
| |||||||
| Net Assets — 100.0% | $ | 700,334,774 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
AMT—Subject to alternative minimum tax
LIQ FAC— Liquidation facility
LOC—Line of credit
SPA—Securities purchase agreement
(a) | Variable Rate Security. The rate represents the rate in effect at December 31, 2014. 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) | 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 liquid based on procedures approved by the Board of Trustees. |
(c) | The rate represents the effective yield at December 31, 2014. |
(d) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2014. The total of all such securities represent 1.14% of the net assets of the fund. |
(e) | 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 investments as of December 31, 2014:
Country | Percentage | |||
Australia | 8.3 | % | ||
Canada | 15.2 | % | ||
France | 10.1 | % | ||
Japan | 6.7 | % | ||
Netherlands | 4.7 | % | ||
Norway | 2.5 | % | ||
Sweden | 3.1 | % | ||
United States | 49.4 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
5
AZL Money Market Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 700,324,936 | |||
|
| ||||
Investment securities, at value | $ | 700,324,936 | |||
Cash | 670 | ||||
Interest receivable | 162,545 | ||||
Receivable from Manager | 45,908 | ||||
Prepaid expenses | 6,075 | ||||
|
| ||||
Total Assets | 700,540,134 | ||||
|
| ||||
Liabilities: | |||||
Administration fees payable | 16,295 | ||||
Distribution fees payable | 147,690 | ||||
Custodian fees payable | 5,771 | ||||
Administrative and compliance services fees payable | 2,071 | ||||
Trustee fees payable | 41 | ||||
Other accrued liabilities | 33,492 | ||||
|
| ||||
Total Liabilities | 205,360 | ||||
|
| ||||
Net Assets | $ | 700,334,774 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 700,287,255 | |||
Accumulated net realized gains/(losses) from investment transactions | 47,519 | ||||
|
| ||||
Net Assets | $ | 700,334,774 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 700,287,897 | ||||
Net Asset Value (offering and redemption price per share) | $ | 1.00 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Interest | $ | 1,502,727 | |||
|
| ||||
Total Investment Income | 1,502,727 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,608,403 | ||||
Administration fees | 201,836 | ||||
Distribution fees | 1,863,149 | ||||
Custodian fees | 22,257 | ||||
Administrative and compliance services fees | 9,086 | ||||
Trustee fees | 36,493 | ||||
Professional fees | 37,977 | ||||
Shareholder reports | 27,944 | ||||
Other expenses | 19,349 | ||||
|
| ||||
Total expenses before reductions | 4,826,494 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (3,323,767 | ) | |||
|
| ||||
Net expenses | 1,502,727 | ||||
|
| ||||
Net Investment Income/(Loss) | — | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 48,636 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 48,636 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 48,636 | |||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL Money Market Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net realized gains/(losses) on investment transactions | 48,636 | 56,931 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 48,636 | 56,931 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net realized gains | (57,581 | ) | (17,239 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (57,581 | ) | (17,239 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 333,098,108 | 486,550,509 | ||||||||
Proceeds from dividends reinvested | 57,581 | 17,239 | ||||||||
Value of shares redeemed | (439,453,694 | ) | (552,027,334 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (106,298,005 | ) | (65,459,586 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (106,306,950 | ) | (65,419,894 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 806,641,724 | 872,061,618 | ||||||||
|
|
|
| |||||||
End of period | $ | 700,334,774 | $ | 806,641,724 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 333,098,108 | 486,550,510 | ||||||||
Dividends reinvested | 57,581 | 17,239 | ||||||||
Shares redeemed | (439,453,694 | ) | (552,027,334 | ) | ||||||
|
|
|
| |||||||
Change in shares | (106,298,005 | ) | (65,459,585 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
7
AZL Money Market Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | — | — | — | — | — | (a) | |||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | — | — | — | — | — | (a) | |||||||||||||||||||
Net Realized Gains | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 0.01 | % | — | — | — | — | |||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 700,335 | $ | 806,642 | $ | 872,062 | $ | 865,626 | $ | 861,070 | |||||||||||||||
Net Investment Income/(Loss) | — | — | — | — | — | ||||||||||||||||||||
Expenses Before Reductions(c) | 0.65 | % | 0.65 | % | 0.66 | % | 0.66 | % | 0.70 | % | |||||||||||||||
Expenses Net of Reductions(d) | 0.20 | % | 0.22 | % | 0.29 | % | 0.28 | % | 0.33 | % |
(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. |
See accompanying notes to the financial statements.
8
AZL Money Market Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Money Market Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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. 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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
Money Market Reform
On July 23, 2014, the SEC approved significant reforms to the regulations governing money market funds under the 1940 Act. The rulemaking is designed to address money market funds’ susceptibility to heavy redemptions during periods of market stress, improve their ability to manage and mitigate potential contagion from such redemptions and increase the transparency of their risks, while preserving their benefits as much as possible. The new rules, with compliance dates ranging from nine months to two years from the effective date, will replace much of the current Rule 2a-7 under the Investment Company Act of 1940 and add new Rule 30b1-8 (“Form N-CR”). Additionally, Forms N-MFP and PF, along with the instructions to Form N-1A, have been revised as part of this reform.
At this time, there are no changes being made to the way the AZL Money Market Fund is managed or the way it operates, as the rules have a lengthy implementation period. Management of the Fund is reviewing and assessing the effect of the new rules. Additional information regarding the money market mutual fund regulatory changes may be found at the SEC’s website, www.sec.gov.
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 with BlackRock Advisors, LLC (“BlackRock Advisors”), BlackRock Advisors 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
9
AZL Money Market Fund
Notes to the Financial Statements
December 31, 2014
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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Money Market Fund | 0.35 | % | 0.87 | % |
The Manager has voluntarily agreed 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 Distributor to receive such payments could negatively affect the Fund’s future yield. Amounts waived under this agreement during the year ended December 31, 2014 are reflected on the Statement of Operations as “Expenses voluntarily waived/reimbursed by the Manager.”
Any amounts 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.”
At December 31, 2014, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2015 | Expires 12/31/2016 | Expires 12/31/2017 | Total | |||||||||||||||||
AZL Money Market Fund | $ | 3,224,807 | $ | 3,776,228 | $ | 3,323,767 | $ | 10,324,802 |
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, 2014, there were no voluntary waivers in addition to the amounts disclosed above.
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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $9,557 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
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AZL Money Market Fund
Notes to the Financial Statements
December 31, 2014
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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. The inputs or methodology used for valuing investments is not necessarily an indication of the risk associated with investing in those investments.
During the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Certificates of Deposit+ | $ | — | $ | 243,296,316 | $ | 243,296,316 | |||||||||
Commercial Paper+ | — | 388,628,620 | 388,628,620 | ||||||||||||
Corporate Bond | — | 8,000,000 | 8,000,000 | ||||||||||||
Municipal Bonds | — | 44,300,000 | 44,300,000 | ||||||||||||
U.S. Treasury Obligation | — | 10,000,000 | 10,000,000 | ||||||||||||
Yankee Dollar | — | 6,100,000 | 6,100,000 | ||||||||||||
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Total Investment Securities | $ | — | $ | 700,324,936 | $ | 700,324,936 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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 tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Money Market Fund | $ | 54,425 | $ | 3,156 | $ | 57,581 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Money Market Fund | $ | 17,239 | $ | — | $ | 17,239 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Money Market Fund | $ | 47,519 | $ | — | $ | — | $ | — | $ | 47,519 |
6. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of 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, 2014, 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, 2014, 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2014, the Fund declared net long-term capital gain distributions of $3,156.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $54,425.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/ General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
18
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
19
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Morgan Stanley Global Real Estate Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® Morgan Stanley Global Real Estate Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Morgan Stanley Global Real Estate Fund and Morgan Stanley Investment Management Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Morgan Stanley Global Real Estate Fund returned 13.77%. That compared to a 15.89% return for its benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index1.
The global real estate securities market experienced strong gains during the period under review. Each of the major regions gained and outperformed their respective broader equity markets for the period. Real estate share prices continued to be influenced by strong investor demand for core assets, as well as investors’ continuing search for yield. Share prices also fluctuated alongside renewed downward pressure on yields for high-quality assets, due in part to lower sovereign debt yields. The U.S. real estate market posted the best returns of any region, due to significant transaction activity demonstrating improved private market values, strong operating fundamentals, lower interest rates and the strength of the U.S. dollar.
The Fund is composed of three regional portfolios (United States, Europe and Asia) with a top-down global allocation that weights each of the three major regions relative to the benchmark index based on our view of the relative attractiveness of each region in terms of underlying real estate fundamentals and public market valuations. This top-down global allocation detracted from the Fund’s relative performance due to its overweight to Asia and underweight to the U.S. during the period.*
The Asian regional portfolio detracted from relative performance primarily because of stock selection in Japan. However, this negative impact was partially offset by an overweight position in Hong Kong.*
The U.S. and European regional portfolios outperformed the benchmark. In Europe, the Fund benefited from stock selection within and an overweight to the U.K., as well as stock selection in the Netherlands. These positive contributions were partially offset by the negative impact of stock selection in Sweden. In the U.S., the Fund benefited from an underweight to and stock selection within the net lease sector, an overweight to the apartment sector, and stock selection in the mall sector. These positive contributions were partially offset by the negative impact of stock selection in the hotel and health care 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, 2014. |
1 | 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. Investors cannot invest directly in an index. |
1
AZL® Morgan Stanley Global Real Estate Fund Review (unaudited)
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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), REOCs, and foreign real estate companies, and property management, all of which can be affected by a variety of factors, including national and regional economic conditions.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (5/1/06) | |||||||||||||
AZL® Morgan Stanley Global Real Estate Fund | 13.77 | % | 15.03 | % | 10.62 | % | 3.94 | % | ||||||||
FTSE EPRA/NAREIT Developed Real Estate Index (gross of withholding taxes) | 15.89 | % | 15.89 | % | 12.03 | % | 4.75 | % | ||||||||
FTSE EPRA/NAREIT Developed Real Estate Index (net of withholding taxes) | 15.02 | % | 15.06 | % | 11.25 | % | 4.04 | % |
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® Morgan Stanley Global Real Estate Fund | 1.29 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 |
AZL Morgan Stanley Global Real Estate Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 1,000.00 | $ | 1,024.40 | $ | 6.58 | 1.29 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 1,000.00 | $ | 1,018.70 | $ | 6.56 | 1.29 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
United States | 50.1 | % | |||
Japan | 12.7 | ||||
Hong Kong | 9.7 | ||||
United Kingdom | 6.8 | ||||
Australia | 5.5 | ||||
France | 2.9 | ||||
Singapore | 2.6 | ||||
Canada | 2.1 | ||||
Bermuda | 1.7 | ||||
Germany | 1.3 | ||||
All other countries | 4.0 | ||||
|
| ||||
Total Common Stocks | 99.4 | ||||
Securities Held as Collateral for Securities on Loan | 13.2 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 112.8 | ||||
Net other assets (liabilities) | (12.8 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (99.4%): |
| ||||||
| Diversified Real Estate Activities (16.0%): |
| ||||||
638,000 | CapitaLand, Ltd. | $ | 1,585,589 | |||||
56,000 | City Developments, Ltd. | 432,477 | ||||||
171,000 | Hang Lung Properties, Ltd. | 476,610 | ||||||
106,185 | Henderson Land Development Co., Ltd. | 737,156 | ||||||
118,303 | Kerry Properties, Ltd. | 427,456 | ||||||
277,000 | Mitsubishi Estate Co., Ltd. | 5,863,505 | ||||||
210,000 | Mitsui Fudosan Co., Ltd. | 5,649,002 | ||||||
244 | Mobimo Holding AG, Registered Shares^ | 48,901 | ||||||
868,981 | New World Development Co., Ltd.^ | 994,072 | ||||||
99,000 | Sumitomo Realty & Development Co., Ltd. | 3,373,043 | ||||||
475,544 | Sun Hung Kai Properties, Ltd. | 7,191,682 | ||||||
75,000 | Tokyo Tatemono Co., Ltd. | 546,290 | ||||||
111,340 | UOL Group, Ltd. | 584,447 | ||||||
292,035 | Wharf Holdings, Ltd. (The) | 2,097,404 | ||||||
|
| |||||||
30,007,634 | ||||||||
|
| |||||||
| Diversified REITs (12.1%): |
| ||||||
95 | Activia Properties, Inc. | 826,394 | ||||||
201,356 | British Land Co. plc | 2,418,609 | ||||||
77,099 | Cousins Properties, Inc. | 880,471 | ||||||
21,302 | Crombie REIT | 236,954 | ||||||
72,547 | Dexus Property Group | 410,133 | ||||||
31,121 | Duke Realty Corp. | 628,644 | ||||||
3,615 | Fonciere des Regions SA | 334,474 | ||||||
5,023 | Gecina SA | 628,596 | ||||||
281,843 | GPT Group | 995,498 | ||||||
43,700 | Green REIT plc* | 67,820 | ||||||
124,584 | Hibernia REIT plc* | 163,124 | ||||||
134 | Hulic REIT, Inc. | 202,648 | ||||||
6,623 | ICADE | 530,268 | ||||||
15 | Kenedix Office Investment Corp. | 84,221 | ||||||
132,801 | Land Securities Group plc | 2,376,031 | ||||||
773 | Lexington Realty Trust^ | 8,488 | ||||||
27,090 | Liberty Property Trust | 1,019,397 | ||||||
511,154 | Mirvac Group | 738,030 | ||||||
1,166 | PS Business Parks, Inc. | 92,744 | ||||||
13,463 | Shaftesbury plc | 163,216 | ||||||
295,670 | Stockland Trust Group | 987,463 | ||||||
16,512 | STORE Capital Corp.^ | 356,824 | ||||||
486 | United Urban Investment Corp. | 763,505 | ||||||
58,051 | Vornado Realty Trust | 6,833,182 | ||||||
7,780 | Wereldhave NV | 533,918 | ||||||
5,740 | WP Carey, Inc.^ | 402,374 | ||||||
|
| |||||||
22,683,026 | ||||||||
|
| |||||||
| Health Care Facilities (0.1%): |
| ||||||
24,050 | Extendicare, Inc.^ | 115,746 | ||||||
|
| |||||||
| Health Care REITs (3.9%): |
| ||||||
36,566 | American Realty Capital Healthcare Trust | 435,135 | ||||||
29,757 | HCP, Inc. | 1,310,201 | ||||||
9,680 | Health Care REIT, Inc. | 732,486 | ||||||
13,936 | Healthcare Realty Trust, Inc. | 380,732 | ||||||
5 | Nippon Healthcare Investment Corp.* | 11,640 | ||||||
97,185 | Senior Housing Properties Trust | 2,148,760 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care REITs, continued |
| ||||||
32,061 | Ventas, Inc.^ | $ | 2,298,774 | |||||
|
| |||||||
7,317,728 | ||||||||
|
| |||||||
| Hotel & Resort REITs (4.0%): |
| ||||||
25,505 | Chesapeake Lodging Trust | 949,041 | ||||||
277,140 | Host Hotels & Resorts, Inc.^ | 6,587,617 | ||||||
|
| |||||||
7,536,658 | ||||||||
|
| |||||||
| Hotels, Resorts & Cruise Lines (2.4%): |
| ||||||
12,480 | Extended Stay America, Inc. | 240,989 | ||||||
42,954 | Hilton Worldwide Holdings, Inc.* | 1,120,670 | ||||||
11,261 | La Quinta Holdings, Inc.* | 248,418 | ||||||
35,779 | Starwood Hotels & Resorts Worldwide, Inc. | 2,900,603 | ||||||
|
| |||||||
4,510,680 | ||||||||
|
| |||||||
| Industrial REITs (3.2%): |
| ||||||
178,000 | Ascendas Real Estate Investment Trust | 319,602 | ||||||
5,435 | DCT Industrial Trust, Inc. | 193,812 | ||||||
346 | GLP J-REIT | 383,478 | ||||||
280,852 | Macquarie Goodman Group | 1,294,402 | ||||||
464 | Nippon Prologis REIT, Inc. | 1,006,087 | ||||||
51,804 | ProLogis, Inc. | 2,229,126 | ||||||
20,044 | Rexford Industrial Realty, Inc. | 314,891 | ||||||
51,192 | SERGO plc | 293,408 | ||||||
|
| |||||||
6,034,806 | ||||||||
|
| |||||||
| Office REITs (7.9%): |
| ||||||
6,620 | Alexandria Real Estate Equities, Inc. | 587,459 | ||||||
5,279 | Alstria Office AG^ | 65,663 | ||||||
361,039 | Beni Stabili SpA^ | 253,516 | ||||||
26,850 | BioMed Realty Trust, Inc. | 578,349 | ||||||
29,497 | Boston Properties, Inc. | 3,795,969 | ||||||
16,799 | Brookfield Canada Office Properties | 389,928 | ||||||
68,000 | CapitaCommercial Trust | 90,035 | ||||||
223,000 | Champion REIT | 103,488 | ||||||
9,560 | Corporate Office Properties Trust | 271,217 | ||||||
18,403 | Derwent Valley Holdings plc | 859,447 | ||||||
31,704 | Douglas Emmett, Inc. | 900,394 | ||||||
67,452 | Great Portland Estates plc | 770,796 | ||||||
34,518 | Hudson Pacific Properties, Inc. | 1,037,611 | ||||||
252 | Japan Real Estate Investment Corp. | 1,212,983 | ||||||
55,368 | Mack-Cali Realty Corp. | 1,055,314 | ||||||
382 | Mori Hills REIT Investment Corp., C Shares | 546,683 | ||||||
4,498 | New York REIT, Inc.^ | 47,634 | ||||||
268 | Nippon Building Fund, Inc. | 1,342,949 | ||||||
305 | ORIX JREIT, Inc.^ | 427,026 | ||||||
24,688 | Paramount Group, Inc.* | 458,950 | ||||||
4,246 | Workspace Group plc | 50,196 | ||||||
|
| |||||||
14,845,607 | ||||||||
|
| |||||||
| Real Estate Development (0.9%): |
| ||||||
2,485,087 | BGP Holdings plc*(a)(b) | — | ||||||
53,000 | China Resources Land, Ltd. | 139,126 | ||||||
37,300 | Dalian Wanda Commercial Properties Co., Ltd., H Shares* | 238,122 | ||||||
235,600 | Guangzhou R&F Properties Co., Ltd., H Shares | 286,625 | ||||||
163 | Helical Bar plc | 973 |
Continued
4
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Development, continued |
| ||||||
114,500 | Keppel DC REIT* | $ | 84,299 | |||||
213,418 | Sino Land Co., Ltd. | 342,604 | ||||||
49,543 | ST Modwen Properties plc | 295,861 | ||||||
100,795 | Urban & Civic plc* | 389,521 | ||||||
|
| |||||||
1,777,131 | ||||||||
|
| |||||||
| Real Estate Operating Companies (10.5%): |
| ||||||
3,600 | AEON Mall Co., Ltd. | 63,672 | ||||||
49,438 | Atrium European Real Estate, Ltd. | 244,591 | ||||||
15,512 | Atrium Ljungberg AB, B Shares^ | 228,374 | ||||||
65,308 | BR Malls Participacoes SA | 403,812 | ||||||
67,600 | BR Properties SA | 260,763 | ||||||
8,830 | BUWOG-Bauen Und Wohnen Gesellschaft mbH | 174,976 | ||||||
63,256 | Capital & Counties Properties plc | 356,768 | ||||||
562,392 | Capital & Regional plc | 459,929 | ||||||
11,889 | Castellum AB | 185,580 | ||||||
104,929 | Citycon Oyj | 327,124 | ||||||
6,200 | Daibiru Corp.^ | 58,283 | ||||||
21,909 | Deutsche Annington Immobilien SE^ | 745,157 | ||||||
7,295 | Deutsche Euroshop AG | 319,414 | ||||||
20,582 | Deutsche Wohnen AG | 488,975 | ||||||
23,233 | Entra ASA* | 237,403 | ||||||
14,697 | Fabege AB | 188,716 | ||||||
35,684 | First Capital Realty, Inc.^ | 573,279 | ||||||
21,416 | Forest City Enterprises, Inc., Class A*^ | 456,161 | ||||||
14,978 | GAGFAH SA* | 335,086 | ||||||
569,000 | Global Logistic Properties, Ltd. | 1,064,431 | ||||||
177,509 | Grainger Trust plc | 519,470 | ||||||
9,830 | Hispania Activos Inmobiliarios SA* | 128,169 | ||||||
13,000 | Hongkong Land Holdings, Ltd. | 87,499 | ||||||
456,500 | Hongkong Land Holdings, Ltd. | 3,072,562 | ||||||
55,032 | Hufvudstaden AB^ | 714,823 | ||||||
50,200 | Hulic Co., Ltd. | 499,138 | ||||||
374,346 | Hysan Development Co., Ltd. | 1,663,546 | ||||||
49,538 | Iguatemi Empresa de Shopping Centers SA | 458,617 | ||||||
104,398 | Investa Office Fund | 308,281 | ||||||
9,309 | LEG Immobilien AG | 698,290 | ||||||
329,899 | LXB Retail Properties plc* | 705,412 | ||||||
72,388 | Norwegian Property ASA* | 98,166 | ||||||
11,500 | NTT Urban Development Corp. | 115,381 | ||||||
44,166 | Prime Office AG* | 155,594 | ||||||
11,510 | PSP Swiss Property AG^ | 991,352 | ||||||
355,788 | Quintain Estates & Development plc* | 527,741 | ||||||
68,264 | Sponda Oyj | 298,944 | ||||||
355,850 | Swire Properties, Ltd. | 1,050,302 | ||||||
1,710 | Swiss Prime Site AG^ | 125,332 | ||||||
57,129 | Unite Group plc | 413,888 | ||||||
|
| |||||||
19,805,001 | ||||||||
|
| |||||||
| Residential REITs (10.7%): |
| ||||||
114 | Advance Residence Investment^ | 304,450 | ||||||
35,566 | AvalonBay Communities, Inc.^ | 5,811,129 | ||||||
12,927 | Boardwalk REIT^ | 684,914 | ||||||
26,635 | Camden Property Trust | 1,966,728 | ||||||
3,611 | Canadian Apartment Properties REIT | 78,127 | ||||||
22,924 | Equity Lifestyle Properties, Inc. | 1,181,732 |
Shares or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Residential REITs, continued |
| ||||||
106,406 | Equity Residential Property Trust | $ | 7,644,206 | |||||
5,798 | Essex Property Trust, Inc. | 1,197,867 | ||||||
16,872 | Mid-America Apartment Communities, Inc. | 1,260,001 | ||||||
|
| |||||||
20,129,154 | ||||||||
|
| |||||||
| Retail REITs (24.6%): |
| ||||||
13,564 | Acadia Realty Trust | 434,455 | ||||||
283 | Altarea SCA^ | 45,159 | ||||||
7,299 | Calloway REIT | 171,556 | ||||||
329,000 | CapitaMall Trust | 506,379 | ||||||
10,151 | Corio NV | 495,336 | ||||||
6,960 | DDR Corp.^ | 127,786 | ||||||
8,562 | Equity One, Inc. | 217,132 | ||||||
8,006 | Eurocommercial Properties NV^ | 339,573 | ||||||
5,977 | Federal Realty Investment Trust^ | 797,690 | ||||||
181,052 | Federation Centres | 421,271 | ||||||
13 | Frontier Real Estate Investment Corp. | 59,509 | ||||||
148,217 | General Growth Properties, Inc. | 4,169,344 | ||||||
143,811 | Hammerson plc | 1,343,964 | ||||||
275 | Japan Retail Fund Investment Corp. | 580,026 | ||||||
36,530 | Kimco Realty Corp. | 918,364 | ||||||
13,994 | Klepierre^ | 602,695 | ||||||
109,561 | Liberty International plc | 566,493 | ||||||
438,215 | Link REIT (The) | 2,735,773 | ||||||
35,405 | Macerich Co. (The)^ | 2,953,131 | ||||||
3,761 | Mercialys SA | 83,883 | ||||||
33,113 | National Retail Properties, Inc.^ | 1,303,659 | ||||||
13,529 | Realty Income Corp.^ | 645,469 | ||||||
44,073 | Regency Centers Corp. | 2,810,976 | ||||||
73,730 | RioCan REIT | 1,677,731 | ||||||
914,071 | Scentre Group | 2,598,561 | ||||||
62,187 | Simon Property Group, Inc. | 11,324,875 | ||||||
242,000 | SPH REIT | 190,038 | ||||||
57,482 | Tanger Factory Outlet Centers, Inc. | 2,124,535 | ||||||
12,922 | Unibail-Rodamco SE | 3,302,310 | ||||||
3,220 | Vastned Retail NV^ | 145,448 | ||||||
347,852 | Westfield Corp. | 2,542,601 | ||||||
|
| |||||||
46,235,722 | ||||||||
|
| |||||||
| Specialized REITs (3.1%): |
| ||||||
12,450 | CubeSmart^ | 274,772 | ||||||
24,347 | Public Storage, Inc. | 4,500,543 | ||||||
78,775 | Safestore Holdings, Ltd. | 284,710 | ||||||
3,206 | Sovran Self Storage, Inc. | 279,627 | ||||||
33,474 | Sunstone Hotel Investors, Inc.^ | 552,656 | ||||||
|
| |||||||
5,892,308 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $127,713,964) | 186,891,201 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (13.2%): |
| ||||||
$ | 24,717,686 | Allianz Variable Insurance Products Securities Lending Collateral Trust(c) | 24,717,686 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 24,717,686 | ||||||
|
|
Continued
5
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2014
Shares or Principal Amount | Fair Value | |||||||
| Unaffiliated Investment Company (0.2%): |
| ||||||
416,788 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(d) | $ | 416,788 | |||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $416,788) | 416,788 | ||||||
|
| |||||||
| Total Investment Securities (Cost $152,848,438)(e) — 112.8% | 212,025,675 | ||||||
| Net other assets (liabilities) — (12.8%) | (24,134,045 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 187,891,630 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $23,698,629. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2014. The total of all such securities represent 0.00% of the net assets of the fund. |
(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, 2014, these securities represent 0.00% of the net assets of the fund. |
(c) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(d) | The rate represents the effective yield at December 31, 2014. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “-” are either $0 or round to less than $1.
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Australia | 4.9 | % | ||
Austria | 0.1 | % | ||
Belize | 0.1 | % | ||
Bermuda | 1.5 | % | ||
Brazil | 0.4 | % | ||
Canada | 1.9 | % | ||
China | 0.1 | % | ||
Finland | 0.3 | % | ||
France | 2.6 | % | ||
Germany | 1.2 | % | ||
Hong Kong | 8.6 | % | ||
Ireland | 0.1 | % | ||
Italy | 0.1 | % | ||
Japan | 11.3 | % | ||
Jersey | 0.1 | % | ||
Luxembourg | 0.2 | % | ||
Netherlands | 0.7 | % | ||
Norway | 0.2 | % | ||
Singapore | 2.3 | % | ||
Spain | 0.1 | % | ||
Sweden | 0.6 | % | ||
Switzerland | 0.5 | % | ||
United Kingdom | 6.0 | % | ||
United States | 56.1 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
6
AZL Morgan Stanley Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 152,848,438 | |||
|
| ||||
Investment securities, at value* | $ | 212,025,675 | |||
Interest and dividends receivable | 688,798 | ||||
Foreign currency, at value (cost $121,622) | 121,358 | ||||
Receivable for investments sold | 276,775 | ||||
Reclaims receivable | 15,887 | ||||
Prepaid expenses | 1,599 | ||||
|
| ||||
Total Assets | 213,130,092 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 198,911 | ||||
Payable for capital shares redeemed | 82,221 | ||||
Payable for collateral received on loaned securities | 24,717,686 | ||||
Manager fees payable | 144,957 | ||||
Administration fees payable | 6,702 | ||||
Distribution fees payable | 40,266 | ||||
Custodian fees payable | 34,611 | ||||
Administrative and compliance services fees payable | 621 | ||||
Trustee fees payable | 12 | ||||
Other accrued liabilities | 12,475 | ||||
|
| ||||
Total Liabilities | 25,238,462 | ||||
|
| ||||
Net Assets | $ | 187,891,630 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 160,292,215 | |||
Accumulated net investment income/(loss) | 4,542,935 | ||||
Accumulated net realized gains/(losses) from investment transactions | (36,117,988 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 59,174,468 | ||||
|
| ||||
Net Assets | $ | 187,891,630 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 16,910,087 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.11 | |||
|
|
* | Includes securities on loan of $23,698,629. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 5,800,628 | |||
Income from securities lending | 25,225 | ||||
Foreign withholding tax | (251,704 | ) | |||
|
| ||||
Total Investment Income | 5,574,149 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,696,092 | ||||
Administration fees | 77,827 | ||||
Distribution fees | 471,136 | ||||
Custodian fees | 138,032 | ||||
Administrative and compliance services fees | 2,634 | ||||
Trustee fees | 10,166 | ||||
Professional fees | 11,125 | ||||
Shareholder reports | 11,284 | ||||
Other expenses | 5,578 | ||||
|
| ||||
Total expenses before reductions | 2,423,874 | ||||
Less expenses paid indirectly | (2,499 | ) | |||
|
| ||||
Net expenses | 2,421,375 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,152,774 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 9,054,212 | ||||
Change in net unrealized appreciation/depreciation on investments | 12,055,284 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 21,109,496 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 24,262,270 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL Morgan Stanley Global Real Estate Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,152,774 | $ | 2,644,977 | ||||||
Net realized gains/(losses) on investment transactions | 9,054,212 | 10,780,862 | ||||||||
Change in unrealized appreciation/depreciation on investments | 12,055,284 | (7,756,047 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 24,262,270 | 5,669,792 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (1,799,384 | ) | (7,518,721 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (1,799,384 | ) | (7,518,721 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 9,900,160 | 16,327,346 | ||||||||
Proceeds from dividends reinvested | 1,799,384 | 7,518,721 | ||||||||
Value of shares redeemed | (28,066,128 | ) | (24,042,571 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (16,366,584 | ) | (196,504 | ) | ||||||
|
|
|
| |||||||
Change in net assets | 6,096,302 | (2,045,433 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 181,795,328 | 183,840,761 | ||||||||
|
|
|
| |||||||
End of period | $ | 187,891,630 | $ | 181,795,328 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 4,542,935 | | $ | (651,973 | ) | ||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 937,179 | 1,604,545 | ||||||||
Dividends reinvested | 168,324 | 772,736 | ||||||||
Shares redeemed | (2,641,321 | ) | (2,328,893 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,535,818 | ) | 48,388 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL Morgan Stanley Global Real Estate Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.86 | $ | 9.99 | $ | 7.82 | $ | 8.99 | $ | 7.57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.18 | 0.16 | 0.16 | 0.13 | 0.23 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.17 | 0.14 | 2.16 | (1.02 | ) | 1.34 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.35 | 0.30 | 2.32 | (0.89 | ) | 1.57 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.10 | ) | (0.43 | ) | (0.15 | ) | (0.28 | ) | (0.15 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.10 | ) | (0.43 | ) | (0.15 | ) | (0.28 | ) | (0.15 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 11.11 | $ | 9.86 | $ | 9.99 | $ | 7.82 | $ | 8.99 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 13.77 | % | 3.02 | % | 29.86 | % | (9.94 | )% | 20.86 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 187,892 | $ | 181,795 | $ | 183,841 | $ | 168,465 | $ | 185,485 | |||||||||||||||
Net Investment Income/(Loss) | 1.67 | % | 1.43 | % | 1.69 | % | 1.44 | % | 2.91 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.29 | % | 1.29 | % | 1.34 | % | 1.35 | % | 1.35 | % | |||||||||||||||
Expenses Net of Reductions | 1.28 | % | 1.29 | % | 1.34 | % | 1.35 | % | 1.34 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.29 | % | 1.28 | % | 1.34 | % | 1.35 | % | 1.35 | % | |||||||||||||||
Portfolio Turnover Rate | 32 | % | 29 | % | 34 | % | 23 | % | 27 | % |
(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.
9
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Morgan Stanley Global Real Estate Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $5.4 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $2,524 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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. 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, there were no voluntarily 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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
11
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2014
implementing the written policies and procedures comprising the Fund’s compliance program. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $2,338 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
During the year ended December 31, 2014, the Fund paid approximately $706 to affiliated broker/dealers of the Subadvisor 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy. The valuation of these international equity securities may represent a transfer between input levels.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Diversified Real Estate Activities | $ | — | $ | 30,007,634 | $ | — | $ | 30,007,634 | ||||||||||||
Diversified REITs | 10,459,078 | 12,223,948 | — | 22,683,026 | ||||||||||||||||
Industrial REITs | 2,737,829 | 3,296,977 | — | 6,034,806 |
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AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2014
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Office REITs | $ | 9,122,825 | $ | 5,722,782 | $ | — | $ | 14,845,607 | ||||||||||||
Real Estate Development | 322,421 | 1,454,710 | — | ^ | 1,777,131 | |||||||||||||||
Real Estate Operating Companies | 4,102,002 | 15,702,999 | — | 19,805,001 | ||||||||||||||||
Residential REITs | 19,824,704 | 304,450 | — | 20,129,154 | ||||||||||||||||
Retail REITs | 29,676,703 | 16,559,019 | — | 46,235,722 | ||||||||||||||||
Specialized REITs | 5,607,598 | 284,710 | — | 5,892,308 | ||||||||||||||||
All Other Common Stocks+ | 19,480,812 | — | — | 19,480,812 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 24,717,686 | — | 24,717,686 | ||||||||||||||||
Unaffiliated Investment Company | 416,788 | — | — | 416,788 | ||||||||||||||||
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Total Investment Securities | $ | 101,750,760 | $ | 110,274,915 | $ | — | ^ | $ | 212,025,675 | |||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Represents the interest in securities that were determined to have a value of zero at December 31, 2014. |
A reconciliation of assets in which Level 3 inputs are used in determining fair value, along with additional quantitative disclosures are presented when there are significant
Level 3 investments at the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 60,224,626 | $ | 69,474,655 |
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 Trustees. Not all restricted securities are considered illiquid. The illiquid restricted securities held as of December 31, 2014 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
BGP Holdings plc | 8/21/09 | $ | — | 2,487,087 | $ | — | 0.00 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
8. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $165,776,849. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 59,907,711 | ||
Unrealized depreciation | (13,658,885 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 46,248,826 | ||
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13
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2014
As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs subject to expiration:
Expires 12/31/2017 | |||||
AZL Morgan Stanley Global Real Estate Fund | $ | 25,142,640 |
During the year ended December 31, 2014, the Fund utilized $5,673,295 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 1,799,384 | $ | — | $ | 1,799,384 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 7,518,721 | $ | — | $ | 7,518,721 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 6,496,150 | $ | — | $ | (25,142,640 | ) | $ | 46,245,905 | $ | 27,599,415 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales and the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 7.16% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
18
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
20
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
21
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
22
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Morgan Stanley Mid Cap Growth Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory Agreement
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® Morgan Stanley Mid Cap Growth Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Morgan Stanley Mid Cap Growth Fund returned 0.82%. That compared to a 11.90% total return for its benchmark, the Russell Midcap® Growth Index1.
U.S. stocks delivered a strong performance in the year ended December 31, 2014, driven primarily by investor optimism about the economy. However, the market experienced periodic spikes in volatility during the period in response to a variety of factors. Economic concerns included the weather-related contraction in U.S. growth in the first quarter of 2014, moderation in China, stagnation in Europe, and recession in Japan. Geopolitical uncertainties, including the Russia-Ukraine crisis, the rise of terrorist group the Islamic State, and the Ebola outbreak, also disrupted the market. Nevertheless, the broad market rebounded to new highs following those downturns.
A widespread sell-off in high growth and high valuation multiple stocks began in March and continued through April. We believe the sell-off generally was driven by a broad rotation out of such names, rather than company-specific fundamentals. Although the share prices of several of our portfolio’s holdings took a hit during this downturn, these companies’ fundamentals remained largely robust. Overall, we used the sell-off as an opportunity to increase the portfolio’s quality, and we remain optimistic about the long-term outlook for the companies owned.*
Stock selection was the key driver of the Fund’s underperformance relative to its benchmark. The main detractor was stock selection in the information technology sector, particularly holdings in internet software and services and in software. These stocks were negatively affected by the high growth and high multiple sell-off during the spring.
Stock selection in the consumer discretionary and industrials sectors also dampened relative results. Within these sectors, holdings in Internet, and catalog retail, specialty retail, commercial services and machinery lagged.*
Other sectors provided positive contributions. Most notably, the Fund benefited from a significant underweight position in energy, the worst-performing sector during the period. The health care sector performed well during the period. An overweight position and stock selection in the sector added to returns, and the Fund’s top two contributors to overall performance were health care stocks.*
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, 2014. |
1 | 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
AZL® Morgan Stanley Mid Cap Growth Fund Review (unaudited)
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.
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 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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Morgan Stanley Mid Cap Growth Fund | 0.82 | % | 14.93 | % | 13.45 | % | 9.11 | % | ||||||||
Russell Midcap® Growth Index | 11.90 | % | 20.71 | % | 16.94 | % | 9.43 | % |
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 Mid Cap Growth Fund | 1.11 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 1.30% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 Midcap® Growth Index, an unmanaged index that 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
AZL Morgan Stanley Mid Cap Growth Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 1,000.00 | $ | 1,004.90 | $ | 5.56 | 1.10 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 1,000.00 | $ | 1,019.66 | $ | 5.60 | 1.10 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 32.3 | % | |||
Consumer Discretionary | 20.9 | ||||
Health Care | 20.2 | ||||
Industrials | 10.6 | ||||
Consumer Staples | 7.6 | ||||
Private Placements | 3.8 | ||||
Financials | 2.5 | ||||
|
| ||||
Total Common Stocks and Private Placements | 97.9 | ||||
Securities Held as Collateral for Securities on Loan | 27.7 | ||||
Money Market | 2.3 | ||||
|
| ||||
Total Investment Securities | 127.9 | ||||
Net other assets (liabilities) | (27.9 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Morgan Stanley Mid Cap Growth Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (94.1%): |
| ||||||
| Aerospace & Defense (2.6%): |
| ||||||
61,547 | TransDigm Group, Inc. | $ | 12,084,753 | |||||
|
| |||||||
| Automobiles (3.6%): |
| ||||||
76,571 | Tesla Motors, Inc.*^ | 17,030,156 | ||||||
|
| |||||||
| Beverages (1.0%): |
| ||||||
43,836 | Monster Beverage Corp.* | 4,749,631 | ||||||
|
| |||||||
| Biotechnology (1.6%): |
| ||||||
27,086 | Alnylam Pharmaceuticals, Inc.*^ | 2,627,342 | ||||||
3,171 | Intercept Pharmaceuticals, Inc.*^ | 494,676 | ||||||
226,756 | Ironwood Pharmaceuticals, Inc.*^ | 3,473,902 | ||||||
34,041 | Seattle Genetics, Inc.*^ | 1,093,737 | ||||||
|
| |||||||
7,689,657 | ||||||||
|
| |||||||
| Commercial Services & Supplies (1.1%): |
| ||||||
38,410 | Stericycle, Inc.*^ | 5,034,783 | ||||||
|
| |||||||
| Communications Equipment (1.0%): |
| ||||||
39,148 | Palo Alto Networks, Inc.*^ | 4,798,370 | ||||||
|
| |||||||
| Diversified Financial Services (2.5%): |
| ||||||
249,747 | MSCI, Inc., Class A^ | 11,847,998 | ||||||
|
| |||||||
| Electrical Equipment (0.5%): |
| ||||||
46,273 | Solarcity Corp.*^ | 2,474,680 | ||||||
|
| |||||||
| Food Products (6.6%): |
| ||||||
101,843 | Keurig Green Mountain, Inc.^ | 13,483,504 | ||||||
176,788 | Mead Johnson Nutrition Co. | 17,774,266 | ||||||
|
| |||||||
31,257,770 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (5.1%): |
| ||||||
45,020 | Intuitive Surgical, Inc.*^ | 23,812,879 | ||||||
|
| |||||||
| Health Care Technology (3.6%): |
| ||||||
116,496 | athenahealth, Inc.*^ | 16,973,467 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (5.9%): |
| ||||||
3,522 | Chipotle Mexican Grill, Inc.* | 2,410,844 | ||||||
85,545 | Ctrip.com International, ADR* | 3,892,298 | ||||||
250,289 | Dunkin’ Brands Group, Inc.^ | 10,674,826 | ||||||
62,501 | Panera Bread Co., Class A*^ | 10,925,175 | ||||||
|
| |||||||
27,903,143 | ||||||||
|
| |||||||
| Internet & Catalog Retail (3.3%): |
| ||||||
398,397 | Groupon, Inc.*^ | 3,290,759 | ||||||
65,818 | TripAdvisor, Inc.*^ | 4,913,972 | ||||||
101,642 | Zalando SE*^ | 3,122,667 | ||||||
169,844 | zulily, Inc., Class A*^ | 3,974,350 | ||||||
|
| |||||||
15,301,748 | ||||||||
|
| |||||||
| Internet Software & Services (14.1%): |
| ||||||
113,381 | Autohome, Inc., ADR* | 4,122,533 | ||||||
72,387 | LendingClub Corp.* | 1,831,391 | ||||||
105,199 | LinkedIn Corp., Class A*^ | 24,165,262 | ||||||
27,560 | MercadoLibre, Inc.^ | 3,518,585 | ||||||
440,628 | Twitter, Inc.* | 15,805,326 | ||||||
43,349 | Yelp, Inc.*^ | 2,372,491 | ||||||
226,179 | Youku.com, Inc., ADR*^ | 4,028,247 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Internet Software & Services, continued |
| ||||||
105,142 | Zillow, Inc., Class A*^ | $ | 11,133,486 | |||||
|
| |||||||
66,977,321 | ||||||||
|
| |||||||
| IT Services (5.0%): |
| ||||||
79,099 | FleetCor Technologies, Inc.*^ | 11,762,812 | ||||||
138,791 | Gartner, Inc.*^ | 11,687,590 | ||||||
|
| |||||||
23,450,402 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (5.6%): |
| ||||||
143,002 | Illumina, Inc.*^ | 26,395,309 | ||||||
|
| |||||||
| Machinery (1.7%): |
| ||||||
159,474 | Colfax Corp.*^ | 8,224,074 | ||||||
|
| |||||||
| Media (3.7%): |
| ||||||
146,408 | McGraw-Hill Cos., Inc. (The) | 13,027,384 | ||||||
240,431 | Pandora Media, Inc.*^ | 4,286,885 | ||||||
|
| |||||||
17,314,269 | ||||||||
|
| |||||||
| Pharmaceuticals (4.3%): |
| ||||||
182,399 | Endo International plc*^ | 13,154,616 | ||||||
12,198 | Pharmacyclics, Inc.*^ | 1,491,327 | ||||||
125,905 | Zoetis, Inc. | 5,417,693 | ||||||
|
| |||||||
20,063,636 | ||||||||
|
| |||||||
| Professional Services (4.7%): |
| ||||||
90,348 | IHS, Inc., Class A* | 10,288,830 | ||||||
182,399 | Verisk Analytics, Inc., Class A*^ | 11,682,656 | ||||||
|
| |||||||
21,971,486 | ||||||||
|
| |||||||
| Software (11.3%): |
| ||||||
261,620 | FireEye, Inc.*^ | 8,261,960 | ||||||
43,535 | NetSuite, Inc.*^ | 4,752,716 | ||||||
97,964 | ServiceNow, Inc.*^ | 6,646,857 | ||||||
243,858 | Splunk, Inc.*^ | 14,375,428 | ||||||
36,284 | Tableau Software, Inc., Class A*^ | 3,075,432 | ||||||
175,050 | Workday, Inc., Class A*^ | 14,285,831 | ||||||
618,353 | Zynga, Inc.*^ | 1,644,819 | ||||||
|
| |||||||
53,043,043 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.9%): |
| ||||||
68,926 | 3D Systems Corp.* | 2,265,598 | ||||||
23,744 | Stratasys, Ltd.*^ | 1,973,364 | ||||||
|
| |||||||
4,238,962 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (4.4%): |
| ||||||
106,033 | Lululemon Athletica, Inc.*^ | 5,915,581 | ||||||
162,136 | Michael Kors Holdings, Ltd.*^ | 12,176,414 | ||||||
36,544 | Under Armour, Inc., Class A*^ | 2,481,338 | ||||||
|
| |||||||
20,573,333 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $352,527,720) | 443,210,870 | ||||||
|
| |||||||
| Private Placements (3.8%): |
| ||||||
| Internet & Catalog Retail (1.0%): |
| ||||||
37,815 | Flipkart, Preferred(a)(b) | 4,528,724 | ||||||
33,446 | Peixe Urbano, Inc.*(a)(b) | 14,382 | ||||||
|
| |||||||
4,543,106 | ||||||||
|
|
Continued
4
AZL Morgan Stanley Mid Cap Growth Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Private Placements, continued |
| ||||||
| Internet Software & Services (2.8%): |
| ||||||
76,914 | Airbnb, Inc., Series D Preferred(a)(b) | $ | 3,877,235 | |||||
245,606 | Dropbox, Inc.*(a)(b) | 4,691,370 | ||||||
229,712 | Palantir Technologies, Inc., Series G Preferred*(a)(b) | 1,842,290 | ||||||
67,672 | Palantir Technologies, Inc., Series H Preferred(a)(b) | 542,729 | ||||||
67,672 | Palantir Technologies, Inc., Series H-1 Preferred(a)(b) | 542,729 | ||||||
116,948 | Survey Monkey*(a)(b) | 1,923,795 | ||||||
|
| |||||||
13,420,148 | ||||||||
|
| |||||||
| Transportation Infrastructure (0.0%): |
| ||||||
818,433 | Better Place LLC, Preferred (a)(b) | — | ||||||
|
| |||||||
| Total Private Placements (Cost $12,470,580) | 17,963,254 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (27.7%): |
| ||||||
$ | 130,546,629 | Allianz Variable Insurance Products Securities Lending Collateral Trust(c) | $ | 130,546,629 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 130,546,629 | ||||||
|
| |||||||
| Unaffiliated Investment Company (2.3%): |
| ||||||
10,619,439 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(d) | 10,619,439 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $10,619,439) | 10,619,439 | ||||||
|
| |||||||
| Total Investment Securities (Cost $506,164,368)(e) — 127.9% | 602,340,192 | ||||||
| Net other assets (liabilities) — (27.9)% | (131,243,184 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 471,097,008 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $127,060,868. |
(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, 2014, these securities represent 3.81% 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, 2014. The total of all such securities represent 3.81% of the net assets of the fund. |
(c) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(d) | The rate represents the effective yield at December 31, 2014. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—” are either $0 or round to less than $1.
See accompanying notes to the financial statements.
5
AZL Morgan Stanley Mid Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 506,164,368 | |||
|
| ||||
Investment securities, at value* | $ | 602,340,192 | |||
Interest and dividends receivable | 122,929 | ||||
Prepaid expenses | 3,995 | ||||
|
| ||||
Total Assets | 602,467,116 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 360,920 | ||||
Payable for collateral received on loaned securities | 130,546,629 | ||||
Manager fees payable | 320,515 | ||||
Administration fees payable | 10,752 | ||||
Distribution fees payable | 100,310 | ||||
Custodian fees payable | 7,299 | ||||
Administrative and compliance services fees payable | 1,115 | ||||
Trustee fees payable | 22 | ||||
Other accrued liabilities | 22,546 | ||||
|
| ||||
Total Liabilities | 131,370,108 | ||||
|
| ||||
Net Assets | $ | 471,097,008 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 311,535,200 | |||
Accumulated net investment income/(loss) | — | ||||
Accumulated net realized gains/(losses) from investment transactions | 63,385,984 | ||||
Net unrealized appreciation/(depreciation) on investments | 96,175,824 | ||||
|
| ||||
Net Assets | $ | 471,097,008 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 27,816,034 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.94 | |||
|
|
* | Includes securities on loan of $127,060,868. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 2,805,210 | |||
Income from securities lending | 699,887 | ||||
Foreign withholding tax | (91,482 | ) | |||
|
| ||||
Total Investment Income | 3,413,615 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,970,942 | ||||
Administration fees | 132,925 | ||||
Distribution fees | 1,245,485 | ||||
Custodian fees | 32,214 | ||||
Administrative and compliance services fees | 6,412 | ||||
Trustee fees | 24,903 | ||||
Professional fees | 26,018 | ||||
Shareholder reports | 28,059 | ||||
Other expenses | 12,067 | ||||
|
| ||||
Total expenses before reductions | 5,479,025 | ||||
Less expenses paid indirectly | (343 | ) | |||
|
| ||||
Net expenses | 5,478,682 | ||||
|
| ||||
Net Investment Income/(Loss) | (2,065,067 | ) | |||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 65,527,998 | ||||
Change in net unrealized appreciation/depreciation on investments | (59,837,454 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 5,690,544 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 3,625,477 | |||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL Morgan Stanley Mid Cap Growth Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (2,065,067 | ) | $ | (1,529,697 | ) | ||||
Net realized gains/(losses) on investment transactions | 65,527,998 | 47,723,542 | ||||||||
Change in unrealized appreciation/depreciation on investments | (59,837,454 | ) | 108,417,382 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 3,625,477 | 154,611,227 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | — | (2,302,379 | ) | |||||||
From net realized gains | (45,641,605 | ) | (12,984,446 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (45,641,605 | ) | (15,286,825 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 19,882,292 | 36,881,920 | ||||||||
Proceeds from dividends reinvested | 45,641,605 | 15,286,825 | ||||||||
Value of shares redeemed | (86,164,729 | ) | (71,515,789 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (20,640,832 | ) | (19,347,044 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (62,656,960 | ) | 119,977,358 | |||||||
Net Assets: | ||||||||||
Beginning of period | 533,753,968 | 413,776,610 | ||||||||
|
|
|
| |||||||
End of period | $ | 471,097,008 | $ | 533,753,968 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | — | $ | (311 | ) | |||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,108,483 | 2,267,067 | ||||||||
Dividends reinvested | 2,636,719 | 912,102 | ||||||||
Shares redeemed | (4,815,902 | ) | (4,434,151 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,070,700 | ) | (1,254,982 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
7
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, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 18.48 | $ | 13.73 | $ | 13.32 | $ | 14.31 | $ | 10.80 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.07 | ) | (0.05 | ) | 0.08 | (0.04 | ) | 0.01 | |||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.26 | 5.34 | 1.02 | (0.90 | ) | 3.50 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.19 | 5.29 | 1.10 | (0.94 | ) | 3.51 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | — | (0.08 | ) | — | (0.05 | ) | — | ||||||||||||||||||
Net Realized Gains | (1.73 | ) | (0.46 | ) | (0.69 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.73 | ) | (0.54 | ) | (0.69 | ) | (0.05 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 16.94 | $ | 18.48 | $ | 13.73 | $ | 13.32 | $ | 14.31 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 0.82 | % | 38.94 | % | 8.36 | % | (6.57 | )% | 32.50 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 471,097 | $ | 533,754 | $ | 413,777 | $ | 375,663 | $ | 456,423 | |||||||||||||||
Net Investment Income/(Loss) | (0.41 | )% | (0.32 | )% | 0.62 | % | (0.20 | )% | 0.07 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.10 | % | 1.11 | % | 1.13 | % | 1.14 | % | 1.15 | % | |||||||||||||||
Expenses Net of Reductions | 1.10 | % | 1.10 | % | 1.12 | % | 1.12 | % | 1.09 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.10 | % | 1.11 | % | 1.13 | % | 1.13 | % | 1.10 | % | |||||||||||||||
Portfolio Turnover Rate | 46 | % | 49 | % | 32 | % | 32 | % | 42 | % |
(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.
8
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Morgan Stanley Mid Cap Growth Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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
9
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $66.8 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $69,210 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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. 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL Morgan Stanley Mid Cap Growth Fund | 0.85 | % | 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 at 0.85%, the next $150 million at 0.80%, the next $250 million at 0.775% and above $500 million at 0.75%. |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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.
10
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1 of the 1940 Act. 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, 2014, $6,313 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Internet & Catalog Retail | $ | 12,179,081 | $ | 3,122,667 | $ | — | $ | 15,301,748 | ||||||||||||
All Other Common Stocks+ | 427,909,122 | — | — | 427,909,122 | ||||||||||||||||
Private Placements+ | — | — | 17,963,254 | 17,963,254 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 130,546,629 | — | 130,546,629 | ||||||||||||||||
Unaffiliated Investment Company | 10,619,439 | — | — | 10,619,439 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | $ | 450,707,642 | $ | 133,669,296 | $ | 17,963,254 | $ | 602,340,192 | ||||||||||||
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
11
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||||||
Type of Assets | Fair Value at December 31, 2014 | Valuation Basis at December 31, 2014 | Valuation Technique(s) | Unobservable input(s) | Range | Weighted Average/ Selected Value | ||||||||||||
Investment Securities: | ||||||||||||||||||
Private Placements: | ||||||||||||||||||
Internet & Catalog Retail Flipkart, Preferred | $ | 4,528,724 | Market Approach | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 119.76 | $ | 119.76 | |||||||||
Peixe Urbano, Inc. | 14,382 | Market Approach | Asset Approach | Net Tangible Assets | $ | 0.43 | $ | 0.43 | ||||||||||
Internet Software & Services | 3,877,235 | Market Approach | Market Transaction Method | Precedent Transaction | $ | 50.41 | $ | 50.41 | ||||||||||
Dropbox, Inc. | 4,691,370 | Market Approach | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 19.10 | $ | 19.10 | ||||||||||
Palantir Technologies, Inc., Series H-1 Preferred | 542,729 | Market Approach | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 8.89 | $ | 8.89 | ||||||||||
Discounted Cash Flow | Weighted Average Cost of Capital | 16%-18% | 17 | % | ||||||||||||||
Perpetual Growth Rate | 2.5%-3.5% | 3 | % | |||||||||||||||
Market Comparable Companies | Enterprise Value/Revenue | 10.2x-13.1x | 11.2x | |||||||||||||||
Discount for Lack of Marketability | 15% | 15 | % | |||||||||||||||
Palantir Technologies, Inc., Series H Preferred | 542,729 | Market Approach | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 8.89 | $ | 8.89 | ||||||||||
Discounted Cash Flow | Weighted Average Cost of Capital | 16%-18% | 17 | % | ||||||||||||||
Perpetual Growth Rate | 2.5%-3.5% | 3 | % | |||||||||||||||
Market Comparable Companies | Enterprise Value/Revenue | 10.2x-13.1x | 11.2x | |||||||||||||||
Discount for Lack of Marketability | 15% | 15 | % | |||||||||||||||
Palantir Technologies, Inc., Series G | 1,842,290 | Market Approach | Market Transaction Method | Precedent Transaction of Preferred Stock | $ | 8.89 | $ | 8.89 | ||||||||||
Discounted Cash Flow | Weighted Average Cost of Capital | 16%-18% | 17 | % | ||||||||||||||
Perpetual Growth Rate | 2.5%-3.5% | 3 | % | |||||||||||||||
Market Comparable Companies | Enterprise Value/Revenue | 10.2x-13.1x | 11.2x | |||||||||||||||
Discount for Lack of Marketability | 15% | 15 | % | |||||||||||||||
Survey Monkey | 1,923,795 | Market Approach | Market Transaction Method | Precedent Transaction | $ | 16.45 | $ | 16.45 | ||||||||||
|
| |||||||||||||||||
Total Investment Securities | $17,963,254 | |||||||||||||||||
|
|
12
AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
Private Placements | |||||
Balance as of December 31, 2013 | $ | 5,592,280 | |||
Change in Unrealized Appreciation/Depreciation* | 7,315,777 | ||||
Net Realized Gain (Loss) | — | ||||
Gross Purchases | 5,055,197 | ||||
Gross Sales | — | ||||
|
| ||||
Balance as of December 31, 2014 | $ | 17,963,254 | |||
|
|
* | The noted amounts of change in unrealized appreciation/depreciation relate to the fair value of Level 3 assets held on December 31, 2014. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 225,371,158 | $ | 288,351,791 |
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 Trustees. Not all restricted securities are considered illiquid. The illiquid restricted securities held as of December 31, 2014 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Airbnb, Inc., Series D Preferred | 4/16/14 | $ | 3,131,402 | 76,914 | $ | 3,877,235 | 0.82 | % | |||||||||||||||||
Better Place LLC, Preferred | 1/25/10 | 2,046,081 | 818,433 | — | — | % | |||||||||||||||||||
Dropbox, Inc. | 5/1/12 | 2,222,513 | 245,606 | 4,691,370 | 1.00 | % | |||||||||||||||||||
Flipkart, Preferred | 10/4/13 | 867,741 | 37,815 | 4,528,724 | 0.95 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series G Preferred | 7/19/12 | 702,919 | 229,712 | 1,842,290 | 0.39 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series H Preferred | 10/25/13 | 237,529 | 67,672 | 542,729 | 0.12 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series H-1 Preferred | 10/25/13 | 237,529 | 67,672 | 542,729 | 0.12 | % | |||||||||||||||||||
Peixe Urbano, Inc. | 12/2/11 | 1,101,072 | 33,446 | 14,382 | 0.00 | % | |||||||||||||||||||
Survey Monkey | 11/25/14 | 1,923,795 | 116,948 | 1,923,795 | 0.41 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Foreign Securities and Currencies Risk: 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.
8. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $511,634,434. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 126,070,346 | ||
Unrealized depreciation | (35,364,588 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 90,705,758 | ||
|
|
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AZL Morgan Stanley Mid Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 7,571,845 | $ | 38,069,760 | $ | 45,641,605 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 2,302,379 | $ | 12,984,446 | $ | 15,286,825 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Morgan Stanley Mid Cap Growth Fund | $ | 882,844 | $ | 67,973,206 | $ | — | $ | 90,705,758 | $ | 159,561,808 |
(a) The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales.
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 24.99% 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, 2014, the Fund declared net long-term capital gain distributions of $38,069,760.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $7,571,845.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
22
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® NFJ International Value Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 14
Other Federal Income Tax Information
Page 15
Other Information
Page 16
Approval of Investment Advisory and Subadvisory Agreements
Page 17
Information about the Board of Trustees and Officers
Page 20
This report is submitted for the general information of the shareholder 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.
AZL® NFJ International Value Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014 the AZL® NFJ International Value Fund returned -5.26%. That compared to a -4.48% and -3.44% total return for its benchmarks the MSCI EAFE Index1 and the MSCI ACWI Ex-US Index2.
International equity markets performed relatively well during the first half of the period, but those gains disappeared in the period’s second half. Investors responded negatively to several factors, including persistent weakness in global economies outside the U.S., and geopolitical issues such as Russia’s incursion into Ukraine. Several central banks—including in Europe, Japan and China—adopted aggressive easing policies to spur economic growth. International stocks lagged their U.S. counterparts during the period. Developed international markets underperformed emerging markets, though negative currency impacts during the period eroded stock returns in many emerging markets.
Toward the end of the period, a sizable drop in oil prices led to poor performance among many of the benchmark’s economic sectors. Just three out of 10 sectors recorded a positive return during the 12-month period. Energy was the worst performing sector, falling nearly 19%. By contrast, health care stocks gained nearly 8%.
The Fund underperformed its benchmark due to negative sector allocation and, to a lesser degree, negative regional allocations. The portfolio’s bottom-up stock selection somewhat offset that negative performance. By region, individual stock selection in the U.K. helped performance, but those results were countered by an overweight position in the U.K., which hurt results. Stock selection in Asia/Pacific and emerging markets detracted from relative performance. Overweight positions in North America and emerging markets benefited results while an underweight in Japan dragged on relative results.*
An overweight position in the energy sector hurt the Fund’s relative returns as many stocks in the sector performed poorly in the wake of declining oil prices. We believed valuations remained compelling despite falling commodity prices, and remained committed to our investment process of targeting deep value names.*
Individual stock selection in the consumer staples and utilities sectors dampened results. Holdings in the health care sector contributed to relative results, as did stock selection and an underweight position in the consumer discretionary sector. The Fund also benefited from an overweight in the utilities 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, 2014. |
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 MSCI ACWI Ex-US Index captures large- and mid-cap representation across 22 of 23 developed markets countries (excluding the US) and 23 emerging markets countries. |
Investors cannot invest directly in an index.
1
AZL® NFJ International Value Fund Review (unaudited)
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.
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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (5/1/09) | |||||||||||||
AZL® NFJ International Value Fund | -5.26 | % | 8.44 | % | 4.49 | % | 9.89 | % | ||||||||
MSCI EAFE Index (gross of withholding taxes) | -4.48 | % | 11.56 | % | 5.81 | % | 10.97 | % | ||||||||
MSCI EAFE Index (net of withholding taxes) | -4.90 | % | 11.06 | % | 5.33 | % | 10.48 | % | ||||||||
MSCI ACWI Ex-US Index (gross of withholding taxes) | -3.44 | % | 9.49 | % | 4.89 | % | 10.62 | % | ||||||||
MSCI ACWI Ex-US Index (net of withholding taxes) | -3.87 | % | 8.99 | % | 4.43 | % | 10.14 | % |
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 | 1.23 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 and the Morgan Stanley Capital International All Country World Index Ex-US (“MSCI ACWI Ex-US”) Index. The MSCI EAFE Index 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 MSCI ACWI Ex-US Index is unmanaged and captures large- and mid-cap representation across 22 of 23 developed markets countries (excluding the US) and 23 emerging markets countries. The Indexes 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 Indexes 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 |
AZL NFJ International Value Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL NFJ International Value Fund | $ | 1,000.00 | $ | 905.90 | $ | 5.96 | 1.24 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL NFJ International Value Fund | $ | 1,000.00 | $ | 1,018.95 | $ | 6.31 | 1.24 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Financials | 31.7 | % | |||
Consumer Discretionary | 12.5 | ||||
Energy | 11.1 | ||||
Industrials | 8.3 | ||||
Materials | 7.5 | ||||
Information Technology | 7.0 | ||||
Consumer Staples | 6.2 | ||||
Health Care | 5.1 | ||||
Telecommunication Services | 3.9 | ||||
Utilities | 3.4 | ||||
|
| ||||
Total Common Stocks and Preferred Stock | 96.7 | ||||
Securities Held as Collateral for Securities on Loan | 9.8 | ||||
Money Market | 3.5 | ||||
|
| ||||
Total Investment Securities | 110.0 | ||||
Net other assets (liabilities) | (10.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL NFJ International Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (94.6%): |
| ||||||
| Aerospace & Defense (2.3%): |
| ||||||
113,950 | BAE Systems plc, ADR^ | $ | 3,322,212 | |||||
|
| |||||||
| Auto Components (1.2%): |
| ||||||
16,600 | Magna International, Inc., ADR | 1,804,254 | ||||||
|
| |||||||
| Automobiles (3.3%): |
| ||||||
243,450 | Isuzu Motors, Ltd. | 2,970,740 | ||||||
45,000 | Tata Motors, Ltd., ADR | 1,902,600 | ||||||
|
| |||||||
4,873,340 | ||||||||
|
| |||||||
| Banks (20.0%): |
| ||||||
101,400 | Australia & New Zealand Banking Group, Ltd., ADR^ | 2,636,400 | ||||||
213,170 | Banco Bradesco SA, ADR | 2,850,083 | ||||||
1,810,700 | Bank Rakyat Indonesia | 1,686,734 | ||||||
494,500 | Barclays plc | 1,858,846 | ||||||
951,100 | BOC Hong Kong Holdings, Ltd. | 3,166,945 | ||||||
4,022,000 | China Construction Bank | 3,273,779 | ||||||
69,298 | DnB NOR ASA | 1,022,455 | ||||||
438,839 | HSBC Holdings plc | 4,146,730 | ||||||
1,526,000 | Mizuho Financial Group, Inc. | 2,564,564 | ||||||
61,100 | Toronto-Dominion Bank (The)^ | 2,919,358 | ||||||
84,800 | United Overseas Bank, Ltd., ADR | 3,135,056 | ||||||
|
| |||||||
29,260,950 | ||||||||
|
| |||||||
| Beverages (1.6%): |
| ||||||
30,400 | Carlsberg A/S, Class B | 2,361,172 | ||||||
|
| |||||||
| Chemicals (1.5%): |
| ||||||
141,400 | Israel Chemicals, Ltd. | 1,021,563 | ||||||
26,900 | Methanex Corp. | 1,232,827 | ||||||
|
| |||||||
2,254,390 | ||||||||
|
| |||||||
| Construction Materials (2.2%): |
| ||||||
870,000 | Anhui Conch Cement Co., Ltd.^ | 3,244,893 | ||||||
|
| |||||||
| Containers & Packaging (1.1%): |
| ||||||
69,797 | Smurfit Kappa Group plc | 1,567,140 | ||||||
|
| |||||||
| Diversified Financial Services (1.0%): |
| ||||||
20,800 | Deutsche Boerse AG | 1,490,435 | ||||||
|
| |||||||
| Diversified Telecommunication Services (0.9%): |
| ||||||
66,200 | Telenor ASA | 1,335,729 | ||||||
|
| |||||||
| Electric Utilities (1.6%): |
| ||||||
174,700 | Companhia Paranaense de Energia, ADR^ | 2,300,799 | ||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (2.2%): |
| ||||||
439,800 | Hitachi, Ltd. | 3,218,667 | ||||||
|
| |||||||
| Energy Equipment & Services (0.8%): |
| ||||||
18,736 | Technip-Coflexip SA | 1,118,663 | ||||||
|
| |||||||
| Food Products (1.5%): |
| ||||||
6,447,500 | Golden Agri-Resources, Ltd. | 2,236,582 | ||||||
|
| |||||||
| Household Durables (2.2%): |
| ||||||
133,115 | Persimmon plc | 3,255,850 | ||||||
|
| |||||||
| Household Products (0.9%): |
| ||||||
61,300 | Svenska Cellulosa AB, ADR | 1,317,337 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Industrial Conglomerates (3.2%): |
| ||||||
62,460 | Koc Holding AS, ADR | $ | 1,648,319 | |||||
27,300 | Siemens AG, Registered Shares | 3,095,732 | ||||||
|
| |||||||
4,744,051 | ||||||||
|
| |||||||
| Insurance (8.8%): |
| ||||||
62,900 | Axis Capital Holdings, Ltd. | 3,213,561 | ||||||
173,800 | Manulife Financial Corp.^ | 3,317,842 | ||||||
17,700 | RenaissanceRe Holdings, Ltd. | 1,720,794 | ||||||
147,100 | Zurich Insurance Group AG, ADR^ | 4,589,520 | ||||||
|
| |||||||
12,841,717 | ||||||||
|
| |||||||
| IT Services (1.3%): |
| ||||||
27,100 | Cap Gemini SA | 1,930,050 | ||||||
|
| |||||||
| Machinery (1.0%): |
| ||||||
67,600 | Komatsu, Ltd. | 1,498,911 | ||||||
|
| |||||||
| Media (1.1%): |
| ||||||
113,121 | Sky plc | 1,574,250 | ||||||
|
| |||||||
| Metals & Mining (2.7%): |
| ||||||
54,400 | Rio Tinto plc, Registered Shares, ADR^ | 2,505,664 | ||||||
171,900 | Vale SA, ADR | 1,406,142 | ||||||
|
| |||||||
3,911,806 | ||||||||
|
| |||||||
| Multiline Retail (2.2%): |
| ||||||
216,250 | Marks & Spencer Group plc, ADR | 3,183,200 | ||||||
|
| |||||||
| Multi-Utilities (1.6%): |
| ||||||
555,900 | Centrica plc | 2,392,277 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (10.3%): |
| ||||||
1,067,418 | Beach Energy, Ltd. | 913,062 | ||||||
3,668,695 | China Petroleum & Chemical Corp. (Sinopec), H Shares | 2,970,544 | ||||||
49,700 | LUKOIL, ADR | 1,905,995 | ||||||
61,000 | Royal Dutch Shell plc, ADR | 4,083,950 | ||||||
86,400 | Sasol, Ltd., ADR | 3,280,608 | ||||||
114,900 | Statoil ASA, ADR^ | 2,023,389 | ||||||
|
| |||||||
15,177,548 | ||||||||
|
| |||||||
| Pharmaceuticals (5.1%): |
| ||||||
31,000 | Sanofi-Aventis SA | 2,824,878 | ||||||
80,700 | Teva Pharmaceutical Industries, Ltd., ADR | 4,641,057 | ||||||
|
| |||||||
7,465,935 | ||||||||
|
| |||||||
| Real Estate Management & Development (1.9%): |
| ||||||
170,000 | Cheung Kong Holdings, Ltd. | 2,836,967 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (1.2%): |
| ||||||
80,900 | Taiwan Semiconductor Manufacturing Co., Ltd., ADR | 1,810,542 | ||||||
|
| |||||||
| Software (2.3%): |
| ||||||
28,700 | Open Text Corp. | 1,672,062 | ||||||
62,469 | Sage Group plc (The), ADR | 1,799,357 | ||||||
|
| |||||||
3,471,419 | ||||||||
|
| |||||||
| Textile, Apparel, & Luxury Goods (0.4%): |
| ||||||
565,000 | Belle International Holdings, Ltd. | 632,581 | ||||||
|
|
Continued
4
AZL NFJ International Value Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Tobacco (2.2%): |
| ||||||
74,700 | Imperial Tobacco Group plc | $ | 3,270,945 | |||||
|
| |||||||
| Trading Companies & Distributors (1.8%): |
| ||||||
9,600 | Mitsui & Co., Ltd., ADR^ | 2,575,152 | ||||||
|
| |||||||
| Water Utilities (0.2%): |
| ||||||
49,300 | Companhia de Saneamento Basico do Estado de Sao Paulo, ADR | 310,097 | ||||||
|
| |||||||
| Wireless Telecommunication Services (3.0%): |
| ||||||
59,600 | America Movil SAB de C.V., Series L, ADR | 1,321,928 | ||||||
267,800 | China Mobile, Ltd. | 3,146,360 | ||||||
|
| |||||||
4,468,288 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $130,093,709) | 139,058,149 | ||||||
|
| |||||||
| Preferred Stock (2.1%): |
| ||||||
| Automobiles (2.1%): |
| ||||||
13,700 | Volkswagen AG, Preferred Shares | 3,059,832 | ||||||
|
| |||||||
| Total Preferred Stock (Cost $2,807,254) | 3,059,832 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (9.8%): | |||||||
$ | 14,460,071 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | $ | 14,460,071 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 14,460,071 | ||||||
|
| |||||||
| Unaffiliated Investment Company (3.5%): |
| ||||||
5,200,597 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 5,200,597 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $5,200,597) | 5,200,597 | ||||||
|
| |||||||
| Total Investment Securities (Cost $152,561,631)(c) — 110.0% | 161,778,649 | ||||||
| Net other assets (liabilities) — (10.0)% | (14,725,126 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 147,053,523 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $13,955,945. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(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 investments as of December 31, 2014:
Country | Percentage | |||
Australia | 2.2 | % | ||
Bermuda | 3.1 | % | ||
Brazil | 4.2 | % | ||
Canada | 6.8 | % | ||
Cayman Islands | 0.4 | % | ||
China | 5.9 | % | ||
Denmark | 1.5 | % | ||
France | 3.6 | % | ||
Germany | 4.7 | % | ||
Hong Kong | 5.7 | % | ||
India | 1.2 | % | ||
Indonesia | 1.0 | % | ||
Ireland | 1.0 | % |
Country | Percentage | |||
Israel | 3.5 | % | ||
Japan | 7.9 | % | ||
Mexico | 0.8 | % | ||
Norway | 2.7 | % | ||
Russian Federation | 1.2 | % | ||
Singapore | 3.3 | % | ||
South Africa | 2.0 | % | ||
Sweden | 0.8 | % | ||
Switzerland | 2.8 | % | ||
Taiwan | 1.1 | % | ||
Turkey | 1.0 | % | ||
United Kingdom | 19.5 | % | ||
United States | 12.1 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
5
AZL NFJ International Value Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 152,561,631 | |||
|
| ||||
Investment securities, at value* | $ | 161,778,649 | |||
Cash | 10,849 | ||||
Interest and dividends receivable | 181,281 | ||||
Foreign currency, at value (cost $44,525) | 44,565 | ||||
Receivable for investments sold | 247,554 | ||||
Reclaims receivable | 20,793 | ||||
Prepaid expenses | 1,260 | ||||
|
| ||||
Total Assets | 162,284,951 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 611,903 | ||||
Payable for capital shares redeemed | 33 | ||||
Payable for collateral received on loaned securities | 14,460,071 | ||||
Manager fees payable | 112,419 | ||||
Administration fees payable | 4,508 | ||||
Distribution fees payable | 31,227 | ||||
Custodian fees payable | 7,694 | ||||
Administrative and compliance services fees payable | 331 | ||||
Trustee fees payable | 7 | ||||
Other accrued liabilities | 3,235 | ||||
|
| ||||
Total Liabilities | 15,231,428 | ||||
|
| ||||
Net Assets | $ | 147,053,523 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 133,757,745 | |||
Accumulated net investment income/(loss) | 3,594,495 | ||||
Accumulated net realized gains/(losses) from investment transactions | 484,438 | ||||
Net unrealized appreciation/(depreciation) on investments | 9,216,845 | ||||
|
| ||||
Net Assets | $ | 147,053,523 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 12,780,800 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.51 | |||
|
|
* | Includes securities on loan of $13,955,945. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 5,552,184 | |||
Income from securities lending | 274,791 | ||||
Foreign withholding tax | (294,787 | ) | |||
|
| ||||
Total Investment Income | 5,532,188 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,388,712 | ||||
Administration fees | 62,923 | ||||
Distribution fees | 385,753 | ||||
Custodian fees | 44,686 | ||||
Administrative and compliance services fees | 2,384 | ||||
Trustee fees | 9,392 | ||||
Professional fees | 10,524 | ||||
Shareholder reports | 2,227 | ||||
Other expenses | 4,042 | ||||
|
| ||||
Total expenses before reductions | 1,910,643 | ||||
Less expenses paid indirectly | (2,842 | ) | |||
|
| ||||
Net expenses | 1,907,801 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,624,387 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 804,278 | ||||
Change in net unrealized appreciation/depreciation on investments | (12,424,092 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (11,619,814 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (7,995,427 | ) | ||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL NFJ International Value Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,624,387 | $ | 2,981,508 | ||||||
Net realized gains/(losses) on investment transactions | 804,278 | 6,282,759 | ||||||||
Change in unrealized appreciation/depreciation on investments | (12,424,092 | ) | 6,577,956 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (7,995,427 | ) | 15,842,223 | |||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (2,966,257 | ) | (2,500,966 | ) | ||||||
From net realized gains | (6,108,872 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (9,075,129 | ) | (2,500,966 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 10,293,690 | 3,928,804 | ||||||||
Proceeds from dividends reinvested | 9,075,129 | 2,500,966 | ||||||||
Value of shares redeemed | (6,341,230 | ) | (3,831,032 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 13,027,589 | 2,598,738 | ||||||||
|
|
|
| |||||||
Change in net assets | (4,042,967 | ) | 15,939,995 | |||||||
Net Assets: | ||||||||||
Beginning of period | 151,096,490 | 135,156,495 | ||||||||
|
|
|
| |||||||
End of period | $ | 147,053,523 | $ | 151,096,490 | ||||||
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|
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| |||||||
Accumulated net investment income/(loss) | $ | 3,594,495 | $ | 2,963,987 | ||||||
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| |||||||
Share Transactions: | ||||||||||
Shares issued | 809,014 | 326,579 | ||||||||
Dividends reinvested | 720,248 | 204,997 | ||||||||
Shares redeemed | (481,517 | ) | (314,593 | ) | ||||||
|
|
|
| |||||||
Change in shares | 1,047,745 | 216,983 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
7
AZL NFJ International Value Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.88 | $ | 11.74 | $ | 12.14 | $ | 14.65 | $ | 13.70 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.28 | 0.25 | 0.19 | 0.53 | 0.15 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.89 | ) | 1.11 | 2.14 | (2.13 | ) | 1.15 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | (0.61 | ) | 1.36 | 2.33 | (1.60 | ) | 1.30 | ||||||||||||||||||
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|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.25 | ) | (0.22 | ) | (0.35 | ) | (0.36 | ) | (0.09 | ) | |||||||||||||||
Net Realized Gains | (0.51 | ) | — | (2.38 | ) | (0.55 | ) | (0.26 | ) | ||||||||||||||||
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|
|
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|
|
| ||||||||||||||||
Total Dividends | (0.76 | ) | (0.22 | ) | (2.73 | ) | (0.91 | ) | (0.35 | ) | |||||||||||||||
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|
|
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|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 11.51 | $ | 12.88 | $ | 11.74 | $ | 12.14 | $ | 14.65 | |||||||||||||||
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|
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|
|
| ||||||||||||||||
Total Return(a) | (5.26 | )% | 11.66 | % | 20.55 | % | (10.92 | )% | 9.67 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 147,054 | $ | 151,096 | $ | 135,156 | $ | 92,191 | $ | 167,175 | |||||||||||||||
Net Investment Income/(Loss) | 2.35 | % | 2.10 | % | 2.25 | % | 2.45 | % | 2.01 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.24 | % | 1.23 | % | 1.25 | % | 1.24 | % | 1.21 | % | |||||||||||||||
Expenses Net of Reductions | 1.24 | % | 1.22 | % | 1.24 | % | 1.17 | % | 1.10 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.24 | % | 1.23 | % | 1.25 | % | 1.19 | % | 1.11 | % | |||||||||||||||
Portfolio Turnover Rate | 20 | % | 24 | % | 21 | % | 43 | % | 29 | % |
(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 any. 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.
8
AZL NFJ International Value Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL NFJ International Value Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
9
AZL NFJ International Value Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $14.9 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $27,187 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL NFJ International Value Fund | 0.90 | % | 1.45 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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
10
AZL NFJ International Value Fund
Notes to the Financial Statements
December 31, 2014
written policies and procedures comprising the Fund’s compliance program. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $1,918 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
Forward 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
11
AZL NFJ International Value Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Aerospace & Defense | $ | 3,322,212 | $ | — | $ | 3,322,212 | |||||||||
Auto Components | 1,804,254 | — | 1,804,254 | ||||||||||||
Automobiles | 1,902,600 | 2,970,740 | 4,873,340 | ||||||||||||
Banks | 11,540,897 | 17,720,053 | 29,260,950 | ||||||||||||
Chemicals | 1,232,827 | 1,021,563 | 2,254,390 | ||||||||||||
Electric Utilities | 2,300,799 | — | 2,300,799 | ||||||||||||
Household Products | 1,317,337 | — | 1,317,337 | ||||||||||||
Industrial Conglomerates | 1,648,319 | 3,095,732 | 4,744,051 | ||||||||||||
Insurance | 12,841,717 | — | 12,841,717 | ||||||||||||
Metals & Mining | 3,911,806 | — | 3,911,806 | ||||||||||||
Multiline Retail | 3,183,200 | — | 3,183,200 | ||||||||||||
Oil, Gas & Consumable Fuels | 11,293,942 | 3,883,606 | 15,177,548 | ||||||||||||
Pharmaceuticals | 4,641,057 | 2,824,878 | 7,465,935 | ||||||||||||
Semiconductors & Semiconductor Equipment | 1,810,542 | — | 1,810,542 | ||||||||||||
Software | 3,471,419 | — | 3,471,419 | ||||||||||||
Trading Companies & Distributors | 2,575,152 | — | 2,575,152 | ||||||||||||
Water Utilities | 310,097 | — | 310,097 | ||||||||||||
Wireless Telecommunication Services | 1,321,928 | 3,146,360 | 4,468,288 | ||||||||||||
All Other Common Stocks+ | — | 33,965,112 | 33,965,112 | ||||||||||||
Preferred Stock | — | 3,059,832 | 3,059,832 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 14,460,071 | 14,460,071 | ||||||||||||
Unaffiliated Investment Company | 5,200,597 | — | 5,200,597 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | $ | 75,630,702 | $ | 86,147,947 | $ | 161,778,649 | |||||||||
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 40,006,108 | $ | 30,476,774 |
6. Investment Risks
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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.
12
AZL NFJ International Value Fund
Notes to the Financial Statements
December 31, 2014
Cost for federal income tax purposes at December 31, 2014 is $152,748,399. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 19,993,507 | ||
Unrealized depreciation | (10,963,257 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 9,030,250 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL NFJ International Value Fund | $ | 2,966,257 | $ | 6,108,872 | $ | 9,075,129 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL NFJ International Value Fund | $ | 2,500,966 | $ | – | $ | 2,500,966 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL NFJ International Value Fund | $ | 3,594,496 | $ | 671,205 | $ | — | $ | 9,030,077 | $ | 13,295,778 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2014, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 50% of the Fund.
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2014, the Fund declared net long-term capital gain distributions of $6,108,872.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Oppenheimer Discovery Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 14
Other Federal Income Tax Information
Page 15
Other Information
Page 16
Approval of Investment Advisory and Subadvisory Agreements
Page 17
Information about the Board of Trustees and Officers
Page 20
This report is submitted for the general information of the shareholder 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.
AZL® Oppenheimer Discovery Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Oppenheimer Discovery Fund and Oppenheimer Funds, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Oppenheimer Discovery Fund returned -2.30%. That compared to a 5.60% total return for its benchmark, the Russell 2000® Growth Index1.
Global equity markets were volatile for the one-year reporting period. U.S. equities were among the top performing asset classes, outperforming foreign equities, including those domiciled in Europe, Japan and emerging markets. In the United States, the Federal Reserve began tapering its most recent quantitative easing (QE) program in January 2014 and completed the process in October.
The U.S. equity market faced volatility early in 2014 due to weak first quarter economic data. However, the market generally produced positive results and ended the reporting period at record levels. Economic data in the U.S., such as gross domestic product2 growth, proved positive in the second and third quarters. Meanwhile, the positive data points that had emerged in Europe in 2013 largely reversed themselves later in the reporting period. The European Central Bank came under even greater pressure to provide a credible plan to avoid deflation, and adopted many policies designed to stimulate growth. In Japan, a massive QE program yielded less than impressive results. Emerging markets’ economic growth was mixed, as regions including Eastern Europe and the Middle East remained burdened by geopolitical turmoil.
The Fund underperformed its benchmark, primarily due to weaker relative stock selection in the information technology and consumer discretionary sectors. The investment environment changed significantly during the reporting period. Though high-quality growth companies continued to outperform the broader market in early 2014, by March the tone of the market changed abruptly as companies with larger market capitalizations and lower valuations began to outperform smaller companies with higher valuations. The Fund’s investment style favors
high-quality, high-growth companies that often have above average valuations, and it underperformed meaningfully from mid-March to mid-May despite little or no change to the underlying fundamentals of the companies it owns. The Fund’s top detractors included a learning and talent management software solution vendor, which reported less revenue and earnings per share than expected, and a 3D printer maker, which issued earnings per share guidance that was below estimates due to higher-than-expected operating expenses and share count.*
The Fund’s relative performance benefited from its holdings in an independent energy exploration and production company, which rallied following an announcement that it would be acquired. The successful initial public offering of a company that makes wearable cameras, and the Fund’s subsequent exit, also helped boost 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, 2014. |
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. |
2 | Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. |
1
AZL® Oppenheimer Discovery Fund Review (unaudited)
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, investments in common stocks and other equity securities of U.S. 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.
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 that other types of securities.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (4/29/05) | |||||||||||||
AZL® Oppenheimer Discovery Fund | -2.30 | % | 18.36 | % | 15.11 | % | 7.40 | % | ||||||||
Russell 2000® Growth Index | 5.60 | % | 20.14 | % | 16.80 | % | 10.39 | % |
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® Oppenheimer Discovery Fund | 1.16 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 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
AZL Oppenheimer Discovery Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Oppenheimer Discovery Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Oppenheimer Discovery Fund | $ | 1,000.00 | $ | 1,027.20 | $ | 5.93 | 1.16 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Oppenheimer Discovery Fund | $ | 1,000.00 | $ | 1,019.36 | $ | 5.90 | 1.16 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 24.8 | % | |||
Health Care | 23.3 | ||||
Industrials | 18.2 | ||||
Consumer Discretionary | 18.0 | ||||
Financials | 8.1 | ||||
Consumer Staples | 3.1 | ||||
Materials | 1.5 | ||||
Energy | 1.2 | ||||
|
| ||||
Total Common Stocks | 98.2 | ||||
Securities Held as Collateral for Securities on Loan | 28.2 | ||||
Money Market | 1.4 | ||||
|
| ||||
Total Investment Securities | 127.8 | ||||
Net other assets (liabilities) | (27.8 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Oppenheimer Discovery Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.2%): |
| ||||||
| Aerospace & Defense (1.0%): |
| ||||||
43,690 | Curtiss-Wright Corp.^ | $ | 3,084,077 | |||||
|
| |||||||
| Airlines (2.1%): |
| ||||||
29,267 | Allegiant Travel Co.^ | 4,399,708 | ||||||
46,990 | Virgin America, Inc.*^ | 2,032,318 | ||||||
|
| |||||||
6,432,026 | ||||||||
|
| |||||||
| Auto Components (0.5%): |
| ||||||
40,510 | Gentherm, Inc.*^ | 1,483,476 | ||||||
|
| |||||||
| Banks (4.6%): |
| ||||||
120,360 | Bank of the Ozarks, Inc.^ | 4,564,051 | ||||||
81,440 | PrivateBancorp, Inc. | 2,720,096 | ||||||
26,100 | Signature Bank* | 3,287,556 | ||||||
128,540 | Western Alliance BanCorp*^ | 3,573,412 | ||||||
|
| |||||||
14,145,115 | ||||||||
|
| |||||||
| Beverages (0.8%): |
| ||||||
8,650 | Boston Beer Co., Inc. (The), Class A*^ | 2,504,521 | ||||||
|
| |||||||
| Biotechnology (3.2%): |
| ||||||
24,310 | Bluebird Bio, Inc.*^ | 2,229,713 | ||||||
36,100 | Cepheid, Inc.*^ | 1,954,454 | ||||||
47,800 | Exact Sciences Corp.*^ | 1,311,632 | ||||||
5,560 | Juno Therapeutics, Inc.* | 290,343 | ||||||
21,080 | NPS Pharmaceuticals, Inc.*^ | 754,032 | ||||||
35,340 | PTC Therapeutics, Inc.*^ | 1,829,552 | ||||||
34,380 | Ultragenyx Pharmaceutical, Inc.*^ | 1,508,594 | ||||||
|
| |||||||
9,878,320 | ||||||||
|
| |||||||
| Building Products (2.5%): |
| ||||||
80,330 | A.O. Smith Corp. | 4,531,415 | ||||||
33,200 | Lennox International, Inc.^ | 3,156,324 | ||||||
|
| |||||||
7,687,739 | ||||||||
|
| |||||||
| Capital Markets (1.6%): |
| ||||||
24,560 | Evercore Partners, Inc., Class A^ | 1,286,207 | ||||||
59,814 | HFF, Inc., Class A | 2,148,519 | ||||||
26,360 | Piper Jaffray Cos., Inc.* | 1,531,252 | ||||||
|
| |||||||
4,965,978 | ||||||||
|
| |||||||
| Commercial Services & Supplies (1.3%): |
| ||||||
99,650 | Mobile Mini, Inc.^ | 4,036,822 | ||||||
|
| |||||||
| Construction Materials (1.0%): |
| ||||||
51,910 | CaesarStone Sdot-Yam, Ltd. | 3,105,256 | ||||||
|
| |||||||
| Containers & Packaging (0.5%): |
| ||||||
49,520 | Berry Plastics Group, Inc.*^ | 1,562,356 | ||||||
|
| |||||||
| Diversified Consumer Services (2.7%): |
| ||||||
83,544 | Bright Horizons Family Solutions, Inc.*^ | 3,927,403 | ||||||
39,500 | Grand Canyon Education, Inc.*^ | 1,843,070 | ||||||
141,400 | Lifelock, Inc.*^ | 2,617,314 | ||||||
|
| |||||||
8,387,787 | ||||||||
|
| |||||||
| Electrical Equipment (1.2%): |
| ||||||
104,250 | Methode Electronics, Inc. | 3,806,168 | ||||||
|
| |||||||
| Energy Equipment & Services (0.4%): |
| ||||||
64,253 | Forum Energy Technologies, Inc.*^ | 1,331,965 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food Products (2.3%): |
| ||||||
60,500 | Hain Celestial Group, Inc.*^ | $ | 3,526,544 | |||||
26,858 | J & J Snack Foods Corp. | 2,921,345 | ||||||
39,122 | SunOpta, Inc.* | 463,596 | ||||||
|
| |||||||
6,911,485 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (6.8%): |
| ||||||
48,170 | Cantel Medical Corp.^ | 2,083,834 | ||||||
67,430 | Cardiovascular Systems, Inc.* | 2,028,294 | ||||||
88,868 | Dexcom, Inc.*^ | 4,892,184 | ||||||
38,130 | Insulet Corp.*^ | 1,756,268 | ||||||
140,950 | Spectranetics Corp. (The)*^ | 4,874,051 | ||||||
42,100 | STERIS Corp.^ | 2,730,185 | ||||||
49,660 | West Pharmaceutical Services, Inc. | 2,643,898 | ||||||
|
| |||||||
21,008,714 | ||||||||
|
| |||||||
| Health Care Providers & Services (9.5%): |
| ||||||
85,540 | Acadia Healthcare Co., Inc.*^ | 5,235,903 | ||||||
43,610 | Centene Corp.*^ | 4,528,899 | ||||||
79,460 | ExamWorks Group, Inc.*^ | 3,304,741 | ||||||
40,330 | HealthEquity, Inc.*^ | 1,026,399 | ||||||
53,656 | LifePoint Hospitals, Inc.* | 3,858,403 | ||||||
9,090 | MWI Veterinary Supply, Inc.*^ | 1,544,482 | ||||||
107,910 | Team Health Holdings, Inc.* | 6,208,063 | ||||||
64,900 | VCA Antech, Inc.*^ | 3,165,173 | ||||||
|
| |||||||
28,872,063 | ||||||||
|
| |||||||
| Health Care Technology (0.7%): |
| ||||||
66,140 | Omnicell, Inc.* | 2,190,557 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (7.1%): |
| ||||||
27,990 | Buffalo Wild Wings, Inc.*^ | 5,048,836 | ||||||
68,770 | Fiesta Restaurant Group, Inc.*^ | 4,181,216 | ||||||
12,270 | Habit Restaurants, Inc. (The), Class A*^ | 396,935 | ||||||
51,530 | Jack in the Box, Inc. | 4,120,339 | ||||||
141,670 | La Quinta Holdings, Inc.*^ | 3,125,240 | ||||||
49,210 | Popeyes Louisiana Kitchen, Inc.*^ | 2,769,047 | ||||||
65,790 | Zoe’s Kitchen, Inc.*^ | 1,967,779 | ||||||
|
| |||||||
21,609,392 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.8%): |
| ||||||
32,280 | HSN, Inc.^ | 2,453,280 | ||||||
|
| |||||||
| Internet Software & Services (2.4%): |
| ||||||
38,600 | Demandware, Inc.*^ | 2,221,044 | ||||||
66,470 | GrubHub, Inc.*^ | 2,414,190 | ||||||
3,640 | New Relic, Inc.* | 126,818 | ||||||
36,830 | Shutterstock, Inc.*^ | 2,544,953 | ||||||
|
| |||||||
7,307,005 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.7%): |
| ||||||
42,860 | ICON plc* | 2,185,431 | ||||||
|
| |||||||
| Machinery (4.8%): |
| ||||||
25,670 | Greenbrier Companies, Inc.^ | 1,379,249 | ||||||
64,350 | Middleby Corp. (The)* | 6,377,085 | ||||||
16,680 | Proto Labs, Inc.*^ | 1,120,229 | ||||||
63,410 | Wabtec Corp.^ | 5,509,695 | ||||||
|
| |||||||
14,386,258 | ||||||||
|
|
Continued
4
AZL Oppenheimer Discovery Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media (0.4%): |
| ||||||
18,810 | Rentrak Corp.*^ | $ | 1,369,744 | |||||
|
| |||||||
| Multiline Retail (1.5%): |
| ||||||
82,260 | Burlington Stores, Inc.*^ | 3,887,608 | ||||||
36,700 | Tuesday Morning Corp.*^ | 796,390 | ||||||
|
| |||||||
4,683,998 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.8%): |
| ||||||
27,940 | Diamondback Energy, Inc.*^ | 1,670,253 | ||||||
41,280 | Matador Resources Co.*^ | 835,094 | ||||||
|
| |||||||
2,505,347 | ||||||||
|
| |||||||
| Pharmaceuticals (2.4%): |
| ||||||
122,930 | Akorn, Inc.*^ | 4,450,066 | ||||||
48,160 | Biodelivery Sciences International, Inc.*^ | 578,883 | ||||||
26,980 | Pacira Pharmaceuticals, Inc.*^ | 2,392,047 | ||||||
|
| |||||||
7,420,996 | ||||||||
|
| |||||||
| Professional Services (3.0%): |
| ||||||
33,080 | CoStar Group, Inc.*^ | 6,074,480 | ||||||
47,000 | Huron Consulting Group, Inc.*^ | 3,214,330 | ||||||
|
| |||||||
9,288,810 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.0%): |
| ||||||
66,349 | Pebblebrook Hotel Trust^ | 3,027,505 | ||||||
|
| |||||||
| Road & Rail (2.8%): |
| ||||||
92,500 | Knight Transportation, Inc.^ | 3,113,550 | ||||||
43,010 | Old Dominion Freight Line, Inc.*^ | 3,339,296 | ||||||
40,980 | Saia, Inc.*^ | 2,268,653 | ||||||
|
| |||||||
8,721,499 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (6.0%): |
| ||||||
22,610 | Ambarella, Inc.*^ | 1,146,779 | ||||||
91,130 | Cavium, Inc.*^ | 5,633,657 | ||||||
24,480 | MA-COM Technology Solutions Holdings, Inc.*^ | 765,734 | ||||||
52,200 | MKS Instruments, Inc.^ | 1,910,520 | ||||||
131,120 | Monolithic Power Systems, Inc.^ | 6,521,909 | ||||||
75,490 | Spansion, Inc.*^ | 2,583,268 | ||||||
|
| |||||||
18,561,867 | ||||||||
|
| |||||||
| Software (14.8%): |
| ||||||
54,250 | Envestnet, Inc.*^ | 2,665,845 | ||||||
114,070 | Guidewire Software, Inc.*^ | 5,775,364 | ||||||
28,420 | Manhattan Associates, Inc.*^ | 1,157,262 | ||||||
89,930 | Paylocity Holding Corp.*^ | 2,348,072 | ||||||
117,340 | Proofpoint, Inc.*^ | 5,659,308 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software, continued |
| ||||||
62,980 | ServiceNow, Inc.*^ | $ | 4,273,193 | |||||
64,830 | Tableau Software, Inc., Class A*^ | 5,494,991 | ||||||
56,770 | Tyler Technologies, Inc.*^ | 6,212,909 | ||||||
40,960 | Ultimate Software Group, Inc. (The)*^ | 6,013,542 | ||||||
68,230 | Veeva Systems, Inc., Class A*^ | 1,801,954 | ||||||
43,590 | Verint Systems, Inc.*^ | 2,540,425 | ||||||
64,450 | Zendesk, Inc.*^ | 1,570,647 | ||||||
|
| |||||||
45,513,512 | ||||||||
|
| |||||||
| Specialty Retail (0.8%): |
| ||||||
16,900 | Boot Barn Holdings, Inc.*^ | 307,580 | ||||||
82,610 | Michaels Cos., Inc. (The)*^ | 2,042,945 | ||||||
|
| |||||||
2,350,525 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.4%): |
| ||||||
15,350 | Stratasys, Ltd.*^ | 1,275,739 | ||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (4.2%): |
| ||||||
18,890 | Carter’s, Inc.^ | 1,649,286 | ||||||
42,790 | Deckers Outdoor Corp.*^ | 3,895,602 | ||||||
43,430 | G-III Apparel Group, Ltd.*^ | 4,386,864 | ||||||
55,620 | Skechers U.S.A., Inc., Class A*^ | 3,073,005 | ||||||
|
| |||||||
13,004,757 | ||||||||
|
| |||||||
| Thirfts & Mortgage Finance (0.9%): |
| ||||||
107,080 | Essent Group, Ltd.*^ | 2,753,027 | ||||||
|
| |||||||
| Trading Companies & Distributors (0.7%): |
| ||||||
81,040 | H&E Equipment Services, Inc.^ | 2,276,414 | ||||||
|
| |||||||
| Total Common Stocks (Cost $246,159,215) | 302,089,531 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (28.2%): |
| ||||||
$ | 86,675,634 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 86,675,634 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 86,675,634 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.4%): |
| ||||||
4,232,229 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 4,232,229 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $4,232,229) | 4,232,229 | ||||||
|
| |||||||
| Total Investment Securities (Cost $337,067,078)(c) — 127.8% | 392,997,394 | ||||||
| Net other assets (liabilities) — (27.8)% | (85,575,005 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 307,422,389 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $83,715,698. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
5
AZL Oppenheimer Discovery Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 337,067,078 | |||
|
| ||||
Investment securities, at value* | $ | 392,997,394 | |||
Interest and dividends receivable | 154,856 | ||||
Receivable for investments sold | 1,436,459 | ||||
Prepaid expenses | 2,537 | ||||
|
| ||||
Total Assets | 394,591,246 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 176,253 | ||||
Payable for collateral received on loaned securities | 86,675,634 | ||||
Manager fees payable | 221,765 | ||||
Administration fees payable | 7,047 | ||||
Distribution fees payable | 65,225 | ||||
Custodian fees payable | 8,836 | ||||
Administrative and compliance services fees payable | 709 | ||||
Trustee fees payable | 14 | ||||
Other accrued liabilities | 13,374 | ||||
|
| ||||
Total Liabilities | 87,168,857 | ||||
|
| ||||
Net Assets | $ | 307,422,389 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 216,791,571 | |||
Accumulated net investment income/(loss) | — | ||||
Accumulated net realized gains/(losses) from investment transactions | 34,700,502 | ||||
Net unrealized appreciation/(depreciation) on investments | 55,930,316 | ||||
|
| ||||
Net Assets | $ | 307,422,389 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 21,336,559 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.41 | |||
|
|
* | Includes securities on loan of $83,715,698. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 1,004,174 | |||
Income from securities lending | 377,637 | ||||
Foreign withholding tax | (15,183 | ) | |||
|
| ||||
Total Investment Income | 1,366,628 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,701,666 | ||||
Administration fees | 85,669 | ||||
Distribution fees | 794,605 | ||||
Custodian fees | 33,825 | ||||
Administrative and compliance services fees | 3,961 | ||||
Trustee fees | 15,215 | ||||
Professional fees | 16,037 | ||||
Shareholder reports | 15,986 | ||||
Other expenses | 7,822 | ||||
|
| ||||
Total expenses | 3,674,786 | ||||
|
| ||||
Net Investment Income/(Loss) | (2,308,158 | ) | |||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 34,969,440 | ||||
Change in net unrealized appreciation/depreciation on investments | (41,271,956 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (6,302,516 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (8,610,674 | ) | ||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL Oppenheimer Discovery Fund | ||||||||||
For the 2014 | For the 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (2,308,158 | ) | $ | (2,265,394 | ) | ||||
Net realized gains/(losses) on investment transactions | 34,969,440 | 33,072,781 | ||||||||
Change in unrealized appreciation/depreciation on investments | (41,271,956 | ) | 72,878,181 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (8,610,674 | ) | 103,685,568 | |||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | — | — | ||||||||
From net realized gains | (20,524,056 | ) | (2,889,357 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (20,524,056 | ) | (2,889,357 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 23,232,764 | 22,741,540 | ||||||||
Proceeds from shares issued in merger | — | 153,408,602 | ||||||||
Proceeds from dividends reinvested | 20,524,056 | 2,889,357 | ||||||||
Value of shares redeemed | (57,754,813 | ) | (53,030,368 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (13,997,993 | ) | 126,009,131 | |||||||
|
|
|
| |||||||
Change in net assets | (43,132,723 | ) | 226,805,342 | |||||||
Net Assets: | ||||||||||
Beginning of period | 350,555,112 | 123,749,770 | ||||||||
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End of period | $ | 307,422,389 | $ | 350,555,112 | ||||||
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Accumulated net investment income/(loss) | $ | — | $ | 667 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 1,627,249 | 1,760,070 | ||||||||
Shares issued in merger | — | 12,864,661 | ||||||||
Dividends reinvested | 1,477,614 | 200,929 | ||||||||
Shares redeemed | (3,978,076 | ) | (3,930,532 | ) | ||||||
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Change in shares | (873,213 | ) | 10,895,128 | |||||||
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See accompanying notes to the financial statements.
7
AZL Oppenheimer Discovery Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.78 | $ | 10.94 | $ | 9.38 | $ | 9.92 | $ | 7.70 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.11 | ) | (0.10 | ) | (0.01 | ) | (0.04 | ) | 0.01 | ||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.29 | ) | 5.07 | 1.57 | (0.50 | ) | 2.21 | ||||||||||||||||||
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Total from Investment Activities | (0.40 | ) | 4.97 | 1.56 | (0.54 | ) | 2.22 | ||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Realized Gains | (0.97 | ) | (0.13 | ) | — | — | (a) | — | |||||||||||||||||
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Total Dividends | (0.97 | ) | (0.13 | ) | — | — | (a) | — | |||||||||||||||||
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Net Asset Value, End of Period | $ | 14.41 | $ | 15.78 | $ | 10.94 | $ | 9.38 | $ | 9.92 | |||||||||||||||
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Total Return(b) | (2.30 | )% | 45.52 | % | 16.63 | % | (5.39 | )% | 28.83 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 307,422 | $ | 350,555 | $ | 123,750 | $ | 79,768 | $ | 91,473 | |||||||||||||||
Net Investment Income/(Loss) | (0.73 | )% | (0.86 | )% | (0.07 | )% | (0.40 | )% | 0.11 | % | |||||||||||||||
Expenses Before Reductions(c) | 1.16 | % | 1.16 | % | 1.18 | % | 1.19 | % | 1.22 | % | |||||||||||||||
Expenses Net of Reductions | 1.16 | % | 1.16 | % | 1.18 | % | 1.19 | % | 1.22 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 99 | % | 79 | %(e) | 161 | % | 145 | %(f) | 97 | % |
(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 portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
(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 128%. |
(f) | The portfolio turnover rate for the year ended December 31, 2011 was higher than the prior year primarily due to the amount and timing of sales and purchases of fund shares during the period. |
See accompanying notes to the financial statements.
8
AZL Oppenheimer Discovery Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Oppenheimer Discovery Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
9
AZL Oppenheimer Discovery Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $31.1 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $37,407 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with Oppenheimer Funds, Inc. (“Oppenheimer”), Oppenheimer 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Oppenheimer Discovery 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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
10
AZL Oppenheimer Discovery Fund
Notes to the Financial Statements
December 31, 2014
written policies and procedures comprising the Fund’s compliance program. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $4,021 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
During the year ended December 31, 2014, the Fund paid approximately $12,439 to affiliated broker/dealers of the Subadvisor 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
11
AZL Oppenheimer Discovery Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 302,089,531 | $ | — | $ | 302,089,531 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 86,675,634 | 86,675,634 | ||||||||||||
Unaffiliated Investment Company | 4,232,229 | — | 4,232,229 | ||||||||||||
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Total Investment Securities | $ | 306,321,760 | $ | 86,675,634 | $ | 392,997,394 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Oppenheimer Discovery Fund | $ | 309,658,035 | $ | 346,651,972 |
6. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $338,272,763. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 58,859,000 | ||
Unrealized depreciation | (4,134,369 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 54,724,631 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Oppenheimer Discovery Fund | $ | 1,775,809 | $ | 18,748,247 | $ | 20,524,056 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Oppenheimer Discovery Fund | $ | — | $ | 2,889,357 | $ | 2,889,357 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Oppenheimer Discovery Fund | $ | — | $ | 35,906,187 | $ | — | $ | 54,724,631 | $ | 90,630,818 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
12
AZL Oppenheimer Discovery Fund
Notes to the Financial Statements
December 31, 2014
7. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Oppenheimer Discovery Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
14
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 37.32% 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, 2014, the Fund declared net long-term capital gain distributions of $18,748,247.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $1,775,809.
15
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.
16
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Pyramis Core Bond Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 13
Statement of Operations
Page 13
Statements of Changes in Net Assets
Page 14
Financial Highlights
Page 15
Notes to the Financial Statements
Page 16
Report of Independent Registered Public Accounting Firm
Page 22
Other Federal Income Tax Information
Page 23
Other Information
Page 24
Approval of Investment Advisory Agreement
Page 25
Information about the Board of Trustees and Officers
Page 28
This report is submitted for the general information of the shareholder 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.
AZL® Pyramis Core Bond Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Pyramis Core Bond Fund and Pyramis Global Advisors, LLC serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the period ended December 31, 2014, the AZL® Pyramis Core Bond Fund returned 5.37%. That compared to a 5.97% total return for its benchmark, the Barclays U.S. Aggregate Bond Index1.
The fixed-income market performed relatively well during the 12-month period. The U.S. economy continued to gain strength, but many global economies—including those in Europe, Japan, China, and Latin America—suffered from continued economic weakness. Meanwhile, investors remained watchful of geopolitical issues in areas such as Russia and Ukraine. The U.S. Federal Reserve wrapped up its long-running quantitative easing program in October, and signaled that it may raise short-term interest rates during the second half of 2015. The yield curve flattened amid expectations of a rate increase and broader concerns about the health of the global economy.
Late in the period, plunging energy prices led many investors to seek safety in the financial markets. That led to relatively poor performance of more risk-oriented areas of the fixed-income markets, such as corporate bonds and sovereign debt. This underperformance accelerated during the final two months of the year.
The Fund performed well during the first 10 months of the period, benefiting from strong security and sector selection. An overweight position in corporate bonds—particularly in the financial and telecommunications industries sectors—helped relative results. The Fund’s exposure to commercial mortgage backed securities also helped, as such securities performed relatively well.*
The Fund’s strategy changed during the final two months of the period. Beginning October 31, 2014, the Fund was able to add exposure to sectors such as high-yield bonds and emerging market debt. Over a full market cycle, we believe such holdings will lead to improved performance
and better risk-adjusted returns. However, the transition to this new strategy led to substantial transaction costs that hurt relative returns. What’s more, high-yield and emerging market debt faced very challenging headwinds during the final two months of the period, leading to additional weakness for the Fund during that period. The Fund’s exposure to Treasury inflation protected securities, or TIPS, also dragged on results, as such bonds performed poorly amid continued low inflation.*
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, 2014. |
1 | The Barclays 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
AZL® Pyramis Core Bond Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to seek a high level of current 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 in investment-grade debt securities (those of medium and high quality) of all types and repurchase agreements for those securities.
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.
Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund’s performance may be more volatile than if it did not hold these securities.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
High-yield bonds have a higher risk of default or other adverse credit events, but have the potential to pay higher earnings over investment grade bonds. The higher risk of default, or the inability of the creditor to repay its debt, is the primary reason for the higher interest rates on high-yield bonds.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | Since Inception (9/5/12) | |||||||
AZL® Pyramis Core Bond Fund | 5.37 | % | 1.57 | % | ||||
Barclays U.S. Aggregate Bond Index | 5.97 | % | 1.81 | % |
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® Pyramis Core Bond Fund | 0.83 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 0.95% through April 30, 2016. Additional information pertaining to the December 31, 2014 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.
1 | Acquired Fund Fees and Expenses are incurred indirectly by the Fund through the valuation of the Fund’s investments in the other investment companies. 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 0.81%. |
The Fund’s performance is measured against the Barclays 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
AZL Pyramis Core Bond Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Pyramis Core Bond Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Pyramis Core Bond Fund | $ | 1,000.00 | $ | 1,008.40 | $ | 4.10 | 0.81 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Pyramis Core Bond Fund | $ | 1,000.00 | $ | 1,021.12 | $ | 4.13 | 0.81 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Corporate Bonds | 42.1 | % | |||
Yankee Dollars | 14.1 | ||||
U.S. Government Agency Mortgages | 12.7 | ||||
U.S. Treasury Obligation | 11.7 | ||||
Collateralized Mortgage Obligations | 10.2 | ||||
Securities Held as Collateral for Securities on Loan | 6.7 | ||||
Municipal Bonds | 5.0 | ||||
Asset Backed Securities | 4.1 | ||||
Money Market | 1.6 | ||||
|
| ||||
Total Investment Securities | 108.2 | ||||
Net other assets (liabilities) | (8.2 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Asset Backed Securities (4.1%): |
| ||||||
$ | 1,155,000 | AmeriCredit Automobile Receivables Trust, Class D, Series 2012-5, 2.35%, 12/10/18 | $ | 1,163,189 | ||||
900,000 | AmeriCredit Automobile Receivables Trust, Class D, Series 2013-3, 3.00%, 7/8/19 | 915,193 | ||||||
1,750,000 | AmeriCredit Automobile Receivables Trust, Class C, Series 2013-4, 2.72%, 9/9/19 | 1,780,160 | ||||||
1,750,000 | AmeriCredit Automobile Receivables Trust, Class D, Series 2013-4, 3.31%, 10/8/19 | 1,778,536 | ||||||
17,842 | CFC LLC, Class A, Series 2013-1A, 1.65%, 7/17/17(a) | 17,857 | ||||||
4,220,000 | CFC LLC, Class B, Series 2013-1A, 2.75%, 11/15/18(a) | 4,270,719 | ||||||
118,911 | Countrywide Asset-Backed Certificates Trust, Class AF5, Series 2004-7, 5.87%, 1/25/35(b) | 124,061 | ||||||
1,130,000 | Ford Credit Floorplan Master Owner Trust, Class C, Series 2013-3, 1.29%, 6/15/17 | 1,131,146 | ||||||
1,130,000 | Ford Credit Floorplan Master Owner Trust, Class D, Series 2013-3, 1.74%, 6/15/17 | 1,133,623 | ||||||
387,000 | Santander Drive Auto Receivables Trust, Class C, Series 2014-2, 2.33%, 11/15/19 | 387,925 | ||||||
959,000 | Santander Drive Auto Receivables Trust, Class B, Series 2014-3, 1.45%, 5/15/19 | 957,298 | ||||||
963,000 | Santander Drive Auto Receivables Trust, Class C, Series 2014-3, 2.13%, 8/17/20 | 958,687 | ||||||
4,220,000 | Santander Drive Auto Receivables Trust, Class C, Series 2014-4, 2.60%, 11/16/20 | 4,227,081 | ||||||
|
| |||||||
| Total Asset Backed Securities (Cost $18,789,934) | 18,845,475 | ||||||
|
| |||||||
| Collateralized Mortgage Obligations (10.2%): |
| ||||||
103,884 | Banc of America Commercial Mortgage Trust, Class A4, Series 2007-1, 5.45%, 1/15/49 | 111,335 | ||||||
2,091,558 | Banc of America Commercial Mortgage Trust, Class A4, Series 2006-3, 5.89%, 7/10/44(b) | 2,201,346 | ||||||
638,000 | Banc of America Commercial Mortgage, Inc., Class A4, Series 2007-2, 5.78%, 4/10/49(b) | 682,643 | ||||||
189,000 | CDGJ Commercial Mortgage Trust, Class DPA, Series 2014-BXCH, 3.15%, 12/15/27(a)(b) | 189,060 | ||||||
199,717 | Citigroup Mortgage Loan Trust, Inc., Class A, Series 2012-A, 2.50%, 6/25/51(a) | 194,000 | ||||||
320,000 | Extended Stay America Trust, Class BFL, Series 2013-ESFL, 1.26%, 12/5/31(a)(b) | 319,196 | ||||||
230,000 | Extended Stay America Trust, Class CFL, Series 2013-ESFL, 1.66%, 12/5/31(a)(b) | 229,689 | ||||||
5,070,000 | GE Capital Commercial Mortgage Corp., Class A4, Series 2007-C1, 5.54%, 12/10/49 | 5,387,777 | ||||||
3,700,000 | Granite Master Issuer plc, Class M2, Series 2006-1A, 0.75%, 12/20/54(a)(b) | 3,612,248 | ||||||
3,750,000 | Granite Master Issuer plc, Class M2, Series 2006-3, 0.73%, 12/20/54(b) | 3,658,446 | ||||||
631,753 | Greenwich Capital Commercial Funding Corp. Commercial Mortgage Trust, Class A4, Series 2007-GG9, 6.01%, 7/10/38(b) | 660,367 | ||||||
900,000 | Greenwich Capital Commercial Funding Corp. Commercial Mortgage Trust, Class A4, Series 2007-GG9, 5.44%, 3/10/39 | 960,010 |
Principal | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 297,000 | GS Mortgage Securities Trust, Class A4, Series 2006-GG6, 5.55%, 4/10/38(b) | $ | 304,770 | ||||
279,283 | GS Mortgage Securities Trust, Class A4, Series 2006-GG8, 5.56%, 11/10/39 | 295,667 | ||||||
4,112,000 | Hilton USA Trust, Class DFX, Series 2013-HLT, 4.41%, 11/5/30(a) | 4,205,704 | ||||||
345,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2006-LDP7, 6.06%, 4/15/45(b) | 360,239 | ||||||
328,514 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A1A, Series 2006-LDP8, 5.40%, 5/15/45 | 345,541 | ||||||
678,107 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2007-CB18, 5.44%, 6/12/47 | 721,013 | ||||||
5,157,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2007-LD11, 5.97%, 6/15/49(b) | 5,536,360 | ||||||
127,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class C, Series 2014-BXH, 1.81%, 4/15/27(a)(b) | 126,472 | ||||||
271,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class D, Series 2014-BXH, 2.41%, 4/15/27(a)(b) | 269,346 | ||||||
3,909,608 | LB-UBS Commercial Mortgage Trust, Class A3, Series 2007-C7, 5.87%, 9/15/45(b) | 4,295,302 | ||||||
1,390,000 | Merrill Lynch/Countrywide Commercial Mortgage Trust, Class A4, Series 2007-6, 5.48%, 3/12/51(b) | 1,492,303 | ||||||
462,993 | Merrill Lynch/Countrywide Commercial Mortgage Trust, Class A4, Series 2007-5, 5.38%, 8/12/48 | 491,836 | ||||||
2,628,210 | Morgan Stanely Capital I, Class A4, Series 2007-IQ15, 6.10%, 7/11/17(b) | 2,857,661 | ||||||
1,970,000 | Morgan Stanley Capital I, Class A4, Series 2007-IQ14, 5.69%, 4/15/49(b) | 2,121,134 | ||||||
321,288 | Wachovia Bank Commercial Mortgage Trust, Class A1A, Series 2006-C26, 6.01%, 6/15/45(b) | 340,193 | ||||||
1,020,058 | Wachovia Bank Commercial Mortgage Trust, Class A4, Series 2007-C33, 6.14%, 7/15/17(b) | 1,089,901 | ||||||
1,843,000 | Wachovia Bank Commercial Mortgage Trust, Class A4, Series 2007-C31, 5.51%, 4/15/47 | 1,941,131 | ||||||
322,000 | Wachovia Bank Commercial Mortgage Trust, Class A5, Series 2007-C31, 5.50%, 4/15/47 | 346,980 | ||||||
1,058,000 | Wachovia Bank Commercial Mortgage Trust, Class A3, Series 2007-C32, 5.90%, 6/15/49(b) | 1,135,650 | ||||||
|
| |||||||
| Total Collateralized Mortgage Obligations (Cost $47,444,171) | 46,483,320 | ||||||
|
| |||||||
| Corporate Bonds (42.1%): |
| ||||||
| Airlines (0.5%): | |||||||
1,000,000 | American Airlines Group, Inc., 5.50%, 10/1/19(a) | 1,017,500 | ||||||
218,167 | Continental Airlines 1998-1, Class A, Series 981, 6.65%, 9/15/17 | 226,064 | ||||||
1,000,000 | United Continental Holdings, Inc., 6.00%, 7/15/26, Callable 2/9/15 @ 100^ | 962,500 | ||||||
|
| |||||||
2,206,064 | ||||||||
|
|
Continued
4
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Automobiles (0.8%): |
| ||||||
$ | 330,000 | General Motors Co., 3.50%, 10/2/18 | $ | 336,600 | ||||
453,000 | General Motors Co., 6.25%, 10/2/43 | 541,154 | ||||||
1,500,000 | Volkswagen AG, 1.60%, 11/20/17(a) | 1,494,513 | ||||||
1,194,000 | Volkswagen AG, 2.45%, 11/20/19^(a) | 1,201,778 | ||||||
|
| |||||||
3,574,045 | ||||||||
|
| |||||||
| Banks (5.2%): |
| ||||||
320,000 | Bank of America Corp., Series L, 1.35%, 11/21/16 | 319,090 | ||||||
113,000 | Bank of America Corp., 3.88%, 3/22/17 | 118,231 | ||||||
1,200,000 | Bank of America Corp., 2.00%, 1/11/18, MTN | 1,199,088 | ||||||
3,677,000 | Bank of America Corp., 2.60%, 1/15/19 | 3,705,591 | ||||||
872,000 | Bank of America Corp., Series L, 2.65%, 4/1/19^ | 878,396 | ||||||
550,000 | Bank of America Corp., 5.70%, 1/24/22 | 637,140 | ||||||
466,000 | Bank of America Corp., 4.20%, 8/26/24 | 474,726 | ||||||
397,000 | Bank of America Corp., 4.25%, 10/22/26, MTN^ | 396,109 | ||||||
534,000 | Capital One NA, Series BNKT, 2.95%, 7/23/21 | 531,316 | ||||||
250,000 | Discover Bank, 7.00%, 4/15/20 | 294,636 | ||||||
590,000 | Discover Bank, Series BKNT, 3.20%, 8/9/21, Callable 7/9/21 @ 100 | 592,538 | ||||||
4,000,000 | First Tennessee Bank, 2.95%, 12/1/19, Callable 11/1/19 @ 100 | 3,989,723 | ||||||
250,000 | Huntington National Bank (The), Series BKNT, 1.30%, 11/20/16, Callable 10/20/16 @ 100 | 249,238 | ||||||
400,000 | Huntington National Bank (The), 2.20%, 4/1/19, Callable 3/1/19 @ 100 | 399,698 | ||||||
1,587,000 | JPMorgan Chase & Co., 3.88%, 9/10/24^ | 1,588,350 | ||||||
3,682,000 | JPMorgan Chase & Co., 4.13%, 12/15/26 | 3,685,718 | ||||||
28,000 | M&I Marshall & Ilsley Bank, Series BKNT, 5.00%, 1/17/17 | 29,716 | ||||||
1,278,000 | Regions Bank, Series BKNT, 7.50%, 5/15/18, MTN | 1,483,624 | ||||||
500,000 | Regions Bank, 6.45%, 6/26/37 | 625,008 | ||||||
500,000 | Regions Financial Corp., 5.75%, 6/15/15 | 510,385 | ||||||
88,000 | Regions Financial Corp., 2.00%, 5/15/18, Callable 4/15/18 @ 100 | 87,137 | ||||||
32,000 | SunTrust Banks, Inc., Series BKNT, 3.50%, 1/20/17, Callable 12/20/16 @ 100 | 33,359 | ||||||
181,000 | SunTrust Banks, Inc., 2.35%, 11/1/18, Callable 10/1/18 @ 100 | 182,112 | ||||||
1,200,000 | Wachovia Bank NA, Series BKNT, 6.00%, 11/15/17^ | 1,345,096 | ||||||
800,000 | Wells Fargo & Co., 4.10%, 6/3/26, MTN | 817,646 | ||||||
|
| |||||||
24,173,671 | ||||||||
|
| |||||||
| Biotechnology (0.6%): |
| ||||||
781,000 | Amgen, Inc., 1.25%, 5/22/17 | 774,839 | ||||||
1,937,000 | Amgen, Inc., 2.20%, 5/22/19, Callable 4/22/19 @ 100^ | 1,928,858 | ||||||
|
| |||||||
2,703,697 | ||||||||
|
| |||||||
| Capital Markets (3.1%): |
| ||||||
147,000 | Affiliated Managers Group, Inc., 4.25%, 2/15/24 | 153,154 | ||||||
1,355,000 | Goldman Sachs Group, Inc. (The), 6.25%, 9/1/17 | 1,507,641 | ||||||
400,000 | Goldman Sachs Group, Inc. (The), 1.75%, 9/15/17 | 397,670 |
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Capital Markets, continued |
| ||||||
$ | 1,000,000 | Goldman Sachs Group, Inc. (The), 6.15%, 4/1/18 | $ | 1,122,419 | ||||
1,842,000 | Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18 | 1,889,671 | ||||||
1,142,000 | Goldman Sachs Group, Inc. (The), 2.63%, 1/31/19^ | 1,148,973 | ||||||
399,000 | Goldman Sachs Group, Inc. (The), 2.55%, 10/23/19^ | 397,543 | ||||||
490,000 | Morgan Stanley, Series G, 5.45%, 1/9/17, MTN | 526,120 | ||||||
458,000 | Morgan Stanley, 1.88%, 1/5/18 | 456,324 | ||||||
1,300,000 | Morgan Stanley, Series F, 6.63%, 4/1/18, MTN | 1,480,746 | ||||||
1,380,000 | Morgan Stanley, 2.13%, 4/25/18 | 1,380,799 | ||||||
2,060,000 | Morgan Stanley, 2.50%, 1/24/19^ | 2,061,867 | ||||||
784,000 | Morgan Stanley, Series G, 2.38%, 7/23/19^ | 781,109 | ||||||
523,000 | Morgan Stanley, 4.88%, 11/1/22 | 555,467 | ||||||
68,000 | Retail Opportunity Investments Corp., 5.00%, 12/15/23, Callable 9/15/23 @ 100 | 73,711 | ||||||
104,000 | Retail Opportunity Investments Corp., 4.00%, 12/15/24, Callable 9/15/24 @ 100 | 104,216 | ||||||
|
| |||||||
14,037,430 | ||||||||
|
| |||||||
| Construction Materials (0.2%): |
| ||||||
800,000 | Building Materials Corp., 5.38%, 11/15/24, Callable 11/15/19 @ 102.39(a) | 798,000 | ||||||
|
| |||||||
| Consumer Finance (3.4%): |
| ||||||
2,750,000 | Ally Financial, Inc., 3.75%, 11/18/19 | 2,708,749 | ||||||
900,000 | APX Group, Inc., 6.38%, 12/1/19, Callable 12/1/15 @ 104.78^ | 861,750 | ||||||
320,000 | Capital One Financial Corp., 2.45%, 4/24/19, Callable 3/24/19 @ 100 | 319,267 | ||||||
1,000,000 | Ford Motor Credit Co. LLC, 2.50%, 1/15/16^ | 1,011,186 | ||||||
1,140,000 | Ford Motor Credit Co. LLC, 1.50%, 1/17/17 | 1,133,865 | ||||||
324,000 | Ford Motor Credit Co. LLC, 3.00%, 6/12/17 | 332,426 | ||||||
600,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 651,929 | ||||||
600,000 | Ford Motor Credit Co. LLC, 2.88%, 10/1/18^ | 610,527 | ||||||
1,100,000 | Ford Motor Credit Co. LLC, 2.38%, 3/12/19^ | 1,092,342 | ||||||
1,000,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 994,621 | ||||||
751,000 | Ford Motor Credit Co. LLC, 5.88%, 8/2/21 | 869,499 | ||||||
902,000 | Ford Motor Credit Co. LLC, 4.38%, 8/6/23 | 964,279 | ||||||
68,000 | Lazard Group LLC, 6.85%, 6/15/17 | 75,698 | ||||||
186,000 | Lazard Group LLC, 4.25%, 11/14/20 | 196,035 | ||||||
48,000 | NiSource Finance Corp., 6.40%, 3/15/18 | 54,669 | ||||||
1,600,000 | NiSource Finance Corp., 4.45%, 12/1/21, Callable 9/1/21 @ 100 | 1,728,801 | ||||||
900,000 | SLM Corp., 5.50%, 1/15/19 | 920,250 | ||||||
94,000 | Synchrony Financial, 1.88%, 8/15/17, Callable 7/15/17 @ 100 | 94,183 | ||||||
138,000 | Synchrony Financial, 3.00%, 8/15/19, Callable 7/15/19 @ 100 | 139,510 | ||||||
510,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 520,959 | ||||||
210,000 | Synchrony Financial, 4.25%, 8/15/24, Callable 5/15/24 @ 100^ | 215,487 | ||||||
|
| |||||||
15,496,032 | ||||||||
|
|
Continued
5
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Diversified Financial Services (4.5%): |
| ||||||
$ | 270,000 | Bank of America NA, Series BKNT, 5.30%, 3/15/17 | $ | 290,025 | ||||
500,000 | Citigroup, Inc., 1.70%, 7/25/16 | 503,425 | ||||||
570,000 | Citigroup, Inc., 1.30%, 11/15/16 | 569,297 | ||||||
900,000 | Citigroup, Inc., 6.00%, 8/15/17 | 995,732 | ||||||
1,043,000 | Citigroup, Inc., 6.13%, 11/21/17 | 1,163,033 | ||||||
910,000 | Citigroup, Inc., 1.85%, 11/24/17 | 908,954 | ||||||
1,200,000 | Citigroup, Inc., 2.50%, 9/26/18 | 1,214,021 | ||||||
1,271,000 | Citigroup, Inc., 2.55%, 4/8/19^ | 1,279,359 | ||||||
1,573,000 | Citigroup, Inc., 2.50%, 7/29/19 | 1,574,262 | ||||||
730,000 | Citigroup, Inc., 4.05%, 7/30/22 | 755,302 | ||||||
769,000 | Citigroup, Inc., 5.30%, 5/6/44^ | 842,569 | ||||||
1,000,000 | Discover Financial Services, 5.20%, 4/27/22 | 1,104,405 | ||||||
110,000 | General Motors Financial Co., Inc., 2.63%, 7/10/17^ | 110,477 | ||||||
180,000 | General Motors Financial Co., Inc., 4.75%, 8/15/17^ | 189,828 | ||||||
242,000 | General Motors Financial Co., Inc., 3.00%, 9/25/17^ | 244,730 | ||||||
175,000 | General Motors Financial Co., Inc., 3.25%, 5/15/18 | 175,219 | ||||||
383,000 | General Motors Financial Co., Inc., 3.50%, 7/10/19^ | 391,090 | ||||||
5,763,000 | General Motors Financial Co., Inc., 4.38%, 9/25/21^ | 6,015,130 | ||||||
200,000 | General Motors Financial Co., Inc., 4.25%, 5/15/23^ | 203,978 | ||||||
112,000 | Hyundai Capital America, Inc., 1.63%, 10/2/15(a) | 112,459 | ||||||
378,000 | Hyundai Capital America, Inc., 1.45%, 2/6/17^(a) | 376,579 | ||||||
124,000 | Hyundai Capital America, Inc., 2.13%, 10/2/17(a) | 124,605 | ||||||
161,000 | Hyundai Capital America, Inc., 2.88%, 8/9/18(a) | 164,252 | ||||||
378,000 | Hyundai Capital America, Inc., 2.55%, 2/6/19(a) | 378,052 | ||||||
444,000 | JPMorgan Chase Bank NA, Series BKNT, 6.00%, 10/1/17 | 492,789 | ||||||
161,000 | Tanger Properties LP, 3.88%, 12/1/23, Callable 9/1/23 @ 100 | 164,823 | ||||||
275,000 | Tanger Properties LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 277,132 | ||||||
|
| |||||||
20,621,527 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.9%): |
| ||||||
820,000 | CenturyLink, Inc., Series N, 6.00%, 4/1/17^ | 871,250 | ||||||
28,000 | CenturyLink, Inc., Series R, 5.15%, 6/15/17^ | 29,330 | ||||||
62,000 | CenturyLink, Inc., Series Q, 6.15%, 9/15/19 | 66,960 | ||||||
582,000 | Verizon Communications, Inc., 2.63%, 2/21/20(a) | 575,346 | ||||||
3,751,000 | Verizon Communications, Inc., 4.50%, 9/15/20 | 4,072,674 | ||||||
346,000 | Verizon Communications, Inc., 6.40%, 9/15/33 | 426,197 | ||||||
500,000 | Verizon Communications, Inc., 6.25%, 4/1/37 | 613,623 | ||||||
760,000 | Verizon Communications, Inc., 6.55%, 9/15/43 | 973,673 | ||||||
930,000 | Verizon Communications, Inc., 5.01%, 8/21/54(a) | 962,131 | ||||||
|
| |||||||
8,591,184 | ||||||||
|
| |||||||
| Electric Utilities (2.1%): |
| ||||||
146,000 | American Transmission Systems, Inc., 5.00%, 9/1/44, Callable 3/1/44 @ 100(a) | 156,186 |
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Electric Utilities, continued |
| ||||||
$ | 1,000,000 | Dynegy Finance I, Inc. / Dynegy Finance II, Inc., 7.38%, 11/1/22, Callable 11/1/18 @ 103.69(a) | $ | 1,017,500 | ||||
482,000 | FirstEnergy Corp., Series A, 2.75%, 3/15/18, Callable 2/15/18 @ 100 | 485,725 | ||||||
1,544,000 | FirstEnergy Corp., Series B, 4.25%, 3/15/23, Callable 12/15/22 @ 100^ | 1,593,121 | ||||||
3,583,000 | FirstEnergy Corp., Series C, 7.38%, 11/15/31 | 4,336,742 | ||||||
34,000 | Ingersoll-Rand Global Holding Co., Ltd., 2.88%, 1/15/19 | 34,536 | ||||||
91,000 | Northeast Utilities, 1.45%, 5/1/18, Callable 4/1/18 @ 100 | 89,618 | ||||||
117,000 | NV Energy, Inc., 6.25%, 11/15/20^ | 137,460 | ||||||
600,000 | Progress Energy, Inc., 4.40%, 1/15/21, Callable 10/15/20 @ 100 | 653,963 | ||||||
49,000 | Puget Energy, Inc., 6.00%, 9/1/21 | 57,323 | ||||||
1,000,000 | West Penn Power Co., 5.95%, 12/15/17(a) | 1,113,168 | ||||||
|
| |||||||
9,675,342 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.2%): |
| ||||||
985,000 | Pemex Proj FDG Master TR, 5.75%, 3/1/18 | 1,063,800 | ||||||
|
| |||||||
| Food & Staples Retailing (0.4%): |
| ||||||
370,000 | Kroger Co. (The), 3.30%, 1/15/21, Callable 12/15/20 @ 100 | 375,473 | ||||||
1,000,000 | Post Holdings, Inc., 6.75%, 12/1/21, Callable 12/1/17 @ 103.38^(a) | 970,001 | ||||||
229,000 | Walgreens Boots Alliance, Inc., 2.70%, 11/18/19, Callable 10/18/19 @ 100 | 230,165 | ||||||
271,000 | Walgreens Boots Alliance, Inc., 3.30%, 11/18/21, Callable 9/18/21 @ 100 | 272,885 | ||||||
|
| |||||||
1,848,524 | ||||||||
|
| |||||||
| Food Products (0.2%): |
| ||||||
130,000 | ConAgra Foods, Inc., 1.90%, 1/25/18 | 129,134 | ||||||
110,000 | ConAgra Foods, Inc., 3.20%, 1/25/23, Callable 10/25/22 @ 100 | 107,747 | ||||||
216,000 | Wm. Wrigley Jr. Co., 1.40%, 10/21/16(a) | 216,175 | ||||||
309,000 | Wm. Wrigley Jr. Co., 2.00%, 10/20/17(a) | 311,229 | ||||||
|
| |||||||
764,285 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.1%): |
| ||||||
138,000 | Becton Dickinson & Co., 2.68%, 12/15/19 | 139,815 | ||||||
128,000 | Becton Dickinson & Co., 4.69%, 12/15/44, Callable 6/15/44 @ 100 | 137,851 | ||||||
|
| |||||||
277,666 | ||||||||
|
| |||||||
| Health Care Providers & Services (1.2%): |
| ||||||
1,000,000 | Community Health System, Inc., 6.88%, 2/1/22, Callable 2/1/18 @ 103.44^ | 1,059,375 | ||||||
500,000 | Express Scripts Holding Co., 4.75%, 11/15/21 | 551,777 | ||||||
1,600,000 | Express Scripts Holding Co., 3.90%, 2/15/22 | 1,666,130 | ||||||
300,000 | McKesson Corp., 2.28%, 3/15/19 | 299,374 | ||||||
1,900,000 | Tenet Healthcare Corp., 8.13%, 4/1/22 | 2,123,249 | ||||||
|
| |||||||
5,699,905 | ||||||||
|
| |||||||
| Health Care Services (0.2%): |
| ||||||
900,000 | HCA, Inc., 6.50%, 2/15/20 | 1,008,450 | ||||||
|
|
Continued
6
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Household Durables (0.2%): |
| ||||||
$ | 900,000 | William Lyon Homes, Inc., 8.50%, 11/15/20, Callable 11/15/16 @ 104.25 | $ | 969,750 | ||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (1.1%): |
| ||||||
900,000 | AES Corp., 4.88%, 5/15/23, Callable 3/15/18 @ 102.44 | 893,250 | ||||||
1,313,000 | Dominion Resources, Inc., Series 06-B, 2.56%, 9/30/66, Callable 1/29/15 @ 100(b) | 1,234,549 | ||||||
1,000,000 | Murray Energy Corp., 8.63%, 6/15/21, Callable 6/15/16 @ 106.47(a) | 955,000 | ||||||
900,000 | NRG Energy, Inc., 6.25%, 5/1/24, Callable 5/1/19 @ 103.13(a) | 915,750 | ||||||
863,754 | NSG Holdings, LLC / NSG Holdings, Inc., 7.75%, 12/15/25(a) | 919,898 | ||||||
|
| |||||||
4,918,447 | ||||||||
|
| |||||||
| Insurance (2.1%): |
| ||||||
307,000 | American International Group, Inc., Series G, 5.60%, 10/18/16, MTN^ | 329,895 | ||||||
103,000 | American International Group, Inc., 4.88%, 6/1/22 | 115,704 | ||||||
600,000 | Aon plc, 5.00%, 9/30/20 | 669,973 | ||||||
1,100,000 | Five Corners Funding Trust, 4.42%, 11/15/23(a) | 1,159,052 | ||||||
59,000 | Hartford Financial Services Group, Inc. (The), 5.13%, 4/15/22 | 66,321 | ||||||
700,000 | Liberty Mutual Group, Inc., 5.00%, 6/1/21(a) | 762,511 | ||||||
180,000 | Liberty Mutual Group, Inc., 4.25%, 6/15/23(a) | 185,486 | ||||||
978,000 | Marsh & McLennan Cos., Inc., 4.80%, 7/15/21, Callable 4/15/21 @ 100 | 1,086,968 | ||||||
291,000 | MetLife Global Funding, Inc., 1.88%, 6/22/18(a) | 290,806 | ||||||
300,000 | Northwestern Mutual Life Insurance Co. (The), 6.06%, 3/30/40(a) | 387,786 | ||||||
1,077,000 | Pacific Life Corp., 6.00%, 2/10/20(a) | 1,224,207 | ||||||
500,000 | Pacific Life Corp., 9.25%, 6/15/39(a) | 786,502 | ||||||
436,000 | Pacific Life Corp., 5.13%, 1/30/43(a) | 479,504 | ||||||
50,000 | Prudential Financial, Inc., 2.30%, 8/15/18 | 50,579 | ||||||
65,000 | Symetra Financial Corp., 6.13%, 4/1/16(a) | 68,194 | ||||||
497,000 | Teachers Insurance & Annuity Association of America, 4.90%, 9/15/44(a) | 553,831 | ||||||
114,000 | Tiaa Asset Management Finance LLC, 2.95%, 11/1/19(a) | 114,221 | ||||||
165,000 | Tiaa Asset Management Finance LLC, 4.13%, 11/1/24(a) | 169,029 | ||||||
854,000 | Unum Group, 5.75%, 8/15/42 | 988,100 | ||||||
|
| |||||||
9,488,669 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): |
| ||||||
104,000 | Thermo Fisher Scientific, Inc., 1.30%, 2/1/17 | 103,418 | ||||||
66,000 | Thermo Fisher Scientific, Inc., 2.40%, 2/1/19^ | 66,098 | ||||||
|
| |||||||
169,516 | ||||||||
|
| |||||||
| Media (1.3%): |
| ||||||
750,000 | Comcast Corp., 4.75%, 3/1/44 | 835,794 | ||||||
134,000 | COX Communications, Inc., 3.25%, 12/15/22(a) | 131,566 | ||||||
800,000 | McGraw-Hill Global Education Holdings, LLC, 9.75%, 4/1/21, Callable 4/16/21 @ 107.31 | �� | 884,000 | |||||
395,000 | News America, Inc., 7.75%, 12/1/45 | 594,199 | ||||||
101,000 | Time Warner Cable, Inc., 5.85%, 5/1/17 | 110,246 |
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Media, continued |
| ||||||
$ | 716,000 | Time Warner Cable, Inc., 8.25%, 4/1/19 | $ | 876,486 | ||||
1,000,000 | Time Warner Cable, Inc., 4.13%, 2/15/21, Callable 11/15/20 @ 100 | 1,070,191 | ||||||
623,000 | Time Warner Cable, Inc., 4.00%, 9/1/21, Callable 6/1/21 @ 100 | 663,054 | ||||||
775,000 | Time Warner, Inc., 2.10%, 6/1/19^ | 763,534 | ||||||
46,000 | Viacom, Inc., 2.50%, 9/1/18 | 46,407 | ||||||
|
| |||||||
5,975,477 | ||||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
274,000 | Alcoa, Inc., 5.13%, 10/1/24, Callable 7/1/24 @ 100^ | 290,377 | ||||||
|
| |||||||
| Multi-Utilities (0.1%): |
| ||||||
305,000 | FirstEnergy Solutions Co., 6.05%, 8/15/21^ | 337,736 | ||||||
56,000 | PG&E Corp., 2.40%, 3/1/19, Callable 2/1/19 @ 100^ | 56,085 | ||||||
|
| |||||||
393,821 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (3.6%): |
| ||||||
800,000 | Access Midstream Partner, 4.88%, 3/15/24, Callable 3/15/19 @ 102.43 | 812,000 | ||||||
3,900,000 | Anadarko Petroleum Corp., 6.38%, 9/15/17 | 4,336,028 | ||||||
404,000 | Berkshire Hathaway Energy Co., 2.00%, 11/15/18, Callable 10/15/18 @ 100 | 403,158 | ||||||
166,000 | DCP Midstream Operating LLC, 2.50%, 12/1/17, Callable 11/1/17 @ 100 | 165,809 | ||||||
37,000 | DCP Midstream Operating LLC, 2.70%, 4/1/19, Callable 3/1/19 @ 100 | 36,219 | ||||||
500,000 | DCP Midstream Operating LLC, 5.35%, 3/15/20(a) | 523,319 | ||||||
1,300,000 | DCP Midstream Operating LLC, 4.75%, 9/30/21(a) | 1,290,760 | ||||||
163,000 | DCP Midstream Operating LLC, 3.88%, 3/15/23, Callable 12/15/22 @ 100 | 155,981 | ||||||
1,000,000 | El Paso Pipeline Partners LP, 5.00%, 10/1/21, Callable 7/1/21 @ 100 | 1,051,730 | ||||||
117,000 | Enable Midstream Partners LP, 2.40%, 5/15/19, Callable 4/15/19 @ 100(a) | 113,794 | ||||||
124,000 | Enable Midstream Partners LP, 3.90%, 5/15/24, Callable 2/15/24 @ 100^(a) | 119,522 | ||||||
1,995,000 | Ep Energy LLC, 9.38%, 5/1/20, Callable 5/1/16 @ 104.69^ | 2,014,950 | ||||||
5,000 | Ep Energy LLC, 7.75%, 9/1/22, Callable 9/1/17 @ 103.88^ | 4,675 | ||||||
168,000 | Kinder Morgan (Delaware), Inc., 2.00%, 12/1/17 | 166,961 | ||||||
157,000 | Kinder Morgan Energy Partners LP, 2.65%, 2/1/19^ | 154,694 | ||||||
600,000 | Marathon Petroleum Corp., 5.13%, 3/1/21 | 655,822 | ||||||
1,300,000 | Phillips 66, 4.30%, 4/1/22 | 1,372,398 | ||||||
346,000 | Southeast Supply Header LLC, 4.25%, 6/15/24, Callable 3/15/24 @ 100(a) | 350,639 | ||||||
647,000 | Western Gas Partners LP, 5.38%, 6/1/21, Callable 3/1/21 @ 100 | 709,848 | ||||||
299,000 | Williams Cos., Inc., 3.70%, 1/15/23, Callable 10/15/22 @ 100 | 268,528 | ||||||
1,466,000 | Williams Cos., Inc., 4.55%, 6/24/24, Callable 3/24/24 @ 100 | 1,363,352 |
Continued
7
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
$ | 285,000 | Williams Partners LP, 4.30%, 3/4/24, Callable 12/4/23 @ 100^ | $ | 284,476 | ||||
|
| |||||||
16,354,663 | ||||||||
|
| |||||||
| Pharmaceuticals (0.2%): |
| ||||||
355,000 | AbbVie, Inc., 1.75%, 11/6/17 | 355,771 | ||||||
205,000 | Bayer US Finance LLC, 3.00%, 10/8/21(a) | 206,667 | ||||||
121,000 | Mylan, Inc., 1.35%, 11/29/16^ | 120,404 | ||||||
117,000 | Watson Pharmaceuticals, Inc., 1.88%, 10/1/17 | 116,547 | ||||||
57,000 | Zoetis, Inc., 1.88%, 2/1/18 | 56,487 | ||||||
|
| |||||||
855,876 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (4.2%): |
| ||||||
82,000 | Alexandria Real Estate Equities, Inc., 2.75%, 1/15/20, Callable 12/15/19 @ 100 | 81,216 | ||||||
102,000 | American Campus Communities, Inc., 3.75%, 4/15/23, Callable 1/15/23 @ 100 | 101,824 | ||||||
161,000 | AvalonBay Communities, Inc., 3.63%, 10/1/20, Callable 7/1/20 @ 100 | 167,455 | ||||||
1,159,000 | BioMed Realty LP, 3.85%, 4/15/16, Callable 3/15/16 @ 100 | 1,196,853 | ||||||
215,000 | BioMed Realty LP, 2.63%, 5/1/19, Callable 4/1/19 @ 100 | 214,811 | ||||||
500,000 | BioMed Realty LP, 4.25%, 7/15/22, Callable 4/15/22 @ 100 | 518,259 | ||||||
151,000 | Brandywine Operating Partners LP, 6.00%, 4/1/16 | 159,285 | ||||||
279,000 | Brandywine Operating Partners LP, 4.95%, 4/15/18, Callable 3/15/18 @ 100 | 299,912 | ||||||
357,000 | Brandywine Operating Partners LP, 3.95%, 2/15/23, Callable 11/15/22 @ 100 | 360,033 | ||||||
394,000 | Brandywine Operating Partners LP, 4.10%, 10/1/24, Callable 7/1/24 @ 100 | 394,792 | ||||||
394,000 | Brandywine Operating Partners LP, 4.55%, 10/1/29, Callable 7/1/29 @ 100 | 398,414 | ||||||
134,000 | Camden Property Trust, 2.95%, 12/15/22 | 130,710 | ||||||
1,625,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 1,660,587 | ||||||
255,000 | Corporate Office Properties LP, 3.70%, 6/15/21, Callable 4/15/21 @ 100 | 253,896 | ||||||
1,000,000 | DDR Corp., 7.50%, 4/1/17 | 1,120,382 | ||||||
1,114,000 | DDR Corp., 4.63%, 7/15/22, Callable 4/15/22 @ 100 | 1,189,204 | ||||||
700,000 | Duke Realty Corp., 4.38%, 6/15/22, Callable 3/15/22 @ 100 | 740,993 | ||||||
256,000 | Duke Realty Corp., 3.88%, 10/15/22, Callable 7/15/22 @ 100 | 263,627 | ||||||
183,000 | Duke Realty Corp., 3.63%, 4/15/23, Callable 1/15/23 @ 100 | 183,710 | ||||||
146,000 | Duke Realty LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 147,724 | ||||||
70,000 | Equity Commonwealth, 5.88%, 9/15/20, Callable 3/15/20 @ 100 | 77,009 | ||||||
500,000 | Equity One, Inc., 3.75%, 11/15/22, Callable 8/15/22 @ 100 | 501,847 | ||||||
62,000 | Essex Portfolio LP, 5.50%, 3/15/17 | 67,142 | ||||||
500,000 | HCP, Inc., 3.15%, 8/1/22, Callable 5/1/22 @ 100 | 491,914 |
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Real Estate Investment Trusts (REITs), continued |
| ||||||
$ | 255,000 | HCP, Inc., 4.25%, 11/15/23, Callable 8/15/23 @ 100 | $ | 268,065 | ||||
800,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/15/24 @ 100 | 812,654 | ||||||
48,000 | Health Care REIT, Inc., 4.70%, 9/15/17 | 51,574 | ||||||
143,000 | Health Care REIT, Inc., 2.25%, 3/15/18 | 143,895 | ||||||
500,000 | Health Care REIT, Inc., 4.13%, 4/1/19, Callable 1/1/19 @ 100 | 531,698 | ||||||
135,000 | Lexington Realty Trust, 4.40%, 6/15/24, Callable 3/15/24 @ 100 | 136,490 | ||||||
1,000,000 | Liberty Property LP, 4.13%, 6/15/22, Callable 3/15/22 @ 100 | 1,036,626 | ||||||
184,000 | Liberty Property LP, 3.38%, 6/15/23, Callable 3/15/23 @ 100 | 179,384 | ||||||
303,000 | Mack-Cali Realty LP, 5.80%, 1/15/16 | 315,970 | ||||||
250,000 | Mack-Cali Realty LP, 2.50%, 12/15/17 | 250,999 | ||||||
500,000 | Mack-Cali Realty LP, 4.50%, 4/18/22, Callable 1/18/22 @ 100 | 503,475 | ||||||
401,000 | Mack-Cali Realty LP, 3.15%, 5/15/23, Callable 2/15/23 @ 100 | 367,201 | ||||||
1,573,000 | Mid-America Apartments LP, 4.30%, 10/15/23, Callable 7/15/23 @ 100 | 1,655,105 | ||||||
126,000 | Omega Healthcare Investors, Inc., 4.95%, 4/1/24, Callable 1/1/24 @ 100 | 131,121 | ||||||
128,000 | Omega Healthcare Investors, Inc., 4.50%, 1/15/25, Callable 10/15/24 @ 100(a) | 126,694 | ||||||
70,000 | Post Apartment Homes LP, 3.38%, 12/1/22, Callable 9/1/22 @ 100 | 68,976 | ||||||
80,000 | PPF Funding, Inc., 5.70%, 4/15/17(a) | 85,207 | ||||||
116,000 | Reckson Operating Partnership LP, 6.00%, 3/31/16 | 122,279 | ||||||
900,000 | Sabra Healthcare REIT, Inc., 5.50%, 2/1/21, Callable 2/1/17 @ 104.13 | 936,000 | ||||||
63,000 | Ventas Realty LP/Capital Corp., 1.55%, 9/26/16 | 63,253 | ||||||
190,000 | Ventas Realty LP/Capital Corp., 1.25%, 4/17/17 | 188,231 | ||||||
225,000 | Ventas Realty LP/Capital Corp., 2.00%, 2/15/18, Callable 1/15/18 @ 100^ | 225,199 | ||||||
111,000 | Ventas Realty LP/Capital Corp., 4.00%, 4/30/19, Callable 1/30/19 @ 100 | 117,469 | ||||||
67,000 | Weingarten Realty Investors, 3.38%, 10/15/22, Callable 7/15/22 @ 100 | 66,236 | ||||||
|
| |||||||
19,105,400 | ||||||||
|
| |||||||
| Retail (0.3%): |
| ||||||
1,500,000 | J.C. Penney Corp., Inc., 8.13%, 10/1/19 | 1,320,000 | ||||||
|
| |||||||
| Road & Rail (0.2%): |
| ||||||
1,000,000 | Hertz Corp., 6.75%, 4/15/19, Callable 4/15/15 @ 103.38 | 1,030,000 | ||||||
|
| |||||||
| Specialized Finance (0.2%): |
| ||||||
1,100,000 | ILFC E-Captial Trust I, 4.37%, 12/21/65, Callable 2/9/15 @ 100(a)(b) | 1,023,000 | ||||||
|
| |||||||
| Steel (0.2%): |
| ||||||
1,000,000 | JMC Steel Group, 8.25%, 3/15/18, Callable 2/9/15 @ 106.19(a) | 950,000 | ||||||
|
|
Continued
8
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Technology Hardware, Storage & Peripherals (0.1%): |
| ||||||
$ | 300,000 | Xerox Corp., 4.25%, 2/15/15 | $ | 301,185 | ||||
354,000 | Xerox Corp., 2.95%, 3/15/17 | 363,738 | ||||||
|
| |||||||
664,923 | ||||||||
|
| |||||||
| Tobacco (0.8%): |
| ||||||
1,000,000 | Altria Group, Inc., 2.63%, 1/14/20, Callable 12/14/19 @ 100 | 1,002,903 | ||||||
1,100,000 | Altria Group, Inc., 2.85%, 8/9/22 | 1,068,866 | ||||||
212,000 | Altria Group, Inc., 4.00%, 1/31/24 | 221,027 | ||||||
186,000 | Reynolds American, Inc., 3.25%, 11/1/22 | 181,172 | ||||||
600,000 | Reynolds American, Inc., 7.25%, 6/15/37 | 770,690 | ||||||
400,000 | Reynolds American, Inc., 4.75%, 11/1/42^ | 388,220 | ||||||
|
| |||||||
3,632,878 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.5%): |
| ||||||
200,000 | Air Lease Corp., 2.13%, 1/15/18 | 196,500 | ||||||
334,000 | Air Lease Corp., 4.75%, 3/1/20 | 354,875 | ||||||
379,000 | Air Lease Corp., 3.88%, 4/1/21, Callable 3/1/21 @ 100 | 380,895 | ||||||
1,331,000 | Air Lease Corp., 4.25%, 9/15/24, Callable 6/15/24 @ 100 | 1,340,983 | ||||||
|
| |||||||
2,273,253 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (2.3%): |
| ||||||
2,100,000 | Alcatel-Lucent USA, Inc., 6.75%, 11/15/20, Callable 11/15/16 @ 103.34^(a) | 2,216,550 | ||||||
233,000 | Embarq Corp., 7.08%, 6/1/16 | 251,085 | ||||||
2,990,000 | Embarq Corp., 8.00%, 6/1/36 | 3,341,325 | ||||||
1,000,000 | Level 3 Financing, Inc., 7.00%, 6/1/20, Callable 6/1/16 @ 103.5 | 1,053,750 | ||||||
900,000 | Sprint Capital Corp., 6.90%, 5/1/19 | 918,000 | ||||||
2,500,000 | T-Mobile USA, Inc., 6.38%, 3/1/25, Callable 9/1/19 @ 103.19 | 2,540,000 | ||||||
|
| |||||||
10,320,710 | ||||||||
|
| |||||||
| Total Corporate Bonds (Cost $191,404,428) | 192,276,382 | ||||||
|
| |||||||
| Yankee Dollars (14.1%): |
| ||||||
| Airlines (0.5%): |
| ||||||
1,000,000 | Air Canada, 6.75%, 10/1/19, Callable 10/1/16 @ 103.38(a) | 1,040,000 | ||||||
1,100,000 | Air Canada, 7.75%, 4/15/21^(a) | 1,145,375 | ||||||
|
| |||||||
2,185,375 | ||||||||
|
| |||||||
| Banks (3.8%): |
| ||||||
365,000 | Banco Nacional de Desenvolvimento Economico, 3.38%, 9/26/16(a) | 366,241 | ||||||
754,000 | Banco Nacional de Desenvolvimento Economico, 6.37%, 6/16/18(a) | 803,764 | ||||||
1,820,000 | Banco Nacional de Desenvolvimento Economico, 4.00%, 4/14/19(a) | 1,792,700 | ||||||
126,000 | Banco Nacional de Desenvolvimento Economico, 6.50%, 6/10/19(a) | 133,560 | ||||||
966,000 | Banco Nacional de Desenvolvimento Economico, 5.50%, 7/12/20(a) | 996,091 | ||||||
334,000 | Banco Nacional de Desenvolvimento Economico, 5.75%, 9/26/23(a) | 344,020 | ||||||
200,000 | Barclays Bank plc, 2.50%, 2/20/19 | 202,657 |
Principal | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Banks, continued |
| ||||||
$ | 42,000 | Credit Suisse, NY, 6.00%, 2/15/18 | $ | 46,720 | ||||
205,000 | HSBC Holdings plc, 4.25%, 3/14/24 | 213,319 | ||||||
1,161,000 | Intesa Sanpaolo SpA, 3.13%, 1/15/16 | 1,179,350 | ||||||
2,700,000 | Intesa Sanpaolo SpA, 2.38%, 1/13/17 | 2,723,632 | ||||||
2,550,000 | Royal Bank of Scotland Group plc, 6.13%, 12/15/22^ | 2,775,436 | ||||||
452,000 | Royal Bank of Scotland Group plc, 6.10%, 6/10/23 | 490,237 | ||||||
1,659,000 | Royal Bank of Scotland Group plc, 6.00%, 12/19/23 | 1,795,698 | ||||||
2,212,000 | Royal Bank of Scotland Group plc, 5.13%, 5/28/24 | 2,250,027 | ||||||
1,000,000 | Sumitomo Mitsui Banking Corp., 1.30%, 1/10/17^ | 998,105 | ||||||
700,000 | UBS AG Stamford CT, 2.38%, 8/14/19 | 699,959 | ||||||
|
| |||||||
17,811,516 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.2%): |
| ||||||
1,000,000 | GardaWorld Security Corp., 7.25%, 11/15/21, Callable 11/15/16 @ 105.44(a) | 990,000 | ||||||
|
| |||||||
| Containers & Packaging (0.0%): |
| ||||||
75,000 | Tyco Electronics Group SA, 2.38%, 12/17/18, Callable 11/17/18 @ 100 | 75,646 | ||||||
|
| |||||||
| Diversified Financial Services (0.4%): |
| ||||||
900,000 | AerCap Ireland Capital, Ltd./ and AerCap Global Aviation Trust, 5.00%, 10/1/21^(a) | 931,500 | ||||||
900,000 | BP Capital Markets plc, 4.74%, 3/11/21 | 979,658 | ||||||
|
| |||||||
1,911,158 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.5%): |
| ||||||
2,150,000 | JBS Investments GMBH, 7.75%, 10/28/20, Callable 10/28/17 @ 103.88(a) | 2,226,325 | ||||||
|
| |||||||
| Hotels, Resorts & Cruise Lines (0.2%): |
| ||||||
800,000 | Royal Caribbean Cruises, 7.50%, 10/15/27 | 900,000 | ||||||
|
| |||||||
| Insurance (0.0%): |
| ||||||
200,000 | AIA Group, Ltd., 2.25%, 3/11/19(a) | 199,106 | ||||||
|
| |||||||
| Media (0.3%): |
| ||||||
1,000,000 | Columbus International, Inc., 7.38%, 3/30/21, Callable 3/30/18 @ 103.69(a) | 1,040,000 | ||||||
123,000 | Thomson Reuters Corp., 1.30%, 2/23/17 | 122,355 | ||||||
314,000 | Thomson Reuters Corp., 3.85%, 9/29/24, Callable 6/29/24 @ 100 | 317,449 | ||||||
|
| |||||||
1,479,804 | ||||||||
|
| |||||||
| Metals & Mining (0.3%): |
| ||||||
200,000 | Codelco, Inc., 5.63%, 10/18/43(a) | 225,689 | ||||||
200,000 | Codelco, Inc., 4.88%, 11/4/44(a) | 203,133 | ||||||
1,000,000 | Vale Overseas, Ltd., 6.25%, 1/11/16 | 1,039,600 | ||||||
|
| |||||||
1,468,422 | ||||||||
|
| |||||||
| Miscellaneous Manufacturing (0.5%): |
| ||||||
107,000 | Ingersoll-Rand Lux Financial Holding, 2.63%, 5/1/20, Callable 4/1/20 @ 100 | 106,307 | ||||||
2,100,000 | Trinseo Materials Operating SCA, 8.75%, 2/1/19, Callable 8/1/15 @ 104.38 | 2,128,875 | ||||||
|
| |||||||
2,235,182 | ||||||||
|
|
Continued
9
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Oil, Gas & Consumable Fuels (4.5%): |
| ||||||
$ | 164,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | $ | 163,035 | ||||
676,000 | Canadian Natural Resources, Ltd., 3.90%, 2/1/25, Callable 11/1/24 @ 100^ | 666,378 | ||||||
330,000 | Empresa Nacional del Petroleo, 4.38%, 10/30/24(a) | 322,795 | ||||||
762,000 | Petrobras Global Finance BV, 3.25%, 3/17/17 | 718,185 | ||||||
1,080,000 | Petrobras Global Finance BV, 3.00%, 1/15/19^ | 954,796 | ||||||
2,613,000 | Petrobras Global Finance BV, 4.88%, 3/17/20 | 2,444,487 | ||||||
234,000 | Petrobras Global Finance BV, 4.38%, 5/20/23 | 201,259 | ||||||
823,000 | Petrobras Global Finance BV, 5.63%, 5/20/43 | 670,951 | ||||||
1,793,000 | Petrobras Global Finance BV, 7.25%, 3/17/44 | 1,770,587 | ||||||
1,000,000 | Petrobras International Finance Co., 3.50%, 2/6/17^ | 954,910 | ||||||
1,087,000 | Petrobras International Finance Co., 5.75%, 1/20/20^ | 1,049,727 | ||||||
3,241,000 | Petrobras International Finance Co., 5.38%, 1/27/21 | 3,003,013 | ||||||
2,000,000 | Petroleos de Venezuela SA, 8.50%, 11/2/17^(a) | 1,144,000 | ||||||
450,000 | Petroleos Mexicanos, 3.50%, 7/18/18 | 455,625 | ||||||
237,000 | Petroleos Mexicanos, 8.00%, 5/3/19 | 280,253 | ||||||
151,000 | Petroleos Mexicanos, 6.00%, 3/5/20^ | 169,498 | ||||||
285,000 | Petroleos Mexicanos, 3.50%, 1/30/23 | 272,603 | ||||||
1,169,000 | Petroleos Mexicanos, 4.88%, 1/18/24 | 1,214,591 | ||||||
696,000 | Petroleos Mexicanos, 6.50%, 6/2/41 | 798,660 | ||||||
1,761,000 | Petroleos Mexicanos, 5.50%, 6/27/44 | 1,796,219 | ||||||
1,000,000 | Transocean, Inc., 5.05%, 12/15/16 | 1,004,788 | ||||||
|
| |||||||
20,056,360 | ||||||||
|
| |||||||
| Paper & Forest Products (0.2%): |
| ||||||
900,000 | Sappi, Ltd., 6.63%, 4/15/21(a) | 922,500 | ||||||
|
| |||||||
| Pharmaceuticals (0.3%): |
| ||||||
774,000 | Actavis Funding SCS, 1.30%, 6/15/17 | 759,901 | ||||||
230,000 | Actavis Funding SCS, 2.45%, 6/15/19 | 226,078 | ||||||
200,000 | Perrigo Co. PLC, 2.30%, 11/8/18 | 199,842 | ||||||
200,000 | Perrigo Finance PLC, 3.50%, 12/15/21, Callable 10/15/21 @ 100 | 202,333 | ||||||
200,000 | Perrigo Finance PLC, 3.90%, 12/15/24, Callable 9/15/24 @ 100 | 203,659 | ||||||
|
| |||||||
1,591,813 | ||||||||
|
| |||||||
| Sovereign Bonds (1.1%): |
| ||||||
255,000 | Italy Government International Bond, 5.38%, 6/12/17 | 276,864 | ||||||
1,170,000 | Republic of Argentina, 1.74%, 10/3/15 | 1,154,790 | ||||||
1,500,000 | Republic of Belarus, 8.95%, 1/26/18 | 1,375,350 | ||||||
1,500,000 | Republic of Indonesia, 5.38%, 10/17/23 | 1,635,000 | ||||||
|
| |||||||
4,442,004 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.0%): |
| ||||||
200,000 | RBS Citizens Financial Group, Inc., 4.15%, 9/28/22(a) | 204,707 | ||||||
|
| |||||||
| Transportation & Shipping (0.2%): |
| ||||||
900,000 | Navios Maritime Holdings/Finance, 7.38%, 1/15/22, Callable 1/15/17 @ 106(a) | 823,500 | ||||||
|
|
Principal | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Wireless Telecommunication Services (1.1%): |
| ||||||
$ | 1,000,000 | Altice SA, 9.88%, 12/15/20(a) | $ | 1,068,932 | ||||
2,000,000 | Altice SA, 7.75%, 5/15/22, Callable 5/15/17 @ 106(a) | 2,003,750 | ||||||
2,100,000 | Digicel Group, Ltd., 8.25%, 9/30/20, Callable 9/30/16 @ 104.13(a) | 2,037,000 | ||||||
|
| |||||||
5,109,682 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $66,537,738) | 64,633,100 | ||||||
|
| |||||||
| Municipal Bonds (5.0%): |
| ||||||
| California (1.6%): |
| ||||||
10,000 | California State, Build America Bonds, GO, 7.35%, 11/1/39 | 14,812 | ||||||
15,000 | California State, Build America Bonds, GO, 7.63%, 3/1/40 | 23,025 | ||||||
2,825,000 | California State, Build America Bonds, GO, 7.60%, 11/1/40 | 4,407,932 | ||||||
400,000 | California State, Build America Bonds, GO, 7.50%, 4/1/34 | 594,632 | ||||||
1,125,000 | California State, Build America Bonds, GO, 7.55%, 4/1/39 | 1,736,089 | ||||||
460,000 | California State, Build America Bonds, GO, 7.30%, 10/1/39 | 677,575 | ||||||
|
| |||||||
7,454,065 | ||||||||
|
| |||||||
| Illinois (3.4%): |
| ||||||
35,000 | Illinois State, GO, 4.96%, 3/1/16 | 36,461 | ||||||
15,000 | Illinois State, GO, 5.37%, 3/1/17 | 16,058 | ||||||
35,000 | Illinois State, GO, 4.35%, 6/1/18 | 36,524 | ||||||
5,665,000 | Illinois State, GO, 5.10%, 6/1/33 | 5,623,588 | ||||||
455,000 | Illinois State, GO, 1.28%, 12/1/15 | 455,491 | ||||||
420,000 | Illinois State, GO, 4.00%, 12/1/20 | 423,641 | ||||||
565,000 | Illinois State, GO, 5.67%, 3/1/18 | 618,692 | ||||||
880,000 | Illinois State, GO, 5.88%, 3/1/19 | 971,626 | ||||||
1,935,000 | Illinois State, Build America Bonds, GO, 7.35%, 7/1/35 | 2,276,044 | ||||||
105,000 | Chicago Illinois, Taxable Project, GO, Series B, 5.43%, 1/1/42 | 98,905 | ||||||
770,000 | Chicago Illinois, Taxable Project, GO, Series B, 6.31%, 1/1/44 | 815,692 | ||||||
80,000 | Chicago Illinois, GO, Series B, 5.63%, 1/1/22 | 85,629 | ||||||
395,000 | Chicago Illinois, Taxable Project, GO, Series C1, 7.78%, 1/1/35 | 468,794 | ||||||
315,000 | Illinois State, Build America Bonds, GO, Series 3, 6.73%, 4/1/35 | 352,397 | ||||||
10,000 | Illinois State, Build America Bonds, GO, Series 3, 5.55%, 4/1/19 | 10,783 | ||||||
2,500,000 | Illinois State Finance Authority Revenue, Series A, 4.55%, 10/1/18 | 2,568,375 | ||||||
315,000 | Illinois State, Build America Bonds, GO, 6.63%, 2/1/35 | 350,699 | ||||||
|
| |||||||
15,209,399 | ||||||||
|
| |||||||
| Total Municipal Bonds (Cost $21,650,366) | 22,663,464 | ||||||
|
|
Continued
10
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal | Fair Value | |||||||
| U.S. Government Agency Mortgages (12.7%): |
| ||||||
| Federal Home Loan Mortgage Corporation (2.7%) |
| ||||||
$ | 1,457,652 | 4.00%, 2/1/41, Pool #A96807 | $ | 1,555,666 | ||||
185,086 | 4.50%, 3/1/41, Pool #A97673 | 200,863 | ||||||
297,290 | 4.50%, 4/1/41, Pool #A97942 | 322,608 | ||||||
122,222 | 3.50%, 8/1/42, Pool #Q10164 | 127,223 | ||||||
130,656 | 3.50%, 8/1/42, Pool #Q10047 | 136,054 | ||||||
127,707 | 3.50%, 8/1/42, Pool #Q10434 | 133,006 | ||||||
133,386 | 3.50%, 9/1/42, Pool #Q11244 | 138,886 | ||||||
96,619 | 4.00%, 11/1/42, Pool #Q13121 | 103,513 | ||||||
85,921 | 3.50%, 11/1/42, Pool #G07231 | 89,463 | ||||||
876,362 | 3.50%, 4/1/43, Pool #Q17209 | 912,191 | ||||||
195,192 | 4.00%, 5/1/43, Pool #Q18481 | 209,171 | ||||||
98,410 | 4.00%, 7/1/43, Pool #Q19597 | 105,476 | ||||||
997,941 | 3.00%, 10/1/43, Pool #G08553 | 1,009,400 | ||||||
99,714 | 4.00%, 10/1/43, Pool #Q22499 | 106,875 | ||||||
591,620 | 4.00%, 11/1/43, Pool #Q23023 | 635,314 | ||||||
199,407 | 4.00%, 1/1/44, Pool #V80950 | 213,736 | ||||||
6,341,193 | 3.50%, 2/1/44, Pool #U99114 | 6,619,537 | ||||||
|
| |||||||
12,618,982 | ||||||||
|
| |||||||
| Federal National Mortgage Association (8.0%) |
| ||||||
99,999 | 2.50%, 10/1/28, Pool #AU2669 | 102,021 | ||||||
1,000,001 | 2.50%, 8/1/29, Pool #AW0052 | 1,019,347 | ||||||
700,000 | 3.00%, 12/25/29 | 728,431 | ||||||
311,067 | 3.50%, 1/1/34, Pool #AS1611 | 327,618 | ||||||
106,738 | 3.50%, 1/1/34, Pool #AS1406 | 112,429 | ||||||
233,884 | 3.50%, 1/1/34, Pool #AS1612 | 246,395 | ||||||
46,123 | 3.50%, 1/1/34, Pool #AS1614 | 48,654 | ||||||
77,776 | 6.00%, 10/1/34, Pool #AL2130 | 89,547 | ||||||
282,502 | 5.50%, 1/1/35, Pool #735141 | 317,519 | ||||||
143,330 | 5.50%, 9/1/36, Pool #AD0500 | 161,352 | ||||||
1,020,816 | 6.00%, 1/1/37, Pool #932030 | 1,160,917 | ||||||
213,420 | 6.00%, 3/1/37, Pool #889506 | 242,811 | ||||||
259,835 | 6.00%, 1/1/38, Pool #889371 | 298,715 | ||||||
90,741 | 6.00%, 3/1/38, Pool #889219 | 104,552 | ||||||
52,141 | 6.00%, 7/1/38, Pool #889733 | 60,018 | ||||||
347,701 | 6.00%, 5/1/40, Pool #AL2129 | 400,165 | ||||||
595,084 | 4.50%, 8/1/40, Pool #AE0217 | 647,268 | ||||||
28,073 | 4.00%, 9/1/40, Pool #AD5173 | 30,004 | ||||||
31,039 | 4.00%, 10/1/40, Pool #AE4428 | 33,169 | ||||||
32,976 | 4.00%, 10/1/40, Pool #AE4047 | 35,247 | ||||||
88,501 | 4.00%, 10/1/40, Pool #AE4044 | 94,565 | ||||||
187,451 | 4.00%, 12/1/40, Pool #AA4757 | 200,338 | ||||||
88,618 | 4.00%, 12/1/40, Pool #AE7856 | 94,726 | ||||||
250,000 | 4.50%, 8/1/41, Pool #AI8715 | 273,912 | ||||||
876,328 | 4.00%, 10/1/41, Pool #AL2512 | 936,370 | ||||||
34,104 | 6.00%, 1/1/42, Pool #AL2128 | 39,394 | ||||||
250,000 | 4.50%, 4/1/42, Pool #AK8453 | 271,684 | ||||||
250,000 | 4.50%, 4/1/42, Pool #AO0186 | 271,630 | ||||||
200,550 | 4.50%, 6/1/42, Pool #AO6381 | 217,939 | ||||||
200,000 | 4.50%, 7/1/42, Pool #AO5544 | 217,369 | ||||||
250,000 | 4.50%, 10/1/42, Pool #AP9743 | 271,370 | ||||||
492,424 | 2.50%, 2/1/43, Pool #AB8465 | 481,486 | ||||||
394,455 | 3.00%, 6/1/43, Pool #AT5691 | 399,635 | ||||||
149,377 | 3.00%, 6/1/43, Pool #AU5339 | 151,330 | ||||||
382,636 | 3.00%, 6/1/43, Pool #AR7110 | 387,572 | ||||||
365,032 | 3.00%, 7/1/43, Pool #AU2555 | 369,751 |
Principal | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued |
| ||||||
| Federal National Mortgage Association, continued |
| ||||||
$ | 315,042 | 3.00%, 9/1/43, Pool #AU4674 | $ | 319,013 | ||||
4,984,960 | 3.00%, 10/1/43, Pool #AU4405 | 5,048,653 | ||||||
14,469,695 | 3.50%, 1/1/44, Pool #AL6167 | 15,107,094 | ||||||
500,000 | 5.50%, 1/25/44 | 559,297 | ||||||
500,000 | 4.00%, 2/25/44 | 532,260 | ||||||
197,120 | 4.00%, 9/1/44, Pool #AS3236 | 210,626 | ||||||
91,572 | 4.00%, 11/1/44, Pool #AX9367 | 97,849 | ||||||
57,759 | 4.00%, 11/1/44, Pool #AX8968 | 61,719 | ||||||
61,011 | 4.00%, 12/1/44, Pool #MA2127 | 65,193 | ||||||
191,395 | 4.00%, 12/1/44, Pool #AS4169 | 204,516 | ||||||
76,221 | 4.00%, 12/1/44, Pool #AX9135 | 81,446 | ||||||
78,883 | 4.00%, 12/1/44, Pool #AW9502 | 84,328 | ||||||
107,118 | 4.00%, 12/1/44, Pool #AW8816 | 114,462 | ||||||
58,250 | 4.00%, 12/1/44, Pool #AX9370 | 62,243 | ||||||
43,765 | 4.00%, 12/1/44, Pool #AY0510 | 46,765 | ||||||
62,396 | 4.00%, 12/1/44, Pool #AY0045 | 66,673 | ||||||
397,290 | 4.00%, 12/1/44, Pool #AX9961 | 424,526 | ||||||
79,483 | 4.00%, 1/1/45, Pool #AS4183 | 84,932 | ||||||
600,000 | 5.00%, 1/25/45 | 662,895 | ||||||
1,200,000 | 3.50%, 1/25/45 | 1,250,906 | ||||||
200,000 | 4.00%, 1/25/45 | 213,451 | ||||||
|
| |||||||
36,144,097 | ||||||||
|
| |||||||
| Government National Mortgage Association (2.0%) |
| ||||||
25,938 | 5.00%, 6/15/34, Pool #629493 | 28,735 | ||||||
498,306 | 5.50%, 6/15/35, Pool #783800 | 558,582 | ||||||
24,917 | 5.00%, 3/15/38, Pool #676766 | 27,452 | ||||||
17,535 | 5.00%, 4/15/38, Pool #672672 | 19,319 | ||||||
55,642 | 5.00%, 8/15/38, Pool #687818 | 61,265 | ||||||
578,054 | 5.00%, 1/15/39, Pool #705997 | 639,345 | ||||||
4,768 | 5.00%, 3/15/39, Pool #697946 | 5,272 | ||||||
569,672 | 5.00%, 3/15/39, Pool #646746 | 629,951 | ||||||
743,225 | 4.00%, 10/15/40, Pool #783143 | 798,952 | ||||||
1,684,584 | 4.50%, 3/20/41, Pool #4978 | 1,848,264 | ||||||
1,176,357 | 4.00%, 5/20/41, Pool #5054 | 1,264,890 | ||||||
386,757 | 4.00%, 12/20/41, Pool #5259 | 415,160 | ||||||
223,051 | 3.50%, 7/20/42, Pool #MA0220 | 234,510 | ||||||
824,738 | 3.50%, 4/20/43, Pool #MA0934 | 866,940 | ||||||
97,506 | 3.50%, 7/20/43, Pool #MA1157 | 102,486 | ||||||
1,000,000 | 4.50%, 1/20/44 | 1,092,617 | ||||||
700,000 | 4.00%, 1/20/45 | 750,523 | ||||||
|
| |||||||
9,344,263 | ||||||||
|
| |||||||
| Total U.S. Government Agency Mortgages (Cost $57,662,721) | 58,107,342 | ||||||
|
| |||||||
| U.S. Treasury Obligations (11.7%): |
| ||||||
| U.S. Treasury Bond (2.3%) |
| ||||||
9,946,000 | 3.00%, 11/15/44 | 10,452,629 | ||||||
|
| |||||||
| U.S. Treasury Inflation Index Bonds (1.2%) |
| ||||||
4,930,000 | 1.38%, 2/15/44 | 5,684,491 | ||||||
|
| |||||||
| U.S. Treasury Note (8.2%) |
| ||||||
29,183,000 | 0.88%, 11/15/17 | 29,043,915 | ||||||
8,295,000 | 1.00%, 12/15/17 | 8,275,557 | ||||||
|
| |||||||
37,319,472 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $52,887,995) | 53,456,592 | ||||||
|
|
Continued
11
AZL Pyramis Core Bond Fund
Schedule of Portfolio Investments
December 31, 2014
Principal Amount or Shares | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (6.7%): |
| ||||||
$ | 30,857,494 | Allianz Variable Insurance Products Securities Lending Collateral Trust (c) | $ | 30,857,494 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 30,857,494 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.6%): |
| ||||||
7,483,253 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00% (d) | 7,483,253 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $7,483,253) | 7,483,253 | ||||||
|
| |||||||
| Total Investment Securities (Cost $494,718,100)(e) — 108.2% | 494,806,422 | ||||||
| Net other assets (liabilities) — (8.2)% | (37,519,754 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 457,286,668 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
GO—General Obligation
MTN—Medium Term Note
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $29,801,439. |
(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 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, 2014. The date presented represents the final maturity date. |
(c) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(d) | The rate represents the effective yield at December 31, 2014. |
(e) | 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 investments as of December 31, 2014:
Country | Percentage | |||
Argentina | 0.2 | % | ||
Austria | 0.6 | % | ||
Barbados | 0.2 | % | ||
Belarus | 0.3 | % | ||
Bermuda | 0.4 | % | ||
Brazil | 0.9 | % | ||
Canada | 0.9 | % | ||
Cayman Islands | 1.4 | % | ||
Chile | 0.2 | % | ||
Hong Kong | — | %NM | ||
Indonesia | 0.3 | % | ||
Ireland | 0.3 | % | ||
Italy | 0.8 | % | ||
Japan | 0.2 | % | ||
Liberia | 0.2 | % | ||
Luxembourg | 1.3 | % | ||
Marshall Islands | 0.2 | % | ||
Mexico | 1.0 | % | ||
Netherlands | 1.4 | % | ||
Switzerland | 0.2 | % | ||
United Kingdom | 1.9 | % | ||
United States | 86.9 | % | ||
Venezuela | 0.2 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
See accompanying notes to the financial statements.
12
AZL Pyramis Core Bond Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 494,718,100 | |||
|
| ||||
Investment securities, at value* | $ | 494,806,422 | |||
Interest and dividends receivable | 3,689,569 | ||||
Receivable for investments sold | 8,858,032 | ||||
Prepaid expenses | 3,511 | ||||
|
| ||||
Total Assets | 507,357,534 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 16,814,596 | ||||
Payable for capital shares redeemed | 2,078,930 | ||||
Payable for collateral received on loaned securities | 30,857,494 | ||||
Manager fees payable | 194,249 | ||||
Administration fees payable | 14,357 | ||||
Distribution fees payable | 97,124 | ||||
Custodian fees payable | 2,940 | ||||
Administrative and compliance services fees payable | 1,019 | ||||
Trustee fees payable | 20 | ||||
Other accrued liabilities | 10,137 | ||||
|
| ||||
Total Liabilities | 50,070,866 | ||||
|
| ||||
Net Assets | $ | 457,286,668 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 449,402,583 | |||
Accumulated net investment income/(loss) | 8,816,214 | ||||
Accumulated net realized gains/(losses) from investment transactions | (1,020,451 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 88,322 | ||||
|
| ||||
Net Assets | $ | 457,286,668 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 45,091,421 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.14 | |||
|
|
* | Includes securities on loan of $29,801,439. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Interest | $ | 11,574,361 | |||
Dividends | 8 | ||||
Income from securities lending | 15,675 | ||||
|
| ||||
Total Investment Income | 11,590,044 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,981,661 | ||||
Administration fees | 165,755 | ||||
Distribution fees | 990,830 | ||||
Custodian fees | 16,062 | ||||
Administrative and compliance services fees | 5,310 | ||||
Trustee fees | 19,857 | ||||
Professional fees | 23,002 | ||||
Shareholder reports | 6,094 | ||||
Other expenses | 9,441 | ||||
|
| ||||
Total expenses | 3,218,012 | ||||
|
| ||||
Net Investment Income/(Loss) | 8,372,032 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 6,015,608 | ||||
Net realized gains/(losses) on futures contracts | 65,660 | ||||
Net realized gains/(losses) on swap agreements | 138,087 | ||||
Change in net unrealized appreciation/depreciation on investments | 5,528,827 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 11,748,182 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 20,120,214 | |||
|
|
See accompanying notes to the financial statements.
13
Statements of Changes in Net Assets
AZL Pyramis Core Bond Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 8,372,032 | $ | 4,395,875 | ||||||
Net realized gains/(losses) on investment transactions | 6,219,355 | (4,746,346 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 5,528,827 | (6,959,487 | ) | |||||||
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| |||||||
Change in net assets resulting from operations | 20,120,214 | (7,309,958 | ) | |||||||
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| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (6,291,393 | ) | (1,418,029 | ) | ||||||
From net realized gains | — | (669,238 | ) | |||||||
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| |||||||
Change in net assets resulting from dividends to shareholders | (6,291,393 | ) | (2,087,267 | ) | ||||||
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| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 116,507,125 | 60,581,406 | ||||||||
Proceeds from dividends reinvested | 6,291,393 | 2,087,267 | ||||||||
Value of shares redeemed | (49,963,875 | ) | (40,347,726 | ) | ||||||
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| |||||||
Change in net assets resulting from capital transactions | 72,834,643 | 22,320,947 | ||||||||
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| |||||||
Change in net assets | 86,663,464 | 12,923,722 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 370,623,204 | 357,699,482 | ||||||||
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| |||||||
End of period | $ | 457,286,668 | $ | 370,623,204 | ||||||
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Accumulated net investment income/(loss) | $ | 8,816,214 | $ | 6,270,698 | ||||||
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| |||||||
Share Transactions: | ||||||||||
Shares issued | 11,531,535 | 6,134,245 | ||||||||
Dividends reinvested | 627,884 | 216,746 | ||||||||
Shares redeemed | (4,953,034 | ) | (4,006,423 | ) | ||||||
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| |||||||
Change in shares | 7,206,385 | 2,344,568 | ||||||||
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See accompanying notes to the financial statements.
14
AZL Pyramis Core Bond Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2014 | Year Ended December 31, 2013 | September 5, 2012 to December 31, 2012(a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 9.78 | $ | 10.06 | $ | 10.00 | |||||||||
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Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.18 | 0.12 | 0.02 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.34 | (0.34 | ) | 0.04 | |||||||||||
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Total from Investment Activities | 0.52 | (0.22 | ) | 0.06 | |||||||||||
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Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.16 | ) | (0.04 | ) | — | ||||||||||
Net Realized Gains | — | (0.02 | ) | — | |||||||||||
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Total Dividends | (0.16 | ) | (0.06 | ) | — | ||||||||||
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Net Asset Value, End of Period | $ | 10.14 | $ | 9.78 | $ | 10.06 | |||||||||
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Total Return(b) | 5.37 | % | (2.20 | )% | 0.60 | %(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 457,287 | $ | 370,623 | $ | 357,699 | |||||||||
Net Investment Income/(Loss)(d) | 2.11 | % | 1.24 | % | 0.78 | % | |||||||||
Expenses Before Reductions(d)(e) | 0.81 | % | 0.81 | % | 0.80 | % | |||||||||
Expenses Net of Reductions(d) | 0.81 | % | 0.81 | % | 0.80 | % | |||||||||
Portfolio Turnover Rate(f) | 421 | % | 488 | % | 303 | %(c) |
(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. |
(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. |
See accompanying notes to the financial statements.
15
AZL Pyramis Core Bond Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Pyramis Core Bond Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 liquid assets 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.
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.
16
AZL Pyramis Core Bond Fund
Notes to the Financial Statements
December 31, 2014
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $8.1 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $1,563 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” 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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 Fund had no open futures contracts as of December 31, 2014. The monthly average notional amount for these contracts was $0.7 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Swap Agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund may enter into swap agreements to manage its exposure to market, interest rate and credit risk. The value of swap agreements are equal to the Fund’s obligations (or rights) under swap agreements, which will generally be equal to the net amounts to be paid or received under the agreements based upon the relative values of the positions
held by each party to the agreements. In connection with these arrangements, securities may be identified as collateral in accordance with the terms of the swap agreements to provide assets of value and recourse in the event of default or bankruptcy by the counterparty.
17
AZL Pyramis Core Bond Fund
Notes to the Financial Statements
December 31, 2014
Swaps are marked to market daily using pricing sources approved by the Trustees and the change in value, if any, is recorded as unrealized gain or loss. For OTC swaps, payments received or made at the beginning of the measurement period are recorded as realized gain or loss upon termination or maturity of the OTC swap. A liquidation payment received or made at the termination of the OTC swap is recorded as a realized gain or loss. Net periodic payments received or paid by the Fund are included as part of realized gains (losses). Upon entering a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or assets determined to be liquid (the amount is subject to the clearing organization that clears the trade). Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable, as applicable, for variation margin on centrally cleared swaps.
Swap agreements involve, to varying degrees, elements of market risk and exposure to loss. The primary risks associated with the use of swap agreements are imperfect correlation between movements in the notional amount and the price of the underlying instruments and the inability of counterparties or clearing house to perform. The counterparty risk for centrally cleared swap agreements is generally lower than for OTC swap agreements because generally a clearing organization becomes substituted for each counterparty to a centrally cleared swap agreement and, in effect, guarantees the parties’ performance under the contract as each party to a trade looks only to a clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members will satisfy its obligations to the Fund.
The notional amounts reflect the extent of the total investment exposure each Fund has under the swap agreement. The Fund bears the risk of loss of the amount expected to be received under a swap agreement (i.e., any unrealized appreciation) in the event of the default or bankruptcy of the swap agreement counterparty. The notional amount and related unrealized appreciation (depreciation) of each swap agreement at period end is disclosed in the swap tables in the Consolidated Schedule of Portfolio Investments. The Fund is party to International Swap Dealers Association, Inc. Master Agreements (“ISDA Master Agreements”) with select counterparties that govern transactions, such as OTC swap contracts, entered into by the Fund, through the Subsidiary, and those counterparties. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding OTC swap transactions under the applicable ISDA Master Agreement.
Interest rate swaps involve the exchange of commitments to pay and receive interest based on a notional amount and are subject to interest rate risk exposure. Interest rate swaps do not involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that a Fund is contractually obligated to make. If the other party to an interest rate swap defaults, a Fund’s risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive. During the year, the Fund entered into interest rate swap agreements to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk). The Fund had no open interest rate swaps as of December 31, 2014. The monthly average gross notional amount for interest rate swaps was $5.5 million for the year ended December 31, 2014.
Summary of Derivative Instruments
The following is a summary of the effect of derivative instruments on the Fund’s Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Realized Gain (Loss) on Derivatives Recognized as a Result from Operations | Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized as a Result from Operations | ||||||||||||||
Net Realized Gains (Losses) on Futures Contracts | Net Realized Gains (Losses) on Swap Agreements | Change in Net Unrealized Appreciation/Depreciation on Investments | |||||||||||||
Interest Rate Risk Exposure | $ | 65,660 | $ | 138,087 | $ | — |
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 with Pyramis Global Advisors, LLC (“Pyramis”), Pyramis 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Pyramis Core Bond Fund | 0.50 | % | 0.95 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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.During the year ended December 31, 2014, there were no voluntary waivers.
18
AZL Pyramis Core Bond Fund
Notes to the Financial Statements
December 31, 2014
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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $4,873 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
Non-exchange traded derivatives, such as swaps and certain options, are generally valued by approved independent pricing services utilizing techniques which take into account factors such as yields, 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
19
AZL Pyramis Core Bond Fund
Notes to the Financial Statements
December 31, 2014
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Asset Backed Securities | $ | — | $ | 18,845,475 | $ | 18,845,475 | |||||||||
Collateralized Mortgage Obligations | — | 46,483,320 | 46,483,320 | ||||||||||||
Corporate Bonds+ | — | 192,276,382 | 192,276,382 | ||||||||||||
Municipal Bonds | — | 22,663,464 | 22,663,464 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 30,857,494 | 30,857,494 | ||||||||||||
U.S. Government Agency Mortgages | — | 58,107,342 | 58,107,342 | ||||||||||||
U.S. Treasury Obligations | — | 53,456,592 | 53,456,592 | ||||||||||||
Yankee Dollars+ | — | �� | 64,633,100 | 64,633,100 | |||||||||||
Unaffiliated Investment Company | 7,483,253 | — | 7,483,253 | ||||||||||||
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|
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| ||||||||||
Total Investment Securities | $ | 7,483,253 | $ | 487,323,169 | $ | 494,806,422 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Pyramis Core Bond Fund | $ | 1,676,658,756 | $ | 1,599,252,670 |
For the year ended December 31, 2014, purchases and sales on long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL Pyramis Core Bond Fund | $ | 1,439,122,891 | $ | 1,506,069,151 |
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $494,726,798. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 5,549,254 | ||
Unrealized depreciation | (5,469,630 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 79,624 | ||
|
|
As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
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AZL Pyramis Core Bond Fund
Notes to the Financial Statements
December 31, 2014
CLCFs not subject to expiration:
Short Term Amount | Long Term Amount | Total Amount | |||||||||||||
AZL Pyramis Core Bond Fund | $ | 983,986 | $ | 31,085 | $ | 1,015,071 |
During the year ended December 31, 2014, the Fund utilized $5,550,252 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Pyramis Core Bond Fund | $ | 6,291,393 | $ | — | $ | 6,291,393 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Pyramis Core Bond Fund | $ | 2,087,267 | $ | — | $ | 2,087,267 |
(a) Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes.
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Pyramis Core Bond Fund | $ | 8,819,574 | $ | – | $ | (1,015,071 | ) | $ | 79,624 | $ | 7,884,127 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Pyramis Core Bond Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, the related statement of operations for the year then ended, and 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 three-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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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 three-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Russell 1000 Growth Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 13
Statement of Operations
Page 13
Statements of Changes in Net Assets
Page 14
Financial Highlights
Page 15
Notes to the Financial Statements
Page 16
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 27
This report is submitted for the general information of the shareholder 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.
AZL® Russell 1000 Growth Index Fund Review (unaudited)
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 during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Russell 1000 Growth Index Fund returned 12.21%. That compared to a 13.05% total return for its benchmark, the Russell 1000® Growth Index1.
U.S. equities moved higher in 2014 as domestic economic growth gained momentum and interest rates remained low. The period started out on a negative note, however: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve would soon end its stimulus efforts all weighed on investors. Equity markets declined sharply in January, but the sell-off was short-lived. Investors soon learned that the recent weakness in the U.S. economic data was weather-related, and therefore temporary. Meanwhile, the Federal Reserve shifted its position, announcing a more cautious approach to raising short-term rates.*
U.S. equities moved higher throughout the period, but volatility increased through the period. A combination of high valuations and persistent expectations of higher interest rates left stocks vulnerable to bad news. Tensions between Russia and Ukraine weighed on global markets early in the period, while later geopolitical crises—including a ground war in Gaza—added to concerns.
U.S. economic growth strengthened considerably in the second half of 2014, even as the broader global economy showed signs of slowing. U.S. stocks recovered from a September sell-off to post impressive gains through the fourth quarter of 2014 as economic data continued to impress investors and helped to fuel a positive corporate earnings season. A sharp decline in oil prices later in the period contributed to uncertainty about global growth, but helped buoy U.S. stocks as it led to a pickup in consumer spending.
The Fund underperformed its benchmark due in large part to the effect of fees and expenses, as well as negative impacts from slight differences in weightings between the holdings in the Fund and the index. These negatives were partially offset by payments to the Fund resulting from class action lawsuits against companies held in the Fund.*
The low-interest rate environment helped the utilities sector to post strong returns as that sector offered attractive yields to income-seeking investors. Sectors tied to cyclical growth, such as health care and information technology, also fared well. The health care sector benefited from gains in the biotechnology industry, which were driven by new drug developments. Consumer staples also posted strong gains as many investors turned to more defensive holdings as volatility increased during the period. While most sectors posted gains for the period, the energy sector was an outlier. It posted a loss, weighed down by the dramatic slide in oil 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, 2014. |
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
AZL® Russell 1000 Growth Index Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to match the total return of the Russell 1000® Growth 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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | Since Inception (4/30/10) | ||||||||||
AZL® Russell 1000 Growth Index Fund | 12.21 | % | 19.36 | % | 14.69 | % | ||||||
Russell 1000® Growth Index | 13.05 | % | 20.26 | % | 15.63 | % |
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® Russell 1000 Growth Index Fund | 0.78 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. 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, 2016. Additional information pertaining to the December 31, 2014 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 fees for services provided to the Fund. Investors cannot invest directly in an index.
2 |
AZL Russell 1000 Growth Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,000.00 | $ | 1,059.30 | $ | 4.10 | 0.79 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,000.00 | $ | 1,021.22 | $ | 4.02 | 0.79 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 28.1 | % | |||
Consumer Discretionary | 18.9 | ||||
Health Care | 14.1 | ||||
Industrials | 12.0 | ||||
Consumer Staples | 10.3 | ||||
Financials | 5.1 | ||||
Energy | 4.4 | ||||
Materials | 4.0 | ||||
Telecommunication Services | 2.1 | ||||
Utilities | 0.1 | ||||
|
| ||||
Total Common Stocks | 99.1 | ||||
Securities Held as Collateral for Securities on Loan | 10.4 | ||||
Money Market | 0.9 | ||||
|
| ||||
Total Investment Securities | 110.4 | ||||
Net other assets (liabilities) | (10.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (99.1%): |
| ||||||
| Aerospace & Defense (2.9%): |
| ||||||
1,273 | BE Aerospace, Inc.*^ | $ | 73,859 | |||||
8,826 | Boeing Co. (The) | 1,147,202 | ||||||
1,200 | Hexcel Corp.*^ | 49,788 | ||||||
9,478 | Honeywell International, Inc. | 947,042 | ||||||
513 | Huntington Ingalls Industries, Inc. | 57,692 | ||||||
637 | KLX, Inc.*^ | 26,256 | ||||||
3,280 | Lockheed Martin Corp. | 631,630 | ||||||
1,753 | Precision Castparts Corp. | 422,263 | ||||||
1,445 | Rockwell Collins, Inc. | 122,074 | ||||||
1,388 | Spirit AeroSystems Holdings, Inc., Class A* | 59,740 | ||||||
640 | TransDigm Group, Inc. | 125,664 | ||||||
155 | Triumph Group, Inc. | 10,419 | ||||||
1,243 | United Technologies Corp. | 142,945 | ||||||
|
| |||||||
3,816,574 | ||||||||
|
| |||||||
| Air Freight & Logistics (1.1%): |
| ||||||
1,790 | C.H. Robinson Worldwide, Inc.^ | 134,053 | ||||||
2,380 | Expeditors International of Washington, Inc. | 106,172 | ||||||
1,538 | FedEx Corp. | 267,089 | ||||||
8,567 | United Parcel Service, Inc., Class B | 952,393 | ||||||
|
| |||||||
1,459,707 | ||||||||
|
| |||||||
| Airlines (1.0%): |
| ||||||
1,528 | Alaska Air Group, Inc. | 91,313 | ||||||
8,717 | American Airlines Group, Inc. | 467,492 | ||||||
323 | Copa Holdings SA, Class A | 33,476 | ||||||
543 | Delta Air Lines, Inc. | 26,710 | ||||||
7,452 | Southwest Airlines Co. | 315,369 | ||||||
865 | Spirit Airlines, Inc.* | 65,377 | ||||||
4,520 | United Continental Holdings, Inc.* | 302,343 | ||||||
|
| |||||||
1,302,080 | ||||||||
|
| |||||||
| Auto Components (0.4%): |
| ||||||
1,671 | Allison Transmission Holdings, Inc. | 56,647 | ||||||
2,767 | BorgWarner, Inc. | 152,047 | ||||||
1,032 | Gentex Corp. | 37,286 | ||||||
3,186 | Goodyear Tire & Rubber Co. | 91,024 | ||||||
2,140 | Johnson Controls, Inc. | 103,448 | ||||||
780 | Lear Corp. | 76,502 | ||||||
|
| |||||||
516,954 | ||||||||
|
| |||||||
| Automobiles (0.4%): |
| ||||||
2,643 | Harley-Davidson, Inc. | 174,200 | ||||||
1,151 | Tesla Motors, Inc.*^ | 255,994 | ||||||
550 | Thor Industries, Inc. | 30,729 | ||||||
|
| |||||||
460,923 | ||||||||
|
| |||||||
| Banks (0.1%): |
| ||||||
546 | Signature Bank* | 68,774 | ||||||
54 | SVB Financial Group* | 6,268 | ||||||
|
| |||||||
75,042 | ||||||||
|
| |||||||
| Beverages (3.5%): |
| ||||||
1,862 | Brown-Forman Corp., Class B | 163,558 | ||||||
48,058 | Coca-Cola Co. (The) | 2,029,009 | ||||||
3,043 | Coca-Cola Enterprises, Inc. | 134,561 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Beverages, continued |
| ||||||
1,810 | Constellation Brands, Inc., Class A* | $ | 177,688 | |||||
2,377 | Dr Pepper Snapple Group, Inc. | 170,383 | ||||||
1,733 | Monster Beverage Corp.* | 187,771 | ||||||
18,350 | PepsiCo, Inc. | 1,735,176 | ||||||
|
| |||||||
4,598,146 | ||||||||
|
| |||||||
| Biotechnology (5.5%): |
| ||||||
2,394 | Alexion Pharmaceuticals, Inc.* | 442,962 | ||||||
1,475 | Alkermes plc* | 86,376 | ||||||
697 | Alnylam Pharmaceuticals, Inc.*^ | 67,609 | ||||||
8,686 | Amgen, Inc. | 1,383,593 | ||||||
2,871 | Biogen Idec, Inc.* | 974,561 | ||||||
1,766 | BioMarin Pharmaceutical, Inc.* | 159,646 | ||||||
9,693 | Celgene Corp.* | 1,084,259 | ||||||
845 | Cubist Pharmaceuticals, Inc.*^ | 85,049 | ||||||
18,587 | Gilead Sciences, Inc.* | 1,752,011 | ||||||
1,738 | Incyte Corp.*^ | 127,065 | ||||||
154 | Intercept Pharmaceuticals, Inc.*^ | 24,024 | ||||||
915 | Medivation, Inc.* | 91,143 | ||||||
810 | Myriad Genetics, Inc.*^ | 27,589 | ||||||
955 | Regeneron Pharmaceuticals, Inc.*^ | 391,789 | ||||||
1,203 | Seattle Genetics, Inc.*^ | 38,652 | ||||||
586 | United Therapeutics Corp.*^ | 75,881 | ||||||
2,859 | Vertex Pharmaceuticals, Inc.* | 339,649 | ||||||
|
| |||||||
7,151,858 | ||||||||
|
| |||||||
| Building Products (0.2%): |
| ||||||
415 | A.O. Smith Corp. | 23,410 | ||||||
1,143 | Allegion plc | 63,391 | ||||||
560 | Armstrong World Industries, Inc.* | 28,627 | ||||||
857 | Fortune Brands Home & Security, Inc.^ | 38,796 | ||||||
606 | Lennox International, Inc.^ | 57,613 | ||||||
4,272 | Masco Corp. | 107,655 | ||||||
1,153 | USG Corp.*^ | 32,272 | ||||||
|
| |||||||
351,764 | ||||||||
|
| |||||||
| Capital Markets (1.2%): |
| ||||||
669 | Affiliated Managers Group, Inc.* | 141,989 | ||||||
802 | Ameriprise Financial, Inc. | 106,065 | ||||||
340 | Artisan Partners Asset Management, Inc. | 17,180 | ||||||
590 | BlackRock, Inc., Class A+ | 210,960 | ||||||
2,212 | Charles Schwab Corp. (The) | 66,780 | ||||||
1,447 | Eaton Vance Corp.^ | 59,226 | ||||||
859 | Federated Investors, Inc., Class B^ | 28,287 | ||||||
3,923 | Franklin Resources, Inc.^ | 217,217 | ||||||
819 | Invesco, Ltd. | 32,367 | ||||||
1,515 | Lazard, Ltd., Class A | 75,796 | ||||||
504 | Legg Mason, Inc.^ | 26,898 | ||||||
486 | NorthStar Asset Management Group, Inc. | 10,969 | ||||||
1,537 | SEI Investments Co. | 61,541 | ||||||
3,180 | T. Rowe Price Group, Inc. | 273,035 | ||||||
2,836 | TD Ameritrade Holding Corp.^ | 101,472 | ||||||
1,040 | Waddell & Reed Financial, Inc., Class A | 51,813 | ||||||
|
| |||||||
1,481,595 | ||||||||
|
|
Continued
4
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals (3.4%): |
| ||||||
896 | Airgas, Inc. | $ | 103,201 | |||||
378 | Albemarle Corp.^ | 22,729 | ||||||
242 | Axalta Coating Systems, Ltd.* | 6,297 | ||||||
52 | Cabot Corp. | 2,281 | ||||||
165 | Celanese Corp., Series A | 9,893 | ||||||
106 | Cytec Industries, Inc. | 4,894 | ||||||
2,331 | Dow Chemical Co. (The) | 106,317 | ||||||
10,493 | E.I. du Pont de Nemours & Co. | 775,851 | ||||||
1,655 | Eastman Chemical Co. | 125,548 | ||||||
3,226 | Ecolab, Inc. | 337,182 | ||||||
1,630 | FMC Corp.^ | 92,959 | ||||||
1,752 | Huntsman Corp.^ | 39,911 | ||||||
975 | International Flavor & Fragrances, Inc.^ | 98,826 | ||||||
5,068 | LyondellBasell Industries NV, Class A | 402,349 | ||||||
5,861 | Monsanto Co. | 700,213 | ||||||
111 | NewMarket Corp.^ | 44,792 | ||||||
1,053 | Platform Speciality Products Corp.* | 24,451 | ||||||
1,673 | PPG Industries, Inc. | 386,714 | ||||||
3,545 | Praxair, Inc. | 459,290 | ||||||
61 | Rayonier Advanced Materials, Inc.^ | 1,360 | ||||||
56 | Rockwood Holdings, Inc. | 4,413 | ||||||
1,504 | RPM International, Inc. | 76,268 | ||||||
538 | Scotts Miracle-Gro Co. (The) | 33,528 | ||||||
1,043 | Sherwin Williams Co.^ | 274,351 | ||||||
651 | Sigma Aldrich Corp. | 89,363 | ||||||
1,031 | Valspar Corp. (The) | 89,161 | ||||||
805 | W.R. Grace & Co.* | 76,789 | ||||||
418 | Westlake Chemical Corp. | 25,536 | ||||||
|
| |||||||
4,414,467 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.6%): |
| ||||||
958 | Cintas Corp.^ | 75,146 | ||||||
552 | Clean Harbors, Inc.*^ | 26,524 | ||||||
1,332 | Copart, Inc.* | 48,605 | ||||||
545 | Covanta Holding Corp. | 11,995 | ||||||
1,984 | Iron Mountain, Inc.^ | 76,701 | ||||||
696 | KAR Auction Services, Inc. | 24,116 | ||||||
1,123 | Pitney Bowes, Inc. | 27,368 | ||||||
240 | R.R. Donnelley & Sons Co. | 4,033 | ||||||
752 | Rollins, Inc. | 24,891 | ||||||
1,019 | Stericycle, Inc.*^ | 133,570 | ||||||
4,542 | Tyco International plc | 199,212 | ||||||
929 | Waste Connections, Inc. | 40,867 | ||||||
593 | Waste Management, Inc. | 30,433 | ||||||
|
| |||||||
723,461 | ||||||||
|
| |||||||
| Communications Equipment (1.5%): |
| ||||||
56 | Arista Networks, Inc.*^ | 3,403 | ||||||
1,557 | Arris Group, Inc.*^ | 47,006 | ||||||
771 | CommScope Holding Co., Inc.* | 17,602 | ||||||
131 | EchoStar Corp., Class A* | 6,878 | ||||||
916 | F5 Networks, Inc.* | 119,505 | ||||||
270 | Harris Corp. | 19,391 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Communications Equipment, continued |
| ||||||
1,155 | Juniper Networks, Inc. | $ | 25,780 | |||||
560 | Motorola Solutions, Inc.^ | 37,565 | ||||||
617 | Palo Alto Networks, Inc.*^ | 75,625 | ||||||
20,429 | QUALCOMM, Inc. | 1,518,487 | ||||||
1,911 | Riverbed Technology, Inc.* | 39,004 | ||||||
|
| |||||||
1,910,246 | ||||||||
|
| |||||||
| Construction & Engineering (0.1%): |
| ||||||
1,192 | Chicago Bridge & Iron Co. NV | 50,040 | ||||||
1,194 | Fluor Corp. | 72,392 | ||||||
639 | Quanta Services, Inc.* | 18,141 | ||||||
|
| |||||||
140,573 | ||||||||
|
| |||||||
| Construction Materials (0.1%): |
| ||||||
600 | Eagle Materials, Inc. | 45,618 | ||||||
744 | Martin Marietta Materials, Inc.^ | 82,078 | ||||||
|
| |||||||
127,696 | ||||||||
|
| |||||||
| Consumer Finance (0.9%): |
| ||||||
2,888 | Ally Financial, Inc.* | 68,215 | ||||||
10,980 | American Express Co. | 1,021,579 | ||||||
70 | Santander Consumer USA Holdings, Inc.^ | 1,373 | ||||||
1,780 | SLM Corp. | 18,138 | ||||||
1,124 | Synchrony Financial* | 33,439 | ||||||
|
| |||||||
1,142,744 | ||||||||
|
| |||||||
| Containers & Packaging (0.4%): |
| ||||||
183 | AptarGroup, Inc.^ | 12,232 | ||||||
397 | Avery Dennison Corp. | 20,596 | ||||||
1,687 | Ball Corp. | 115,002 | ||||||
1,661 | Crown Holdings, Inc.* | 84,545 | ||||||
1,219 | Owens-Illinois, Inc.* | 32,901 | ||||||
1,199 | Packaging Corp. of America | 93,582 | ||||||
2,603 | Sealed Air Corp. | 110,445 | ||||||
511 | Silgan Holdings, Inc.^ | 27,390 | ||||||
|
| |||||||
496,693 | ||||||||
|
| |||||||
| Distributors (0.2%): |
| ||||||
1,738 | Genuine Parts Co. | 185,219 | ||||||
3,653 | LKQ Corp.* | 102,722 | ||||||
|
| |||||||
287,941 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.1%): |
| ||||||
3,318 | H&R Block, Inc. | 111,750 | ||||||
2,056 | Service Corp. International^ | 46,671 | ||||||
335 | ServiceMaster Global Holdings, Inc.* | 8,968 | ||||||
|
| |||||||
167,389 | ||||||||
|
| |||||||
| Diversified Financial Services (0.4%): |
| ||||||
1,047 | CBOE Holdings, Inc.^ | 66,401 | ||||||
591 | IntercontinentalExchange Group, Inc. | 129,600 | ||||||
748 | Leucadia National Corp. | 16,770 | ||||||
1,082 | LPL Financial Holdings, Inc. | 48,203 | ||||||
2,288 | Moody’s Corp. | 219,214 | ||||||
646 | MSCI, Inc., Class A | 30,646 | ||||||
|
| |||||||
510,834 | ||||||||
|
|
Continued
5
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Telecommunication Services (2.0%): |
| ||||||
433 | CenturyLink, Inc. | $ | 17,138 | |||||
3,259 | Level 3 Communications, Inc.* | 160,929 | ||||||
50,123 | Verizon Communications, Inc. | 2,344,754 | ||||||
6,820 | Windstream Holdings, Inc.^ | 56,197 | ||||||
105 | Zayo Group Holdings, Inc.*^ | 3,210 | ||||||
|
| |||||||
2,582,228 | ||||||||
|
| |||||||
| Electric Utilities (0.1%): |
| ||||||
1,770 | ITC Holdings Corp.^ | 71,561 | ||||||
|
| |||||||
| Electrical Equipment (0.7%): |
| ||||||
514 | Acuity Brands, Inc. | 71,996 | ||||||
2,969 | AMETEK, Inc. | 156,258 | ||||||
6,344 | Emerson Electric Co. | 391,616 | ||||||
117 | Hubbell, Inc., Class B | 12,499 | ||||||
1,676 | Rockwell Automation, Inc. | 186,371 | ||||||
542 | Roper Industries, Inc. | 84,742 | ||||||
525 | Solarcity Corp.*^ | 28,077 | ||||||
|
| |||||||
931,559 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.4%): |
| ||||||
3,804 | Amphenol Corp., Class A | 204,692 | ||||||
348 | Avnet, Inc. | 14,971 | ||||||
1,075 | CDW Corp. | 37,808 | ||||||
3,633 | Corning, Inc. | 83,305 | ||||||
1,165 | FLIR Systems, Inc. | 37,641 | ||||||
403 | IPG Photonics Corp.*^ | 30,193 | ||||||
297 | Keysight Technologies, Inc.* | 10,030 | ||||||
1,184 | National Instruments Corp. | 36,811 | ||||||
3,147 | Trimble Navigation, Ltd.* | 83,521 | ||||||
|
| |||||||
538,972 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.8%): |
| ||||||
174 | Atwood Oceanics, Inc.* | 4,936 | ||||||
448 | Baker Hughes, Inc. | 25,119 | ||||||
1,575 | Cameron International Corp.* | 78,671 | ||||||
926 | Dresser-Rand Group, Inc.* | 75,747 | ||||||
483 | Dril-Quip, Inc.* | 37,061 | ||||||
2,846 | FMC Technologies, Inc.* | 133,307 | ||||||
51 | Frank’s International NV | 848 | ||||||
10,222 | Halliburton Co. | 402,032 | ||||||
784 | Helmerich & Payne, Inc. | 52,857 | ||||||
365 | Nabors Industries, Ltd. | 4,738 | ||||||
451 | National-Oilwell Varco, Inc.^ | 29,554 | ||||||
1,288 | Oceaneering International, Inc. | 75,747 | ||||||
914 | Patterson-UTI Energy, Inc. | 15,163 | ||||||
782 | RPC, Inc.^ | 10,197 | ||||||
15,741 | Schlumberger, Ltd. | 1,344,439 | ||||||
1,296 | Seadrill, Ltd.^ | 15,474 | ||||||
107 | Seventy Seven Energy, Inc.*^ | 579 | ||||||
132 | Superior Energy Services, Inc. | 2,660 | ||||||
39 | Unit Corp.* | 1,330 | ||||||
|
| |||||||
2,310,459 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food & Staples Retailing (1.8%): |
| ||||||
5,015 | Costco Wholesale Corp. | $ | 710,876 | |||||
2,009 | CVS Caremark Corp. | 193,487 | ||||||
6,167 | Kroger Co. (The) | 395,983 | ||||||
1,209 | Sprouts Farmers Market, Inc.*^ | 41,082 | ||||||
2,646 | Sysco Corp.^ | 105,020 | ||||||
8,686 | Walgreens Boots Alliance, Inc. | 661,873 | ||||||
1,967 | Wal-Mart Stores, Inc. | 168,926 | ||||||
1,912 | Whole Foods Market, Inc.^ | 96,403 | ||||||
|
| |||||||
2,373,650 | ||||||||
|
| |||||||
| Food Products (1.7%): |
| ||||||
794 | Archer-Daniels-Midland Co. | 41,288 | ||||||
1,396 | Campbell Soup Co.^ | 61,424 | ||||||
2,141 | Flowers Foods, Inc. | 41,086 | ||||||
7,437 | General Mills, Inc.^ | 396,615 | ||||||
1,086 | Hain Celestial Group, Inc.*^ | 63,303 | ||||||
1,809 | Hershey Co.^ | 188,009 | ||||||
1,638 | Hormel Foods Corp. | 85,340 | ||||||
140 | Ingredion, Inc. | 11,878 | ||||||
2,835 | Kellogg Co. | 185,522 | ||||||
1,712 | Keurig Green Mountain, Inc. | 226,660 | ||||||
7,205 | Kraft Foods Group, Inc. | 451,466 | ||||||
1,579 | McCormick & Co. | 117,320 | ||||||
2,446 | Mead Johnson Nutrition Co. | 245,921 | ||||||
104 | Pilgrim’s Pride Corp.* | 3,410 | ||||||
8,075 | Rite AID Corp.*^ | 60,724 | ||||||
203 | Tyson Foods, Inc., Class A | 8,138 | ||||||
2,082 | WhiteWave Foods Co., Class A* | 72,849 | ||||||
|
| |||||||
2,260,953 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (1.8%): |
| ||||||
1,010 | Align Technology, Inc.*^ | 56,469 | ||||||
6,567 | Baxter International, Inc. | 481,294 | ||||||
2,338 | Becton, Dickinson & Co. | 325,356 | ||||||
1,555 | Boston Scientific Corp.* | 20,604 | ||||||
923 | C.R. Bard, Inc. | 153,790 | ||||||
431 | Cooper Cos., Inc. (The)^ | 69,861 | ||||||
550 | DENTSPLY International, Inc. | 29,299 | ||||||
1,277 | Edwards Lifesciences Corp.* | 162,664 | ||||||
472 | Halyard Health, Inc.*^ | 21,462 | ||||||
63 | Hill-Rom Holdings, Inc. | 2,874 | ||||||
957 | Hologic, Inc.* | 25,590 | ||||||
584 | IDEXX Laboratories, Inc.*^ | 86,590 | ||||||
403 | Intuitive Surgical, Inc.* | 213,163 | ||||||
1,694 | ResMed, Inc.^ | 94,966 | ||||||
438 | Sirona Dental Systems, Inc.* | 38,268 | ||||||
2,215 | St. Jude Medical, Inc. | 144,041 | ||||||
2,425 | Stryker Corp. | 228,750 | ||||||
1,254 | Varian Medical Systems, Inc.* | 108,484 | ||||||
156 | Zimmer Holdings, Inc. | 17,694 | ||||||
|
| |||||||
2,281,219 | ||||||||
|
|
Continued
6
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services (2.0%): |
| ||||||
1,288 | Aetna, Inc. | $ | 114,413 | |||||
2,733 | AmerisourceBergen Corp. | 246,407 | ||||||
1,916 | Brookdale Senior Living, Inc.*^ | 70,260 | ||||||
341 | Cardinal Health, Inc. | 27,529 | ||||||
2,479 | Catamaran Corp.* | 128,288 | ||||||
683 | Centene Corp.* | 70,930 | ||||||
3,606 | Cerner Corp.*^ | 233,164 | ||||||
259 | CIGNA Corp. | 26,654 | ||||||
762 | DaVita, Inc.* | 57,714 | ||||||
1,004 | Envision Healthcare Holdings, Inc.* | 34,829 | ||||||
7,705 | Express Scripts Holding Co.* | 652,381 | ||||||
384 | HCA Holdings, Inc.* | 28,182 | ||||||
1,033 | Henry Schein, Inc.*^ | 140,643 | ||||||
415 | Laboratory Corp. of America Holdings* | 44,779 | ||||||
2,791 | McKesson, Inc. | 579,355 | ||||||
814 | MEDNAX, Inc.* | 53,814 | ||||||
93 | Patterson Cos., Inc. | 4,473 | ||||||
401 | Premier, Inc., Class A* | 13,446 | ||||||
330 | Quintiles Transnational Holdings, Inc.* | 19,427 | ||||||
1,181 | Tenet Healthcare Corp.*^ | 59,841 | ||||||
242 | Universal Health Services, Inc., Class B | 26,925 | ||||||
|
| |||||||
2,633,454 | ||||||||
|
| |||||||
| Health Care Technology (0.1%): |
| ||||||
829 | Allscripts Healthcare Solutions, Inc.*^ | 10,586 | ||||||
449 | athenahealth, Inc.*^ | 65,420 | ||||||
925 | IMS Health Holdings, Inc.* | 23,717 | ||||||
|
| |||||||
99,723 | ||||||||
|
| |||||||
| Hotels Restaurants & Leisure (0.1%): |
| ||||||
13 | Restaurant Brands International LP* | 494 | ||||||
2,457 | Restaurant Brands International, Inc.* | 95,918 | ||||||
|
| |||||||
96,412 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (2.8%): |
| ||||||
440 | Aramark Holdings Corp. | 13,706 | ||||||
777 | Brinker International, Inc.^ | 45,602 | ||||||
377 | Chipotle Mexican Grill, Inc.* | 258,060 | ||||||
37 | Choice Hotels International, Inc.^ | 2,073 | ||||||
674 | Domino’s Pizza, Inc.^ | 63,471 | ||||||
1,288 | Dunkin’ Brands Group, Inc.^ | 54,933 | ||||||
1,674 | Hilton Worldwide Holdings, Inc.* | 43,675 | ||||||
42 | Hyatt Hotels Corp., Class A*^ | 2,529 | ||||||
4,551 | Las Vegas Sands Corp.^ | 264,686 | ||||||
2,343 | Marriott International, Inc., Class A | 182,824 | ||||||
11,963 | McDonald’s Corp. | 1,120,932 | ||||||
393 | MGM Resorts International*^ | 8,402 | ||||||
1,040 | Norwegian Cruise Line Holdings, Ltd.* | 48,630 | ||||||
302 | Panera Bread Co., Class A*^ | 52,790 | ||||||
842 | SeaWorld Entertainment, Inc. | 15,072 | ||||||
902 | Six Flags Entertainment Corp.^ | 38,921 | ||||||
9,111 | Starbucks Corp. | 747,558 | ||||||
984 | Starwood Hotels & Resorts Worldwide, Inc. | 79,773 | ||||||
1,534 | Wyndham Worldwide Corp. | 131,556 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
981 | Wynn Resorts, Ltd. | $ | 145,934 | |||||
5,342 | Yum! Brands, Inc. | 389,165 | ||||||
|
| |||||||
3,710,292 | ||||||||
|
| |||||||
| Household Durables (0.3%): |
| ||||||
328 | D.R. Horton, Inc. | 8,295 | ||||||
161 | GoPro, Inc., Class A*^ | 10,178 | ||||||
819 | Harman International Industries, Inc. | 87,396 | ||||||
730 | Jarden Corp.* | 34,952 | ||||||
848 | Leggett & Platt, Inc.^ | 36,133 | ||||||
135 | Lennar Corp.^ | 6,049 | ||||||
2,017 | Newell Rubbermaid, Inc. | 76,829 | ||||||
51 | NVR, Inc.* | 65,042 | ||||||
753 | Tempur-Pedic International, Inc.*^ | 41,347 | ||||||
623 | Tupperware Brands Corp.^ | 39,249 | ||||||
89 | Whirlpool Corp. | 17,243 | ||||||
|
| |||||||
422,713 | ||||||||
|
| |||||||
| Household Products (1.2%): |
| ||||||
1,629 | Church & Dwight Co., Inc. | 128,381 | ||||||
1,287 | Clorox Co. (The)^ | 134,118 | ||||||
9,905 | Colgate-Palmolive Co. | 685,327 | ||||||
3,781 | Kimberly-Clark Corp. | 436,857 | ||||||
1,867 | Procter & Gamble Co. (The) | 170,065 | ||||||
263 | Spectrum Brands Holdings, Inc. | 25,164 | ||||||
|
| |||||||
1,579,912 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.0%): |
| ||||||
744 | Calpine Corp.* | 16,465 | ||||||
|
| |||||||
| Industrial Conglomerates (1.1%): |
| ||||||
7,920 | 3M Co. | 1,301,414 | ||||||
1,728 | Danaher Corp. | 148,107 | ||||||
|
| |||||||
1,449,521 | ||||||||
|
| |||||||
| Insurance (0.5%): |
| ||||||
135 | American Financial Group, Inc. | 8,197 | ||||||
2,758 | Aon plc | 261,541 | ||||||
1,796 | Arthur J. Gallagher & Co. | 84,556 | ||||||
84 | Brown & Brown, Inc. | 2,764 | ||||||
304 | Erie Indemnity Co., Class A | 27,594 | ||||||
4,483 | Marsh & McLennan Cos., Inc. | 256,607 | ||||||
238 | Reinsurance Group of America, Inc. | 20,854 | ||||||
|
| |||||||
662,113 | ||||||||
|
| |||||||
| Internet & Catalog Retail (2.2%): |
| ||||||
4,548 | Amazon.com, Inc.* | 1,411,471 | ||||||
1,221 | Expedia, Inc.^ | 104,225 | ||||||
5,954 | Groupon, Inc.*^ | 49,180 | ||||||
1,070 | HomeAway, Inc.*^ | 31,865 | ||||||
2,949 | Liberty Media Corp.—Interactive, Class A* | 86,760 | ||||||
925 | Liberty TripAdvisor Holdings, Inc., Class A* | 24,883 | ||||||
1,736 | Liberty Ventures, Inc., Series A* | 65,482 | ||||||
726 | Netflix, Inc.* | 248,009 | ||||||
625 | Priceline.com, Inc.* | 712,630 |
Continued
7
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Internet & Catalog Retail, continued |
| ||||||
1,347 | TripAdvisor, Inc.*^ | $ | 100,567 | |||||
188 | zulily, Inc., Class A*^ | 4,399 | ||||||
|
| |||||||
2,839,471 | ||||||||
|
| |||||||
| Internet Software & Services (5.8%): |
| ||||||
2,147 | Akamai Technologies, Inc.* | 135,175 | ||||||
15,339 | eBay, Inc.* | 860,825 | ||||||
635 | Equinix, Inc. | 143,974 | ||||||
23,899 | Facebook, Inc., Class A* | 1,864,599 | ||||||
3,438 | Google, Inc., Class C* | 1,809,762 | ||||||
3,398 | Google, Inc., Class A* | 1,803,183 | ||||||
378 | IAC/InterActiveCorp | 22,979 | ||||||
1,263 | LinkedIn Corp., Class A* | 290,124 | ||||||
1,406 | Rackspace Hosting, Inc.*^ | 65,815 | ||||||
6,116 | Twitter, Inc.*^ | 219,381 | ||||||
1,363 | VeriSign, Inc.*^ | 77,691 | ||||||
629 | Yelp, Inc.*^ | 34,425 | ||||||
385 | Zillow, Inc., Class A* | 40,768 | ||||||
|
| |||||||
7,368,701 | ||||||||
|
| |||||||
| IT Services (5.7%): |
| ||||||
7,656 | Accenture plc, Class A | 683,757 | ||||||
712 | Alliance Data Systems Corp.* | 203,668 | ||||||
5,835 | Automatic Data Processing, Inc. | 486,464 | ||||||
860 | Booz Allen Hamilton Holding Corp. | 22,816 | ||||||
1,466 | Broadridge Financial Solutions, Inc. | 67,700 | ||||||
7,364 | Cognizant Technology Solutions Corp., Class A* | 387,788 | ||||||
110 | Computer Sciences Corp. | 6,936 | ||||||
288 | DST Systems, Inc. | 27,115 | ||||||
442 | Fidelity National Information Services, Inc. | 27,492 | ||||||
3,016 | Fiserv, Inc.* | 214,046 | ||||||
1,004 | FleetCor Technologies, Inc.* | 149,305 | ||||||
1,108 | Gartner, Inc.* | 93,305 | ||||||
213 | Genpact, Ltd.* | 4,032 | ||||||
825 | Global Payments, Inc. | 66,602 | ||||||
11,450 | International Business Machines Corp. | 1,837,037 | ||||||
1,041 | Jack Henry & Associates, Inc. | 64,688 | ||||||
12,168 | MasterCard, Inc., Class A | 1,048,394 | ||||||
3,510 | Paychex, Inc. | 162,057 | ||||||
560 | Sabre Corp.^ | 11,351 | ||||||
1,479 | Teradata Corp.*^ | 64,603 | ||||||
1,578 | Total System Services, Inc. | 53,589 | ||||||
1,541 | Vantive, Inc., Class A*^ | 52,271 | ||||||
1,379 | VeriFone Systems, Inc.*^ | 51,299 | ||||||
6,069 | Visa, Inc., Class A | 1,591,291 | ||||||
6,513 | Western Union Co.^ | 116,648 | ||||||
|
| |||||||
7,494,254 | ||||||||
|
| |||||||
| Leisure Products (0.2%): |
| ||||||
1,180 | Hasbro, Inc.^ | 64,888 | ||||||
1,517 | Mattel, Inc. | 46,944 | ||||||
797 | Polaris Industries, Inc.^ | 120,538 | ||||||
|
| |||||||
232,370 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Life Sciences Tools & Services (0.7%): |
| ||||||
594 | Agilent Technologies, Inc. | $ | 24,318 | |||||
213 | Bio-Techne Corp. | 19,681 | ||||||
1,279 | Bruker Corp.* | 25,094 | ||||||
290 | Charles River Laboratories International, Inc.* | 18,456 | ||||||
642 | Covance, Inc.* | 66,665 | ||||||
1,687 | Illumina, Inc.*^ | 311,387 | ||||||
358 | Mettler-Toledo International, Inc.* | 108,281 | ||||||
265 | PerkinElmer, Inc. | 11,588 | ||||||
1,946 | Thermo Fisher Scientific, Inc. | 243,814 | ||||||
190 | VWR Corp.*^ | 4,915 | ||||||
1,026 | Waters Corp.* | 115,651 | ||||||
|
| |||||||
949,850 | ||||||||
|
| |||||||
| Machinery (1.9%): |
| ||||||
1,602 | Caterpillar, Inc. | 146,631 | ||||||
1,137 | Colfax Corp.*^ | 58,635 | ||||||
219 | Crane Co. | 12,855 | ||||||
2,226 | Cummins, Inc. | 320,922 | ||||||
959 | Deere & Co. | 84,843 | ||||||
1,580 | Donaldson Co., Inc.^ | 61,035 | ||||||
1,487 | Dover Corp.^ | 106,648 | ||||||
1,662 | Flowserve Corp. | 99,437 | ||||||
737 | Graco, Inc. | 59,093 | ||||||
898 | IDEX Corp. | 69,900 | ||||||
3,928 | Illinois Tool Works, Inc. | 371,983 | ||||||
283 | Ingersoll-Rand plc | 17,940 | ||||||
254 | ITT Corp. | 10,277 | ||||||
338 | Lincoln Electric Holdings, Inc. | 23,352 | ||||||
1,662 | Manitowoc Co., Inc. (The)^ | 36,730 | ||||||
680 | Middleby Corp. (The)* | 67,388 | ||||||
111 | Navistar International Corp.*^ | 3,716 | ||||||
778 | Nordson Corp. | 60,653 | ||||||
3,932 | PACCAR, Inc. | 267,415 | ||||||
1,328 | Pall Corp.^ | 134,407 | ||||||
960 | Parker Hannifin Corp.^ | 123,792 | ||||||
165 | Pentair, Ltd. | 10,959 | ||||||
101 | Snap-On, Inc. | 13,811 | ||||||
216 | Stanley Black & Decker, Inc. | 20,753 | ||||||
66 | Timken Co. | 2,817 | ||||||
681 | Toro Co. | 43,455 | ||||||
1,418 | Trinity Industries, Inc. | 39,718 | ||||||
21 | Valmont Industries, Inc.^ | 2,667 | ||||||
684 | WABCO Holdings, Inc.* | 71,670 | ||||||
1,179 | Wabtec Corp. | 102,443 | ||||||
1,582 | Xylem, Inc. | 60,227 | ||||||
|
| |||||||
2,506,172 | ||||||||
|
| |||||||
| Marine (0.0%): |
| ||||||
684 | Kirby Corp.* | 55,226 | ||||||
|
| |||||||
| Media (5.7%): |
| ||||||
717 | AMC Networks, Inc., Class A*^ | 45,723 | ||||||
2,324 | Cablevision Systems Corp., Class A^ | 47,967 | ||||||
5,741 | CBS Corp., Class B | 317,707 |
Continued
8
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
960 | Charter Communications, Inc., Class A* | $ | 159,955 | |||||
1,381 | Cinemark Holdings, Inc. | 49,136 | ||||||
232 | Clear Channel Outdoor Holdings, Inc., Class A | 2,457 | ||||||
28,688 | Comcast Corp., Class A | 1,664,190 | ||||||
5,661 | DIRECTV, Inc., Class A* | 490,809 | ||||||
2,776 | Discovery Communications, Inc., Class A*^ | 95,633 | ||||||
2,774 | Discovery Communications, Inc., Class C*^ | 93,539 | ||||||
1,892 | DISH Network Corp., Class A* | 137,908 | ||||||
5,109 | Interpublic Group of Cos., Inc. (The) | 106,114 | ||||||
943 | Lamar Advertising Co., Class A | 50,583 | ||||||
953 | Lions Gate Entertainment Corp.^ | 30,515 | ||||||
909 | Live Nation, Inc.* | 23,734 | ||||||
3,294 | McGraw-Hill Cos., Inc. (The) | 293,100 | ||||||
224 | Morningstar, Inc. | 14,495 | ||||||
3,128 | Omnicom Group, Inc.^ | 242,326 | ||||||
2,448 | Pandora Media, Inc.*^ | 43,648 | ||||||
273 | Regal Entertainment Group, Class A^ | 5,831 | ||||||
1,274 | Scripps Networks Interactive, Class A^ | 95,894 | ||||||
31,373 | Sirius XM Holdings, Inc.*^ | 109,806 | ||||||
1,013 | Starz—Liberty Capital*^ | 30,086 | ||||||
3,372 | Time Warner Cable, Inc. | 512,746 | ||||||
16,987 | Twenty-First Century Fox, Inc.^ | 652,386 | ||||||
5,202 | Viacom, Inc., Class B | 391,451 | ||||||
17,566 | Walt Disney Co. (The) | 1,654,542 | ||||||
|
| |||||||
7,362,281 | ||||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
40 | Carpenter Technology Corp.^ | 1,970 | ||||||
416 | Compass Minerals International, Inc. | 36,121 | ||||||
1,801 | Southern Copper Corp.^ | 50,788 | ||||||
128 | Tahoe Resources, Inc. | 1,775 | ||||||
33 | TimkenSteel Corp. | 1,222 | ||||||
|
| |||||||
91,876 | ||||||||
|
| |||||||
| Multiline Retail (0.7%): |
| ||||||
193 | Big Lots, Inc.^ | 7,724 | ||||||
204 | Dillard’s, Inc., Class A^ | 25,537 | ||||||
2,855 | Dollar General Corp.* | 201,849 | ||||||
2,503 | Dollar Tree, Inc.* | 176,161 | ||||||
1,083 | Family Dollar Stores, Inc. | 85,784 | ||||||
142 | Kohl’s Corp.^ | 8,668 | ||||||
3,380 | Macy’s, Inc.^ | 222,234 | ||||||
1,677 | Nordstrom, Inc.^ | 133,137 | ||||||
258 | Sears Holdings Corp.* | 8,509 | ||||||
790 | Target Corp.^ | 59,969 | ||||||
|
| |||||||
929,572 | ||||||||
|
| |||||||
| Multi-Utilities (0.0%): |
| ||||||
439 | Dominion Resources, Inc. | 33,759 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (2.6%): |
| ||||||
456 | Anadarko Petroleum Corp. | 37,620 | ||||||
656 | Antero Resources Corp.*^ | 26,620 | ||||||
5,050 | Cabot Oil & Gas Corp. | 149,531 | ||||||
2,879 | Cheniere Energy, Inc.*^ | 202,682 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
1,499 | Chesapeake Energy Corp.^ | $ | 29,335 | |||||
130 | Cimarex Energy Co. | 13,780 | ||||||
3,774 | Cobalt International Energy, Inc.* | 33,551 | ||||||
1,364 | Concho Resources, Inc.* | 136,059 | ||||||
1,037 | Continental Resources, Inc.*^ | 39,779 | ||||||
78 | CVR Energy, Inc. | 3,019 | ||||||
6,615 | EOG Resources, Inc. | 609,044 | ||||||
1,664 | EQT Corp. | 125,965 | ||||||
829 | Gulfport Energy Corp.* | 34,602 | ||||||
450 | HollyFrontier Corp. | 16,866 | ||||||
4,425 | Kinder Morgan, Inc. | 187,222 | ||||||
1,290 | Kosmos Energy LLC* | 10,823 | ||||||
845 | Laredo Petroleum Holdings, Inc.*^ | 8,746 | ||||||
2,267 | Marathon Petroleum Corp. | 204,619 | ||||||
331 | Memorial Resource Development Corp.* | 5,968 | ||||||
3,113 | Noble Energy, Inc. | 147,650 | ||||||
1,207 | Oasis Petroleum, Inc.*^ | 19,964 | ||||||
1,325 | ONEOK, Inc. | 65,972 | ||||||
269 | PBF Energy, Inc. | 7,166 | ||||||
2,808 | Phillips 66 | 201,334 | ||||||
1,731 | Pioneer Natural Resources Co. | 257,659 | ||||||
237 | QEP Resources, Inc. | 4,792 | ||||||
1,983 | Range Resources Corp.^ | 105,991 | ||||||
804 | SM Energy Co.^ | 31,018 | ||||||
4,273 | Southwestern Energy Co.* | 116,610 | ||||||
449 | Targa Resources Corp.^ | 47,616 | ||||||
259 | Teekay Shipping Corp. | 13,181 | ||||||
688 | Tesoro Corp. | 51,153 | ||||||
567 | Ultra Petroleum Corp.*^ | 7,462 | ||||||
1,526 | Valero Energy Corp. | 75,537 | ||||||
720 | Whiting Petroleum Corp.* | 23,760 | ||||||
9,041 | Williams Cos., Inc. (The) | 406,303 | ||||||
174 | World Fuel Services Corp.^ | 8,166 | ||||||
|
| |||||||
3,467,165 | ||||||||
|
| |||||||
| Paper & Forest Products (0.0%): | �� | ||||||
829 | International Paper Co. | 44,418 | ||||||
|
| |||||||
| Personal Products (0.2%): |
| ||||||
2,188 | Avon Products, Inc. | 20,545 | ||||||
686 | Coty, Inc., Class A^ | 14,173 | ||||||
2,776 | Estee Lauder Co., Inc. (The), Class A | 211,531 | ||||||
921 | Herbalife, Ltd.^ | 34,722 | ||||||
736 | Nu Skin Enterprises, Inc., Class A^ | 32,163 | ||||||
|
| |||||||
313,134 | ||||||||
|
| |||||||
| Pharmaceuticals (4.0%): |
| ||||||
19,245 | Abbvie, Inc. | 1,259,393 | ||||||
3,074 | Actavis, Inc. plc* | 791,278 | ||||||
3,601 | Allergan, Inc. | 765,537 | ||||||
7,160 | Bristol-Myers Squibb Co. | 422,655 | ||||||
1,843 | Endo International plc* | 132,917 | ||||||
719 | Jazz Pharmaceuticals plc*^ | 117,722 | ||||||
5,376 | Johnson & Johnson Co. | 562,168 |
Continued
9
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Pharmaceuticals, continued |
| ||||||
983 | Mallinckrodt plc* | $ | 97,346 | |||||
4,952 | Merck & Co., Inc. | 281,224 | ||||||
4,523 | Mylan, Inc.* | 254,962 | ||||||
374 | Perrigo Co. plc | 62,518 | ||||||
732 | Pharmacyclics, Inc.*^ | 89,494 | ||||||
767 | Salix Pharmaceuticals, Ltd.*^ | 88,159 | ||||||
6,064 | Zoetis, Inc. | 260,934 | ||||||
|
| |||||||
5,186,307 | ||||||||
|
| |||||||
| Professional Services (0.5%): |
| ||||||
371 | CoStar Group, Inc.* | 68,127 | ||||||
163 | Dun & Bradstreet Corp. | 19,716 | ||||||
774 | Equifax, Inc. | 62,593 | ||||||
822 | IHS, Inc., Class A* | 93,609 | ||||||
2,548 | Nielsen Holdings NV | 113,972 | ||||||
1,651 | Robert Half International, Inc. | 96,385 | ||||||
2,014 | Verisk Analytics, Inc., Class A* | 128,998 | ||||||
|
| |||||||
583,400 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.8%): |
| ||||||
4,790 | American Tower Corp. | 473,491 | ||||||
1,029 | Apartment Investment & Management Co., Class A | 38,227 | ||||||
227 | Boston Properties, Inc. | 29,213 | ||||||
232 | Columbia Property Trust, Inc. | 5,881 | ||||||
4,040 | Crown Castle International Corp. | 317,947 | ||||||
724 | Equity Lifestyle Properties, Inc. | 37,322 | ||||||
1,386 | Extra Space Storage, Inc. | 81,275 | ||||||
532 | Federal Realty Investment Trust | 71,001 | ||||||
175 | Gaming & Leisure Properties, Inc. | 5,135 | ||||||
2,039 | Health Care REIT, Inc. | 154,291 | ||||||
177 | Healthcare Trust of America, Inc., Class A^ | 4,755 | ||||||
486 | NorthStar Realty Finance Corp. | 8,544 | ||||||
509 | Omega Healthcare Investors, Inc.^ | 19,887 | ||||||
103 | Outfront Media, Inc. | 2,765 | ||||||
93 | Paramount Group, Inc.* | 1,729 | ||||||
1,054 | Plum Creek Timber Co., Inc.^ | 45,101 | ||||||
1,604 | Public Storage, Inc. | 296,499 | ||||||
185 | Rayonier, Inc. | 5,169 | ||||||
2,805 | Simon Property Group, Inc. | 510,818 | ||||||
701 | Tanger Factory Outlet Centers, Inc. | 25,909 | ||||||
731 | Taubman Centers, Inc. | 55,863 | ||||||
1,626 | Ventas, Inc.^ | 116,584 | ||||||
522 | Vornado Realty Trust | 61,445 | ||||||
668 | Weyerhaeuser Co.^ | 23,975 | ||||||
|
| |||||||
2,392,826 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.2%): |
| ||||||
3,430 | CBRE Group, Inc.* | 117,477 | ||||||
233 | Howard Hughes Corp. (The)* | 30,388 | ||||||
147 | Jones Lang LaSalle, Inc. | 22,040 | ||||||
781 | Realogy Holdings Corp.*^ | 34,747 | ||||||
|
| |||||||
204,652 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Road & Rail (1.5%): |
| ||||||
49 | AMERCO, Inc. | $ | 13,929 | |||||
1,273 | Avis Budget Group, Inc.* | 84,438 | ||||||
297 | Genesee & Wyoming, Inc., Class A* | 26,706 | ||||||
5,418 | Hertz Global Holdings, Inc.* | 135,125 | ||||||
1,113 | J.B. Hunt Transport Services, Inc.^ | 93,770 | ||||||
1,031 | Kansas City Southern Industries, Inc. | 125,813 | ||||||
542 | Landstar System, Inc.^ | 39,311 | ||||||
789 | Norfolk Southern Corp. | 86,482 | ||||||
777 | Old Dominion Freight Line, Inc.* | 60,326 | ||||||
10,964 | Union Pacific Corp. | 1,306,142 | ||||||
|
| |||||||
1,972,042 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.2%): |
| ||||||
7,178 | Advanced Micro Devices, Inc.*^ | 19,165 | ||||||
1,450 | Altera Corp. | 53,563 | ||||||
1,721 | Analog Devices, Inc. | 95,550 | ||||||
9,842 | Applied Materials, Inc. | 245,262 | ||||||
5,127 | Atmel Corp.* | 43,041 | ||||||
3,024 | Avago Technologies, Ltd. | 304,184 | ||||||
825 | Cree, Inc.*^ | 26,582 | ||||||
1,201 | Freescale Semiconductor Holdings I, Ltd.*^ | 30,301 | ||||||
5,121 | Intel Corp. | 185,841 | ||||||
1,830 | KLA-Tencor Corp.^ | 128,686 | ||||||
534 | Lam Research Corp.^ | 42,368 | ||||||
2,863 | Linear Technology Corp.^ | 130,553 | ||||||
3,127 | Maxim Integrated Products, Inc. | 99,657 | ||||||
2,424 | Microchip Technology, Inc.^ | 109,347 | ||||||
11,361 | Micron Technology, Inc.* | 397,748 | ||||||
1,133 | NVIDIA Corp. | 22,717 | ||||||
2,790 | ON Semiconductor Corp.* | 28,263 | ||||||
2,294 | Skyworks Solutions, Inc. | 166,797 | ||||||
1,061 | SunEdison, Inc.*^ | 20,700 | ||||||
64 | Sunpower Corp. Common*^ | 1,653 | ||||||
265 | Teradyne, Inc.^ | 5,244 | ||||||
13,064 | Texas Instruments, Inc. | 698,466 | ||||||
3,247 | Xilinx, Inc. | 140,563 | ||||||
|
| |||||||
2,996,251 | ||||||||
|
| |||||||
| Software (5.9%): |
| ||||||
3,931 | Activision Blizzard, Inc. | 79,210 | ||||||
6,024 | Adobe Systems, Inc.* | 437,945 | ||||||
264 | Ansys, Inc.* | 21,648 | ||||||
2,172 | Autodesk, Inc.* | 130,450 | ||||||
3,439 | Cadence Design Systems, Inc.*^ | 65,238 | ||||||
1,945 | CDK Global, Inc. | 79,278 | ||||||
1,795 | Citrix Systems, Inc.* | 114,521 | ||||||
2,912 | Electronic Arts, Inc.* | 136,908 | ||||||
509 | FactSet Research Systems, Inc.^ | 71,642 | ||||||
860 | FireEye, Inc.*^ | 27,159 | ||||||
1,681 | Fortinet, Inc.* | 51,539 | ||||||
1,220 | Informatica Corp.* | 46,525 | ||||||
3,436 | Intuit, Inc. | 316,765 | ||||||
64,688 | Microsoft Corp. | 3,004,757 |
Continued
10
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software, continued |
| ||||||
514 | NetSuite, Inc.*^ | $ | 56,113 | |||||
39,754 | Oracle Corp. | 1,787,736 | ||||||
1,402 | PTC, Inc.* | 51,383 | ||||||
2,290 | Red Hat, Inc.* | 158,331 | ||||||
7,431 | Salesforce.com, Inc.*^ | 440,733 | ||||||
1,741 | ServiceNow, Inc.* | 118,127 | ||||||
818 | Solarwinds, Inc.* | 40,761 | ||||||
825 | Solera Holdings, Inc. | 42,224 | ||||||
1,423 | Splunk, Inc.*^ | 83,886 | ||||||
471 | Tableau Software, Inc., Class A* | 39,922 | ||||||
469 | Veeva Systems, Inc., Class A*^ | 12,386 | ||||||
1,057 | VMware, Inc., Class A*^ | 87,224 | ||||||
1,130 | Workday, Inc., Class A*^ | 92,219 | ||||||
|
| |||||||
7,594,630 | ||||||||
|
| |||||||
| Specialty Retail (4.2%): |
| ||||||
138 | Aaron’s, Inc. | 4,219 | ||||||
106 | Abercrombie & Fitch Co., Class A^ | 3,036 | ||||||
880 | Advance Auto Parts, Inc. | 140,166 | ||||||
853 | AutoNation, Inc.* | 51,530 | ||||||
395 | AutoZone, Inc.*^ | 244,548 | ||||||
963 | Bed Bath & Beyond, Inc.*^ | 73,352 | ||||||
1,063 | Best Buy Co., Inc. | 41,436 | ||||||
70 | Cabela’s, Inc., Class A*^ | 3,690 | ||||||
1,830 | CarMax, Inc.* | 121,841 | ||||||
829 | Chico’s FAS, Inc. | 13,438 | ||||||
798 | CST Brands, Inc. | 34,801 | ||||||
205 | Dick’s Sporting Goods, Inc.^ | 10,178 | ||||||
262 | Foot Locker, Inc.^ | 14,719 | ||||||
74 | GameStop Corp., Class A^ | 2,501 | ||||||
3,061 | Gap, Inc. (The)^ | 128,899 | ||||||
1,089 | GNC Holdings, Inc., Class A | 51,139 | ||||||
16,553 | Home Depot, Inc. (The) | 1,737,569 | ||||||
1,034 | L Brands, Inc. | 89,493 | ||||||
12,331 | Lowe’s Cos., Inc. | 848,373 | ||||||
214 | Michaels Cos., Inc. (The)*^ | 5,292 | ||||||
269 | Murphy USA, Inc.* | 18,523 | ||||||
1,284 | O’Reilly Automotive, Inc.* | 247,324 | ||||||
234 | Penske Automotive Group, Inc. | 11,482 | ||||||
1,214 | PetSmart, Inc. | 98,692 | ||||||
2,571 | Ross Stores, Inc. | 242,342 | ||||||
1,481 | Sally Beauty Holdings, Inc.* | 45,526 | ||||||
660 | Signet Jewelers, Ltd. | 86,836 | ||||||
1,365 | Tiffany & Co.^ | 145,864 | ||||||
8,476 | TJX Cos., Inc. (The) | 581,284 | ||||||
1,676 | Tractor Supply Co.^ | 132,102 | ||||||
778 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 99,460 | ||||||
953 | Urban Outfitters, Inc.*^ | 33,479 | ||||||
1,157 | Williams-Sonoma, Inc.^ | 87,562 | ||||||
|
| |||||||
5,450,696 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (6.6%): |
| ||||||
1,309 | 3D Systems Corp.* | 43,027 | ||||||
72,981 | Apple, Inc. | 8,055,645 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Technology Hardware, Storage & Peripherals, continued |
| ||||||
799 | Diebold, Inc.^ | $ | 27,677 | |||||
2,419 | EMC Corp.^ | 71,941 | ||||||
197 | NCR Corp.*^ | 5,741 | ||||||
1,418 | NetApp, Inc. | 58,776 | ||||||
1,300 | SanDisk Corp.^ | 127,374 | ||||||
347 | Stratasys, Ltd.*^ | 28,839 | ||||||
625 | Zebra Technologies Corp., Class A* | 48,381 | ||||||
|
| |||||||
8,467,401 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.6%): |
| ||||||
650 | Carter’s, Inc. | 56,752 | ||||||
3,305 | Coach, Inc. | 124,136 | ||||||
428 | Deckers Outdoor Corp.*^ | 38,965 | ||||||
559 | Fossil Group, Inc.* | 61,904 | ||||||
1,205 | Hanesbrands, Inc. | 134,502 | ||||||
1,566 | Kate Spade & Co.* | 50,128 | ||||||
2,472 | Michael Kors Holdings, Ltd.* | 185,647 | ||||||
8,454 | Nike, Inc., Class B | 812,851 | ||||||
872 | PVH Corp. | 111,764 | ||||||
534 | Ralph Lauren Corp.^ | 98,875 | ||||||
2,094 | Under Armour, Inc., Class A*^ | 142,183 | ||||||
4,175 | V.F. Corp. | 312,708 | ||||||
|
| |||||||
2,130,415 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.0%): |
| ||||||
248 | Nationstar Mortgage Holdings, Inc.*^ | 6,991 | ||||||
1,306 | Ocwen Financial Corp.*^ | 19,721 | ||||||
|
| |||||||
26,712 | ||||||||
|
| |||||||
| Tobacco (1.9%): |
| ||||||
22,745 | Altria Group, Inc. | 1,120,645 | ||||||
4,388 | Lorillard, Inc. | 276,181 | ||||||
11,175 | Philip Morris International, Inc. | 910,204 | ||||||
2,821 | Reynolds American, Inc. | 181,306 | ||||||
|
| |||||||
2,488,336 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.4%): |
| ||||||
81 | Air Lease Corp. | 2,779 | ||||||
3,592 | Fastenal Co.^ | 170,836 | ||||||
1,313 | HD Supply Holdings, Inc.* | 38,720 | ||||||
572 | MRC Global, Inc.* | 8,666 | ||||||
567 | MSC Industrial Direct Co., Inc., Class A^ | 46,069 | ||||||
113 | NOW, Inc.*^ | 2,907 | ||||||
1,177 | United Rentals, Inc.*^ | 120,066 | ||||||
15 | Veritiv Corp.*^ | 778 | ||||||
706 | W.W. Grainger, Inc.^ | 179,952 | ||||||
|
| |||||||
570,773 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
1,559 | SBA Communications Corp., Class A* | 172,675 | ||||||
|
| |||||||
| Total Common Stocks (Cost $74,708,429) | 129,083,258 | ||||||
|
|
Continued
11
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (10.4%): |
| ||||||
$ | 13,537,224 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | $ | 13,537,224 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 13,537,224 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.9%): | |||||||
1,142,163 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 1,142,163 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $1,142,163) | 1,142,163 | ||||||
|
| |||||||
| Total Investment Securities (Cost $89,387,816)(c) — 110.4% | 143,762,645 | ||||||
| Net other assets (liabilities) — (10.4)% | (13,503,569 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 130,259,076 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $13,116,384. |
+ | Affiliated Securities |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $71,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
NASDAQ 100 E-Mini March Futures | Long | 3/20/15 | 4 | $ | 338,620 | $ | (4,271 | ) | ||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/20/15 | 9 | 923,580 | 933 | |||||||||||||||
|
| |||||||||||||||||||
Total | $ | (3,338 | ) | |||||||||||||||||
|
|
See accompanying notes to the financial statements.
12
AZL Russell 1000 Growth Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investments in non-affiliates, at cost | $ | 89,281,564 | |||
Investments in affiliates, at cost | 106,252 | ||||
|
| ||||
Total Investment securities, at cost | $ | 89,387,816 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 143,551,685 | |||
Investments in affiliates, at value | 210,960 | ||||
|
| ||||
Total Investment securities, at value | 143,762,645 | ||||
Cash | 931 | ||||
Segregated cash for collateral | 71,000 | ||||
Interest and dividends receivable | 132,407 | ||||
Receivable for investments sold | 488 | ||||
Receivable for variation margin on futures contracts | 2,215 | ||||
Prepaid expenses | 1,106 | ||||
|
| ||||
Total Assets | 143,970,792 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 43,657 | ||||
Payable for collateral received on loaned securities | 13,537,224 | ||||
Payable for variation margin on futures contracts | 17,150 | ||||
Manager fees payable | 48,730 | ||||
Administration fees payable | 3,787 | ||||
Distribution fees payable | 27,687 | ||||
Custodian fees payable | 5,868 | ||||
Administrative and compliance services fees payable | 488 | ||||
Trustee fees payable | 10 | ||||
Other accrued liabilities | 27,115 | ||||
|
| ||||
Total Liabilities | 13,711,716 | ||||
|
| ||||
Net Assets | $ | 130,259,076 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 61,453,696 | |||
Accumulated net investment income/(loss) | 1,105,671 | ||||
Accumulated net realized gains/(losses) from investment transactions | 13,328,218 | ||||
Net unrealized appreciation/(depreciation) on investments | 54,371,491 | ||||
|
| ||||
Net Assets | $ | 130,259,076 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 7,613,786 | ||||
Net Asset Value (offering and redemption price per share) | $ | 17.11 | |||
|
|
* | Includes securities on loan of $13,116,384. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 2,081,811 | |||
Dividends from affiliates | 4,665 | ||||
Income from securities lending | 28,688 | ||||
Foreign withholding tax | (316 | ) | |||
|
| ||||
Total Investment Income | 2,114,848 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 579,788 | ||||
Administration fees | 42,467 | ||||
Distribution fees | 329,424 | ||||
Custodian fees | 20,714 | ||||
Administrative and compliance services fees | 1,740 | ||||
Trustee fees | 6,711 | ||||
Professional fees | 7,102 | ||||
Shareholder reports | 1,716 | ||||
Other expenses | 35,361 | ||||
|
| ||||
Total expenses | 1,025,023 | ||||
|
| ||||
Net Investment Income/(Loss) | 1,089,825 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 13,130,273 | ||||
Net gains distribution from affiliated underlying funds | 14,631 | ||||
Net realized gains/(losses) on futures contracts | 453,791 | ||||
Change in net unrealized appreciation/depreciation on investments | 39,430 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 13,638,125 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 14,727,950 | |||
|
|
See accompanying notes to the financial statements.
13
Statements of Changes in Net Assets
AZL Russell 1000 Growth Index Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 1,089,825 | $ | 1,250,991 | ||||||
Net realized gains/(losses) on investment transactions | 13,598,695 | 10,769,478 | ||||||||
Change in unrealized appreciation/depreciation on investments | 39,430 | 26,959,930 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 14,727,950 | 38,980,399 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (1,219,475 | ) | (1,445,971 | ) | ||||||
From net realized gains | (8,853,703 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (10,073,178 | ) | (1,445,971 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 6,103,472 | 4,620,558 | ||||||||
Proceeds from dividends reinvested | 10,073,178 | 1,445,971 | ||||||||
Value of shares redeemed | (34,906,975 | ) | (45,131,629 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (18,730,325 | ) | (39,065,100 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (14,075,553 | ) | (1,530,672 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 144,334,629 | 145,865,301 | ||||||||
|
|
|
| |||||||
End of period | $ | 130,259,076 | $ | 144,334,629 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 1,105,671 | $ | 1,254,496 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 359,122 | 333,477 | ||||||||
Dividends reinvested | 611,237 | 96,980 | ||||||||
Shares redeemed | (2,079,653 | ) | (3,256,480 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,109,294 | ) | (2,826,023 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
14
AZL Russell 1000 Growth Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | April 30, 2010 to December 31, 2010(a) | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 16.55 | $ | 12.63 | $ | 11.10 | $ | 10.95 | $ | 10.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.17 | 0.18 | 0.12 | 0.08 | 0.05 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.80 | 3.90 | 1.48 | 0.13 | 0.90 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.97 | 4.08 | 1.60 | 0.21 | 0.95 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.17 | ) | (0.16 | ) | (0.07 | ) | (0.06 | ) | — | ||||||||||||||||
Net Realized Gains | (1.24 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.41 | ) | (0.16 | ) | (0.07 | ) | (0.06 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 17.11 | $ | 16.55 | $ | 12.63 | $ | 11.10 | $ | 10.95 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 12.21 | % | 32.48 | % | 14.40 | % | 1.92 | % | 9.50 | %(c) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 130,259 | $ | 144,335 | $ | 145,865 | $ | 111,887 | $ | 105,577 | |||||||||||||||
Net Investment Income/(Loss)(d) | 0.83 | % | 0.89 | % | 1.09 | % | 0.72 | % | 0.87 | % | |||||||||||||||
Expenses Before Reductions(d)(e) | 0.78 | % | 0.78 | % | 0.80 | % | 0.84 | % | 0.87 | % | |||||||||||||||
Expenses Net of Reductions(d) | 0.78 | % | 0.78 | % | 0.80 | % | 0.84 | % | 0.84 | % | |||||||||||||||
Portfolio Turnover Rate | 13 | % | 13 | % | 16 | % | 24 | % | 29 | %(c) |
(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. |
(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. |
See accompanying notes to the financial statements.
15
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Russell 1000 Growth Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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
16
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2014
securities). The borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $5.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $2,821 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $1.3 million as of December 31, 2014. The monthly average notional amount for these contracts was $2.1 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 933 | Payable for variation margin on futures contracts | $ | 4,271 |
* | 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, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 453,791 | $ | (99,402 | ) |
17
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2014
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $1,665 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
18
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2014
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 129,083,258 | $ | — | $ | 129,083,258 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 13,537,224 | 13,537,224 | ||||||||||||
Unaffiliated Investment Company | 1,142,163 | — | 1,142,163 | ||||||||||||
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Total Investment Securities | 130,225,421 | 13,537,224 | 143,762,645 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | (3,338 | ) | — | (3,338 | ) | ||||||||||
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Total Investments | $ | 130,222,083 | $ | 13,537,224 | $ | 143,759,307 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 17,046,991 | $ | 42,702,598 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
19
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2014
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $89,610,768. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 55,192,389 | ||
Unrealized depreciation | (1,040,512 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 54,151,877 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,219,475 | $ | 8,853,703 | $ | 10,073,178 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,445,971 | $ | – | $ | 1,445,971 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,628,187 | $ | 13,025,316 | $ | — | $ | 54,151,877 | $ | 68,805,380 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2014, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 50% of the Fund.
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of 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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
21
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $8,853,703.
22
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
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
24
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
27
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Russell 1000 Value Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 13
Statement of Operations
Page 13
Statements of Changes in Net Assets
Page 14
Financial Highlights
Page 15
Notes to the Financial Statements
Page 16
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 27
This report is submitted for the general information of the shareholder 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.
AZL® Russell 1000 Value Index Fund Review (unaudited)
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 during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Russell 1000 Value Index Fund returned 12.59%. That compared to a 13.45% total return for its benchmark, the Russell 1000® Value Index1.
The Fund attempts to replicate the performance of the Russell 1000® index of U.S. large-cap value stocks. U.S. equities moved higher in 2014 as domestic economic growth gained momentum and interest rates remained low. The period started out on a negative note, however: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve would soon end its stimulus efforts all weighed on investors. Equity markets declined sharply in January, but the sell-off was short-lived. Investors soon learned that the recent weakness in the U.S. economic data was weather-related, and therefore temporary. Meanwhile, the Federal Reserve shifted its position, announcing a more cautious approach to raising short-term rates.
U.S. equities moved higher throughout the period, but volatility increased through the period. A combination of high valuations and persistent expectations of higher interest rates left stocks vulnerable to bad news. Tensions between Russia and Ukraine weighed on global markets early in the period, while later geopolitical crises—including a ground war in Gaza—added to concerns.
U.S. economic growth strengthened considerably in the second half of 2014, even as the broader global economy showed signs of slowing. U.S. stocks recovered from a September sell-off to post impressive gains through the fourth quarter of 2014 as economic data continued to impress investors and helped to fuel a positive corporate earnings season. A sharp decline in oil prices later in the period contributed to uncertainty about global growth, but helped buoy U.S. stocks as it led to a pickup in consumer spending.
The Fund underperformed its benchmark due in large part to the effect of fees and expenses, as well as negative impacts from slight differences in weightings between the holdings in the Fund and the index.*
From a sector perspective, information technology was the best performing sector, followed by utilities and health care. Utilities shares benefited from the low-interest rate environment as companies in that sector offered attractive yields to income-seeking investors. Sectors tied to cyclical growth, such as health care and information technology, also posted strong results for the period. Energy was a notable underperformer. It posted a loss, weighed down by falling oil 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, 2014. |
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
AZL® Russell 1000 Value Index Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to match the total return of the Russell 1000® Value 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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | Since Inception (4/30/10) | ||||||||||
AZL® Russell 1000 Value Index Fund | 12.59 | % | 19.98 | % | 13.50 | % | ||||||
Russell 1000® Value Index | 13.45 | % | 20.89 | % | 14.36 | % |
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® Russell 1000 Value Index Fund | 0.78 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 0.84% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 0.77%. |
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 |
AZL Russell 1000 Value Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Russell 1000 Value Index Fund | $ | 1,000.00 | $ | 1,043.50 | $ | 3.91 | 0.76 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Russell 1000 Value Index Fund | $ | 1,000.00 | $ | 1,021.37 | $ | 3.87 | 0.76 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 29.6 | % | |||
Health Care | 13.7 | ||||
Energy | 11.3 | ||||
Industrials | 10.0 | ||||
Information Technology | 9.4 | ||||
Consumer Staples | 7.2 | ||||
Utilities | 6.4 | ||||
Consumer Discretionary | 6.4 | ||||
Materials | 3.0 | ||||
Telecommunication Services | 2.0 | ||||
|
| ||||
Total Common Stocks | 99.0 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 13.1 | ||||
Money Market | 0.6 | ||||
|
| ||||
Total Investment Securities | 112.7 | ||||
Net other assets (liabilities) | (12.7 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (99.0%): |
| ||||||
| Aerospace & Defense (2.2%): |
| ||||||
659 | Alliant Techsystems, Inc. | $ | 76,609 | |||||
3,923 | Exelis, Inc. | 68,770 | ||||||
6,386 | General Dynamics Corp. | 878,841 | ||||||
168 | Huntington Ingalls Industries, Inc. | 18,893 | ||||||
1,806 | L-3 Communications Holdings, Inc. | 227,935 | ||||||
4,215 | Northrop Grumman Corp. | 621,249 | ||||||
6,529 | Raytheon Co.^ | 706,242 | ||||||
327 | Rockwell Collins, Inc. | 27,625 | ||||||
180 | Spirit AeroSystems Holdings, Inc., Class A* | 7,747 | ||||||
5,845 | Textron, Inc.^ | 246,133 | ||||||
837 | Triumph Group, Inc. | 56,263 | ||||||
17,001 | United Technologies Corp. | 1,955,115 | ||||||
224 | Vectrus, Inc.* | 6,138 | ||||||
|
| |||||||
4,897,560 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.3%): |
| ||||||
3,514 | FedEx Corp. | 610,241 | ||||||
|
| |||||||
| Airlines (0.4%): |
| ||||||
236 | Alaska Air Group, Inc. | 14,103 | ||||||
158 | Copa Holdings SA, Class A | 16,375 | ||||||
16,779 | Delta Air Lines, Inc. | 825,359 | ||||||
1,597 | Southwest Airlines Co. | 67,585 | ||||||
|
| |||||||
923,422 | ||||||||
|
| |||||||
| Auto Components (0.4%): |
| ||||||
1,255 | Gentex Corp. | 45,343 | ||||||
10,145 | Johnson Controls, Inc. | 490,410 | ||||||
331 | Lear Corp. | 32,464 | ||||||
2,320 | TRW Automotive Holdings Corp.* | 238,612 | ||||||
913 | Visteon Corp.* | 97,563 | ||||||
|
| |||||||
904,392 | ||||||||
|
| |||||||
| Automobiles (1.1%): |
| ||||||
81,102 | Ford Motor Co. | 1,257,081 | ||||||
33,492 | General Motors Co. | 1,169,206 | ||||||
|
| |||||||
2,426,287 | ||||||||
|
| |||||||
| Banks (11.3%): |
| ||||||
3,361 | Associated Banc-Corp.^ | 62,615 | ||||||
219,607 | Bank of America Corp. | 3,928,769 | ||||||
933 | Bank of Hawaii Corp.^ | 55,336 | ||||||
14,984 | BB&T Corp.^ | 582,728 | ||||||
561 | BOK Financial Corp.^ | 33,682 | ||||||
3,822 | CIT Group, Inc. | 182,806 | ||||||
63,440 | Citigroup, Inc. | 3,432,738 | ||||||
3,214 | Citizens Financial Group, Inc.^ | 79,900 | ||||||
998 | City National Corp.^ | 80,648 | ||||||
3,805 | Comerica, Inc. | 178,226 | ||||||
1,776 | Commerce Bancshares, Inc.^ | 77,219 | ||||||
1,091 | Cullen/Frost Bankers, Inc. | 77,068 | ||||||
2,989 | East West Bancorp, Inc. | 115,704 | ||||||
17,806 | Fifth Third Bancorp | 362,797 | ||||||
4,990 | First Horizon National Corp.^ | 67,764 | ||||||
7,325 | First Niagara Financial Group, Inc. | 61,750 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
2,883 | First Republic Bank | $ | 150,262 | |||||
3,949 | Fulton Financial Corp. | 48,810 | ||||||
17,339 | Huntington Bancshares, Inc. | 182,406 | ||||||
79,039 | JPMorgan Chase & Co. | 4,946,262 | ||||||
18,496 | KeyCorp | 257,094 | ||||||
2,753 | M&T Bank Corp.^ | 345,832 | ||||||
2,130 | PacWest Bancorp | 96,830 | ||||||
11,155 | PNC Financial Services Group, Inc. | 1,017,671 | ||||||
2,149 | Popular, Inc.* | 73,173 | ||||||
28,873 | Regions Financial Corp. | 304,899 | ||||||
75 | Signature Bank* | 9,447 | ||||||
11,103 | SunTrust Banks, Inc. | 465,216 | ||||||
965 | SVB Financial Group* | 112,008 | ||||||
2,932 | Synovus Financial Corp. | 79,428 | ||||||
3,416 | TCF Financial Corp. | 54,280 | ||||||
35,875 | U.S. Bancorp | 1,612,581 | ||||||
99,733 | Wells Fargo & Co. | 5,467,364 | ||||||
4,129 | Zions Bancorp | 117,718 | ||||||
|
| |||||||
24,721,031 | ||||||||
|
| |||||||
| Beverages (0.1%): |
| ||||||
217 | Constellation Brands, Inc., Class A* | 21,303 | ||||||
2,847 | Molson Coors Brewing Co., Class B | 212,158 | ||||||
|
| |||||||
233,461 | ||||||||
|
| |||||||
| Biotechnology (0.1%): |
| ||||||
420 | Alkermes plc* | 24,595 | ||||||
201 | Alnylam Pharmaceuticals, Inc.*^ | 19,497 | ||||||
825 | Amgen, Inc. | 131,415 | ||||||
88 | Cubist Pharmaceuticals, Inc.*^ | 8,857 | ||||||
206 | Myriad Genetics, Inc.*^ | 7,016 | ||||||
|
| |||||||
191,380 | ||||||||
|
| |||||||
| Building Products (0.1%): |
| ||||||
863 | A.O. Smith Corp. | 48,682 | ||||||
2,018 | Fortune Brands Home & Security, Inc.^ | 91,355 | ||||||
2,447 | Owens Corning, Inc.^ | 87,627 | ||||||
|
| |||||||
227,664 | ||||||||
|
| |||||||
| Capital Markets (3.5%): |
| ||||||
2,584 | Ameriprise Financial, Inc. | 341,734 | ||||||
23,816 | Bank of New York Mellon Corp. (The) | 966,215 | ||||||
1,644 | BlackRock, Inc., Class A + | 587,829 | ||||||
19,576 | Charles Schwab Corp. (The) | 590,999 | ||||||
6,045 | E*TRADE Financial Corp.* | 146,621 | ||||||
530 | Federated Investors, Inc., Class B^ | 17,453 | ||||||
1,513 | Franklin Resources, Inc.^ | 83,775 | ||||||
9,339 | Goldman Sachs Group, Inc. (The) | 1,810,178 | ||||||
7,673 | Invesco, Ltd. | 303,237 | ||||||
1,334 | Legg Mason, Inc.^ | 71,196 | ||||||
32,032 | Morgan Stanley | 1,242,842 | ||||||
4,951 | Northern Trust Corp. | 333,697 | ||||||
3,042 | NorthStar Asset Management Group, Inc. | 68,658 | ||||||
2,613 | Raymond James Financial, Inc. | 149,699 |
Continued
4
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
170 | SEI Investments Co. | $ | 6,807 | |||||
8,982 | State Street Corp. | 705,087 | ||||||
731 | TD Ameritrade Holding Corp.^ | 26,155 | ||||||
|
| |||||||
7,452,182 | ||||||||
|
| |||||||
| Chemicals (1.5%): |
| ||||||
4,429 | Air Products & Chemicals, Inc. | 638,796 | ||||||
996 | Albemarle Corp.^ | 59,889 | ||||||
1,445 | Ashland, Inc. | 173,053 | ||||||
369 | Axalta Coating Systems, Ltd.* | 9,601 | ||||||
1,276 | Cabot Corp. | 55,965 | ||||||
2,985 | Celanese Corp., Series A | 178,981 | ||||||
1,091 | CF Industries Holdings, Inc. | 297,341 | ||||||
1,324 | Cytec Industries, Inc. | 61,129 | ||||||
21,120 | Dow Chemical Co. (The) | 963,284 | ||||||
1,066 | E.I. du Pont de Nemours & Co. | 78,820 | ||||||
273 | Eastman Chemical Co. | 20,710 | ||||||
1,232 | Huntsman Corp.^ | 28,065 | ||||||
7,006 | Mosaic Co. (The) | 319,824 | ||||||
810 | Rayonier Advanced Materials, Inc.^ | 18,063 | ||||||
1,423 | Rockwood Holdings, Inc. | 112,132 | ||||||
185 | RPM International, Inc. | 9,381 | ||||||
1,345 | Sigma Aldrich Corp. | 184,628 | ||||||
213 | W.R. Grace & Co.* | 20,318 | ||||||
122 | Westlake Chemical Corp. | 7,453 | ||||||
|
| |||||||
3,237,433 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.6%): |
| ||||||
3,651 | ADT Corp. (The)^ | 132,276 | ||||||
410 | Cintas Corp.^ | 32,160 | ||||||
353 | Clean Harbors, Inc.*^ | 16,962 | ||||||
2,429 | Corrections Corp. of America^ | 88,270 | ||||||
1,306 | Covanta Holding Corp. | 28,745 | ||||||
409 | Iron Mountain, Inc.^ | 15,812 | ||||||
1,761 | KAR Auction Services, Inc. | 61,019 | ||||||
2,317 | Pitney Bowes, Inc. | 56,465 | ||||||
3,814 | R.R. Donnelley & Sons Co. | 64,094 | ||||||
5,562 | Republic Services, Inc., Class A | 223,871 | ||||||
944 | Tyco International plc | 41,404 | ||||||
1,024 | Waste Connections, Inc. | 45,046 | ||||||
8,697 | Waste Management, Inc. | 446,329 | ||||||
|
| |||||||
1,252,453 | ||||||||
|
| |||||||
| Communications Equipment (1.7%): |
| ||||||
30 | Arista Networks, Inc.*^ | 1,823 | ||||||
9,108 | Brocade Communications Systems, Inc. | 107,839 | ||||||
106,981 | Cisco Systems, Inc. | 2,975,676 | ||||||
669 | EchoStar Corp., Class A* | 35,123 | ||||||
1,774 | Harris Corp. | 127,409 | ||||||
4,758 | JDS Uniphase Corp.*^ | 65,280 | ||||||
7,074 | Juniper Networks, Inc. | 157,892 | ||||||
3,229 | Motorola Solutions, Inc.^ | 216,600 | ||||||
|
| |||||||
3,687,642 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction & Engineering (0.2%): |
| ||||||
3,141 | Aecom Technology Corp.* | $ | 95,392 | |||||
1,289 | Fluor Corp. | 78,152 | ||||||
2,771 | Jacobs Engineering Group, Inc.* | 123,837 | ||||||
3,071 | KBR, Inc. | 52,053 | ||||||
3,391 | Quanta Services, Inc.* | 96,270 | ||||||
|
| |||||||
445,704 | ||||||||
|
| |||||||
| Construction Materials (0.1%): |
| ||||||
2,740 | Vulcan Materials Co. | 180,100 | ||||||
|
| |||||||
| Consumer Finance (0.9%): |
| ||||||
626 | Ally Financial, Inc.* | 14,786 | ||||||
11,937 | Capital One Financial Corp. | 985,399 | ||||||
9,726 | Discover Financial Services | 636,956 | ||||||
8,854 | Navient Corp. | 191,335 | ||||||
1,678 | Santander Consumer USA Holdings, Inc.^ | 32,906 | ||||||
5,857 | SLM Corp. | 59,683 | ||||||
759 | Synchrony Financial* | 22,580 | ||||||
|
| |||||||
1,943,645 | ||||||||
|
| |||||||
| Containers & Packaging (0.3%): |
| ||||||
1,072 | AptarGroup, Inc.^ | 71,652 | ||||||
1,311 | Avery Dennison Corp. | 68,015 | ||||||
2,099 | Bemis Co., Inc. | 94,896 | ||||||
648 | Greif, Inc., Class A | 30,605 | ||||||
3,517 | MeadWestvaco Corp. | 156,120 | ||||||
1,355 | Owens-Illinois, Inc.* | 36,571 | ||||||
3,007 | Rock-Tenn Co., Class A | 183,367 | ||||||
2,130 | Sonoco Products Co. | 93,081 | ||||||
|
| |||||||
734,307 | ||||||||
|
| |||||||
| Distributors (0.0%): |
| ||||||
196 | Genuine Parts Co. | 20,888 | ||||||
|
| |||||||
| Diversified Consumer Services (0.1%): |
| ||||||
2,019 | Apollo Group, Inc., Class A* | 68,868 | ||||||
1,342 | DeVry, Inc. | 63,705 | ||||||
73 | Graham Holdings Co., Class B | 63,051 | ||||||
1,002 | Service Corp. International^ | 22,745 | ||||||
291 | ServiceMaster Global Holdings, Inc.* | 7,790 | ||||||
|
| |||||||
226,159 | ||||||||
|
| |||||||
| Diversified Financial Services (0.6%): |
| ||||||
6,650 | CME Group, Inc. | 589,523 | ||||||
1,869 | FNFV Group* | 29,418 | ||||||
1,108 | Interactive Brokers Group, Inc., Class A | 32,309 | ||||||
1,389 | IntercontinentalExchange Group, Inc. | 304,594 | ||||||
6,455 | Leucadia National Corp.^ | 144,721 | ||||||
1,371 | MSCI, Inc., Class A^ | 65,040 | ||||||
2,449 | NASDAQ OMX Group, Inc. (The) | 117,454 | ||||||
2,853 | Voya Financial, Inc. | 120,910 | ||||||
|
| |||||||
1,403,969 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.9%): |
| ||||||
108,397 | AT&T, Inc.^ | 3,641,054 | ||||||
11,258 | CenturyLink, Inc.^ | 445,592 |
Continued
5
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Telecommunication Services, continued |
| ||||||
20,998 | Frontier Communications Corp.^ | $ | 140,057 | |||||
900 | Windstream Holdings, Inc.^ | 7,416 | ||||||
194 | Zayo Group Holdings, Inc.*^ | 5,931 | ||||||
|
| |||||||
4,240,050 | ||||||||
|
| |||||||
| Electric Utilities (2.8%): |
| ||||||
10,181 | American Electric Power Co., Inc. | 618,190 | ||||||
14,770 | Duke Energy Corp.^ | 1,233,885 | ||||||
6,820 | Edison International | 446,574 | ||||||
3,756 | Entergy Corp.^ | 328,575 | ||||||
17,917 | Exelon Corp.^ | 664,362 | ||||||
8,791 | FirstEnergy Corp.^ | 342,761 | ||||||
3,230 | Great Plains Energy, Inc. | 91,764 | ||||||
2,138 | Hawaiian Electric Industries, Inc.^ | 71,580 | ||||||
198 | ITC Holdings Corp. | 8,005 | ||||||
6,616 | Northeast Utilities | 354,088 | ||||||
4,172 | OGE Energy Corp. | 148,023 | ||||||
5,259 | Pepco Holdings, Inc. | 141,625 | ||||||
2,312 | Pinnacle West Capital Corp. | 157,933 | ||||||
13,848 | PPL Corp. | 503,098 | ||||||
18,616 | Southern Co. (The)^ | 914,232 | ||||||
2,690 | Westar Energy, Inc.^ | 110,936 | ||||||
|
| |||||||
6,135,631 | ||||||||
|
| |||||||
| Electrical Equipment (0.7%): |
| ||||||
2,337 | Babcock & Wilcox Co. (The) | 70,811 | ||||||
9,947 | Eaton Corp. plc | 675,998 | ||||||
3,718 | Emerson Electric Co. | 229,512 | ||||||
1,041 | Hubbell, Inc., Class B | 111,210 | ||||||
934 | Regal-Beloit Corp. | 70,237 | ||||||
1,144 | Roper Industries, Inc. | 178,864 | ||||||
|
| |||||||
1,336,632 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.5%): |
| ||||||
2,088 | Arrow Electronics, Inc.* | 120,875 | ||||||
2,310 | Avnet, Inc. | 99,376 | ||||||
1,040 | AVX Corp.^ | 14,560 | ||||||
20,939 | Corning, Inc. | 480,132 | ||||||
999 | Dolby Laboratories, Inc., Class A | 43,077 | ||||||
869 | FLIR Systems, Inc. | 28,077 | ||||||
3,205 | Ingram Micro, Inc., Class A* | 88,586 | ||||||
4,262 | Jabil Circuit, Inc. | 93,039 | ||||||
2,982 | Keysight Technologies, Inc.* | 100,702 | ||||||
1,793 | Knowles Corp.*^ | 42,225 | ||||||
790 | Tech Data Corp.* | 49,952 | ||||||
2,880 | Vishay Intertechnology, Inc.^ | 40,752 | ||||||
|
| |||||||
1,201,353 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.8%): |
| ||||||
1,045 | Atwood Oceanics, Inc.* | 29,647 | ||||||
8,331 | Baker Hughes, Inc. | 467,118 | ||||||
1,542 | Cameron International Corp.* | 77,023 | ||||||
1,403 | Diamond Offshore Drilling, Inc.^ | 51,504 | ||||||
658 | Frank’s International NV | 10,943 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Energy Equipment & Services, continued |
| ||||||
659 | Helmerich & Payne, Inc. | $ | 44,430 | |||||
5,602 | Nabors Industries, Ltd. | 72,714 | ||||||
8,184 | National-Oilwell Varco, Inc.^ | 536,297 | ||||||
990 | Oil States International, Inc.* | 48,411 | ||||||
1,444 | Patterson-UTI Energy, Inc. | 23,956 | ||||||
2,587 | Rowan Cos. plc, Class A | 60,329 | ||||||
5,196 | Seadrill, Ltd.^ | 62,040 | ||||||
630 | Seventy Seven Energy, Inc.*^ | 3,408 | ||||||
3,038 | Superior Energy Services, Inc. | 61,216 | ||||||
1,065 | Tidewater, Inc.^ | 34,517 | ||||||
978 | Unit Corp.* | 33,350 | ||||||
|
| |||||||
1,616,903 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.6%): |
| ||||||
526 | Costco Wholesale Corp. | 74,561 | ||||||
20,951 | CVS Caremark Corp. | 2,017,790 | ||||||
4,824 | Safeway, Inc. | 169,419 | ||||||
7,650 | Sysco Corp. | 303,629 | ||||||
4,955 | Walgreens Boots Alliance, Inc. | 377,571 | ||||||
29,879 | Wal-Mart Stores, Inc. | 2,566,008 | ||||||
4,349 | Whole Foods Market, Inc.^ | 219,277 | ||||||
|
| |||||||
5,728,255 | ||||||||
|
| |||||||
| Food Products (1.5%): |
| ||||||
12,315 | Archer-Daniels-Midland Co. | 640,379 | ||||||
3,082 | Bunge, Ltd. | 280,185 | ||||||
1,222 | Campbell Soup Co.^ | 53,768 | ||||||
8,818 | ConAgra Foods, Inc.^ | 319,917 | ||||||
188 | Hain Celestial Group, Inc.*^ | 10,959 | ||||||
1,328 | Ingredion, Inc. | 112,668 | ||||||
2,171 | J.M. Smucker Co. (The)^ | 219,228 | ||||||
464 | Kellogg Co. | 30,364 | ||||||
35,325 | Mondelez International, Inc., Class A | 1,283,180 | ||||||
1,140 | Pilgrim’s Pride Corp.* | 37,381 | ||||||
1,130 | Pinnacle Foods, Inc. | 39,889 | ||||||
6,698 | Rite AID Corp.*^ | 50,369 | ||||||
5,581 | Tyson Foods, Inc., Class A | 223,742 | ||||||
|
| |||||||
3,302,029 | ||||||||
|
| |||||||
| Gas Utilities (0.3%): |
| ||||||
2,499 | AGL Resources, Inc. | 136,220 | ||||||
2,099 | Atmos Energy Corp. | 116,998 | ||||||
1,760 | National Fuel Gas Co.^ | 122,373 | ||||||
3,658 | Questar Corp. | 92,474 | ||||||
3,617 | UGI Corp. | 137,374 | ||||||
|
| |||||||
605,439 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (2.6%): |
| ||||||
31,366 | Abbott Laboratories | 1,412,097 | ||||||
1,752 | Alere, Inc.* | 66,576 | ||||||
25,061 | Boston Scientific Corp.* | 332,058 | ||||||
4,341 | CareFusion Corp.* | 257,595 | ||||||
259 | Cooper Cos., Inc. (The)^ | 41,981 | ||||||
9,415 | Covidien plc | 962,966 |
Continued
6
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
2,046 | DENTSPLY International, Inc. | $ | 108,990 | |||||
170 | Halyard Health, Inc.* | 7,730 | ||||||
1,118 | Hill-Rom Holdings, Inc. | 51,003 | ||||||
3,378 | Hologic, Inc.* | 90,328 | ||||||
54 | Intuitive Surgical, Inc.* | 28,563 | ||||||
20,863 | Medtronic, Inc.^ | 1,506,308 | ||||||
461 | Sirona Dental Systems, Inc.* | 40,278 | ||||||
2,120 | St. Jude Medical, Inc. | 137,864 | ||||||
2,844 | Stryker Corp. | 268,275 | ||||||
867 | Teleflex, Inc.^ | 99,549 | ||||||
3,250 | Zimmer Holdings, Inc. | 368,615 | ||||||
|
| |||||||
5,780,776 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.1%): |
| ||||||
5,228 | Aetna, Inc. | 464,403 | ||||||
5,837 | Anthem, Inc.^ | 733,536 | ||||||
6,518 | Cardinal Health, Inc. | 526,198 | ||||||
5,164 | CIGNA Corp. | 531,427 | ||||||
2,416 | Community Health Systems, Inc.* | 130,271 | ||||||
2,431 | DaVita, Inc.* | 184,124 | ||||||
2,054 | Express Scripts Holding Co.* | 173,912 | ||||||
6,156 | HCA Holdings, Inc.* | 451,789 | ||||||
1,681 | Health Net, Inc.* | 89,984 | ||||||
3,226 | Humana, Inc.^ | 463,350 | ||||||
1,074 | Laboratory Corp. of America Holdings* | 115,885 | ||||||
918 | LifePoint Hospitals, Inc.* | 66,013 | ||||||
720 | MEDNAX, Inc.* | 47,599 | ||||||
2,075 | Omnicare, Inc.^ | 151,330 | ||||||
1,617 | Patterson Cos., Inc. | 77,778 | ||||||
3,026 | Quest Diagnostics, Inc.^ | 202,924 | ||||||
585 | Quintiles Transnational Holdings, Inc.* | 34,439 | ||||||
20,463 | UnitedHealth Group, Inc. | 2,068,605 | ||||||
1,451 | Universal Health Services, Inc., Class B | 161,438 | ||||||
1,852 | VCA Antech, Inc.* | 90,322 | ||||||
|
| |||||||
6,765,327 | ||||||||
|
| |||||||
| Health Care Technology (0.0%): |
| ||||||
2,283 | Allscripts Healthcare Solutions, Inc.*^ | 29,154 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.6%): |
| ||||||
101 | Aramark Holdings Corp. | 3,146 | ||||||
8,895 | Carnival Corp. | 403,210 | ||||||
673 | Choice Hotels International, Inc.^ | 37,701 | ||||||
2,771 | Darden Restaurants, Inc.^ | 162,464 | ||||||
818 | Hyatt Hotels Corp., Class A*^ | 49,252 | ||||||
5,156 | International Game Technology | 88,941 | ||||||
594 | Marriott International, Inc., Class A | 46,350 | ||||||
7,148 | MGM Resorts International*^ | 152,824 | ||||||
148 | Norwegian Cruise Line Holdings, Ltd.* | 6,920 | ||||||
3,478 | Royal Caribbean Cruises, Ltd.^ | 286,692 | ||||||
2,055 | Starwood Hotels & Resorts Worldwide, Inc. | 166,600 | ||||||
5,709 | Wendy’s Co. (The)^ | 51,552 | ||||||
|
| |||||||
1,455,652 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Household Durables (0.7%): |
| ||||||
5,955 | D.R. Horton, Inc. | $ | 150,602 | |||||
2,558 | Garmin, Ltd.^ | 135,139 | ||||||
153 | GoPro, Inc., Class A*^ | 9,673 | ||||||
2,814 | Jarden Corp.* | 134,734 | ||||||
1,472 | Leggett & Platt, Inc.^ | 62,722 | ||||||
3,499 | Lennar Corp.^ | 156,790 | ||||||
1,287 | Mohawk Industries, Inc.* | 199,948 | ||||||
2,336 | Newell Rubbermaid, Inc. | 88,978 | ||||||
7,932 | PulteGroup, Inc. | 170,221 | ||||||
717 | Taylor Morrison Home Corp., Class A* | 13,544 | ||||||
3,723 | Toll Brothers, Inc.*^ | 127,587 | ||||||
1,479 | Whirlpool Corp. | 286,542 | ||||||
|
| |||||||
1,536,480 | ||||||||
|
| |||||||
| Household Products (2.4%): |
| ||||||
468 | Clorox Co. (The)^ | 48,770 | ||||||
2,033 | Colgate-Palmolive Co. | 140,663 | ||||||
1,292 | Energizer Holdings, Inc. | 166,100 | ||||||
1,349 | Kimberly-Clark Corp. | 155,863 | ||||||
53,289 | Procter & Gamble Co. (The) | 4,854,096 | ||||||
|
| |||||||
5,365,492 | ||||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.7%): |
| ||||||
15,190 | AES Corp. (The) | 209,166 | ||||||
6,981 | Calpine Corp.* | 154,490 | ||||||
9,108 | NextEra Energy, Inc. | 968,089 | ||||||
7,062 | NRG Energy, Inc.^ | 190,321 | ||||||
|
| |||||||
1,522,066 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.8%): |
| ||||||
1,343 | Carlisle Cos., Inc. | 121,192 | ||||||
9,703 | Danaher Corp. | 831,644 | ||||||
209,417 | General Electric Co. | 5,291,968 | ||||||
|
| |||||||
6,244,804 | ||||||||
|
| |||||||
| Insurance (8.3%): |
| ||||||
7,049 | ACE, Ltd. | 809,789 | ||||||
9,471 | AFLAC, Inc. | 578,583 | ||||||
345 | Alleghany Corp.* | 159,908 | ||||||
2,044 | Allied World Assurance Co. Holdings AG | 77,508 | ||||||
9,054 | Allstate Corp. (The) | 636,044 | ||||||
1,249 | American Financial Group, Inc. | 75,839 | ||||||
30,212 | American International Group, Inc. | 1,692,174 | ||||||
159 | American National Insurance Co. | 18,167 | ||||||
1,442 | Aon plc | 136,745 | ||||||
2,809 | Arch Capital Group, Ltd.* | 166,013 | ||||||
193 | Arthur J. Gallagher & Co. | 9,086 | ||||||
1,373 | Aspen Insurance Holdings, Ltd. | 60,096 | ||||||
1,499 | Assurant, Inc. | 102,577 | ||||||
3,500 | Assured Guaranty, Ltd. | 90,965 | ||||||
2,135 | Axis Capital Holdings, Ltd. | 109,077 | ||||||
38,222 | Berkshire Hathaway, Inc., Class B* | 5,739,032 | ||||||
2,358 | Brown & Brown, Inc. | 77,602 | ||||||
5,098 | Chubb Corp. (The) | 527,490 |
Continued
7
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance, continued |
| ||||||
3,425 | Cincinnati Financial Corp. | $ | 177,518 | |||||
576 | CNA Financial Corp. | 22,297 | ||||||
941 | Endurance Specialty Holdings, Ltd. | 56,309 | ||||||
966 | Everest Re Group, Ltd. | 164,510 | ||||||
5,801 | FNF Group | 199,844 | ||||||
10,337 | Genworth Financial, Inc., Class A* | 87,865 | ||||||
930 | Hanover Insurance Group, Inc. (The) | 66,328 | ||||||
9,414 | Hartford Financial Services Group, Inc. (The) | 392,470 | ||||||
2,089 | HCC Insurance Holdings, Inc. | 111,803 | ||||||
5,522 | Lincoln National Corp. | 318,454 | ||||||
6,819 | Loews Corp. | 286,534 | ||||||
293 | Markel Corp.* | 200,072 | ||||||
3,752 | Marsh & McLennan Cos., Inc. | 214,764 | ||||||
2,851 | MBIA, Inc.* | 27,199 | ||||||
579 | Mercury General Corp.^ | 32,812 | ||||||
19,540 | MetLife, Inc. | 1,056,919 | ||||||
5,449 | Old Republic International Corp.^ | 79,719 | ||||||
1,059 | PartnerRe, Ltd. | 120,864 | ||||||
6,160 | Principal Financial Group, Inc. | 319,950 | ||||||
1,246 | ProAssurance Corp. | 56,257 | ||||||
12,394 | Progressive Corp. (The) | 334,514 | ||||||
1,652 | Protective Life Corp. | 115,062 | ||||||
9,604 | Prudential Financial, Inc. | 868,778 | ||||||
1,038 | Reinsurance Group of America, Inc. | 90,950 | ||||||
843 | RenaissanceRe Holdings, Ltd. | 81,956 | ||||||
920 | StanCorp Financial Group, Inc. | 64,271 | ||||||
2,759 | Torchmark Corp. | 149,455 | ||||||
7,253 | Travelers Cos., Inc. (The) | 767,730 | ||||||
5,392 | UnumProvident Corp. | 188,073 | ||||||
1,882 | Validus Holdings, Ltd. | 78,216 | ||||||
2,103 | W.R. Berkley Corp. | 107,800 | ||||||
128 | White Mountains Insurance Group, Ltd. | 80,654 | ||||||
5,686 | XL Group plc, Class B | 195,428 | ||||||
|
| |||||||
18,182,070 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.1%): |
| ||||||
159 | HomeAway, Inc.*^ | 4,735 | ||||||
5,142 | Liberty Media Corp. – Interactive, Class A* | 151,278 | ||||||
|
| |||||||
156,013 | ||||||||
|
| |||||||
| Internet Software & Services (0.5%): |
| ||||||
1,668 | AOL, Inc.*^ | 77,012 | ||||||
927 | IAC/InterActiveCorp | 56,352 | ||||||
19,785 | Yahoo!, Inc.* | 999,340 | ||||||
|
| |||||||
1,132,704 | ||||||||
|
| |||||||
| IT Services (0.4%): |
| ||||||
3,351 | Amdocs, Ltd. | 156,341 | ||||||
130 | Booz Allen Hamilton Holding Corp. | 3,449 | ||||||
2,849 | Computer Sciences Corp. | 179,629 | ||||||
1,927 | CoreLogic, Inc.* | 60,874 | ||||||
111 | DST Systems, Inc. | 10,451 | ||||||
5,278 | Fidelity National Information Services, Inc. | 328,292 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| IT Services, continued |
| ||||||
2,994 | Genpact, Ltd.* | $ | 56,676 | |||||
1,347 | Leidos Holdings, Inc. | 58,621 | ||||||
735 | Paychex, Inc. | 33,935 | ||||||
684 | Teradata Corp.*^ | 29,877 | ||||||
796 | Total System Services, Inc. | 27,032 | ||||||
|
| |||||||
945,177 | ||||||||
|
| |||||||
| Leisure Products (0.1%): |
| ||||||
373 | Hasbro, Inc.^ | 20,511 | ||||||
4,535 | Mattel, Inc. | 140,336 | ||||||
|
| |||||||
160,847 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.6%): |
| ||||||
5,976 | Agilent Technologies, Inc. | 244,657 | ||||||
426 | Bio-Rad Laboratories, Inc., Class A* | 51,359 | ||||||
406 | Bio-Techne Corp. | 37,514 | ||||||
547 | Charles River Laboratories International, Inc.* | 34,811 | ||||||
121 | Covance, Inc.* | 12,565 | ||||||
1,907 | PerkinElmer, Inc. | 83,393 | ||||||
4,893 | QIAGEN NV*^ | 114,789 | ||||||
4,969 | Thermo Fisher Scientific, Inc. | 622,566 | ||||||
141 | VWR Corp.*^ | 3,648 | ||||||
|
| |||||||
1,205,302 | ||||||||
|
| |||||||
| Machinery (1.7%): |
| ||||||
1,955 | AGCO Corp.^ | 88,366 | ||||||
10,272 | Caterpillar, Inc. | 940,197 | ||||||
643 | Crane Co. | 37,744 | ||||||
5,917 | Deere & Co. | 523,477 | ||||||
249 | Donaldson Co., Inc.^ | 9,619 | ||||||
896 | Dover Corp.^ | 64,261 | ||||||
119 | IDEX Corp. | 9,263 | ||||||
5,179 | Ingersoll-Rand plc | 328,297 | ||||||
1,509 | ITT Corp. | 61,054 | ||||||
2,098 | Joy Global, Inc.^ | 97,599 | ||||||
1,642 | Kennametal, Inc. | 58,767 | ||||||
1,101 | Lincoln Electric Holdings, Inc. | 76,068 | ||||||
942 | Navistar International Corp.*^ | 31,538 | ||||||
1,633 | Oshkosh Corp.^ | 79,445 | ||||||
617 | PACCAR, Inc.^ | 41,962 | ||||||
1,457 | Parker Hannifin Corp.^ | 187,880 | ||||||
3,774 | Pentair, Ltd. | 250,669 | ||||||
1,050 | Snap-On, Inc. | 143,577 | ||||||
858 | SPX Corp. | 73,719 | ||||||
2,902 | Stanley Black & Decker, Inc. | 278,824 | ||||||
2,337 | Terex Corp.^ | 65,156 | ||||||
1,614 | Timken Co. | 68,886 | ||||||
790 | Trinity Industries, Inc. | 22,128 | ||||||
481 | Valmont Industries, Inc.^ | 61,087 | ||||||
1,046 | Xylem, Inc. | 39,821 | ||||||
|
| |||||||
3,639,404 | ||||||||
|
| |||||||
| Media (1.9%): |
| ||||||
1,030 | CBS Corp., Class B | 57,000 | ||||||
518 | Clear Channel Outdoor Holdings, Inc., Class A | 5,486 |
Continued
8
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
4,611 | Comcast Corp., Class A | $ | 267,484 | |||||
1,186 | DISH Network Corp., Class A* | 86,448 | ||||||
1,600 | DreamWorks Animation SKG, Inc., Class A*^ | 35,728 | ||||||
4,751 | Gannett Co., Inc.^ | 151,699 | ||||||
925 | John Wiley & Sons, Inc., Class A | 54,797 | ||||||
970 | Liberty Broadband Corp., Class C*^ | 48,325 | ||||||
506 | Liberty Broadband Corp., Class A* | 25,346 | ||||||
1,969 | Liberty Media Corp.* | 69,447 | ||||||
3,976 | Liberty Media Corp., Class C* | 139,279 | ||||||
1,481 | Live Nation, Inc.* | 38,669 | ||||||
1,290 | Madison Square Garden, Inc., Class A* | 97,085 | ||||||
10,419 | News Corp., Class A*^ | 163,474 | ||||||
1,295 | Regal Entertainment Group, Class A^ | 27,661 | ||||||
217 | Starz – Liberty Capital*^ | 6,445 | ||||||
7,440 | Thomson Reuters Corp. | 300,130 | ||||||
18,422 | Time Warner Cable, Inc. | 1,573,607 | ||||||
10,485 | Twenty-First Century Fox, Inc.^ | 402,676 | ||||||
5,850 | Walt Disney Co. (The) | 551,012 | ||||||
|
| |||||||
4,101,798 | ||||||||
|
| |||||||
| Metals & Mining (0.9%): |
| ||||||
24,540 | Alcoa, Inc. | 387,486 | ||||||
2,269 | Allegheny Technologies, Inc. | 78,893 | ||||||
1,050 | Carpenter Technology Corp.^ | 51,713 | ||||||
3,249 | Cliffs Natural Resources, Inc.^ | 23,198 | ||||||
21,646 | Freeport-McMoRan Copper & Gold, Inc. | 505,650 | ||||||
10,441 | Newmont Mining Corp. | 197,335 | ||||||
6,667 | Nucor Corp.^ | 327,016 | ||||||
1,628 | Reliance Steel & Aluminum Co. | 99,748 | ||||||
1,348 | Royal Gold, Inc. | 84,520 | ||||||
4,853 | Steel Dynamics, Inc. | 95,798 | ||||||
1,536 | Tahoe Resources, Inc. | 21,304 | ||||||
764 | TimkenSteel Corp. | 28,291 | ||||||
3,022 | United States Steel Corp.^ | 80,808 | ||||||
|
| |||||||
1,981,760 | ||||||||
|
| |||||||
| Multiline Retail (0.7%): |
| ||||||
785 | Big Lots, Inc.^ | 31,416 | ||||||
155 | Dillard’s, Inc., Class A^ | 19,403 | ||||||
1,552 | Dollar General Corp.* | 109,726 | ||||||
122 | Family Dollar Stores, Inc. | 9,664 | ||||||
5,797 | J.C. Penney Co., Inc.*^ | 37,565 | ||||||
4,127 | Kohl’s Corp.^ | 251,912 | ||||||
1,729 | Macy’s, Inc.^ | 113,682 | ||||||
127 | Sears Holdings Corp.* | 4,188 | ||||||
11,895 | Target Corp.^ | 902,949 | ||||||
|
| |||||||
1,480,505 | ||||||||
|
| |||||||
| Multi-Utilities (2.5%): |
| ||||||
2,324 | Alliant Energy Corp.^ | 154,360 | ||||||
5,081 | Ameren Corp. | 234,387 | ||||||
9,000 | CenterPoint Energy, Inc. | 210,870 | ||||||
5,645 | CMS Energy Corp. | 196,164 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Multi-Utilities, continued |
| ||||||
6,132 | Consolidated Edison, Inc.^ | $ | 404,773 | |||||
11,402 | Dominion Resources, Inc. | 876,813 | ||||||
3,706 | DTE Energy Co. | 320,087 | ||||||
1,676 | Integrys Energy Group, Inc. | 130,477 | ||||||
4,006 | MDU Resources Group, Inc. | 94,141 | ||||||
6,593 | NiSource, Inc. | 279,675 | ||||||
9,690 | PG&E Corp. | 515,896 | ||||||
10,541 | Public Service Enterprise Group, Inc. | 436,503 | ||||||
2,966 | SCANA Corp. | 179,146 | ||||||
5,118 | Sempra Energy | 569,940 | ||||||
4,791 | TECO Energy, Inc.^ | 98,168 | ||||||
1,730 | Vectren Corp. | 79,978 | ||||||
4,723 | Wisconsin Energy Corp.^ | 249,091 | ||||||
10,509 | Xcel Energy, Inc. | 377,483 | ||||||
|
| |||||||
5,407,952 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (10.5%): |
| ||||||
9,771 | Anadarko Petroleum Corp. | 806,108 | ||||||
8,037 | Apache Corp.^ | 503,679 | ||||||
6,576 | California Resources Corp.* | 36,234 | ||||||
8,493 | Chesapeake Energy Corp.^ | 166,208 | ||||||
39,756 | Chevron Corp. | 4,459,828 | ||||||
1,603 | Cimarex Energy Co. | 169,918 | ||||||
714 | Cobalt International Energy, Inc.* | 6,347 | ||||||
25,639 | ConocoPhillips | 1,770,629 | ||||||
4,815 | CONSOL Energy, Inc.^ | 162,795 | ||||||
204 | CVR Energy, Inc. | 7,897 | ||||||
7,291 | Denbury Resources, Inc.^ | 59,276 | ||||||
8,501 | Devon Energy Corp. | 520,346 | ||||||
1,526 | Energen Corp.^ | 97,298 | ||||||
729 | EP Energy Corp., Class A*^ | 7,611 | ||||||
292 | EQT Corp. | 22,104 | ||||||
89,682 | Exxon Mobil Corp. | 8,291,102 | ||||||
949 | Golar LNG, Ltd. | 34,610 | ||||||
338 | Gulfport Energy Corp.* | 14,108 | ||||||
5,817 | Hess Corp. | 429,411 | ||||||
3,401 | HollyFrontier Corp. | 127,469 | ||||||
20,439 | Kinder Morgan, Inc. | 864,774 | ||||||
211 | Laredo Petroleum Holdings, Inc.*^ | 2,184 | ||||||
14,152 | Marathon Oil Corp. | 400,360 | ||||||
1,344 | Marathon Petroleum Corp. | 121,309 | ||||||
489 | Memorial Resource Development Corp.* | 8,817 | ||||||
3,758 | Murphy Oil Corp.^ | 189,854 | ||||||
2,858 | Newfield Exploration Co.* | 77,509 | ||||||
2,170 | Noble Energy, Inc. | 102,923 | ||||||
16,407 | Occidental Petroleum Corp. | 1,322,568 | ||||||
2,037 | ONEOK, Inc. | 101,422 | ||||||
969 | PBF Energy, Inc.^ | 25,814 | ||||||
5,613 | Peabody Energy Corp.^ | 43,445 | ||||||
6,958 | Phillips 66 | 498,889 | ||||||
3,279 | QEP Resources, Inc. | 66,301 | ||||||
10,226 | SandRidge Energy, Inc.*^ | 18,611 |
Continued
9
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
13,979 | Spectra Energy Corp.^ | $ | 507,438 | |||||
536 | Teekay Shipping Corp. | 27,277 | ||||||
1,545 | Tesoro Corp. | 114,871 | ||||||
2,252 | Ultra Petroleum Corp.*^ | 29,636 | ||||||
8,501 | Valero Energy Corp. | 420,800 | ||||||
2,236 | Whiting Petroleum Corp.* | 73,788 | ||||||
1,175 | World Fuel Services Corp.^ | 55,143 | ||||||
4,200 | WPX Energy, Inc.*^ | 48,846 | ||||||
|
| |||||||
22,815,557 | ||||||||
|
| |||||||
| Paper & Forest Products (0.2%): |
| ||||||
1,346 | Domtar Corp. | 54,136 | ||||||
7,663 | International Paper Co. | 410,584 | ||||||
|
| |||||||
464,720 | ||||||||
|
| |||||||
| Personal Products (0.0%): |
| ||||||
5,464 | Avon Products, Inc.^ | 51,307 | ||||||
298 | Coty, Inc., Class A^ | 6,157 | ||||||
|
| |||||||
57,464 | ||||||||
|
| |||||||
| Pharmaceuticals (7.3%): |
| ||||||
22,253 | Bristol-Myers Squibb Co. | 1,313,595 | ||||||
20,546 | Eli Lilly & Co. | 1,417,469 | ||||||
3,501 | Hospira, Inc.* | 214,436 | ||||||
49,806 | Johnson & Johnson Co. | 5,208,212 | ||||||
657 | Mallinckrodt plc* | 65,063 | ||||||
52,486 | Merck & Co., Inc. | 2,980,680 | ||||||
2,252 | Perrigo Co. plc | 376,444 | ||||||
133,212 | Pfizer, Inc. | 4,149,554 | ||||||
|
| |||||||
15,725,453 | ||||||||
|
| |||||||
| Professional Services (0.2%): |
| ||||||
502 | Dun & Bradstreet Corp.^ | 60,722 | ||||||
1,187 | Equifax, Inc. | 95,993 | ||||||
1,669 | Manpower, Inc. | 113,776 | ||||||
1,507 | Nielsen Holdings NV | 67,408 | ||||||
1,361 | Towers Watson & Co., Class A | 154,024 | ||||||
|
| |||||||
491,923 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (4.7%): |
| ||||||
1,494 | Alexandria Real Estate Equities, Inc. | 132,578 | ||||||
2,200 | American Campus Communities, Inc. | 90,992 | ||||||
7,390 | American Capital Agency Corp. | 161,324 | ||||||
3,054 | American Homes 4 Rent, Class A | 52,010 | ||||||
19,020 | American Realty Capital Properties, Inc.^ | 172,131 | ||||||
19,842 | Annaly Capital Management, Inc. | 214,492 | ||||||
1,325 | Apartment Investment & Management Co., Class A | 49,224 | ||||||
2,701 | AvalonBay Communities, Inc.^ | 441,315 | ||||||
4,011 | BioMed Realty Trust, Inc. | 86,397 | ||||||
2,820 | Boston Properties, Inc. | 362,906 | ||||||
3,533 | Brandywine Realty Trust | 56,457 | ||||||
971 | Brixmor Property Group, Inc. | 24,120 | ||||||
1,793 | Camden Property Trust^ | 132,395 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Investment Trusts (REITs), continued |
| ||||||
3,531 | CBL & Associates Properties, Inc. | $ | 68,572 | |||||
21,450 | Chimera Investment Corp. | 68,211 | ||||||
2,239 | Columbia Property Trust, Inc. | 56,759 | ||||||
1,851 | Corporate Office Properties Trust | 52,513 | ||||||
6,292 | DDR Corp.^ | 115,521 | ||||||
2,835 | Digital Realty Trust, Inc.^ | 187,961 | ||||||
2,990 | Douglas Emmett, Inc. | 84,916 | ||||||
6,904 | Duke Realty Corp. | 139,461 | ||||||
2,542 | Equity Commonwealth | 65,253 | ||||||
461 | Equity Lifestyle Properties, Inc. | 23,765 | ||||||
7,532 | Equity Residential Property Trust | 541,098 | ||||||
1,310 | Essex Property Trust, Inc. | 270,646 | ||||||
470 | Federal Realty Investment Trust | 62,726 | ||||||
1,466 | Gaming & Leisure Properties, Inc. | 43,012 | ||||||
11,871 | General Growth Properties, Inc. | 333,931 | ||||||
9,547 | HCP, Inc. | 420,354 | ||||||
3,146 | Health Care REIT, Inc. | 238,058 | ||||||
2,200 | Healthcare Trust of America, Inc., Class A^ | 59,255 | ||||||
1,193 | Home Properties, Inc. | 78,261 | ||||||
3,139 | Hospitality Properties Trust | 97,309 | ||||||
15,847 | Host Hotels & Resorts, Inc. | 376,683 | ||||||
1,723 | Kilroy Realty Corp. | 119,008 | ||||||
8,597 | Kimco Realty Corp. | 216,129 | ||||||
3,095 | Liberty Property Trust | 116,465 | ||||||
3,254 | Macerich Co. (The) | 271,416 | ||||||
7,597 | MFA Financial, Inc. | 60,700 | ||||||
1,572 | Mid-America Apartment Communities, Inc.^ | 117,397 | ||||||
2,660 | National Retail Properties, Inc.^ | 104,724 | ||||||
3,344 | NorthStar Realty Finance Corp. | 58,788 | ||||||
1,793 | Omega Healthcare Investors, Inc.^ | 70,053 | ||||||
2,350 | Outfront Media, Inc. | 63,074 | ||||||
2,789 | Paramount Group, Inc.* | 51,848 | ||||||
3,251 | Piedmont Office Realty Trust, Inc., Class A^ | 61,249 | ||||||
1,903 | Plum Creek Timber Co., Inc.^ | 81,429 | ||||||
1,144 | Post Properties, Inc. | 67,233 | ||||||
10,411 | ProLogis, Inc. | 447,984 | ||||||
232 | Public Storage, Inc. | 42,885 | ||||||
2,291 | Rayonier, Inc. | 64,011 | ||||||
4,638 | Realty Income Corp.^ | 221,279 | ||||||
1,935 | Regency Centers Corp. | 123,414 | ||||||
4,906 | Retail Properties of America, Inc., Class A | 81,881 | ||||||
4,252 | Senior Housing Properties Trust | 94,012 | ||||||
1,653 | Simon Property Group, Inc. | 301,028 | ||||||
1,963 | SL Green Realty Corp. | 233,636 | ||||||
8,349 | Spirit Realty Capital, Inc. | 99,270 | ||||||
4,630 | Starwood Property Trust, Inc.^ | 107,601 | ||||||
692 | Tanger Factory Outlet Centers, Inc. | 25,576 | ||||||
90 | Taubman Centers, Inc. | 6,878 | ||||||
7,663 | Two Harbors Investment Corp. | 76,783 | ||||||
5,267 | UDR, Inc. | 162,329 | ||||||
3,248 | Ventas, Inc.^ | 232,882 | ||||||
3,041 | Vornado Realty Trust | 357,956 |
Continued
10
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Investment Trusts (REITs), continued |
| ||||||
3,261 | Washington Prime Group, Inc.^ | $ | 56,154 | |||||
2,561 | Weingarten Realty Investors | 89,430 | ||||||
9,860 | Weyerhaeuser Co.^ | 353,875 | ||||||
2,082 | WP Carey, Inc.^ | 145,948 | ||||||
|
| |||||||
10,144,931 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.1%): |
| ||||||
3,439 | Forest City Enterprises, Inc., Class A*^ | 73,251 | ||||||
439 | Howard Hughes Corp. (The)* | 57,254 | ||||||
681 | Jones Lang LaSalle, Inc. | 102,102 | ||||||
1,712 | Realogy Holdings Corp.* | 76,167 | ||||||
|
| |||||||
308,774 | ||||||||
|
| |||||||
| Road & Rail (0.7%): |
| ||||||
66 | AMERCO, Inc. | 18,761 | ||||||
1,207 | Con-way, Inc. | 59,360 | ||||||
20,963 | CSX Corp. | 759,489 | ||||||
592 | Genesee & Wyoming, Inc., Class A* | 53,233 | ||||||
533 | Kansas City Southern Industries, Inc. | 65,042 | ||||||
5,088 | Norfolk Southern Corp. | 557,696 | ||||||
1,115 | Ryder System, Inc. | 103,528 | ||||||
|
| |||||||
1,617,109 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.5%): |
| ||||||
4,108 | Altera Corp. | 151,750 | ||||||
3,579 | Analog Devices, Inc. | 198,706 | ||||||
8,465 | Applied Materials, Inc. | 210,948 | ||||||
11,148 | Broadcom Corp., Class A | 483,043 | ||||||
1,157 | Cree, Inc.*^ | 37,279 | ||||||
1,525 | First Solar, Inc.*^ | 68,007 | ||||||
84 | Freescale Semiconductor Holdings I, Ltd.*^ | 2,119 | ||||||
93 | Freescale Semiconductor, Ltd.* | 2,346 | ||||||
95,123 | Intel Corp. | 3,452,013 | ||||||
317 | KLA-Tencor Corp.^ | 22,291 | ||||||
2,492 | Lam Research Corp.^ | 197,715 | ||||||
8,506 | Marvell Technology Group, Ltd. | 123,338 | ||||||
511 | Maxim Integrated Products, Inc. | 16,286 | ||||||
2,742 | Micron Technology, Inc.* | 95,997 | ||||||
9,769 | NVIDIA Corp.^ | 195,868 | ||||||
4,463 | ON Semiconductor Corp.* | 45,210 | ||||||
3,788 | SunEdison, Inc.*^ | 73,904 | ||||||
842 | Sunpower Corp. Common*^ | 21,749 | ||||||
3,764 | Teradyne, Inc.^ | 74,490 | ||||||
|
| |||||||
5,473,059 | ||||||||
|
| |||||||
| Software (1.9%): |
| ||||||
3,469 | Activision Blizzard, Inc. | 69,900 | ||||||
1,493 | Ansys, Inc.* | 122,426 | ||||||
1,009 | Autodesk, Inc.* | 60,601 | ||||||
6,700 | CA, Inc. | 204,015 | ||||||
342 | Citrix Systems, Inc.* | 21,820 | ||||||
1,544 | Electronic Arts, Inc.* | 72,591 | ||||||
358 | FireEye, Inc.*^ | 11,306 | ||||||
245 | Informatica Corp.* | 9,343 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software, continued |
| ||||||
60,896 | Microsoft Corp. | $ | 2,828,618 | |||||
5,502 | Nuance Communications, Inc.* | 78,514 | ||||||
1,981 | Rovi Corp.*^ | 44,751 | ||||||
14,481 | Symantec Corp. | 371,510 | ||||||
3,236 | Synopsys, Inc.*^ | 140,669 | ||||||
15,167 | Zynga, Inc.* | 40,344 | ||||||
|
| |||||||
4,076,408 | ||||||||
|
| |||||||
| Specialty Retail (0.7%): |
| ||||||
1,081 | Aaron’s, Inc. | 33,046 | ||||||
1,288 | Abercrombie & Fitch Co., Class A^ | 36,888 | ||||||
2,729 | Ascena Retail Group, Inc.* | 34,276 | ||||||
2,239 | Bed Bath & Beyond, Inc.*^ | 170,545 | ||||||
4,217 | Best Buy Co., Inc. | 164,379 | ||||||
934 | Cabela’s, Inc., Class A*^ | 49,231 | ||||||
1,422 | CarMax, Inc.* | 94,677 | ||||||
1,753 | Chico’s FAS, Inc. | 28,416 | ||||||
241 | CST Brands, Inc. | 10,510 | ||||||
1,658 | Dick’s Sporting Goods, Inc.^ | 82,320 | ||||||
1,577 | DSW, Inc., Class A | 58,822 | ||||||
2,612 | Foot Locker, Inc.^ | 146,742 | ||||||
2,149 | GameStop Corp., Class A^ | 72,636 | ||||||
3,273 | L Brands, Inc. | 283,279 | ||||||
214 | Michaels Cos., Inc. (The)*^ | 5,292 | ||||||
512 | Murphy USA, Inc.* | 35,256 | ||||||
477 | Penske Automotive Group, Inc. | 23,406 | ||||||
856 | Sally Beauty Holdings, Inc.* | 26,313 | ||||||
531 | Signet Jewelers, Ltd. | 69,864 | ||||||
13,543 | Staples, Inc.^ | 245,400 | ||||||
592 | Urban Outfitters, Inc.*^ | 20,797 | ||||||
|
| |||||||
1,692,095 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.9%): |
| ||||||
38,523 | EMC Corp.^ | 1,145,674 | ||||||
39,578 | Hewlett-Packard Co. | 1,588,265 | ||||||
1,305 | Lexmark International, Inc., Class A^ | 53,857 | ||||||
3,175 | NCR Corp.*^ | 92,520 | ||||||
4,160 | NetApp, Inc. | 172,432 | ||||||
2,487 | SanDisk Corp.^ | 243,676 | ||||||
451 | Stratasys, Ltd.*^ | 37,483 | ||||||
4,640 | Western Digital Corp. | 513,648 | ||||||
24,439 | Xerox Corp. | 338,725 | ||||||
|
| |||||||
4,186,280 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.0%): |
| ||||||
207 | PVH Corp. | 26,531 | ||||||
309 | Ralph Lauren Corp.^ | 57,215 | ||||||
|
| |||||||
83,746 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.2%): |
| ||||||
2,158 | BankUnited, Inc. | 62,517 | ||||||
11,025 | Hudson City Bancorp, Inc. | 111,573 | ||||||
55 | Nationstar Mortgage Holdings, Inc.*^ | 1,550 | ||||||
9,274 | New York Community Bancorp, Inc.^ | 148,385 |
Continued
11
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Thrifts & Mortgage Finance, continued |
| ||||||
6,502 | People’s United Financial, Inc.^ | $ | 98,700 | |||||
1,604 | TFS Financial Corp. | 23,876 | ||||||
|
| |||||||
446,601 | ||||||||
|
| |||||||
| Tobacco (0.6%): |
| ||||||
2,248 | Altria Group, Inc. | 110,759 | ||||||
13,566 | Philip Morris International, Inc. | 1,104,950 | ||||||
1,580 | Reynolds American, Inc. | 101,547 | ||||||
|
| |||||||
1,317,256 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.1%): |
| ||||||
1,962 | Air Lease Corp. | 67,316 | ||||||
970 | GATX Corp.^ | 55,814 | ||||||
1,132 | MRC Global, Inc.* | 17,150 | ||||||
2,073 | NOW, Inc.*^ | 53,338 | ||||||
152 | Veritiv Corp.*^ | 7,884 | ||||||
922 | WESCO International, Inc.*^ | 70,266 | ||||||
|
| |||||||
271,768 | ||||||||
|
| |||||||
| Water Utilities (0.1%): |
| ||||||
3,749 | American Water Works Co., Inc. | 199,822 | ||||||
3,704 | Aqua America, Inc. | 98,897 | ||||||
|
| |||||||
298,719 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
15,154 | Sprint Corp.*^ | 62,889 | ||||||
1,793 | Telephone & Data Systems, Inc. | 45,273 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Wireless Telecommunication Services, continued |
| ||||||
5,562 | T-Mobile US, Inc.* | $ | 149,841 | |||||
299 | United States Cellular Corp.*^ | 11,909 | ||||||
|
| |||||||
269,912 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $150,022,091) | 216,721,270 | ||||||
|
| |||||||
| Right (0.0%): |
| ||||||
| Media (0.0%): |
| ||||||
303 | Liberty Broadband Corp.*^ | 2,879 | ||||||
|
| |||||||
| Total Right (Cost $—) | 2,879 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (13.1%): |
| ||||||
$ | 28,794,956 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | 28,794,956 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 28,794,956 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.6%): | |||||||
1,422,445 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 1,422,445 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $1,422,445) | 1,422,445 | ||||||
|
| |||||||
| Total Investment Securities (Cost $180,239,492)(c) — 112.7% | 246,941,550 | ||||||
| Net other assets (liabilities) — (12.7)% | (27,783,175 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 219,158,375 | |||||
|
| |||||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $27,817,214. |
+ | Affiliated Securities |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—” are either $0 or round to less than $1.
Futures Contracts
Cash of $107,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/20/15 | 18 | $ | 1,847,160 | $ | 24,140 |
See accompanying notes to the financial statements.
12
AZL Russell 1000 Value Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investments in non-affiliates, at cost | $ | 179,900,284 | |||
Investments in affiliates, at cost | 339,208 | ||||
|
| ||||
Total Investment securities, at cost | $ | 180,239,492 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 246,353,721 | |||
Investments in affiliates, at value | 587,829 | ||||
|
| ||||
Total Investment securities, at value | 246,941,550 | ||||
Cash | 7,448 | ||||
Segregated cash for collateral | 107,000 | ||||
Interest and dividends receivable | 370,953 | ||||
Receivable for capital shares issued | 1,002,762 | ||||
Receivable for variation margin on futures contracts | 3,645 | ||||
Prepaid expenses | 1,864 | ||||
|
| ||||
Total Assets | 248,435,222 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 293,706 | ||||
Payable for collateral received on loaned securities | 28,794,956 | ||||
Payable for variation margin on futures contracts | 25,515 | ||||
Manager fees payable | 82,108 | ||||
Administration fees payable | 5,498 | ||||
Distribution fees payable | 46,652 | ||||
Custodian fees payable | 5,344 | ||||
Administrative and compliance services fees payable | 551 | ||||
Trustee fees payable | 11 | ||||
Other accrued liabilities | 22,506 | ||||
|
| ||||
Total Liabilities | 29,276,847 | ||||
|
| ||||
Net Assets | $ | 219,158,375 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 135,853,936 | |||
Accumulated net investment income/(loss) | 3,388,168 | ||||
Accumulated net realized gains/(losses) from investment transactions | 13,190,073 | ||||
Net unrealized appreciation/(depreciation) on investments | 66,726,198 | ||||
|
| ||||
Net Assets | $ | 219,158,375 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 14,783,642 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.82 | |||
|
|
* | Includes securities on loan of $27,817,214. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 4,996,373 | |||
Dividends from affiliates | 13,616 | ||||
Income from securities lending | 36,827 | ||||
Foreign withholding tax | (1,999 | ) | |||
|
| ||||
Total Investment Income | 5,044,817 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 939,140 | ||||
Administration fees | 63,432 | ||||
Distribution fees | 533,601 | ||||
Custodian fees | 18,994 | ||||
Administrative and compliance services fees | 2,637 | ||||
Trustee fees | 10,230 | ||||
Professional fees | 11,224 | ||||
Shareholder reports | 2,582 | ||||
Other expenses | 46,030 | ||||
|
| ||||
Total expenses | 1,627,870 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,416,947 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 13,156,376 | ||||
Net realized gains distributions from affiliated underlying funds | 29,368 | ||||
Net realized gains/(losses) on futures contracts | 604,325 | ||||
Change in net unrealized appreciation/depreciation on investments | 8,536,244 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 22,326,313 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 25,743,260 | |||
|
|
See accompanying notes to the financial statements.
13
Statements of Changes in Net Assets
AZL Russell 1000 Value Index Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,416,947 | $ | 3,208,901 | ||||||
Net realized gains/(losses) on investment transactions | 13,790,069 | 19,434,893 | ||||||||
Change in unrealized appreciation/depreciation on investments | 8,536,244 | 34,687,233 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 25,743,260 | 57,331,027 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (3,178,169 | ) | (3,878,001 | ) | ||||||
From net realized gains | (19,713,140 | ) | (6,783,630 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (22,891,309 | ) | (10,661,631 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 15,525,801 | 6,359,982 | ||||||||
Proceeds from dividends reinvested | 22,891,309 | 10,661,631 | ||||||||
Value of shares redeemed | (27,917,422 | ) | (82,266,180 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 10,499,688 | (65,244,567 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 13,351,639 | (18,575,171 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 205,806,736 | 224,381,907 | ||||||||
|
|
|
| |||||||
End of period | $ | 219,158,375 | $ | 205,806,736 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 3,388,168 | $ | 3,206,969 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,037,755 | 479,565 | ||||||||
Dividends reinvested | 1,597,440 | 792,686 | ||||||||
Shares redeemed | (1,850,048 | ) | (6,227,133 | ) | ||||||
|
|
|
| |||||||
Change in shares | 785,147 | (4,954,882 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
14
AZL Russell 1000 Value Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | April 30, 2010 to December 31, 2010 (a) | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.70 | $ | 11.84 | $ | 10.36 | $ | 10.49 | $ | 10.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | 0.31 | 0.20 | 0.16 | 0.10 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.55 | 3.35 | 1.52 | (0.19 | ) | 0.39 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.79 | 3.66 | 1.72 | (0.03 | ) | 0.49 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.23 | ) | (0.29 | ) | (0.15 | ) | (0.10 | ) | — | ||||||||||||||||
Net Realized Gains | (1.44 | ) | (0.51 | ) | (0.09 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.67 | ) | (0.80 | ) | (0.24 | ) | (0.10 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.82 | $ | 14.70 | $ | 11.84 | $ | 10.36 | $ | 10.49 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 12.59 | % | 31.52 | % | 16.63 | % | (0.25 | )% | 4.90 | %(c) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 219,158 | $ | 205,807 | $ | 224,382 | $ | 182,515 | $ | 169,075 | |||||||||||||||
Net Investment Income/(Loss)(d) | 1.60 | % | 1.54 | % | 1.85 | % | 1.59 | % | 1.68 | % | |||||||||||||||
Expenses Before Reductions(d)(e) | 0.76 | % | 0.77 | % | 0.78 | % | 0.79 | % | 0.84 | % | |||||||||||||||
Expenses Net of Reductions(d) | 0.76 | % | 0.77 | % | 0.78 | % | 0.79 | % | 0.84 | % | |||||||||||||||
Portfolio Turnover Rate | 16 | % | 11 | % | 18 | % | 20 | % | 25 | %(c) |
(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. |
(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. |
See accompanying notes to the financial statements.
15
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Russell 1000 Value Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
16
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $9.9 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $3,635 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $1.8 million as of December 31, 2014. The monthly average notional amount for these contracts was $3.3 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 24,140 | Payable for variation margin on futures contracts | $ | — |
* | 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. |
17
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 604,325 | $ | (83,593 | ) |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $2,640 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 in total for both trusts.
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AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2014
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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 216,721,270 | $ | — | $ | 216,721,270 | |||||||||
Right | 2,879 | — | 2,879 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 28,794,956 | 28,794,956 | ||||||||||||
Unaffiliated Investment Company | 1,422,445 | — | 1,422,445 | ||||||||||||
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Total Investment Securities | 218,146,594 | 28,794,956 | 246,941,550 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 24,140 | — | 24,140 | ||||||||||||
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Total Investments | $ | 218,170,734 | $ | 28,794,956 | $ | 246,965,690 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 33,370,685 | $ | 39,843,438 |
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AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2014
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $180,676,234. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 69,132,620 | ||
Unrealized depreciation | (2,867,304 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 66,265,316 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 4,571,941 | $ | 18,319,368 | $ | 22,891,309 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 5,586,078 | $ | 5,075,553 | $ | 10,661,631 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Russell 1000 Value Index Fund | $ | 5,611,100 | $ | 11,428,023 | $ | — | $ | 66,265,316 | $ | 83,304,439 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 94.49% 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, 2014, the Fund declared net long-term capital gain distributions of $18,319,368.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $1,393,772.
22
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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
24
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
27
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
28
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® S&P 500 Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 11
Statement of Operations
Page 11
Statements of Changes in Net Assets
Page 12
Financial Highlights
Page 13
Notes to the Financial Statements
Page 14
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 26
This report is submitted for the general information of the shareholder 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.
AZL® S&P 500 Index Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® S&P 500 Index Fund (Class 2 Shares) returned 13.12%. That compared to a 13.69% total return for its benchmark, the S&P 500® Index1.
The Fund attempts to replicate the performance of the S&P 500® Index of U.S. large-cap stocks. U.S. equities moved higher in 2014 as domestic economic growth gained momentum and interest rates remained low. The period started out on a negative note, however: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve (the Fed) would soon end its stimulus efforts all weighed on investors. Equity markets declined sharply in January, but the sell-off was short-lived. Investors soon learned that the recent weakness in the U.S. economic data was weather-related, and therefore temporary. Meanwhile, the Federal Reserve shifted its position, announcing a more cautious approach to raising short-term rates.*
U.S. equities moved higher throughout the period, but volatility increased through the period. A combination of high valuations and persistent expectations of higher interest rates left stocks vulnerable to bad news. Tensions between Russia and Ukraine weighed on global markets early in the period, while later geopolitical crises—including a ground war in Gaza—added to concerns.
U.S. economic growth strengthened considerably in the second half of 2014, even as the broader global economy showed signs of slowing. U.S. stocks recovered from a September sell-off to post impressive gains through the fourth quarter of 2014 as economic data continued to impress investors and helped to fuel a positive corporate earnings season. A sharp decline in oil prices later in the period contributed to uncertainty about global growth, but helped buoy U.S. stocks as it led to a pickup in consumer spending.
From a sector perspective, utilities generated the strongest returns for the index. The low-interest rate environment helped make the dividends offered by companies in that sector more attractive to income-seeking investors. Health care stocks and information technology were also top performers. They benefited from their ties to cyclical growth. Other sectors that performed well in the index included consumer staples and financials. Meanwhile, the industrials, consumer discretionary, and materials sectors posted softer gains for the period, slightly underperforming the index. The energy sector posted a loss for the period. It was weighed down by the steep decline in oil prices.*
The Fund slightly underperformed its benchmark due to the effect of fees and expenses.
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, 2014. |
1 | The Standard & Poor’s 500® Index (“S&P 500®”) 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
AZL® S&P 500 Index Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to seek to match the total return of the Standard & Poor’s 500® 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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® S&P 500 Index Fund (Class 1 Shares) | 5/14/07 | 13.41 | % | 20.08 | % | 15.15 | % | 6.07 | % | |||||||||||
AZL® S&P 500 Index Fund (Class 2 Shares) | 5/1/07 | 13.12 | % | 19.79 | % | 14.87 | % | 5.97 | % | |||||||||||
S&P 500® Index | 5/1/07 | 13.69 | % | 20.41 | % | 15.45 | % | 6.63 | % |
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® S&P 500 Index Fund (Class 1 Shares) | 0.24 | % | ||
AZL® S&P 500 Index Fund (Class 2 Shares) | 0.49 | % |
Expense Ratios are based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.46% for Class 1 Shares and 0.71% for Class 2 Shares through April 30, 2016. Additional information pertaining to the December 31, 2014 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®”), 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
AZL S&P 500 Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL S&P 500 Index Fund, Class 1 | $ | 1,000.00 | $ | 1,059.70 | $ | 1.25 | 0.24 | % | ||||||||||||
AZL S&P 500 Index Fund, Class 2 | $ | 1,000.00 | $ | 1,058.10 | $ | 2.54 | 0.49 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL S&P 500 Index Fund, Class 1 | $ | 1,000.00 | $ | 1,024.00 | $ | 1.22 | 0.24 | % | ||||||||||||
AZL S&P 500 Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.74 | $ | 2.50 | 0.49 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 19.3 | % | |||
Financials | 16.1 | ||||
Health Care | 13.9 | ||||
Consumer Discretionary | 12.0 | ||||
Industrials | 10.2 | ||||
Consumer Staples | 9.6 | ||||
Energy | 8.3 | ||||
Utilities | 3.2 | ||||
Materials | 3.1 | ||||
Telecommunication Services | 2.2 | ||||
|
| ||||
Total Common Stocks | 97.9 | ||||
Securities Held as Collateral for Securities on Loan | 12.4 | ||||
Money Market | 2.2 | ||||
|
| ||||
Total Investment Securities | 112.5 | ||||
Net other assets (liabilities) | (12.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (97.9%): |
| ||||||
| Aerospace & Defense (2.6%): |
| ||||||
62,793 | Boeing Co. (The) | $ | 8,161,834 | |||||
29,816 | General Dynamics Corp. | 4,103,278 | ||||||
74,138 | Honeywell International, Inc. | 7,407,869 | ||||||
8,048 | L-3 Communications Holdings, Inc. | 1,015,738 | ||||||
25,426 | Lockheed Martin Corp. | 4,896,285 | ||||||
19,132 | Northrop Grumman Corp. | 2,819,865 | ||||||
13,518 | Precision Castparts Corp.^ | 3,256,216 | ||||||
29,176 | Raytheon Co.^ | 3,155,968 | ||||||
12,557 | Rockwell Collins, Inc. | 1,060,815 | ||||||
26,236 | Textron, Inc. | 1,104,798 | ||||||
80,296 | United Technologies Corp. | 9,234,040 | ||||||
|
| |||||||
46,216,706 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.8%): |
| ||||||
13,920 | C.H. Robinson Worldwide, Inc.^ | 1,042,469 | ||||||
18,346 | Expeditors International of Washington, Inc. | 818,415 | ||||||
24,948 | FedEx Corp. | 4,332,470 | ||||||
66,013 | United Parcel Service, Inc., Class B^ | 7,338,665 | ||||||
|
| |||||||
13,532,019 | ||||||||
|
| |||||||
| Airlines (0.4%): |
| ||||||
79,200 | Delta Air Lines, Inc.^ | 3,895,848 | ||||||
64,285 | Southwest Airlines Co. | 2,720,541 | ||||||
|
| |||||||
6,616,389 | ||||||||
|
| |||||||
| Auto Components (0.4%): |
| ||||||
21,533 | BorgWarner, Inc. | 1,183,238 | ||||||
28,043 | Delphi Automotive plc | 2,039,287 | ||||||
25,996 | Goodyear Tire & Rubber Co.^ | 742,706 | ||||||
63,096 | Johnson Controls, Inc. | 3,050,061 | ||||||
|
| |||||||
7,015,292 | ||||||||
|
| |||||||
| Automobiles (0.6%): |
| ||||||
364,503 | Ford Motor Co. | 5,649,797 | ||||||
127,823 | General Motors Co. | 4,462,301 | ||||||
20,295 | Harley-Davidson, Inc. | 1,337,643 | ||||||
|
| |||||||
11,449,741 | ||||||||
|
| |||||||
| Banks (5.8%): |
| ||||||
995,969 | Bank of America Corp. | 17,817,885 | ||||||
68,222 | BB&T Corp.^ | 2,653,154 | ||||||
286,911 | Citigroup, Inc. | 15,524,754 | ||||||
17,085 | Comerica, Inc. | 800,261 | ||||||
78,048 | Fifth Third Bancorp | 1,590,228 | ||||||
76,951 | Huntington Bancshares, Inc.^ | 809,525 | ||||||
354,027 | JPMorgan Chase & Co. | 22,155,009 | ||||||
81,832 | KeyCorp | 1,137,465 | ||||||
12,549 | M&T Bank Corp.^ | 1,576,405 | ||||||
49,837 | PNC Financial Services Group, Inc. | 4,546,630 | ||||||
130,872 | Regions Financial Corp. | 1,382,008 | ||||||
49,389 | SunTrust Banks, Inc.^ | 2,069,399 | ||||||
169,468 | U.S. Bancorp^ | 7,617,587 | ||||||
447,079 | Wells Fargo & Co. | 24,508,870 | ||||||
19,149 | Zions Bancorp^ | 545,938 | ||||||
|
| |||||||
104,735,118 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Beverages (2.1%): |
| ||||||
14,766 | Brown-Forman Corp., Class B^ | $ | 1,297,045 | |||||
373,341 | Coca-Cola Co. (The) | 15,762,457 | ||||||
21,039 | Coca-Cola Enterprises, Inc. | 930,345 | ||||||
15,894 | Constellation Brands, Inc., Class A* | 1,560,314 | ||||||
18,484 | Dr Pepper Snapple Group, Inc. | 1,324,933 | ||||||
15,136 | Molson Coors Brewing Co., Class B | 1,127,935 | ||||||
13,656 | Monster Beverage Corp.* | 1,479,628 | ||||||
141,738 | PepsiCo, Inc. | 13,402,745 | ||||||
|
| |||||||
36,885,402 | ||||||||
|
| |||||||
| Biotechnology (2.8%): |
| ||||||
18,780 | Alexion Pharmaceuticals, Inc.* | 3,474,863 | ||||||
72,040 | Amgen, Inc. | 11,475,252 | ||||||
22,366 | Biogen Idec, Inc.* | 7,592,139 | ||||||
75,643 | Celgene Corp.* | 8,461,426 | ||||||
142,880 | Gilead Sciences, Inc.* | 13,467,869 | ||||||
7,029 | Regeneron Pharmaceuticals, Inc.*^ | 2,883,647 | ||||||
22,781 | Vertex Pharmaceuticals, Inc.*^ | 2,706,383 | ||||||
|
| |||||||
50,061,579 | ||||||||
|
| |||||||
| Building Products (0.1%): |
| ||||||
9,077 | Allegion plc | 503,410 | ||||||
33,813 | Masco Corp. | 852,088 | ||||||
|
| |||||||
1,355,498 | ||||||||
|
| |||||||
| Capital Markets (2.3%): |
| ||||||
5,255 | Affiliated Managers Group, Inc.* | 1,115,321 | ||||||
17,478 | Ameriprise Financial, Inc.^ | 2,311,466 | ||||||
106,613 | Bank of New York Mellon Corp. (The) | 4,325,289 | ||||||
12,064 | BlackRock, Inc., Class A+ | 4,313,604 | ||||||
108,831 | Charles Schwab Corp. (The) | 3,285,608 | ||||||
27,461 | E*TRADE Financial Corp.* | 666,067 | ||||||
37,112 | Franklin Resources, Inc.^ | 2,054,891 | ||||||
38,362 | Goldman Sachs Group, Inc. (The) | 7,435,707 | ||||||
40,898 | Invesco, Ltd. | 1,616,289 | ||||||
9,611 | Legg Mason, Inc.^ | 512,939 | ||||||
144,608 | Morgan Stanley | 5,610,790 | ||||||
20,902 | Northern Trust Corp.^ | 1,408,795 | ||||||
39,541 | State Street Corp. | 3,103,969 | ||||||
24,568 | T. Rowe Price Group, Inc.^ | 2,109,408 | ||||||
|
| |||||||
39,870,143 | ||||||||
|
| |||||||
| Chemicals (2.3%): |
| ||||||
18,217 | Air Products & Chemicals, Inc.^ | 2,627,438 | ||||||
6,341 | Airgas, Inc. | 730,356 | ||||||
4,720 | CF Industries Holdings, Inc. | 1,286,389 | ||||||
104,923 | Dow Chemical Co. (The)^ | 4,785,538 | ||||||
85,800 | E.I. du Pont de Nemours & Co.^ | 6,344,051 | ||||||
14,029 | Eastman Chemical Co. | 1,064,240 | ||||||
25,582 | Ecolab, Inc. | 2,673,831 | ||||||
12,580 | FMC Corp.^ | 717,437 | ||||||
7,716 | International Flavor & Fragrances, Inc.^ | 782,094 | ||||||
39,358 | LyondellBasell Industries NV, Class A | 3,124,632 | ||||||
45,846 | Monsanto Co. | 5,477,222 |
Continued
4
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
29,999 | Mosaic Co. (The) | $ | 1,369,454 | |||||
12,986 | PPG Industries, Inc. | 3,001,714 | ||||||
27,596 | Praxair, Inc.^ | 3,575,338 | ||||||
7,729 | Sherwin Williams Co.^ | 2,033,036 | ||||||
11,281 | Sigma Aldrich Corp. | 1,548,543 | ||||||
|
| |||||||
41,141,313 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.5%): |
| ||||||
16,403 | ADT Corp. (The)^ | 594,281 | ||||||
9,240 | Cintas Corp.^ | 724,786 | ||||||
17,666 | Iron Mountain, Inc.^ | 682,968 | ||||||
19,064 | Pitney Bowes, Inc.^ | 464,590 | ||||||
23,788 | Republic Services, Inc., Class A^ | 957,467 | ||||||
8,084 | Stericycle, Inc.* | 1,059,651 | ||||||
39,636 | Tyco International plc | 1,738,434 | ||||||
40,336 | Waste Management, Inc.^ | 2,070,043 | ||||||
|
| |||||||
8,292,220 | ||||||||
|
| |||||||
| Communications Equipment (1.6%): |
| ||||||
484,289 | Cisco Systems, Inc. | 13,470,500 | ||||||
6,979 | F5 Networks, Inc.* | 910,515 | ||||||
9,839 | Harris Corp. | 706,637 | ||||||
36,469 | Juniper Networks, Inc.^ | 813,988 | ||||||
20,065 | Motorola Solutions, Inc.^ | 1,345,960 | ||||||
157,459 | QUALCOMM, Inc. | 11,703,927 | ||||||
|
| |||||||
28,951,527 | ||||||||
|
| |||||||
| Construction & Engineering (0.1%): |
| ||||||
14,837 | Fluor Corp.^ | 899,568 | ||||||
12,321 | Jacobs Engineering Group, Inc.*^ | 550,625 | ||||||
20,810 | Quanta Services, Inc.* | 590,796 | ||||||
|
| |||||||
2,040,989 | ||||||||
|
| |||||||
| Construction Materials (0.1%): |
| ||||||
5,905 | Martin Marietta Materials, Inc.^ | 651,440 | ||||||
12,402 | Vulcan Materials Co. | 815,183 | ||||||
|
| |||||||
1,466,623 | ||||||||
|
| |||||||
| Consumer Finance (0.9%): |
| ||||||
84,273 | American Express Co. | 7,840,759 | ||||||
52,656 | Capital One Financial Corp. | 4,346,753 | ||||||
42,950 | Discover Financial Services | 2,812,796 | ||||||
38,859 | Navient Corp.^ | 839,743 | ||||||
|
| |||||||
15,840,051 | ||||||||
|
| |||||||
| Containers & Packaging (0.2%): |
| ||||||
8,617 | Avery Dennison Corp. | 447,050 | ||||||
13,025 | Ball Corp. | 887,913 | ||||||
15,804 | MeadWestvaco Corp. | 701,540 | ||||||
15,831 | Owens-Illinois, Inc.* | 427,279 | ||||||
20,011 | Sealed Air Corp.^ | 849,067 | ||||||
|
| |||||||
3,312,849 | ||||||||
|
| |||||||
| Distributors (0.1%): |
| ||||||
14,515 | Genuine Parts Co. | 1,546,864 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Consumer Services (0.0%): |
| ||||||
26,022 | H&R Block, Inc.^ | $ | 876,421 | |||||
|
| |||||||
| Diversified Financial Services (0.4%): |
| ||||||
29,989 | CME Group, Inc.^ | 2,658,525 | ||||||
10,688 | IntercontinentalExchange Group, Inc.^ | 2,343,772 | ||||||
29,852 | Leucadia National Corp.^ | 669,282 | ||||||
17,387 | Moody’s Corp. | 1,665,848 | ||||||
11,190 | NASDAQ OMX Group, Inc. (The)^ | 536,672 | ||||||
|
| |||||||
7,874,099 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (2.2%): |
| ||||||
491,240 | AT&T, Inc.^ | 16,500,752 | ||||||
54,054 | CenturyLink, Inc.^ | 2,139,457 | ||||||
95,129 | Frontier Communications Corp.^ | 634,510 | ||||||
26,413 | Level 3 Communications, Inc.*^ | 1,304,274 | ||||||
393,003 | Verizon Communications, Inc. | 18,384,681 | ||||||
56,756 | Windstream Holdings, Inc.^ | 467,669 | ||||||
|
| |||||||
39,431,343 | ||||||||
|
| |||||||
| Electric Utilities (1.6%): |
| ||||||
46,337 | American Electric Power Co., Inc. | 2,813,583 | ||||||
66,986 | Duke Energy Corp.^ | 5,596,010 | ||||||
30,889 | Edison International | 2,022,612 | ||||||
17,095 | Entergy Corp.^ | 1,495,471 | ||||||
81,402 | Exelon Corp.^ | 3,018,386 | ||||||
39,857 | FirstEnergy Corp.^ | 1,554,024 | ||||||
30,007 | Northeast Utilities | 1,605,975 | ||||||
23,952 | Pepco Holdings, Inc. | 645,027 | ||||||
10,525 | Pinnacle West Capital Corp. | 718,963 | ||||||
62,992 | PPL Corp. | 2,288,499 | ||||||
85,221 | Southern Co. (The)^ | 4,185,203 | ||||||
|
| |||||||
25,943,753 | ||||||||
|
| |||||||
| Electrical Equipment (0.6%): |
| ||||||
23,373 | AMETEK, Inc.^ | 1,230,121 | ||||||
44,901 | Eaton Corp. plc^ | 3,051,472 | ||||||
65,754 | Emerson Electric Co. | 4,058,995 | ||||||
12,860 | Rockwell Automation, Inc. | 1,430,032 | ||||||
9,487 | Roper Industries, Inc. | 1,483,292 | ||||||
|
| |||||||
11,253,912 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.4%): |
| ||||||
29,288 | Amphenol Corp., Class A | 1,575,987 | ||||||
121,628 | Corning, Inc. | 2,788,930 | ||||||
13,217 | FLIR Systems, Inc. | 427,041 | ||||||
38,463 | TE Connectivity, Ltd. | 2,432,785 | ||||||
|
| |||||||
7,224,743 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.3%): |
| ||||||
40,986 | Baker Hughes, Inc. | 2,298,085 | ||||||
18,703 | Cameron International Corp.* | 934,215 | ||||||
6,239 | Diamond Offshore Drilling, Inc.^ | 229,034 | ||||||
22,106 | Ensco plc, Class A, ADR^ | 662,075 | ||||||
22,097 | FMC Technologies, Inc.* | 1,035,023 | ||||||
80,156 | Halliburton Co. | 3,152,535 |
Continued
5
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Energy Equipment & Services, continued |
| ||||||
10,186 | Helmerich & Payne, Inc. | $ | 686,740 | |||||
27,315 | Nabors Industries, Ltd. | 354,549 | ||||||
40,781 | National-Oilwell Varco, Inc.^ | 2,672,379 | ||||||
23,838 | Noble Corp. plc | 394,996 | ||||||
121,868 | Schlumberger, Ltd. | 10,408,746 | ||||||
32,049 | Transocean, Ltd.^ | 587,458 | ||||||
|
| |||||||
23,415,835 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.5%): |
| ||||||
41,460 | Costco Wholesale Corp. | 5,876,955 | ||||||
108,570 | CVS Caremark Corp. | 10,456,377 | ||||||
46,512 | Kroger Co. (The) | 2,986,536 | ||||||
21,885 | Safeway, Inc. | 768,601 | ||||||
55,681 | Sysco Corp.^ | 2,209,979 | ||||||
82,382 | Walgreens Boots Alliance, Inc. | 6,277,508 | ||||||
149,576 | Wal-Mart Stores, Inc.^ | 12,845,588 | ||||||
34,029 | Whole Foods Market, Inc.^ | 1,715,742 | ||||||
|
| |||||||
43,137,286 | ||||||||
|
| |||||||
| Food Products (1.6%): |
| ||||||
61,019 | Archer-Daniels-Midland Co. | 3,172,988 | ||||||
17,002 | Campbell Soup Co.^ | 748,088 | ||||||
40,239 | ConAgra Foods, Inc.^ | 1,459,871 | ||||||
57,182 | General Mills, Inc.^ | 3,049,516 | ||||||
14,060 | Hershey Co.^ | 1,461,256 | ||||||
12,783 | Hormel Foods Corp. | 665,994 | ||||||
9,693 | J.M. Smucker Co. (The)^ | 978,799 | ||||||
23,876 | Kellogg Co.^ | 1,562,445 | ||||||
11,476 | Keurig Green Mountain, Inc.^ | 1,519,365 | ||||||
55,741 | Kraft Foods Group, Inc. | 3,492,731 | ||||||
12,188 | McCormick & Co. | 905,568 | ||||||
19,144 | Mead Johnson Nutrition Co. | 1,924,738 | ||||||
159,115 | Mondelez International, Inc., Class A | 5,779,853 | ||||||
27,629 | Tyson Foods, Inc., Class A | 1,107,647 | ||||||
|
| |||||||
27,828,859 | ||||||||
|
| |||||||
| Gas Utilities (0.0%): |
| ||||||
11,396 | AGL Resources, Inc. | 621,196 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (2.2%): |
| ||||||
142,610 | Abbott Laboratories | 6,420,303 | ||||||
51,331 | Baxter International, Inc. | 3,762,049 | ||||||
18,183 | Becton, Dickinson & Co. | 2,530,346 | ||||||
125,731 | Boston Scientific Corp.* | 1,665,936 | ||||||
7,095 | C.R. Bard, Inc. | 1,182,169 | ||||||
19,316 | CareFusion Corp.* | 1,146,211 | ||||||
42,883 | Covidien plc | 4,386,073 | ||||||
13,325 | DENTSPLY International, Inc. | 709,823 | ||||||
10,133 | Edwards Lifesciences Corp.* | 1,290,742 | ||||||
3,434 | Intuitive Surgical, Inc.* | 1,816,380 | ||||||
93,222 | Medtronic, Inc.^ | 6,730,629 | ||||||
27,081 | St. Jude Medical, Inc.^ | 1,761,077 | ||||||
28,307 | Stryker Corp. | 2,670,199 | ||||||
9,471 | Varian Medical Systems, Inc.* | 819,336 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
16,041 | Zimmer Holdings, Inc. | $ | 1,819,370 | |||||
|
| |||||||
38,710,643 | ||||||||
|
| |||||||
| Health Care Providers & Services (2.3%): |
| ||||||
33,291 | Aetna, Inc. | 2,957,240 | ||||||
19,678 | AmerisourceBergen Corp. | 1,774,168 | ||||||
25,566 | Anthem, Inc.^ | 3,212,879 | ||||||
31,346 | Cardinal Health, Inc. | 2,530,563 | ||||||
28,786 | Cerner Corp.*^ | 1,861,303 | ||||||
24,753 | CIGNA Corp. | 2,547,331 | ||||||
16,323 | DaVita, Inc.* | 1,236,304 | ||||||
69,507 | Express Scripts Holding Co.* | 5,885,158 | ||||||
14,503 | Humana, Inc.^ | 2,083,066 | ||||||
7,998 | Laboratory Corp. of America Holdings*^ | 862,984 | ||||||
21,961 | McKesson, Inc. | 4,558,664 | ||||||
8,184 | Patterson Cos., Inc.^ | 393,650 | ||||||
13,664 | Quest Diagnostics, Inc.^ | 916,308 | ||||||
9,256 | Tenet Healthcare Corp.*^ | 469,002 | ||||||
90,899 | UnitedHealth Group, Inc.^ | 9,188,979 | ||||||
8,607 | Universal Health Services, Inc., Class B | 957,615 | ||||||
|
| |||||||
41,435,214 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.6%): |
| ||||||
42,700 | Carnival Corp. | 1,935,591 | ||||||
2,944 | Chipotle Mexican Grill, Inc.* | 2,015,197 | ||||||
12,510 | Darden Restaurants, Inc.^ | 733,461 | ||||||
20,129 | Marriott International, Inc., Class A^ | 1,570,666 | ||||||
92,169 | McDonald’s Corp. | 8,636,236 | ||||||
15,833 | Royal Caribbean Cruises, Ltd.^ | 1,305,114 | ||||||
70,871 | Starbucks Corp. | 5,814,966 | ||||||
16,915 | Starwood Hotels & Resorts Worldwide, Inc. | 1,371,299 | ||||||
11,667 | Wyndham Worldwide Corp. | 1,000,562 | ||||||
7,644 | Wynn Resorts, Ltd. | 1,137,121 | ||||||
41,385 | Yum! Brands, Inc.^ | 3,014,897 | ||||||
|
| |||||||
28,535,110 | ||||||||
|
| |||||||
| Household Durables (0.4%): |
| ||||||
31,308 | D.R. Horton, Inc. | 791,779 | ||||||
11,489 | Garmin, Ltd.^ | 606,964 | ||||||
6,453 | Harman International Industries, Inc. | 688,600 | ||||||
13,024 | Leggett & Platt, Inc.^ | 554,953 | ||||||
17,033 | Lennar Corp.^ | 763,249 | ||||||
5,843 | Mohawk Industries, Inc.*^ | 907,768 | ||||||
25,790 | Newell Rubbermaid, Inc. | 982,341 | ||||||
31,674 | PulteGroup, Inc.^ | 679,724 | ||||||
7,394 | Whirlpool Corp. | 1,432,513 | ||||||
|
| |||||||
7,407,891 | ||||||||
|
| |||||||
| Household Products (1.9%): |
| ||||||
12,281 | Clorox Co. (The)^ | 1,279,803 | ||||||
81,138 | Colgate-Palmolive Co. | 5,613,938 | ||||||
35,318 | Kimberly-Clark Corp. | 4,080,642 | ||||||
255,905 | Procter & Gamble Co. (The) | 23,310,386 | ||||||
|
| |||||||
34,284,769 | ||||||||
|
|
Continued
6
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Independent Power and Renewable Electricity Producers (0.3%): |
| ||||||
62,457 | AES Corp. (The) | $ | 860,033 | |||||
41,339 | NextEra Energy, Inc.^ | 4,393,923 | ||||||
32,151 | NRG Energy, Inc.^ | 866,469 | ||||||
|
| |||||||
6,120,425 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.2%): |
| ||||||
60,690 | 3M Co.^ | 9,972,581 | ||||||
57,900 | Danaher Corp. | 4,962,609 | ||||||
951,050 | General Electric Co. | 24,033,033 | ||||||
|
| |||||||
38,968,223 | ||||||||
|
| |||||||
| Insurance (4.2%): |
| ||||||
31,419 | ACE, Ltd. | 3,609,415 | ||||||
42,740 | AFLAC, Inc. | 2,610,987 | ||||||
39,725 | Allstate Corp. (The) | 2,790,681 | ||||||
132,582 | American International Group, Inc. | 7,425,918 | ||||||
27,006 | Aon plc | 2,560,979 | ||||||
6,717 | Assurant, Inc. | 459,644 | ||||||
172,700 | Berkshire Hathaway, Inc., Class B*^ | 25,930,905 | ||||||
22,335 | Chubb Corp. (The)^ | 2,311,002 | ||||||
13,982 | Cincinnati Financial Corp. | 724,687 | ||||||
46,741 | Genworth Financial, Inc., Class A* | 397,299 | ||||||
40,868 | Hartford Financial Services Group, Inc. (The) | 1,703,787 | ||||||
24,593 | Lincoln National Corp. | 1,418,278 | ||||||
28,352 | Loews Corp. | 1,191,351 | ||||||
51,281 | Marsh & McLennan Cos., Inc.^ | 2,935,324 | ||||||
107,593 | MetLife, Inc. | 5,819,705 | ||||||
25,770 | Principal Financial Group, Inc. | 1,338,494 | ||||||
50,702 | Progressive Corp. (The) | 1,368,447 | ||||||
43,423 | Prudential Financial, Inc. | 3,928,045 | ||||||
12,269 | Torchmark Corp. | 664,612 | ||||||
31,387 | Travelers Cos., Inc. (The) | 3,322,314 | ||||||
23,806 | UnumProvident Corp. | 830,353 | ||||||
24,445 | XL Group plc, Class B | 840,175 | ||||||
|
| |||||||
74,182,402 | ||||||||
|
| |||||||
| Internet & Catalog Retail (1.2%): |
| ||||||
35,957 | Amazon.com, Inc.* | 11,159,256 | ||||||
9,345 | Expedia, Inc.^ | 797,689 | ||||||
5,706 | Netflix, Inc.*^ | 1,949,227 | ||||||
4,959 | Priceline.com, Inc.* | 5,654,301 | ||||||
10,499 | TripAdvisor, Inc.*^ | 783,855 | ||||||
|
| |||||||
20,344,328 | ||||||||
|
| |||||||
| Internet Software & Services (3.2%): |
| ||||||
16,878 | Akamai Technologies, Inc.* | 1,062,639 | ||||||
107,073 | eBay, Inc.* | 6,008,937 | ||||||
198,019 | Facebook, Inc., Class A* | 15,449,443 | ||||||
26,971 | Google, Inc., Class C* | 14,197,534 | ||||||
26,995 | Google, Inc., Class A* | 14,325,167 | ||||||
10,325 | VeriSign, Inc.*^ | 588,525 | ||||||
83,442 | Yahoo!, Inc.* | 4,214,655 | ||||||
|
| |||||||
55,846,900 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| IT Services (3.2%): |
| ||||||
59,473 | Accenture plc, Class A^ | $ | 5,311,534 | |||||
6,058 | Alliance Data Systems Corp.*^ | 1,732,891 | ||||||
45,656 | Automatic Data Processing, Inc. | 3,806,341 | ||||||
57,672 | Cognizant Technology Solutions Corp., Class A* | 3,037,008 | ||||||
13,308 | Computer Sciences Corp. | 839,069 | ||||||
26,887 | Fidelity National Information Services, Inc.^ | 1,672,371 | ||||||
23,108 | Fiserv, Inc.*^ | 1,639,975 | ||||||
87,166 | International Business Machines Corp. | 13,984,913 | ||||||
92,858 | MasterCard, Inc., Class A | 8,000,645 | ||||||
30,839 | Paychex, Inc.^ | 1,423,837 | ||||||
14,598 | Teradata Corp.*^ | 637,641 | ||||||
15,765 | Total System Services, Inc. | 535,379 | ||||||
46,256 | Visa, Inc., Class A | 12,128,323 | ||||||
49,309 | Western Union Co.^ | 883,124 | ||||||
|
| |||||||
55,633,051 | ||||||||
|
| |||||||
| Leisure Products (0.1%): |
| ||||||
10,739 | Hasbro, Inc.^ | 590,538 | ||||||
32,242 | Mattel, Inc. | 997,728 | ||||||
|
| |||||||
1,588,266 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.4%): |
| ||||||
31,694 | Agilent Technologies, Inc. | 1,297,552 | ||||||
10,608 | PerkinElmer, Inc.^ | 463,888 | ||||||
37,886 | Thermo Fisher Scientific, Inc. | 4,746,737 | ||||||
7,896 | Waters Corp.* | 890,037 | ||||||
|
| |||||||
7,398,214 | ||||||||
|
| |||||||
| Machinery (1.5%): |
| ||||||
57,336 | Caterpillar, Inc. | 5,247,963 | ||||||
16,107 | Cummins, Inc. | 2,322,146 | ||||||
33,947 | Deere & Co. | 3,003,291 | ||||||
15,679 | Dover Corp.^ | 1,124,498 | ||||||
12,901 | Flowserve Corp.^ | 771,867 | ||||||
34,064 | Illinois Tool Works, Inc.^ | 3,225,861 | ||||||
25,225 | Ingersoll-Rand plc | 1,599,013 | ||||||
9,217 | Joy Global, Inc.^ | 428,775 | ||||||
33,557 | PACCAR, Inc.^ | 2,282,212 | ||||||
10,060 | Pall Corp.^ | 1,018,173 | ||||||
14,079 | Parker Hannifin Corp.^ | 1,815,487 | ||||||
17,694 | Pentair, Ltd.^ | 1,175,235 | ||||||
5,513 | Snap-On, Inc. | 753,848 | ||||||
14,838 | Stanley Black & Decker, Inc. | 1,425,635 | ||||||
17,102 | Xylem, Inc.^ | 651,073 | ||||||
|
| |||||||
26,845,077 | ||||||||
|
| |||||||
| Media (3.7%): |
| ||||||
20,587 | Cablevision Systems Corp., Class A^ | 424,916 | ||||||
45,160 | CBS Corp., Class B | 2,499,154 | ||||||
244,030 | Comcast Corp., Class A^ | 14,156,179 | ||||||
47,567 | DIRECTV, Inc., Class A* | 4,124,059 | ||||||
25,779 | Discovery Communications, Inc., Class C*^ | 869,268 | ||||||
13,934 | Discovery Communications, Inc., Class A*^ | 480,026 | ||||||
21,287 | Gannett Co., Inc.^ | 679,694 |
Continued
7
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
39,760 | Interpublic Group of Cos., Inc. (The) | $ | 825,815 | |||||
25,715 | McGraw-Hill Cos., Inc. (The) | 2,288,121 | ||||||
47,465 | News Corp., Class A* | 744,726 | ||||||
23,506 | Omnicom Group, Inc.^ | 1,821,010 | ||||||
9,612 | Scripps Networks Interactive, Class A^ | 723,495 | ||||||
26,566 | Time Warner Cable, Inc. | 4,039,626 | ||||||
79,411 | Time Warner, Inc. | 6,783,288 | ||||||
175,613 | Twenty-First Century Fox, Inc.^ | 6,744,417 | ||||||
34,989 | Viacom, Inc., Class B | 2,632,922 | ||||||
147,746 | Walt Disney Co. (The) | 13,916,196 | ||||||
|
| |||||||
63,752,912 | ||||||||
|
| |||||||
| Metals & Mining (0.4%): |
| ||||||
111,729 | Alcoa, Inc. | 1,764,201 | ||||||
10,327 | Allegheny Technologies, Inc.^ | 359,070 | ||||||
98,420 | Freeport-McMoRan Copper & Gold, Inc. | 2,299,091 | ||||||
47,129 | Newmont Mining Corp. | 890,738 | ||||||
30,253 | Nucor Corp.^ | 1,483,910 | ||||||
|
| |||||||
6,797,010 | ||||||||
|
| |||||||
| Multiline Retail (0.7%): |
| ||||||
28,739 | Dollar General Corp.* | 2,031,847 | ||||||
19,500 | Dollar Tree, Inc.* | 1,372,410 | ||||||
9,076 | Family Dollar Stores, Inc. | 718,910 | ||||||
19,129 | Kohl’s Corp.^ | 1,167,634 | ||||||
32,704 | Macy’s, Inc.^ | 2,150,288 | ||||||
13,314 | Nordstrom, Inc.^ | 1,056,998 | ||||||
60,327 | Target Corp.^ | 4,579,423 | ||||||
|
| |||||||
13,077,510 | ||||||||
|
| |||||||
| Multi-Utilities (1.3%): |
| ||||||
23,020 | Ameren Corp. | 1,061,913 | ||||||
40,653 | CenterPoint Energy, Inc. | 952,500 | ||||||
25,950 | CMS Energy Corp. | 901,763 | ||||||
27,801 | Consolidated Edison, Inc.^ | 1,835,144 | ||||||
55,302 | Dominion Resources, Inc. | 4,252,723 | ||||||
16,765 | DTE Energy Co. | 1,447,993 | ||||||
7,603 | Integrys Energy Group, Inc. | 591,894 | ||||||
29,964 | NiSource, Inc. | 1,271,073 | ||||||
44,997 | PG&E Corp. | 2,395,640 | ||||||
47,971 | Public Service Enterprise Group, Inc. | 1,986,479 | ||||||
13,432 | SCANA Corp.^ | 811,293 | ||||||
21,892 | Sempra Energy^ | 2,437,893 | ||||||
22,052 | TECO Energy, Inc.^ | 451,845 | ||||||
21,382 | Wisconsin Energy Corp.^ | 1,127,687 | ||||||
47,949 | Xcel Energy, Inc. | 1,722,328 | ||||||
|
| |||||||
23,248,168 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (7.0%): |
| ||||||
47,966 | Anadarko Petroleum Corp. | 3,957,195 | ||||||
35,658 | Apache Corp.^ | 2,234,687 | ||||||
38,966 | Cabot Oil & Gas Corp.^ | 1,153,783 | ||||||
48,978 | Chesapeake Energy Corp.^ | 958,499 | ||||||
179,034 | Chevron Corp. | 20,084,034 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
8,298 | Cimarex Energy Co. | $ | 879,588 | |||||
116,577 | ConocoPhillips^ | 8,050,808 | ||||||
21,728 | CONSOL Energy, Inc.^ | 734,624 | ||||||
33,379 | Denbury Resources, Inc. | 271,371 | ||||||
36,441 | Devon Energy Corp. | 2,230,554 | ||||||
51,902 | EOG Resources, Inc. | 4,778,617 | ||||||
14,294 | EQT Corp. | 1,082,056 | ||||||
401,031 | Exxon Mobil Corp. | 37,075,315 | ||||||
24,070 | Hess Corp. | 1,776,847 | ||||||
160,921 | Kinder Morgan, Inc.^ | 6,808,568 | ||||||
63,925 | Marathon Oil Corp. | 1,808,438 | ||||||
26,538 | Marathon Petroleum Corp. | 2,395,320 | ||||||
15,712 | Murphy Oil Corp.^ | 793,770 | ||||||
12,957 | Newfield Exploration Co.* | 351,394 | ||||||
34,020 | Noble Energy, Inc. | 1,613,569 | ||||||
73,455 | Occidental Petroleum Corp. | 5,921,208 | ||||||
19,642 | ONEOK, Inc. | 977,975 | ||||||
52,423 | Phillips 66 | 3,758,729 | ||||||
14,103 | Pioneer Natural Resources Co. | 2,099,232 | ||||||
15,602 | QEP Resources, Inc. | 315,472 | ||||||
16,058 | Range Resources Corp.^ | 858,300 | ||||||
33,308 | Southwestern Energy Co.* | 908,975 | ||||||
63,554 | Spectra Energy Corp.^ | 2,307,010 | ||||||
11,959 | Tesoro Corp.^ | 889,152 | ||||||
49,369 | Valero Energy Corp. | 2,443,766 | ||||||
63,715 | Williams Cos., Inc. (The) | 2,863,352 | ||||||
|
| |||||||
122,382,208 | ||||||||
|
| |||||||
| Paper & Forest Products (0.1%): |
| ||||||
40,038 | International Paper Co. | 2,145,236 | ||||||
|
| |||||||
| Personal Products (0.1%): |
| ||||||
41,204 | Avon Products, Inc.^ | 386,906 | ||||||
21,194 | Estee Lauder Co., Inc. (The), Class A | 1,614,982 | ||||||
|
| |||||||
2,001,888 | ||||||||
|
| |||||||
| Pharmaceuticals (6.2%): |
| ||||||
150,893 | Abbvie, Inc. | 9,874,438 | ||||||
25,103 | Actavis, Inc. plc*^ | 6,461,763 | ||||||
28,214 | Allergan, Inc. | 5,998,014 | ||||||
157,098 | Bristol-Myers Squibb Co.^ | 9,273,495 | ||||||
92,797 | Eli Lilly & Co. | 6,402,065 | ||||||
15,996 | Hospira, Inc.* | 979,755 | ||||||
265,090 | Johnson & Johnson Co. | 27,720,462 | ||||||
11,015 | Mallinckrodt plc* | 1,090,815 | ||||||
269,994 | Merck & Co., Inc. | 15,332,959 | ||||||
35,450 | Mylan, Inc.*^ | 1,998,317 | ||||||
13,333 | Perrigo Co. plc | 2,228,744 | ||||||
596,707 | Pfizer, Inc. | 18,587,424 | ||||||
47,483 | Zoetis, Inc. | 2,043,193 | ||||||
|
| |||||||
107,991,444 | ||||||||
|
| |||||||
| Professional Services (0.2%): |
| ||||||
3,425 | Dun & Bradstreet Corp.^ | 414,288 | ||||||
11,443 | Equifax, Inc. | 925,395 |
Continued
8
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Professional Services, continued |
| ||||||
30,681 | Nielsen Holdings NV | $ | 1,372,361 | |||||
12,947 | Robert Half International, Inc. | 755,846 | ||||||
|
| |||||||
3,467,890 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (2.3%): |
| ||||||
37,549 | American Tower Corp. | 3,711,719 | ||||||
13,934 | Apartment Investment & Management Co., Class A | 517,648 | ||||||
12,502 | AvalonBay Communities, Inc.^ | 2,042,702 | ||||||
14,512 | Boston Properties, Inc.^ | 1,867,549 | ||||||
31,621 | Crown Castle International Corp. | 2,488,573 | ||||||
34,321 | Equity Residential Property Trust | 2,465,621 | ||||||
6,057 | Essex Property Trust, Inc.^ | 1,251,376 | ||||||
59,547 | General Growth Properties, Inc. | 1,675,057 | ||||||
43,499 | HCP, Inc. | 1,915,261 | ||||||
31,035 | Health Care REIT, Inc.^ | 2,348,418 | ||||||
71,838 | Host Hotels & Resorts, Inc.^ | 1,707,589 | ||||||
38,964 | Kimco Realty Corp. | 979,555 | ||||||
13,335 | Macerich Co. (The)^ | 1,112,272 | ||||||
16,643 | Plum Creek Timber Co., Inc.^ | 712,154 | ||||||
47,357 | ProLogis, Inc. | 2,037,772 | ||||||
13,742 | Public Storage, Inc.^ | 2,540,209 | ||||||
29,434 | Simon Property Group, Inc. | 5,360,226 | ||||||
27,594 | Ventas, Inc.^ | 1,978,490 | ||||||
16,537 | Vornado Realty Trust | 1,946,570 | ||||||
49,610 | Weyerhaeuser Co.^ | 1,780,503 | ||||||
|
| |||||||
40,439,264 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.1%): |
| ||||||
26,490 | CBRE Group, Inc.* | 907,283 | ||||||
|
| |||||||
| Road & Rail (1.0%): |
| ||||||
94,164 | CSX Corp. | 3,411,562 | ||||||
10,429 | Kansas City Southern Industries, Inc.^ | 1,272,651 | ||||||
29,308 | Norfolk Southern Corp. | 3,212,450 | ||||||
5,007 | Ryder System, Inc. | 464,900 | ||||||
84,204 | Union Pacific Corp. | 10,031,222 | ||||||
|
| |||||||
18,392,785 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.4%): |
| ||||||
28,835 | Altera Corp.^ | 1,065,165 | ||||||
29,406 | Analog Devices, Inc. | 1,632,621 | ||||||
115,397 | Applied Materials, Inc.^ | 2,875,693 | ||||||
23,953 | Avago Technologies, Ltd. | 2,409,432 | ||||||
51,025 | Broadcom Corp., Class A | 2,210,913 | ||||||
7,098 | First Solar, Inc.*^ | 316,535 | ||||||
457,902 | Intel Corp. | 16,617,265 | ||||||
15,638 | KLA-Tencor Corp.^ | 1,099,664 | ||||||
15,057 | Lam Research Corp.^ | 1,194,622 | ||||||
22,557 | Linear Technology Corp.^ | 1,028,599 | ||||||
19,108 | Microchip Technology, Inc.^ | 861,962 | ||||||
101,668 | Micron Technology, Inc.* | 3,559,397 | ||||||
49,009 | NVIDIA Corp. | 982,630 | ||||||
100,040 | Texas Instruments, Inc.^ | 5,348,639 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Semiconductors & Semiconductor Equipment, continued |
| ||||||
25,050 | Xilinx, Inc. | $ | 1,084,415 | |||||
|
| |||||||
42,287,552 | ||||||||
|
| |||||||
| Software (3.8%): |
| ||||||
44,874 | Adobe Systems, Inc.* | 3,262,340 | ||||||
21,486 | Autodesk, Inc.*^ | 1,290,449 | ||||||
30,193 | CA, Inc.^ | 919,377 | ||||||
15,248 | Citrix Systems, Inc.* | 972,822 | ||||||
29,354 | Electronic Arts, Inc.* | 1,380,078 | ||||||
27,043 | Intuit, Inc. | 2,493,094 | ||||||
780,641 | Microsoft Corp. | 36,260,774 | ||||||
306,404 | Oracle Corp. | 13,778,988 | ||||||
17,785 | Red Hat, Inc.* | 1,229,655 | ||||||
55,580 | Salesforce.com, Inc.*^ | 3,296,450 | ||||||
65,225 | Symantec Corp. | 1,673,347 | ||||||
|
| |||||||
66,557,374 | ||||||||
|
| |||||||
| Specialty Retail (2.4%): |
| ||||||
7,076 | AutoNation, Inc.* | 427,461 | ||||||
3,035 | AutoZone, Inc.*^ | 1,878,999 | ||||||
17,581 | Bed Bath & Beyond, Inc.*^ | 1,339,145 | ||||||
27,657 | Best Buy Co., Inc. | 1,078,070 | ||||||
20,402 | CarMax, Inc.*^ | 1,358,365 | ||||||
10,283 | GameStop Corp., Class A^ | 347,565 | ||||||
25,277 | Gap, Inc. (The)^ | 1,064,414 | ||||||
124,806 | Home Depot, Inc. (The) | 13,100,886 | ||||||
23,286 | L Brands, Inc. | 2,015,403 | ||||||
92,142 | Lowe’s Cos., Inc. | 6,339,370 | ||||||
9,608 | O’Reilly Automotive, Inc.*^ | 1,850,693 | ||||||
9,463 | PetSmart, Inc.^ | 769,295 | ||||||
19,879 | Ross Stores, Inc. | 1,873,795 | ||||||
60,435 | Staples, Inc.^ | 1,095,082 | ||||||
10,611 | Tiffany & Co.^ | 1,133,891 | ||||||
65,285 | TJX Cos., Inc. (The) | 4,477,245 | ||||||
12,941 | Tractor Supply Co.^ | 1,020,010 | ||||||
9,591 | Urban Outfitters, Inc.*^ | 336,932 | ||||||
|
| |||||||
41,506,621 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (4.7%): |
| ||||||
555,429 | Apple, Inc. | 61,308,252 | ||||||
192,723 | EMC Corp. | 5,731,582 | ||||||
176,751 | Hewlett-Packard Co. | 7,093,018 | ||||||
29,524 | NetApp, Inc. | 1,223,770 | ||||||
20,899 | SanDisk Corp. | 2,047,684 | ||||||
30,995 | Seagate Technology plc | 2,061,168 | ||||||
20,643 | Western Digital Corp. | 2,285,180 | ||||||
101,361 | Xerox Corp. | 1,404,863 | ||||||
|
| |||||||
83,155,517 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.8%): |
| ||||||
26,106 | Coach, Inc. | 980,541 | ||||||
4,259 | Fossil Group, Inc.* | 471,642 | ||||||
19,504 | Michael Kors Holdings, Ltd.* | 1,464,750 | ||||||
66,089 | Nike, Inc., Class B | 6,354,458 |
Continued
9
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Textiles, Apparel & Luxury Goods, continued |
| ||||||
7,832 | PVH Corp. | $ | 1,003,827 | |||||
5,725 | Ralph Lauren Corp.^ | 1,060,041 | ||||||
15,844 | Under Armour, Inc., Class A*^ | 1,075,808 | ||||||
32,723 | V.F. Corp.^ | 2,450,953 | ||||||
|
| |||||||
14,862,020 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.1%): |
| ||||||
45,460 | Hudson City Bancorp, Inc. | 460,055 | ||||||
29,090 | People’s United Financial, Inc.^ | 441,586 | ||||||
|
| |||||||
901,641 | ||||||||
|
| |||||||
| Tobacco (1.4%): |
| ||||||
187,185 | Altria Group, Inc. | 9,222,605 | ||||||
34,099 | Lorillard, Inc. | 2,146,191 | ||||||
147,182 | Philip Morris International, Inc. | 11,987,974 | ||||||
29,187 | Reynolds American, Inc.^ | 1,875,848 | ||||||
|
| |||||||
25,232,618 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.2%): |
| ||||||
25,803 | Fastenal Co.^ | 1,227,191 | ||||||
9,455 | United Rentals, Inc.*^ | 964,505 | ||||||
5,742 | W.W. Grainger, Inc.^ | 1,463,578 | ||||||
|
| |||||||
3,655,274 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $1,017,458,748) | 1,728,000,498 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (12.4%): |
| ||||||
$ | 218,268,942 | Allianz Variable Insurance Products Securities Lending Collateral Trust (a) | $ | 218,268,942 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 218,268,942 | ||||||
|
| |||||||
| Unaffiliated Investment Company (2.2%): |
| ||||||
39,665,384 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 39,665,384 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $39,665,384) | 39,665,384 | ||||||
|
| |||||||
| Total Investment Securities | 1,985,934,824 | ||||||
| Net other assets (liabilities) — (12.5)% | (220,711,916 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 1,765,222,908 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $211,309,348. |
+ | Affiliated Securities |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/20/15 | 399 | $ | 40,945,380 | $ | 255,574 |
See accompanying notes to the financial statements.
10
AZL S&P 500 Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investments in non-affiliates, at cost | $ | 1,272,900,818 | |||
Investments in affiliates, at cost | 2,492,256 | ||||
|
| ||||
Total Investment securities, at cost | $ | 1,275,393,074 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 1,981,621,220 | |||
Investments in affiliates, at value | 4,313,604 | ||||
|
| ||||
Total Investment securities, at value | 1,985,934,824 | ||||
Cash | 22,557 | ||||
Interest and dividends receivable | 2,340,767 | ||||
Receivable for capital shares issued | 267,518 | ||||
Receivable for variation margin on futures contracts | 19,440 | ||||
Prepaid expenses | 14,848 | ||||
|
| ||||
Total Assets | 1,988,599,954 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 3,633,880 | ||||
Payable for collateral received on loaned securities | 218,268,942 | ||||
Payable for variation margin on futures contracts | 504,225 | ||||
Manager fees payable | 255,441 | ||||
Administration fees payable | 40,174 | ||||
Distribution fees payable | 371,162 | ||||
Custodian fees payable | 10,781 | ||||
Administrative and compliance services fees payable | 5,035 | ||||
Trustee fees payable | 101 | ||||
Other accrued liabilities | 287,305 | ||||
|
| ||||
Total Liabilities | 223,377,046 | ||||
|
| ||||
Net Assets | $ | 1,765,222,908 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,100,341,376 | |||
Accumulated net investment income/(loss) | 25,393,899 | ||||
Accumulated net realized gains/(losses) from investment transactions | (71,309,691 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 710,797,324 | ||||
|
| ||||
Net Assets | $ | 1,765,222,908 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 21,303,526 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 1,469,034 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.50 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,743,919,382 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 121,075,779 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.40 | |||
|
|
* | Includes securities on loan of $211,309,348. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 33,157,318 | |||
Dividends from affiliates | 91,113 | ||||
Income from securities lending | 138,748 | ||||
Foreign withholding tax | (3,858 | ) | |||
|
| ||||
Total Investment Income | 33,383,321 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,832,281 | ||||
Administration fees | 443,266 | ||||
Distribution fees — Class 2 | 4,116,340 | ||||
Custodian fees | 45,930 | ||||
Administrative and compliance services fees | 21,756 | ||||
Trustee fees | 83,597 | ||||
Professional fees | 92,935 | ||||
Shareholder reports | 43,902 | ||||
Recoupment of prior expenses reimbursed by the manager | 53,390 | ||||
Other expenses | 357,459 | ||||
|
| ||||
Total expenses | 8,090,856 | ||||
|
| ||||
Net Investment Income/(Loss) | 25,292,465 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 7,426,336 | ||||
Net realized gains/(losses) on futures contracts | 9,071,639 | ||||
Change in net unrealized appreciation/depreciation on investments | 167,334,457 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 183,832,432 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 209,124,897 | |||
|
|
See accompanying notes to the financial statements.
11
Statements of Changes in Net Assets
AZL S&P 500 Index Fund | ||||||||||
For the 2014 | For the 2013 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 25,292,465 | $ | 20,233,342 | ||||||
Net realized gains/(losses) on investment transactions | 16,497,975 | 16,815,781 | ||||||||
Change in unrealized appreciation/depreciation on investments | 167,334,457 | 315,124,535 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 209,124,897 | 352,173,658 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (264,526 | ) | (231,746 | ) | ||||||
Class 2 | (19,712,701 | ) | (15,948,931 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (19,977,227 | ) | (16,180,677 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 2,319,500 | 2,374,133 | ||||||||
Proceeds from dividends reinvested | 264,526 | 231,746 | ||||||||
Value of shares redeemed | (2,824,368 | ) | (2,576,769 | ) | ||||||
|
|
|
| |||||||
Total Class 1 | (240,342 | ) | 29,110 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 148,739,164 | 267,637,519 | ||||||||
Proceeds from dividends reinvested | 19,712,701 | 15,948,931 | ||||||||
Value of shares redeemed | (159,158,737 | ) | (87,266,590 | ) | ||||||
|
|
|
| |||||||
Total Class 2 | 9,293,128 | 196,319,860 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 9,052,786 | 196,348,970 | ||||||||
|
|
|
| |||||||
Change in net assets | 198,200,456 | 532,341,951 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 1,567,022,452 | 1,034,680,501 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,765,222,908 | $ | 1,567,022,452 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 25,393,899 | $ | 20,133,607 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 168,399 | 208,259 | ||||||||
Dividends reinvested | 19,017 | 19,740 | ||||||||
Shares redeemed | (210,215 | ) | (226,450 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (22,799 | ) | 1,549 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 11,227,373 | 23,358,224 | ||||||||
Dividends reinvested | 1,425,358 | 1,365,490 | ||||||||
Shares redeemed | (11,729,494 | ) | (7,610,457 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 923,237 | 17,113,257 | ||||||||
|
|
|
| |||||||
Change in shares | 900,438 | 17,114,806 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
12
AZL S&P 500 Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.96 | $ | 9.95 | $ | 8.71 | $ | 8.68 | $ | 7.71 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | (a) | 0.21 | (a) | 0.19 | (a) | 0.16 | (a) | 0.14 | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.49 | 2.96 | 1.17 | — | (b) | 0.98 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.73 | 3.17 | 1.36 | 0.16 | 1.12 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.19 | ) | (0.16 | ) | (0.12 | ) | (0.13 | ) | (0.13 | ) | |||||||||||||||
Net Realized Gains | — | — | — | — | (0.02 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.19 | ) | (0.16 | ) | (0.12 | ) | (0.13 | ) | (0.15 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.50 | $ | 12.96 | $ | 9.95 | $ | 8.71 | $ | 8.68 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(c) | 13.41 | % | 32.02 | % | 15.66 | % | 1.88 | % | 14.75 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 21,304 | $ | 19,334 | $ | 14,828 | $ | 13,488 | $ | 15,506 | |||||||||||||||
Net Investment Income/(Loss) | 1.76 | % | 1.81 | % | 2.00 | % | 1.79 | % | 1.79 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.24 | % | 0.24 | % | 0.26 | % | 0.27 | % | 0.29 | % | |||||||||||||||
Expenses Net of Reductions | 0.24 | % | 0.24 | % | 0.26 | % | 0.26 | % | 0.24 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 3 | % | 4 | % | 3 | % | 2 | % | 14 | % | |||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.88 | $ | 9.90 | $ | 8.67 | $ | 8.65 | $ | 7.68 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.20 | (a) | 0.18 | (a) | 0.17 | (a) | 0.14 | (a) | 0.12 | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.48 | 2.94 | 1.17 | (0.01 | ) | 0.98 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.68 | 3.12 | 1.34 | 0.13 | 1.10 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.14 | ) | (0.11 | ) | (0.11 | ) | (0.11 | ) | |||||||||||||||
Net Realized Gains | — | — | — | — | (0.02 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.16 | ) | (0.14 | ) | (0.11 | ) | (0.11 | ) | (0.13 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.40 | $ | 12.88 | $ | 9.90 | $ | 8.67 | $ | 8.65 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(c) | 13.12 | % | 31.66 | % | 15.42 | % | 1.55 | % | 14.57 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,743,919 | $ | 1,547,689 | $ | 1,019,853 | $ | 732,892 | $ | 594,350 | |||||||||||||||
Net Investment Income/(Loss) | 1.51 | % | 1.56 | % | 1.77 | % | 1.56 | % | 1.51 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.49 | % | 0.49 | % | 0.51 | % | 0.52 | % | 0.54 | % | |||||||||||||||
Expenses Net of Reductions | 0.49 | % | 0.49 | % | 0.51 | % | 0.51 | % | 0.49 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 3 | % | 4 | % | 3 | % | 2 | % | 14 | % |
(a) | Average shares method used in calculation. |
(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) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(e) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
See accompanying notes to the financial statements.
13
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL S&P 500 Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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. 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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
14
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $62.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $13,780 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $40.9 million as of December 31, 2014. The monthly average notional amount for these contracts was $51.4 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 255,574 | Payable for variation margin on futures contracts | $ | — |
* | 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. |
15
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/ depreciation on investments | $ | 9,071,639 | $ | 1,496,036 |
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL S&P 500 Index Fund Class 1 | 0.17 | % | 0.46 | % | ||||||
AZL S&P 500 Index Fund Class 2 | 0.17 | % | 0.71 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $20,517 was paid from the Fund relating to these fees and expenses.
16
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2014
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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 1,728,000,498 | $ | — | $ | 1,728,000,498 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 218,268,942 | 218,268,942 | ||||||||||||
Unaffiliated Investment Company | 39,665,384 | — | 39,665,384 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | 1,767,665,882 | 218,268,942 | 1,985,934,824 | ||||||||||||
|
|
|
|
|
| ||||||||||
Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 255,574 | — | 255,574 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investments | $ | 1,767,921,456 | $ | 218,268,942 | $ | 1,986,190,398 | |||||||||
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
17
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2014
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 99,321,798 | $ | 42,836,424 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $1,288,270,975. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 720,454,541 | ||
Unrealized depreciation | (22,790,692 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 697,663,849 | ||
|
|
As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs subject to expiration:
Expires 12/31/2016 | |||||
AZL S&P 500 Index Fund | $ | 57,858,950 |
During the year ended December 31, 2014, the Fund utilized $14,962,755 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL S&P 500 Index Fund | $ | 19,977,227 | $ | — | $ | 19,977,227 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL S&P 500 Index Fund | $ | 16,180,677 | $ | — | $ | 16,180,677 |
(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
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2014
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL S&P 500 Index Fund | $ | 25,076,633 | $ | — | $ | (57,858,950 | ) | $ | 697,663,849 | $ | 664,881,532 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
20
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
21
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
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
23
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of FOF Trust | Other AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
27
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Schroder Emerging Markets Equity Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 7
Statement of Operations
Page 7
Statements of Changes in Net Assets
Page 8
Financial Highlights
Page 9
Notes to the Financial Statements
Page 10
Report of Independent Registered Public Accounting Firm
Page 15
Other Federal Income Tax Information
Page 16
Other Information
Page 17
Approval of Investment Advisory and Subadvisory Agreements
Page 18
Information about the Board of Trustees and Officers
Page 21
This report is submitted for the general information of the shareholder 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.
AZL® Schroder Emerging Markets Equity Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Schroder Emerging Markets Equity Fund (Class 2 Shares) returned -5.22% compared to a -1.82% total return for its benchmark, the MSCI Emerging Markets Index1.
Emerging markets equities struggled during the period, underperforming developed markets for a second consecutive year, although it was a volatile year. Investors early in the period avoided emerging markets stocks amid concerns about the health of global economies such as Europe and China. Geopolitical issues—including Russia’s incursion into Ukraine—also rattled investors. However, improved economic results in the U.S., Europe and China buoyed emerging markets stocks from March to September. Those gains were erased during the final few months of the period, as investors again grew concerned about the health of global economies and the strength of the US dollar. What’s more, steep declines in oil prices added to the downward pressure on some emerging markets stocks late in the period.
Russia’s stock market was among the worst performers during the period. The crisis in Ukraine, and the international sanctions that followed, hurt Russian stocks, as did the plunging oil prices and a tumbling ruble.
The Fund underperformed its benchmark for the period. Much of the underperformance took place in the first quarter, specifically in March. The Fund’s country allocation decisions were based on expectations that global liquidity would tighten as global growth increased and the U.S. Federal Reserve reduced its stimulus efforts. The Fund favoured countries with trade surpluses, such as China and Korea. Those countries tend to outperform during periods of tightening global liquidity, as their economies are less dependent on outside credit. By comparison, countries with current account deficits, such as South Africa and Indonesia, tend to underperform when global liquidity tightens, as they are more dependent on outside credit.*
As expectations for global growth declined early in the period, the liquidity environment eased rather than tightened. As a result, the Fund’s underweight to trade-deficit countries weighed on relative performance. A larger-
than-benchmark position in Russia also hurt the Fund’s relative performance in the first quarter. However, a shift to an underweight position for the remainder of the period helped offset those initial losses.*
Stock selection also dragged on relative performance, primarily in Korea. An overweight position in a growth-oriented chemical company detracted as global growth lagged. A larger-than-benchmark position in an automobile manufacturer also detracted as poor corporate governance decisions led to strong selling pressure during October.*
On a positive note, the Fund’s relative performance benefited from an overweight position and strong stock selection in China. Despite slower growth, the Chinese economy still performed relatively well during the period. The Fund benefited from exposure to two Chinese insurance companies. Exposure to the United Arab Emirates (UAE) and Qatar also benefited the Fund as both countries were added to the MSCI Emerging Markets Index at the end of May. The resulting boost to performance was only partially offset by losses, later in the period, as falling oil prices dragged on Gulf sentiment. Finally, exposure to Indian and Thai financials also contributed positively to 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, 2014. |
1 | The Morgan Stanley Capital International (“MSCI”) Emerging Markets Index (gross of withholding tax) is a free float-adjusted market capitalization index that is designed to measure equity performance of emerging markets. Investors cannot invest directly in an index. |
1
AZL® Schroder Emerging Markets Equity Fund Review (unaudited)
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® Schroder Emerging Markets Equity Fund (Class 1 Shares) | 5/6/07 | -4.96 | % | 4.23 | % | 1.12 | % | 0.61 | % | |||||||||||
AZL® Schroder Emerging Markets Equity Fund (Class 2 Shares) | 5/1/06 | -5.22 | % | 3.95 | % | 0.87 | % | 2.02 | % | |||||||||||
MSCI Emerging Markets Index | 5/1/06 | -1.82 | % | 4.41 | % | 2.11 | % | 4.21 | % | |||||||||||
MSCI Emerging Markets Index | 5/1/06 | -2.19 | % | 4.04 | % | 1.78 | % | 3.88 | % |
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) | 1.40 | % | ||
AZL® Schroder Emerging Markets Equity Fund (Class 2 Shares) | 1.65 | % |
Expense Ratios are based on the current Fund prospectus dated April 28, 2014. The Manager voluntarily reduced 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, 2016. Additional information pertaining to the December 31, 2014 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 (“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 |
AZL Schroder Emerging Markets Equity Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Schroder Emerging Markets Equity Fund, Class 1 | $ | 1,000.00 | $ | 917.50 | $ | 6.38 | 1.32 | % | ||||||||||||
AZL Schroder Emerging Markets Equity Fund, Class 2 | $ | 1,000.00 | $ | 917.20 | $ | 7.59 | 1.57 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Schroder Emerging Markets Equity Fund, Class 1 | $ | 1,000.00 | $ | 1,018.55 | $ | 6.72 | 1.32 | % | ||||||||||||
AZL Schroder Emerging Markets Equity Fund, Class 2 | $ | 1,000.00 | $ | 1,017.29 | $ | 7.98 | 1.57 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Financials | 34.4 | % | |||
Information Technology | 24.8 | ||||
Consumer Discretionary | 11.8 | ||||
Energy | 7.7 | ||||
Telecommunication Services | 5.9 | ||||
Consumer Staples | 5.2 | ||||
Materials | 3.6 | ||||
Industrials | 3.1 | ||||
Health Care | 1.9 | ||||
Utilities | 0.8 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.2 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 2.8 | ||||
Money Market | 0.8 | ||||
|
| ||||
Total Investment Securities | 102.8 | ||||
Net other assets (liabilities) | (2.8 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.1%): |
| ||||||
| Auto Components (0.4%): |
| ||||||
4,826 | Hyundai Mobis Co., Ltd. | $ | 1,027,288 | |||||
|
| |||||||
| Automobiles (6.1%): |
| ||||||
1,712,000 | Brilliance China Automotive Holdings, Ltd. | 2,743,089 | ||||||
426,200 | Chongqing Changan Automobile Co., Ltd., Class B | 964,130 | ||||||
53,107 | Hero MotoCorp, Ltd. | 2,614,856 | ||||||
32,834 | Hyundai Motor Co. | 4,985,483 | ||||||
32,798 | KIA Motors Corp. | 1,549,822 | ||||||
48,363 | Maruti Suzuki India, Ltd. | 2,542,849 | ||||||
|
| |||||||
15,400,229 | ||||||||
|
| |||||||
| Banks (22.6%): |
| ||||||
586,568 | Akbank T.A.S. | 2,164,136 | ||||||
703,445 | Axis Bank, Ltd. | 5,558,004 | ||||||
151,043 | Banco Bradesco SA, ADR | 2,019,444 | ||||||
10,511,832 | China Construction Bank | 8,556,295 | ||||||
3,963,597 | Chinatrust Financial Holding Co., Ltd. | 2,561,013 | ||||||
227,189 | Commercial International Bank Egypt SAE | 1,562,997 | ||||||
125,981 | Commercial International Bank Egypt SAE, GDR | 830,726 | ||||||
7,650 | Credicorp, Ltd. | 1,225,377 | ||||||
105,445 | DGB Financial Group, Inc. | 1,085,089 | ||||||
81,825 | Grupo Financiero Inbursa SAB de C.V., Class O | 211,240 | ||||||
50,695 | Grupo Financiero Santander Mexico SAB de C.V., Class B, ADR | 525,200 | ||||||
86,420 | Hana Financial Holdings | 2,496,881 | ||||||
318,081 | HDFC Bank, Ltd. | 4,770,735 | ||||||
4,733,385 | Industrial & Commercial Bank of China | 3,438,885 | ||||||
382,055 | Itau Unibanco Banco Multiplo SA, ADR | 4,970,535 | ||||||
612,400 | Kasikornbank Public Co., Ltd. | 4,230,042 | ||||||
2,939 | Komercni Banka AS | 605,879 | ||||||
388,433 | National Bank of Greece SA* | 689,966 | ||||||
33,414 | OTP Bank Nyrt | 483,044 | ||||||
250,550 | Powszechna Kasa Oszczednosci Bank Polski SA | 2,523,211 | ||||||
2,081,000 | PT Bank Mandiri Tbk | 1,796,939 | ||||||
42,228 | Qatar National Bank | 2,453,638 | ||||||
21,280 | Shinhan Financial Group Co., Ltd. | 853,950 | ||||||
326,502 | Turkiye Garanti Bankasi AS | 1,309,986 | ||||||
|
| |||||||
56,923,212 | ||||||||
|
| |||||||
| Beverages (1.7%): |
| ||||||
344,765 | Ambev SA, ADR | 2,144,438 | ||||||
26,017 | Fomento Economico Mexicano SAB de C.V., ADR* | 2,290,277 | ||||||
|
| |||||||
4,434,715 | ||||||||
|
| |||||||
| Chemicals (1.8%): |
| ||||||
116,627 | Alfa SAB de C.V., Class A* | 260,445 | ||||||
26,253 | Grupo de Inversiones Suramericana SA | 442,156 | ||||||
11,219 | LG Chem, Ltd. | 1,831,162 | ||||||
31,517 | Samsung C&T Corp. | 1,747,344 | ||||||
|
| |||||||
4,281,107 | ||||||||
|
| |||||||
| Commercial Banks (0.6%): |
| ||||||
553,250 | Turkiye Is Bankasi AS, Class C | 1,589,089 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Construction Materials (0.5%): |
| ||||||
116,964 | Cemex SAB de C.V., ADR*^ | $ | 1,191,863 | |||||
|
| |||||||
| Diversified Consumer Services (0.6%): |
| ||||||
238,400 | Kroton Educacional SA | 1,390,637 | ||||||
|
| |||||||
| Diversified Financial Services (0.7%): |
| ||||||
432,188 | Firstrand, Ltd. | 1,874,002 | ||||||
|
| |||||||
| Diversified Telecommunication Services (0.6%): |
| ||||||
50,610 | Hellenic Telecommunications Organization SA (OTE)* | 552,233 | ||||||
4,383,100 | PT Telekomunikasi Indonesia Tbk | 1,006,361 | ||||||
|
| |||||||
1,558,594 | ||||||||
|
| |||||||
| Electric Utilities (0.4%): |
| ||||||
26,680 | Korea Electric Power Corp., Ltd. | 1,027,646 | ||||||
|
| |||||||
| Electrical Equipment (0.4%): |
| ||||||
186,000 | Zhuzhou CSR Times Electric Co., Ltd. | 1,085,468 | ||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (3.8%): |
| ||||||
344,500 | AAC Technologies Holdings, Inc.^ | 1,830,959 | ||||||
2,344,480 | Hon Hai Precision Industry Co., Ltd. | 6,465,473 | ||||||
44,312 | LG Display Co., Ltd.* | 1,341,997 | ||||||
|
| |||||||
9,638,429 | ||||||||
|
| |||||||
| Food & Staples Retailing (1.1%): |
| ||||||
43,879 | Bim Birlesik Magazalar AS | 940,615 | ||||||
8,705 | Magnit PJSC, GDR | 392,548 | ||||||
765,000 | Sun Art Retail Group, Ltd.^ | 758,694 | ||||||
203,483 | Wal-Mart de Mexico SAB de C.V., Series V | 437,577 | ||||||
|
| |||||||
2,529,434 | ||||||||
|
| |||||||
| Food Products (0.0%): |
| ||||||
115 | Orion Corp. | 105,780 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (0.6%): |
| ||||||
53,200 | Mindray Medical International, Ltd., ADR^ | 1,404,480 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.3%): |
| ||||||
139,468 | Alsea SAB de C.V.*^ | 385,486 | ||||||
36,726 | Yum! Brands, Inc. | 2,675,489 | ||||||
|
| |||||||
3,060,975 | ||||||||
|
| |||||||
| Household Durables (0.3%): |
| ||||||
9,630 | Coway Co., Ltd. | 732,803 | ||||||
|
| |||||||
| Household Products (0.5%): |
| ||||||
2,170 | LG Household & Health Care, Ltd. | 1,229,841 | ||||||
|
| |||||||
| Independent Power and Renewable Electricity Producers (0.4%): |
| ||||||
883,000 | China Longyuan Power Group Corp. | 909,721 | ||||||
|
| |||||||
| Industrial Conglomerates (1.0%): |
| ||||||
323 | Cheil Industries, Inc.* | 46,437 | ||||||
309,570 | KOC Holdings AS | 1,637,286 | ||||||
11,755 | LG Corp. | 651,604 | ||||||
|
| |||||||
2,335,327 | ||||||||
|
| |||||||
| Insurance (8.1%): |
| ||||||
829,400 | AIA Group, Ltd. | 4,567,559 | ||||||
124,400 | BB Seguridade Participacoes SA | 1,505,609 | ||||||
1,743,781 | Cathay Financial Holding Co., Ltd. | 2,565,825 |
Continued
4
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Insurance, continued | |||||||
1,033,000 | China Life Insurance Co., Ltd. | $ | 4,052,515 | |||||
1,020,600 | China Pacific Insurance Group Co., Ltd., Class H | 5,115,220 | ||||||
11,286 | Powszechny Zaklad Ubezpieczen SA | 1,544,641 | ||||||
12,993 | Samsung Life Insurance Co., Ltd. | 1,372,486 | ||||||
|
| |||||||
20,723,855 | ||||||||
|
| |||||||
| Internet Software & Services (5.8%): |
| ||||||
7,913 | Baidu, Inc., ADR* | 1,803,927 | ||||||
4,554 | NHN Corp. | 2,942,378 | ||||||
672,500 | Tencent Holdings, Ltd. | 9,650,314 | ||||||
|
| |||||||
14,396,619 | ||||||||
|
| |||||||
| IT Services (2.2%): |
| ||||||
102,300 | Cielo SA | 1,604,261 | ||||||
99,043 | Tata Consultancy Services, Ltd. | 4,011,029 | ||||||
|
| |||||||
5,615,290 | ||||||||
|
| |||||||
| Machinery (1.2%): |
| ||||||
66,449 | Iochpe-Maxion SA | 305,087 | ||||||
87,000 | WEG SA | 1,001,882 | ||||||
416,799 | Weichai Power Co., Ltd., Class H | 1,749,519 | ||||||
|
| |||||||
3,056,488 | ||||||||
|
| |||||||
| Media (1.3%): |
| ||||||
24,771 | Naspers, Ltd. | 3,191,991 | ||||||
|
| |||||||
| Metals & Mining (1.6%): |
| ||||||
64,076 | Mining and Metallurgical Co. Norilsk Nickel, ADR | 885,537 | ||||||
4,615 | POSCO | 1,164,533 | ||||||
165,800 | Vale SA, Sponsored ADR^ | 1,356,244 | ||||||
44,100 | Vale SA, Sponsored ADR | 320,166 | ||||||
|
| |||||||
3,726,480 | ||||||||
|
| |||||||
| Multiline Retail (1.0%): |
| ||||||
10,576 | Hyundai Department Store Co., Ltd. | 1,174,759 | ||||||
188,863 | Woolworths Holdings, Ltd. | 1,249,587 | ||||||
|
| |||||||
2,424,346 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (7.1%): |
| ||||||
8,810,400 | China Petroleum & Chemical Corp. (Sinopec), H Shares | 7,133,786 | ||||||
28,723 | Enersis SA, ADR | 460,430 | ||||||
58,285 | LUKOIL, ADR | 2,235,230 | ||||||
162,982 | OAO Gazprom, GDR | 738,308 | ||||||
15,101 | Petroleo Brasileiro SA, Sponsored, ADR | 110,237 | ||||||
213,800 | PTT pcl | 2,096,700 | ||||||
196,302 | Reliance Industries, Ltd. | 2,761,698 | ||||||
56,318 | Tupras-Turkiye Petrol Rafine | 1,331,533 | ||||||
73,942 | Ultrapar Participacoes SA | 1,431,702 | ||||||
|
| |||||||
18,299,624 | ||||||||
|
| |||||||
| Personal Products (1.5%): |
| ||||||
803 | Amorepacific Corp.* | 1,613,419 | ||||||
177,500 | Hengan International Group Co., Ltd. | 1,848,340 | ||||||
|
| |||||||
3,461,759 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Pharmaceuticals (1.3%): |
| ||||||
40,370 | Aspen Pharmacare Holdings, Ltd. | $ | 1,405,951 | |||||
76,683 | Lupin, Ltd. | 1,735,422 | ||||||
|
| |||||||
3,141,373 | ||||||||
|
| |||||||
| Real Estate Management & Development (2.0%): |
| ||||||
1,606,700 | Ayala Land, Inc. | 1,203,987 | ||||||
78,000 | BR Malls Participacoes SA | 482,290 | ||||||
1,743,322 | Emaar Properties PJSC | 3,344,925 | ||||||
|
| |||||||
5,031,202 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (11.9%): |
| ||||||
2,645,000 | Advanced Semiconductor Engineering, Inc. | 3,144,630 | ||||||
10,213 | Samsung Electronics Co., Ltd. | 12,278,233 | ||||||
78,141 | SK Hynix, Inc.* | 3,365,154 | ||||||
2,574,110 | Taiwan Semiconductor Manufacturing Co., Ltd. | 11,359,573 | ||||||
|
| |||||||
30,147,590 | ||||||||
|
| |||||||
| Specialty Retail (0.6%): |
| ||||||
1,404,000 | Belle International Holdings, Ltd. | 1,571,935 | ||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.0%): |
| ||||||
339,000 | Catcher Technology Co., Ltd. | 2,609,368 | ||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.3%): |
| ||||||
83,960 | Eclat Textile Co., Ltd. | 850,289 | ||||||
|
| |||||||
| Transportation Infrastructure (0.5%): |
| ||||||
210,656 | Companhia de Concessoes Rodoviarias | 1,221,665 | ||||||
|
| |||||||
| Wireless Telecommunication Services (5.3%): |
| ||||||
355,600 | Advanced Info Service pcl | 2,708,719 | ||||||
38,416 | America Movil SAB de C.V., Series L, ADR | 852,067 | ||||||
346,500 | China Mobile, Ltd. | 4,070,999 | ||||||
8,372 | SK Telecom Co., Ltd. | 2,036,192 | ||||||
580,000 | Taiwan Mobile Co., Ltd. | 1,915,543 | ||||||
293,649 | Turkcell Iletisim Hizmetleri AS* | 1,795,596 | ||||||
|
| |||||||
13,379,116 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $207,790,589) | 246,579,630 | ||||||
|
| |||||||
| Preferred Stocks (0.7%): |
| ||||||
| Food & Staples Retailing (0.6%): |
| ||||||
38,100 | Companhia Brasileira de Destribuicao Grupo Pao de Acucar, Series A, Preferred Shares | 1,414,197 | ||||||
|
| |||||||
| Metals & Mining (1.1%): |
| ||||||
37,100 | Vale SA, Preferred Shares, ADR | 269,346 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.4%): |
| ||||||
143,704 | Petroleo Brasileiro SA, Preferred Shares, ADR | 1,089,276 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $4,201,474) | 2,772,819 | ||||||
|
| |||||||
| Right (0.0%): |
| ||||||
| Banks (0.0%): |
| ||||||
22,024 | DGB Financial Group, Inc.* | 23,046 | ||||||
|
| |||||||
| Total Right (Cost $—) | 23,046 | ||||||
|
|
Continued
5
AZL Schroder Emerging Markets Equity Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (2.8%): |
| ||||||
$ | 7,138,751 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | $ | 7,138,751 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 7,138,751 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.8%): |
| ||||||
2,083,797 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 2,083,797 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $2,083,797) | 2,083,797 | ||||||
|
| |||||||
| Total Investment Securities (Cost $221,214,611)(c) — 102.8% | 258,598,043 | ||||||
| Net other assets (liabilities) — (2.8)% | (7,128,152 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 251,469,891 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
GDR—Global Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $6,782,609. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—” are either $0 or less than $1.
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Bermuda | 0.5 | % | ||
Brazil | 8.8 | % | ||
Cayman Islands | 3.3 | % | ||
Chile | 0.2 | % | ||
China | 12.7 | % | ||
Colombia | 0.2 | % | ||
Czech Republic | 0.2 | % | ||
Egypt | 0.9 | % | ||
Greece | 0.5 | % | ||
Hong Kong | 6.4 | % | ||
Hungary | 0.2 | % | ||
India | 9.3 | % | ||
Indonesia | 1.1 | % | ||
Korea, Republic Of | 3.7 | % |
Country | Percentage | |||
Mexico | 2.4 | % | ||
Philippines | 0.5 | % | ||
Poland | 1.6 | % | ||
Qatar | 0.9 | % | ||
Republic of Korea (South) | 14.3 | % | ||
Russian Federation | 1.6 | % | ||
South Africa | 3.0 | % | ||
Switzerland | 2.0 | % | ||
Taiwan | 12.1 | % | ||
Thailand | 3.5 | % | ||
Turkey | 4.2 | % | ||
United Arab Emirates | 1.3 | % | ||
United States | 4.6 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
6
AZL Schroder Emerging Markets Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 221,214,611 | |||
|
| ||||
Investment securities, at value* | $ | 258,598,043 | |||
Interest and dividends receivable | 606,178 | ||||
Foreign currency, at value (cost $335,162) | 336,754 | ||||
Receivable for investments sold | 482,080 | ||||
Reclaims receivable | 10,345 | ||||
Prepaid expenses | 2,387 | ||||
|
| ||||
Total Assets | 260,035,787 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 745,209 | ||||
Payable for capital shares redeemed | 255,000 | ||||
Payable for collateral received on loaned securities | 7,138,751 | ||||
Manager fees payable | 232,809 | ||||
Administration fees payable | 7,744 | ||||
Distribution fees payable | 48,263 | ||||
Custodian fees payable | 117,672 | ||||
Administrative and compliance services fees payable | 701 | ||||
Trustee fees payable | 14 | ||||
Other accrued liabilities | 19,733 | ||||
|
| ||||
Total Liabilities | 8,565,896 | ||||
|
| ||||
Net Assets | $ | 251,469,891 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 205,059,100 | |||
Accumulated net investment income/(loss) | 2,349,676 | ||||
Accumulated net realized gains/(losses) from investment transactions | 6,678,385 | ||||
Net unrealized appreciation/(depreciation) on investments | 37,382,730 | ||||
|
| ||||
Net Assets | $ | 251,469,891 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 26,194,175 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 3,562,601 | ||||
Net Asset Value (offering and redemption price per share) | $ | 7.35 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 225,275,716 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 30,677,506 | ||||
Net Asset Value (offering and redemption price per share) | $ | 7.34 | |||
|
|
* | Includes securities on loan of $6,782,609. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 7,473,943 | |||
Income from securities lending | 117,413 | ||||
Foreign withholding tax | (675,898 | ) | |||
|
| ||||
Total Investment Income | 6,915,458 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,472,534 | ||||
Administration fees | 99,650 | ||||
Distribution fees — Class 2 | 631,642 | ||||
Custodian fees | 470,752 | ||||
Administrative and compliance services fees | 3,605 | ||||
Trustee fees | 14,529 | ||||
Professional fees | 15,739 | ||||
Shareholder reports | 23,277 | ||||
Other expenses | 7,807 | ||||
|
| ||||
Total expenses before reductions | 4,739,535 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (423,482 | ) | |||
Less expenses paid indirectly | (47 | ) | |||
|
| ||||
Net expenses | 4,316,006 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,599,452 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 8,455,489 | ||||
Change in net unrealized appreciation/depreciation on investments | (24,537,832 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (16,082,343 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (13,482,891 | ) | ||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL Schroder Emerging Markets Equity Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,599,452 | $ | 2,536,114 | ||||||
Net realized gains/(losses) on investment transactions | 8,455,489 | 4,555,338 | ||||||||
Change in unrealized appreciation/depreciation on investments | (24,537,832 | ) | (14,705,734 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (13,482,891 | ) | (7,614,282 | ) | ||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (253,318 | ) | (333,101 | ) | ||||||
Class 2 | (1,478,612 | ) | (2,124,595 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (44,382 | ) | — | |||||||
Class 2 | (380,578 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (2,156,890 | ) | (2,457,696 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 75,407 | 354,171 | ||||||||
Proceeds from dividends reinvested | 297,700 | 333,101 | ||||||||
Value of shares redeemed | (4,229,928 | ) | (4,799,713 | ) | ||||||
|
|
|
| |||||||
Total Class 1 | (3,856,821 | ) | (4,112,441 | ) | ||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 10,680,833 | 16,234,949 | ||||||||
Proceeds from dividends reinvested | 1,859,190 | 2,124,596 | ||||||||
Value of shares redeemed | (40,235,190 | ) | (41,378,164 | ) | ||||||
|
|
|
| |||||||
Total Class 2 | (27,695,167 | ) | (23,018,619 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (31,551,988 | ) | (27,131,060 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (47,191,769 | ) | (37,203,038 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 298,661,660 | 335,864,698 | ||||||||
|
|
|
| |||||||
End of period | $ | 251,469,891 | $ | 298,661,660 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,349,676 | $ | 1,730,383 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 9,781 | 45,222 | ||||||||
Dividends reinvested | 36,708 | 43,714 | ||||||||
Shares redeemed | (543,859 | ) | (623,478 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (497,370 | ) | (534,542 | ) | ||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 1,402,596 | 2,123,012 | ||||||||
Dividends reinvested | 229,530 | 278,818 | ||||||||
Shares redeemed | (5,180,975 | ) | (5,379,241 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (3,548,849 | ) | (2,977,411 | ) | ||||||
|
|
|
| |||||||
Change in shares | (4,046,219 | ) | (3,511,953 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
8
AZL Schroder Emerging Markets Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.81 | $ | 8.05 | $ | 7.08 | $ | 8.76 | $ | 7.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.10 | 0.09 | 0.08 | 0.12 | 0.10 | (a) | |||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.48 | ) | (0.25 | ) | 1.39 | (1.61 | ) | 0.88 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | (0.38 | ) | (0.16 | ) | 1.47 | (1.49 | ) | 0.98 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.07 | ) | (0.08 | ) | (0.08 | ) | (0.08 | ) | (0.06 | ) | |||||||||||||||
Net Realized Gains | (0.01 | ) | — | (0.42 | ) | (0.11 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.08 | ) | (0.08 | ) | (0.50 | ) | (0.19 | ) | (0.06 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 7.35 | $ | 7.81 | $ | 8.05 | $ | 7.08 | $ | 8.76 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | (4.96 | )% | (1.96 | )% | 21.52 | % | (17.09 | )% | 12.61 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 26,194 | $ | 31,711 | $ | 36,970 | $ | 34,046 | $ | 47,962 | |||||||||||||||
Net Investment Income/(Loss) | 1.14 | % | 1.04 | % | 0.99 | % | 1.28 | % | 1.19 | % | |||||||||||||||
Expenses Before Reductions(c) | 1.46 | % | 1.45 | % | 1.43 | % | 1.45 | % | 1.45 | % | |||||||||||||||
Expenses Net of Reductions | 1.31 | % | 1.30 | % | 1.28 | % | 1.25 | % | 1.17 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.31 | % | 1.30 | % | 1.28 | % | 1.25 | % | 1.17 | % | |||||||||||||||
Portfolio Turnover Rate | 58 | % | 49 | % | 51 | % | 66 | % | 101 | % | |||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 7.80 | $ | 8.03 | $ | 7.07 | $ | 8.74 | $ | 7.82 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.08 | 0.07 | 0.05 | 0.09 | 0.08 | (a) | |||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.48 | ) | (0.24 | ) | 1.39 | (1.59 | ) | 0.89 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | (0.40 | ) | (0.17 | ) | 1.44 | (1.50 | ) | 0.97 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.05 | ) | (0.06 | ) | (0.06 | ) | (0.06 | ) | (0.05 | ) | |||||||||||||||
Net Realized Gains | (0.01 | ) | — | (0.42 | ) | (0.11 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.06 | ) | (0.06 | ) | (0.48 | ) | (0.17 | ) | (0.05 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 7.34 | $ | 7.80 | $ | 8.03 | $ | 7.07 | $ | 8.74 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | (5.22 | )% | (2.10 | )% | 21.04 | % | (17.27 | )% | 12.40 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 225,276 | $ | 266,951 | $ | 298,895 | $ | 266,106 | $ | 376,825 | |||||||||||||||
Net Investment Income/(Loss) | 0.90 | % | 0.79 | % | 0.74 | % | 1.03 | % | 0.91 | % | |||||||||||||||
Expenses Before Reductions(c) | 1.71 | % | 1.70 | % | 1.68 | % | 1.70 | % | 1.70 | % | |||||||||||||||
Expenses Net of Reductions | 1.56 | % | 1.55 | % | 1.53 | % | 1.50 | % | 1.42 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) | 1.56 | % | 1.55 | % | 1.53 | % | 1.50 | % | 1.42 | % | |||||||||||||||
Portfolio Turnover Rate | 58 | % | 49 | % | 51 | % | 66 | % | 101 | % |
(a) | Average shares method used in calculation. |
(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 any. 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. |
See accompanying notes to the financial statements.
9
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Schroder Emerging Markets Equity Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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. 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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
10
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $6.6 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $11,595 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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 with 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. 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual 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 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02%
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AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements
December 31, 2014
of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $3,553 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, there were no Level 3 Investments for which significant unobservable inputs were used to determine fair value.
12
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements
December 31, 2014
The following is a summary of the valuation inputs used as of December 31, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Banks | $ | 10,514,793 | $ | 46,408,419 | $ | 56,923,212 | |||||||||
Beverages | 4,434,715 | — | 4,434,715 | ||||||||||||
Chemicals | 260,445 | 4,020,662 | 4,281,107 | ||||||||||||
Construction Materials | 1,191,863 | — | 1,191,863 | ||||||||||||
Electrical Equipment | 1,085,468 | — | 1,085,468 | ||||||||||||
Food & Staples Retailing | 437,577 | 2,091,857 | 2,529,434 | ||||||||||||
Health Care Equipment & Supplies | 1,404,480 | — | 1,404,480 | ||||||||||||
Hotels, Restaurants & Leisure | 3,060,975 | — | 3,060,975 | ||||||||||||
Internet Software & Services | 1,803,927 | 12,592,692 | 14,396,619 | ||||||||||||
Metals & Mining | 2,561,947 | 1,164,533 | 3,726,480 | ||||||||||||
Oil, Gas & Consumable Fuels | 3,544,205 | 14,755,419 | 18,299,624 | ||||||||||||
Wireless Telecommunication Services | 852,067 | 12,527,049 | 13,379,116 | ||||||||||||
All Other Common Stocks+ | — | 121,866,537 | 121,866,537 | ||||||||||||
Preferred Stocks | |||||||||||||||
Food & Staples Retailing | — | 1,414,197 | 1,414,197 | ||||||||||||
Metals & Mining | 269,346 | — | 269,346 | ||||||||||||
Oil, Gas & Consumable Fuels | 1,089,276 | — | 1,089,276 | ||||||||||||
Right | — | 23,046 | 23,046 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 7,138,751 | 7,138,751 | ||||||||||||
Unaffiliated Investment Company | 2,083,797 | — | 2,083,797 | ||||||||||||
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Total Investment Securities | $ | 34,594,881 | $ | 224,003,162 | $ | 258,598,043 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 162,939,762 | $ | 195,378,285 |
6. Investment Risks
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $223,227,726. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 48,591,975 | ||
Unrealized depreciation | (13,221,658 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 35,370,317 | ||
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13
AZL Schroder Emerging Markets Equity Fund
Notes to the Financial Statements
December 31, 2014
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Schroder Emerging Markets Equity Fund | $ | 1,731,930 | $ | 424,960 | $ | 2,156,890 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Schroder Emerging Markets Equity Fund | $ | 2,457,696 | $ | — | $ | 2,457,696 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Schroder Emerging Markets Equity Fund | $ | 2,350,442 | $ | 8,691,500 | $ | — | $ | 35,368,849 | $ | 46,410,791 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
15
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 0.49% 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, 2014, the Fund declared net long-term capital gain distributions of $424,960.
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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.
17
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
18
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
19
(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
20
Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
21
Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
22
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Small Cap Stock Index Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 12
Statement of Operations
Page 12
Statements of Changes in Net Assets
Page 13
Financial Highlights
Page 14
Notes to the Financial Statements
Page 15
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 26
This report is submitted for the general information of the shareholder 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.
AZL® Small Cap Stock Index Fund Review (unaudited)
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 year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® Small Cap Stock Index Fund returned 5.23%. That compared to a 5.76% total return for its benchmark, the S&P SmallCap 600 Index1.
The Fund attempts to replicate the performance of the S&P Small Cap 600 Index of U.S. small-cap stocks. U.S. equities moved higher in 2014 as domestic economic growth gained momentum and interest rates remained low. The period started out on a negative note, however: Slowing growth in China, softer economic data in the U.S. and expectations that the Federal Reserve would soon end its stimulus efforts all weighed on investors. Equity markets declined sharply in January, but the sell-off was short-lived. Investors soon learned that the recent weakness in the U.S. economic data was weather-related, and therefore temporary. Meanwhile, the Federal Reserve shifted its position, announcing a more cautious approach to raising short-term rates.*
U.S. equities moved higher throughout the period, but volatility increased through the period. A combination of high valuations and persistent expectations of higher interest rates left stocks vulnerable to bad news. Tensions between Russia and Ukraine weighed on global markets early in the period, while later geopolitical crises—including a ground war in Gaza—added to concerns.
U.S. economic growth strengthened considerably in the second half of 2014, even as the broader global economy showed signs of slowing. U.S. stocks recovered from a September sell-off to post impressive gains through the fourth quarter of 2014 as economic data continued to impress investors and helped to fuel a positive corporate earnings season. A sharp decline in oil prices later in the period contributed to uncertainty about global growth, but helped buoy U.S. stocks as it led to a pickup in consumer spending.
The Fund slightly underperformed its benchmark due to the effect of fees and expenses. These negatives were partially offset by payments to the Fund resulting from class action lawsuits against companies held in the Fund.*
The low-interest rate environment helped the utilities sector post strong returns as that sector offered attractive yields to income-seeking investors. The information technology and heath care sectors also posted strong gains as the result of their ties to cyclical growth. The health care sector benefited from gains in the biotechnology industry, which were driven by new drug developments. Consumer staples stocks also posted strong results as many investors turned to more defensive holdings as volatility increased during the period. Most sectors of the index posted gains for the period, however, the energy sector was an outlier. It posted a sizeable loss for the period due to the effect of falling oil 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, 2014. |
1 | The Standard & Poor’s SmallCap 600 Index (“S&P 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
AZL® Small Cap Stock Index Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to seek to match the performance of the Standard & Poor’s SmallCap 600® Index (the “S&P 600”). 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 of the stocks in the S&P 600 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.
Small- to mid-capitalization 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.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
1 Year | 3 Year | 5 Year | Since Inception (5/1/07) | |||||||||||||
AZL® Small Cap Stock Index Fund | 5.23 | % | 19.67 | % | 16.62 | % | 7.58 | % | ||||||||
S&P SmallCap 600 Index | 5.76 | % | 20.24 | % | 17.27 | % | 8.01 | % |
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® Small Cap Stock Index Fund | 0.64 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and Acquired Fund fees and expenses), to 0.71% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 0.59%. |
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 SmallCap 600 Index (“S&P 600”), 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 |
AZL Small Cap Stock Index Fund
Expense Examples
(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. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Small Cap Stock Index Fund | $ | 1,000.00 | $ | 1,022.30 | $ | 2.96 | 0.58 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Small Cap Stock Index Fund | $ | 1,000.00 | $ | 1,022.28 | $ | 2.96 | 0.58 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 23.1 | % | |||
Industrials | 16.2 | ||||
Information Technology | 16.0 | ||||
Consumer Discretionary | 14.9 | ||||
Health Care | 11.1 | ||||
Materials | 5.7 | ||||
Consumer Staples | 3.7 | ||||
Utilities | 3.7 | ||||
Energy | 3.3 | ||||
Telecommunication Services | 0.7 | ||||
|
| ||||
Total Common Stocks | 98.4 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 29.2 | ||||
Money Market | 1.0 | ||||
|
| ||||
Total Investment Securities | 128.6 | ||||
Net other assets (liabilities) | (28.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (98.4%): | |||||||
| Aerospace & Defense (2.6%): | |||||||
20,519 | AAR Corp.^ | $ | 570,018 | |||||
10,878 | Aerovironment, Inc.*^ | 296,426 | ||||||
4,270 | American Science & Engineering, Inc. | 221,613 | ||||||
11,787 | Cubic Corp. | 620,468 | ||||||
25,979 | Curtiss-Wright Corp.^ | 1,833,857 | ||||||
9,536 | Engility Holdings, Inc.* | 408,141 | ||||||
31,912 | Gencorp, Inc.*^ | 583,990 | ||||||
21,979 | Moog, Inc., A*^ | 1,627,105 | ||||||
2,662 | National Presto Industries, Inc.^ | 154,502 | ||||||
32,956 | Orbital Sciences Corp.*^ | 886,187 | ||||||
28,418 | TASER International, Inc.*^ | 752,509 | ||||||
19,775 | Teledyne Technologies, Inc.* | 2,031,683 | ||||||
|
| |||||||
9,986,499 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.7%): |
| ||||||
13,426 | Atlas Air Worldwide Holdings*^ | 661,902 | ||||||
16,478 | Forward Air Corp.^ | 829,997 | ||||||
18,829 | Hub Group, Inc., A* | 717,008 | ||||||
49,633 | UTI Worldwide, Inc.*^ | 599,070 | ||||||
|
| |||||||
2,807,977 | ||||||||
|
| |||||||
| Airlines (0.4%): |
| ||||||
7,379 | Allegiant Travel Co. | 1,109,285 | ||||||
27,680 | SkyWest, Inc.^ | 367,590 | ||||||
|
| |||||||
1,476,875 | ||||||||
|
| |||||||
| Auto Components (0.6%): |
| ||||||
16,598 | Dorman Products, Inc.*^ | 801,185 | ||||||
12,786 | Drew Industries, Inc.* | 652,981 | ||||||
11,257 | Standard Motor Products, Inc. | 429,117 | ||||||
12,523 | Superior Industries International, Inc. | 247,830 | ||||||
|
| |||||||
2,131,113 | ||||||||
|
| |||||||
| Automobiles (0.1%): |
| ||||||
14,644 | Winnebago Industries, Inc.^ | 318,653 | ||||||
|
| |||||||
| Banks (7.6%): |
| ||||||
34,961 | Bank of the Ozarks, Inc.^ | 1,325,722 | ||||||
10,593 | Banner Corp. | 455,711 | ||||||
43,006 | BBCN Bancorp, Inc.^ | 618,426 | ||||||
44,819 | Boston Private Financial Holdings, Inc.^ | 603,712 | ||||||
17,315 | Cardinal Financial Corp. | 343,356 | ||||||
8,241 | City Holding Co.^ | 383,454 | ||||||
28,894 | Columbia Banking System, Inc.^ | 797,763 | ||||||
21,940 | Community Bank System, Inc.^ | 836,572 | ||||||
52,074 | CVB Financial Corp.^ | 834,225 | ||||||
93,952 | F.N.B. Corp.^ | 1,251,441 | ||||||
56,460 | First Bancorp* | 331,420 | ||||||
49,663 | First Commonwealth Financial Corp. | 457,893 | ||||||
33,228 | First Financial Bancorp^ | 617,709 | ||||||
34,638 | First Financial Bankshares, Inc.^ | 1,034,983 | ||||||
40,719 | First Midwest Bancorp, Inc.^ | 696,702 | ||||||
40,599 | Glacier Bancorp, Inc.^ | 1,127,434 | ||||||
17,240 | Hanmi Financial Corp.^ | 376,004 | ||||||
31,794 | Home Bancshares, Inc.^ | 1,022,495 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
13,000 | Independent Bank Corp.^ | $ | 556,530 | |||||
34,795 | MB Financial, Inc.^ | 1,143,364 | ||||||
66,911 | National Penn Bancshares, Inc.^ | 704,238 | ||||||
23,644 | NBT Bancorp, Inc.^ | 621,128 | ||||||
24,194 | Ofg BanCorp^ | 402,830 | ||||||
57,881 | Old National Bancorp^ | 861,269 | ||||||
17,960 | Pinnacle Financial Partners, Inc. | 710,138 | ||||||
38,076 | PrivateBancorp, Inc. | 1,271,738 | ||||||
16,126 | S & T Bancorp, Inc.^ | 480,716 | ||||||
8,586 | Simmons First National Corp., A | 349,021 | ||||||
45,422 | Sterling BanCorp/de^ | 653,168 | ||||||
98,071 | Susquehanna Bancshares, Inc.^ | 1,317,095 | ||||||
24,733 | Texas Capital Bancshares, Inc.*^ | 1,343,745 | ||||||
6,383 | Tompkins Financial Corp.^ | 352,980 | ||||||
20,421 | UMB Financial Corp.^ | 1,161,751 | ||||||
34,482 | United Bankshares, Inc.^ | 1,291,351 | ||||||
24,412 | United Community Banks, Inc.^ | 462,363 | ||||||
14,011 | Westamerica Bancorp^ | 686,819 | ||||||
38,149 | Wilshire Bancorp, Inc. | 386,449 | ||||||
25,279 | Wintrust Financial Corp.^ | 1,182,046 | ||||||
|
| |||||||
29,053,761 | ||||||||
|
| |||||||
| Beverages (0.4%): |
| ||||||
4,807 | Boston Beer Co., Inc. (The), Class A*^ | 1,391,819 | ||||||
|
| |||||||
| Biotechnology (0.7%): |
| ||||||
22,703 | Acorda Therapeutics, Inc.*^ | 927,872 | ||||||
15,821 | Emergent Biosolutions, Inc.* | 430,806 | ||||||
9,864 | Ligand Pharmaceuticals, Inc., B*^ | 524,863 | ||||||
25,395 | Momenta Pharmaceuticals, Inc.* | 305,756 | ||||||
16,613 | Repligen Corp.* | 328,937 | ||||||
31,210 | Spectrum Pharmaceuticals, Inc.*^ | 216,285 | ||||||
|
| |||||||
2,734,519 | ||||||||
|
| |||||||
| Building Products (1.0%): |
| ||||||
22,707 | AAON, Inc.^ | 508,410 | ||||||
6,781 | American Woodmark Corp.* | 274,224 | ||||||
15,675 | Apogee Enterprises, Inc.^ | 664,150 | ||||||
15,725 | Gibraltar Industries, Inc.* | 255,689 | ||||||
22,824 | Griffon Corp. | 303,559 | ||||||
25,839 | PGT, Inc.* | 248,830 | ||||||
20,316 | Quanex Building Products Corp. | 381,534 | ||||||
22,515 | Simpson Manufacturing Co., Inc.^ | 779,018 | ||||||
10,809 | Universal Forest Products, Inc. | 575,039 | ||||||
|
| |||||||
3,990,453 | ||||||||
|
| |||||||
| Capital Markets (1.8%): |
| ||||||
9,367 | Calamos Asset Management, Inc., A | 124,768 | ||||||
19,482 | Evercore Partners, Inc., Class A^ | 1,020,272 | ||||||
28,117 | Financial Engines, Inc.^ | 1,027,677 | ||||||
14,317 | Greenhill & Co., Inc.^ | 624,221 | ||||||
17,733 | HFF, Inc., Class A | 636,969 | ||||||
18,840 | Investment Technology Group, Inc.* | 392,249 | ||||||
8,797 | Piper Jaffray Cos., Inc.* | 511,018 |
Continued
4
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
35,712 | Stifel Financial Corp.*^ | $ | 1,822,027 | |||||
3,825 | Virtus Investment Partners, Inc. | 652,124 | ||||||
|
| |||||||
6,811,325 | ||||||||
|
| |||||||
| Chemicals (2.4%): |
| ||||||
15,802 | A. Schulman, Inc.^ | 640,455 | ||||||
13,666 | American Vanguard Corp.^ | 158,799 | ||||||
16,635 | Balchem Corp.^ | 1,108,556 | ||||||
28,786 | Calgon Carbon Corp.*^ | 598,173 | ||||||
27,134 | Flotek Industries, Inc.*^ | 508,220 | ||||||
12,189 | Futurefuel Corp. | 158,701 | ||||||
27,215 | H.B. Fuller Co.^ | 1,211,883 | ||||||
5,156 | Hawkins, Inc. | 223,409 | ||||||
11,768 | Innophos Holdings, Inc. | 687,840 | ||||||
30,473 | Intrepid Potash, Inc.*^ | 422,965 | ||||||
11,098 | Koppers Holdings, Inc. | 288,326 | ||||||
17,759 | Kraton Performance Polymers, Inc.* | 369,210 | ||||||
10,522 | LSB Industries, Inc.* | 330,812 | ||||||
16,685 | OM Group, Inc. | 497,213 | ||||||
7,194 | Quaker Chemical Corp.^ | 662,136 | ||||||
23,055 | Rayonier Advanced Materials, Inc.^ | 514,127 | ||||||
10,379 | Stepan Co. | 415,990 | ||||||
13,850 | Tredegar Corp. | 311,487 | ||||||
12,463 | Zep, Inc. | 188,814 | ||||||
|
| |||||||
9,297,116 | ||||||||
|
| |||||||
| Commercial Banks (0.1%): |
| ||||||
14,842 | Central Pacific Financial Corp. | 319,103 | ||||||
|
| |||||||
| Commercial Services & Supplies (2.4%): |
| ||||||
28,041 | ABM Industries, Inc. | 803,375 | ||||||
26,277 | Brink’s Co. (The)^ | 641,422 | ||||||
12,959 | Encore Capital Group, Inc.*^ | 575,380 | ||||||
10,772 | G & K Services, Inc., A^ | 763,196 | ||||||
38,241 | Healthcare Services Group, Inc.^ | 1,182,793 | ||||||
35,805 | Interface, Inc.^ | 589,708 | ||||||
24,949 | Mobile Mini, Inc. | 1,010,684 | ||||||
21,092 | Sykes Enterprises, Inc.*^ | 495,029 | ||||||
33,877 | Tetra Tech, Inc. | 904,516 | ||||||
8,455 | UniFirst Corp. | 1,026,860 | ||||||
21,072 | United Stationers, Inc.^ | 888,396 | ||||||
10,851 | Viad Corp.^ | 289,288 | ||||||
|
| |||||||
9,170,647 | ||||||||
|
| |||||||
| Communications Equipment (1.2%): |
| ||||||
29,401 | ADTRAN, Inc.^ | 640,942 | ||||||
5,824 | Bel Fuse, Inc., B | 159,228 | ||||||
8,394 | Black Box Corp.^ | 200,617 | ||||||
19,600 | Calamp Corp.*^ | 358,680 | ||||||
8,790 | Comtech Telecommunications Corp. | 277,061 | ||||||
13,636 | Digi International, Inc.* | 126,678 | ||||||
47,700 | Harmonic, Inc.*^ | 334,377 | ||||||
31,865 | Ixia* | 358,481 | ||||||
18,719 | NETGEAR, Inc.*^ | 666,022 | ||||||
23,318 | ViaSat, Inc.*^ | 1,469,734 | ||||||
|
| |||||||
4,591,820 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction & Engineering (0.8%): |
| ||||||
20,225 | Aegion Corp.*^ | $ | 376,387 | |||||
20,180 | Comfort Systems USA, Inc. | 345,482 | ||||||
18,477 | Dycom Industries, Inc.* | 648,358 | ||||||
35,028 | Emcor Group, Inc. | 1,558,395 | ||||||
14,913 | Orion Marine Group, Inc.* | 164,789 | ||||||
|
| |||||||
3,093,411 | ||||||||
|
| |||||||
| Construction Materials (0.2%): |
| ||||||
39,764 | Headwaters, Inc.* | 596,062 | ||||||
|
| |||||||
| Consumer Finance (1.0%): |
| ||||||
15,637 | Cash America International, Inc.^ | 353,709 | ||||||
14,311 | Enova International, Inc.*^ | 318,563 | ||||||
26,407 | EZCORP, Inc., A*^ | 310,282 | ||||||
15,318 | First Cash Financial Services, Inc.*^ | 852,753 | ||||||
27,074 | PRA Group, Inc.*^ | 1,568,397 | ||||||
4,868 | World Acceptance Corp.*^ | 386,763 | ||||||
|
| |||||||
3,790,467 | ||||||||
|
| |||||||
| Containers & Packaging (0.1%): |
| ||||||
13,418 | Myers Industries, Inc. | 236,157 | ||||||
|
| |||||||
| Distributors (0.4%): |
| ||||||
23,492 | Pool Corp.^ | 1,490,332 | ||||||
10,781 | VOXX International Corp.*^ | 94,442 | ||||||
|
| |||||||
1,584,774 | ||||||||
|
| |||||||
| Diversified Consumer Services (1.2%): |
| ||||||
9,322 | American Public Education, Inc.* | 343,702 | ||||||
5,903 | Capella Education Co.^ | 454,295 | ||||||
32,658 | Career Education Corp.*^ | 227,300 | ||||||
33,984 | Hillenbrand, Inc.^ | 1,172,447 | ||||||
16,038 | Matthews International Corp., A | 780,569 | ||||||
10,236 | Outerwall, Inc.*^ | 769,952 | ||||||
24,235 | Regis Corp.* | 406,179 | ||||||
5,902 | Strayer Education, Inc.*^ | 438,401 | ||||||
11,727 | Universal Technical Institute, Inc. | 115,394 | ||||||
|
| |||||||
4,708,239 | ||||||||
|
| |||||||
| Diversified Financial Services (1.0%): |
| ||||||
22,996 | FXCM, Inc.^ | 381,044 | ||||||
19,632 | Green Dot Corp., A* | 402,260 | ||||||
31,641 | Interactive Brokers Group, Inc., Class A^ | 922,652 | ||||||
20,221 | MarketAxess Holdings, Inc.^ | 1,450,047 | ||||||
19,741 | ViewPoint Financial Group^ | 470,823 | ||||||
|
| |||||||
3,626,826 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.6%): |
| ||||||
48,465 | 8x8, Inc.*^ | 443,939 | ||||||
5,431 | Atlantic Tele-Network, Inc.^ | 367,081 | ||||||
113,178 | Cincinnati Bell, Inc.* | 361,038 | ||||||
25,356 | Consolidated Communications Holdings, Inc.^ | 705,658 | ||||||
16,481 | General Communication, Inc., A* | 226,614 | ||||||
10,257 | Lumos Networks Corp. | 172,523 | ||||||
|
| |||||||
2,276,853 | ||||||||
|
|
Continued
5
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electric Utilities (0.9%): |
| ||||||
20,756 | ALLETE, Inc. | $ | 1,144,486 | |||||
21,823 | El Paso Electric Co. | 874,229 | ||||||
30,575 | UIL Holdings Corp.^ | 1,331,236 | ||||||
|
| |||||||
3,349,951 | ||||||||
|
| |||||||
| Electrical Equipment (1.6%): |
| ||||||
13,876 | AZZ, Inc.^ | 651,062 | ||||||
25,848 | Brady Corp., A^ | 706,684 | ||||||
10,092 | Encore Wire Corp. | 376,734 | ||||||
24,538 | EnerSys^ | 1,514,486 | ||||||
21,352 | Franklin Electric Co., Inc.^ | 801,341 | ||||||
26,337 | General Cable Corp.^ | 392,421 | ||||||
28,073 | II-VI, Inc.* | 383,196 | ||||||
20,637 | Methode Electronics, Inc. | 753,457 | ||||||
5,013 | Powell Industries, Inc. | 245,988 | ||||||
9,096 | Vicor Corp.*^ | 110,062 | ||||||
|
| |||||||
5,935,431 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (3.8%): |
| ||||||
8,037 | Agilysys, Inc.*^ | 101,186 | ||||||
14,748 | Anixter International, Inc.* | 1,304,607 | ||||||
7,815 | Badger Meter, Inc. | 463,820 | ||||||
28,750 | Benchmark Electronics, Inc.*^ | 731,400 | ||||||
22,580 | Checkpoint Systems, Inc.* | 310,023 | ||||||
13,596 | Coherent, Inc.* | 825,549 | ||||||
18,156 | CTS Corp. | 323,721 | ||||||
21,288 | Daktronics, Inc.^ | 266,313 | ||||||
9,349 | DTS, Inc.* | 287,482 | ||||||
14,368 | Electro Scientific Industries, Inc. | 111,496 | ||||||
16,132 | Fabrinet* | 286,182 | ||||||
9,332 | FARO Technologies, Inc.*^ | 584,930 | ||||||
22,148 | Insight Enterprises, Inc.* | 573,412 | ||||||
12,180 | Littlelfuse, Inc.^ | 1,177,441 | ||||||
17,479 | Mercury Computer Systems, Inc.* | 243,308 | ||||||
8,153 | MTS Systems Corp.^ | 611,720 | ||||||
21,615 | Newport Corp.* | 413,063 | ||||||
10,103 | OSI Systems, Inc.* | 714,989 | ||||||
11,334 | Park Electrochemical Corp. | 282,557 | ||||||
18,190 | Plexus Corp.* | 749,610 | ||||||
15,159 | Rofin-Sinar Technologies, Inc.* | 436,124 | ||||||
9,914 | Rogers Corp.* | 807,396 | ||||||
44,579 | Sanmina Corp.* | 1,048,944 | ||||||
15,440 | ScanSource, Inc.*^ | 620,070 | ||||||
15,113 | SYNNEX Corp.^ | 1,181,232 | ||||||
28,899 | TTM Technologies, Inc.*^ | 217,609 | ||||||
|
| |||||||
14,674,184 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.6%): |
| ||||||
18,885 | Basic Energy Services, Inc.*^ | 132,384 | ||||||
19,022 | Bristow Group, Inc.^ | 1,251,457 | ||||||
10,560 | Era Group, Inc.* | 223,344 | ||||||
36,936 | Exterran Holdings, Inc. | 1,203,375 | ||||||
7,109 | Geospace Technologies Corp.*^ | 188,389 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Energy Equipment & Services, continued |
| ||||||
7,278 | Gulf Island Fabrication, Inc. | $ | 141,120 | |||||
14,267 | Gulfmark Offshore, Inc., A^ | 348,400 | ||||||
17,490 | Hornbeck Offshore Services, Inc.*^ | 436,725 | ||||||
69,205 | ION Geophysical Corp.*^ | 190,314 | ||||||
14,415 | Matrix Service Co.* | 321,743 | ||||||
45,574 | Newpark Resources, Inc.*^ | 434,776 | ||||||
45,640 | Paragon Offshore plc^ | 126,423 | ||||||
9,546 | SEACOR Holdings, Inc.*^ | 704,590 | ||||||
19,516 | Tesco Corp. | 250,195 | ||||||
43,381 | TETRA Technologies, Inc.* | 289,785 | ||||||
|
| |||||||
6,243,020 | ||||||||
|
| |||||||
| Environmental & Facilities Services (0.1%): |
| ||||||
11,701 | US Ecology, Inc.^ | 469,444 | ||||||
|
| |||||||
| Food & Staples Retailing (0.8%): |
| ||||||
14,548 | Andersons, Inc. (The)^ | 773,081 | ||||||
20,898 | Casey’s General Stores, Inc.^ | 1,887,507 | ||||||
20,298 | SpartanNash Co. | 530,590 | ||||||
|
| |||||||
3,191,178 | ||||||||
|
| |||||||
| Food Products (1.7%): |
| ||||||
29,024 | B&G Foods, Inc.^ | 867,818 | ||||||
8,339 | Calavo Growers, Inc. | 394,435 | ||||||
16,226 | Cal-Maine Foods, Inc.^ | 633,301 | ||||||
89,169 | Darling International, Inc.*^ | 1,619,308 | ||||||
14,268 | Diamond Foods, Inc.* | 402,786 | ||||||
8,091 | J & J Snack Foods Corp. | 880,057 | ||||||
11,104 | Sanderson Farms, Inc.^ | 933,013 | ||||||
3,890 | Seneca Foods Corp., A*^ | 105,147 | ||||||
28,112 | Snyders-Lance, Inc.^ | 858,822 | ||||||
|
| |||||||
6,694,687 | ||||||||
|
| |||||||
| Gas Utilities (1.9%): |
| ||||||
23,391 | Laclede Group, Inc. (The)^ | 1,244,401 | ||||||
22,867 | New Jersey Resources Corp. | 1,399,460 | ||||||
14,702 | Northwest Natural Gas Co.^ | 733,630 | ||||||
42,355 | Piedmont Natural Gas Co., Inc. | 1,669,210 | ||||||
18,207 | South Jersey Industries, Inc. | 1,072,939 | ||||||
25,148 | Southwest Gas Corp.^ | 1,554,398 | ||||||
|
| |||||||
7,674,038 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (4.0%): |
| ||||||
11,453 | Abaxis, Inc.^ | 650,874 | ||||||
19,923 | ABIOMED, Inc.*^ | 758,269 | ||||||
6,696 | Analogic Corp.^ | 566,549 | ||||||
13,831 | AngioDynamics, Inc.*^ | 262,927 | ||||||
7,844 | Anika Therapeutics, Inc.* | 319,565 | ||||||
19,105 | Cantel Medical Corp. | 826,482 | ||||||
14,902 | CONMED Corp. | 669,994 | ||||||
13,551 | CryoLife, Inc.^ | 153,533 | ||||||
14,240 | Cyberonics, Inc.*^ | 792,883 | ||||||
11,719 | Cynosure, Inc., Class A* | 321,335 | ||||||
13,532 | Greatbatch, Inc.* | 667,128 | ||||||
27,744 | Haemonetics Corp.*^ | 1,038,180 |
Continued
6
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
7,321 | ICU Medical, Inc.* | $ | 599,590 | |||||
13,667 | Integra LifeSciences Holdings*^ | 741,161 | ||||||
15,839 | Invacare Corp. | 265,462 | ||||||
25,814 | Masimo Corp.*^ | 679,941 | ||||||
22,501 | Meridian Bioscience, Inc.^ | 370,366 | ||||||
23,556 | Merit Medical Systems, Inc.* | 408,225 | ||||||
17,621 | Natus Medical, Inc.* | 635,061 | ||||||
19,985 | Neogen Corp.*^ | 991,056 | ||||||
25,458 | NuVasive, Inc.* | 1,200,599 | ||||||
6,977 | Surmodics, Inc.*^ | 154,192 | ||||||
38,447 | West Pharmaceutical Services, Inc.^ | 2,046,919 | ||||||
|
| |||||||
15,120,291 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.3%): |
| ||||||
19,329 | Air Methods Corp.*^ | 851,056 | ||||||
4,308 | Almost Family, Inc.* | 124,717 | ||||||
18,079 | Amedisys, Inc.*^ | 530,619 | ||||||
25,307 | AMN Healthcare Services, Inc.* | 496,017 | ||||||
26,063 | AmSurg Corp.*^ | 1,426,428 | ||||||
13,358 | Bio-Reference Laboratories, Inc.*^ | 429,193 | ||||||
9,204 | Chemed Corp.^ | 972,587 | ||||||
4,846 | CorVel Corp.* | 180,368 | ||||||
16,017 | Cross Country Healthcare, Inc.* | 199,892 | ||||||
10,957 | Ensign Group, Inc. (The) | 486,381 | ||||||
18,384 | ExamWorks Group, Inc.*^ | 764,591 | ||||||
16,980 | Gentiva Health Services, Inc.* | 323,469 | ||||||
19,101 | Hanger Orthopedic Group, Inc.*^ | 418,312 | ||||||
19,138 | Healthways, Inc.* | 380,463 | ||||||
9,305 | IPC The Hospitalist Co.* | 427,006 | ||||||
37,663 | Kindred Healthcare, Inc.^ | 684,713 | ||||||
5,164 | Landauer, Inc.^ | 176,299 | ||||||
6,630 | LHC Group, Inc.* | 206,723 | ||||||
14,960 | Magellan Health Services, Inc.* | 898,049 | ||||||
17,026 | Molina Healthcare, Inc.*^ | 911,402 | ||||||
6,987 | MWI Veterinary Supply, Inc.*^ | 1,187,161 | ||||||
16,272 | PharMerica Corp.* | 336,993 | ||||||
6,481 | Providence Service Corp.* | 236,168 | ||||||
|
| |||||||
12,648,607 | ||||||||
|
| |||||||
| Health Care Technology (1.0%): |
| ||||||
5,636 | Computer Programs & Systems, Inc.^ | 342,387 | ||||||
11,494 | HealthStream, Inc.* | 338,843 | ||||||
32,649 | MedAssets, Inc.* | 645,144 | ||||||
29,354 | Medidata Solutions, Inc.*^ | 1,401,654 | ||||||
19,270 | Omnicell, Inc.* | 638,222 | ||||||
23,785 | Quality Systems, Inc. | 370,808 | ||||||
|
| |||||||
3,737,058 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (4.0%): |
| ||||||
928 | Biglari Holdings, Inc.* | 370,745 | ||||||
11,712 | BJ’s Restaurants, Inc.*^ | 588,060 | ||||||
12,760 | Bob Evans Farms, Inc.^ | �� | 653,057 | |||||
42,223 | Boyd Gaming Corp.*^ | 539,610 | ||||||
10,245 | Buffalo Wild Wings, Inc.*^ | 1,847,994 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
12,938 | Cracker Barrel Old Country Store, Inc.^ | $ | 1,821,153 | |||||
8,924 | DineEquity, Inc.^ | 924,883 | ||||||
21,331 | Interval Leisure Group, Inc. | 445,605 | ||||||
20,901 | Jack in the Box, Inc.^ | 1,671,244 | ||||||
10,033 | Marcus Corp. | 185,711 | ||||||
15,352 | Marriott Vacations Worldwide Corp. | 1,144,338 | ||||||
5,482 | Monarch Casino & Resort, Inc.* | 90,946 | ||||||
16,080 | Papa John’s International, Inc. | 897,264 | ||||||
32,510 | Pinnacle Entertainment, Inc.*^ | 723,348 | ||||||
7,588 | Red Robin Gourmet Burgers*^ | 584,086 | ||||||
33,597 | Ruby Tuesday, Inc.*^ | 229,803 | ||||||
19,125 | Ruth’s Hospitality Group, Inc. | 286,875 | ||||||
26,573 | Scientific Games Corp., A*^ | 338,274 | ||||||
27,258 | Sonic Corp.^ | 742,235 | ||||||
33,832 | Texas Roadhouse, Inc.^ | 1,142,168 | ||||||
|
| |||||||
15,227,399 | ||||||||
|
| |||||||
| Household Durables (1.5%): |
| ||||||
14,090 | Ethan Allen Interiors, Inc.^ | 436,367 | ||||||
14,462 | Helen of Troy, Ltd.* | 940,898 | ||||||
16,023 | iRobot Corp.*^ | 556,319 | ||||||
28,018 | La-Z-Boy, Inc.^ | 752,003 | ||||||
13,253 | M/I Homes, Inc.* | 304,289 | ||||||
20,102 | Meritage Corp.*^ | 723,471 | ||||||
24,952 | Ryland Group, Inc. (The)^ | 962,149 | ||||||
81,984 | Standard Pacific Corp.*^ | 597,663 | ||||||
8,554 | Universal Electronics, Inc.*^ | 556,267 | ||||||
|
| |||||||
5,829,426 | ||||||||
|
| |||||||
| Household Products (0.2%): |
| ||||||
23,148 | Central Garden & Pet Co., A* | 221,063 | ||||||
7,445 | WD-40 Co.^ | 633,421 | ||||||
|
| |||||||
854,484 | ||||||||
|
| |||||||
| Industrial Conglomerates (0.1%): |
| ||||||
6,904 | Standex International Corp. | 533,403 | ||||||
|
| |||||||
| Insurance (2.6%): |
| ||||||
40,907 | American Equity Investment Life Holding Co.^ | 1,194,075 | ||||||
10,196 | Amerisafe, Inc. | 431,903 | ||||||
9,625 | eHealth, Inc.* | 239,855 | ||||||
17,044 | Employers Holdings, Inc. | 400,704 | ||||||
4,945 | Hci Group, Inc.^ | 213,822 | ||||||
22,688 | Horace Mann Educators Corp. | 752,788 | ||||||
6,224 | Infinity Property & Casualty Corp. | 480,866 | ||||||
25,450 | Meadowbrook Insurance Group, Inc.^ | 215,307 | ||||||
19,946 | Montpelier Re Holdings, Ltd.^ | 714,466 | ||||||
5,866 | Navigators Group, Inc.* | 430,212 | ||||||
30,936 | ProAssurance Corp. | 1,396,761 | ||||||
20,010 | RLI Corp.^ | 988,494 | ||||||
6,822 | Safety Insurance Group, Inc.^ | 436,676 | ||||||
30,587 | Selective Insurance Group, Inc. | 831,049 | ||||||
12,002 | Stewart Information Services Corp. | 444,554 | ||||||
11,356 | United Fire Group, Inc.^ | 337,614 | ||||||
15,776 | Universal Insurance Holdings, Inc.^ | 322,619 | ||||||
|
| |||||||
9,831,765 | ||||||||
|
|
Continued
7
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Internet & Catalog Retail (0.3%): |
| ||||||
6,415 | Blue Nile, Inc.*^ | $ | 231,004 | |||||
10,253 | FTD Cos., Inc.* | 357,010 | ||||||
15,587 | Nutri/System, Inc.^ | 304,726 | ||||||
10,998 | PetMed Express, Inc.^ | 158,041 | ||||||
|
| |||||||
1,050,781 | ||||||||
|
| |||||||
| Internet Software & Services (1.9%): |
| ||||||
22,267 | Blucora, Inc.* | 308,398 | ||||||
18,540 | comScore, Inc.*^ | 860,812 | ||||||
23,980 | DealerTrack Holdings, Inc.*^ | 1,062,554 | ||||||
20,074 | Dice Holdings, Inc.* | 200,941 | ||||||
17,306 | Digital River, Inc.* | 427,977 | ||||||
24,572 | j2 Global, Inc.^ | 1,523,465 | ||||||
13,410 | Liquidity Services, Inc.*^ | 109,560 | ||||||
26,944 | LivePerson, Inc.* | 379,910 | ||||||
13,197 | LogMeIn, Inc.*^ | 651,140 | ||||||
48,139 | Monster Worldwide, Inc.*^ | 222,402 | ||||||
32,835 | NIC, Inc. | 590,702 | ||||||
18,640 | Perficient, Inc.* | 347,263 | ||||||
19,026 | QuinStreet, Inc.*^ | 115,488 | ||||||
7,958 | Stamps.com, Inc.* | 381,904 | ||||||
13,106 | XO Group, Inc.* | 238,660 | ||||||
|
| |||||||
7,421,176 | ||||||||
|
| |||||||
| IT Services (2.2%): |
| ||||||
12,878 | CACI International, Inc., A* | 1,109,826 | ||||||
24,119 | Cardtronics, Inc.*^ | 930,511 | ||||||
38,153 | CIBER, Inc.* | 135,443 | ||||||
18,586 | CSG Systems International, Inc. | 465,951 | ||||||
16,940 | Exlservice Holdings, Inc.* | 486,347 | ||||||
5,931 | Forrester Research, Inc. | 233,444 | ||||||
19,601 | Heartland Payment Systems, Inc.^ | 1,057,474 | ||||||
19,226 | iGATE Corp.*^ | 759,042 | ||||||
12,708 | ManTech International Corp., A^ | 384,163 | ||||||
35,627 | Maximus, Inc. | 1,953,786 | ||||||
9,480 | TeleTech Holdings, Inc.*^ | 224,486 | ||||||
14,533 | Virtusa Corp.*^ | 605,590 | ||||||
|
| |||||||
8,346,063 | ||||||||
|
| |||||||
| Leisure Products (0.2%): |
| ||||||
6,979 | Arctic Cat, Inc. | 247,755 | ||||||
42,077 | Callaway Golf Co.^ | 323,993 | ||||||
10,509 | Sturm, Ruger & Co., Inc.^ | 363,926 | ||||||
|
| |||||||
935,674 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.8%): |
| ||||||
40,005 | Affymetrix, Inc.*^ | 394,849 | ||||||
12,872 | Albany Molecular Research, Inc.*^ | 209,556 | ||||||
16,791 | Cambrex Corp.* | 363,021 | ||||||
20,602 | Luminex Corp.*^ | 386,494 | ||||||
29,765 | PAREXEL International Corp.*^ | 1,653,744 | ||||||
|
| |||||||
3,007,664 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Machinery (3.3%): |
| ||||||
35,133 | Actuant Corp., A | $ | 957,023 | |||||
15,557 | Albany International Corp., A^ | 591,010 | ||||||
10,171 | Astec Industries, Inc. | 399,822 | ||||||
26,529 | Barnes Group, Inc.^ | 981,838 | ||||||
24,560 | Briggs & Stratton Corp.^ | 501,515 | ||||||
9,554 | CIRCOR International, Inc. | 575,915 | ||||||
12,973 | EnPro Industries, Inc.*^ | 814,185 | ||||||
14,232 | ESCO Technologies, Inc. | 525,161 | ||||||
33,954 | Federal Signal Corp. | 524,250 | ||||||
15,767 | John Bean Technologies Corp.^ | 518,104 | ||||||
6,605 | Lindsay Corp.^ | 566,313 | ||||||
9,326 | Lydall, Inc.*^ | 306,079 | ||||||
30,787 | Mueller Industries, Inc.^ | 1,051,068 | ||||||
9,944 | Tennant Co.^ | 717,658 | ||||||
29,028 | Titan International, Inc.^ | 308,568 | ||||||
30,138 | Toro Co. | 1,923,107 | ||||||
15,383 | Watts Water Technologies, Inc., A^ | 975,898 | ||||||
|
| |||||||
12,237,514 | ||||||||
|
| |||||||
| Marine (0.2%): |
| ||||||
23,329 | Matson, Inc. | 805,317 | ||||||
|
| |||||||
| Media (0.3%): |
| ||||||
16,302 | E.W. Scripps Co. (The), A* | 364,350 | ||||||
23,263 | Harte-Hanks, Inc. | 180,056 | ||||||
14,532 | Scholastic Corp.^ | 529,254 | ||||||
12,179 | Sizmek, Inc.* | 76,241 | ||||||
|
| |||||||
1,149,901 | ||||||||
|
| |||||||
| Metals & Mining (1.6%): |
| ||||||
9,348 | A.M. Castle & Co.*^ | 74,597 | ||||||
95,890 | AK Steel Holding Corp.*^ | 569,587 | ||||||
27,973 | Century Aluminum Co.* | 682,541 | ||||||
34,715 | Globe Specialty Metals, Inc. | 598,139 | ||||||
6,724 | Haynes International, Inc. | 326,114 | ||||||
9,630 | Kaiser Aluminum Corp.^ | 687,871 | ||||||
10,915 | Materion Corp. | 384,535 | ||||||
4,883 | Olympic Steel, Inc.^ | 86,820 | ||||||
16,626 | RTI International Metals, Inc.* | 419,973 | ||||||
65,092 | Stillwater Mining Co.*^ | 959,456 | ||||||
35,838 | SunCoke Energy, Inc.^ | 693,107 | ||||||
29,225 | US Silica Holdings, Inc.^ | 750,790 | ||||||
|
| |||||||
6,233,530 | ||||||||
|
| |||||||
| Multiline Retail (0.2%): |
| ||||||
18,776 | Fred’s, Inc. | 326,890 | ||||||
23,743 | Tuesday Morning Corp.*^ | 515,223 | ||||||
|
| |||||||
842,113 | ||||||||
|
| |||||||
| Multi-Utilities (0.7%): |
| ||||||
30,981 | Avista Corp.^ | 1,095,178 | ||||||
24,822 | NorthWestern Corp.^ | 1,404,429 | ||||||
|
| |||||||
2,499,607 | ||||||||
|
|
Continued
8
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels (1.7%): |
| ||||||
19,740 | Approach Resources, Inc.*^ | $ | 126,139 | |||||
115,012 | Arch Coal, Inc.^ | 204,721 | ||||||
26,885 | Bill Barrett Corp.*^ | 306,220 | ||||||
17,376 | Bonanza Creek Energy, Inc.* | 417,024 | ||||||
24,897 | C&J Energy Services, Inc.* | 328,889 | ||||||
22,977 | Carrizo Oil & Gas, Inc.*^ | 955,843 | ||||||
32,982 | Cloud Peak Energy, Inc.* | 302,775 | ||||||
24,109 | Comstock Resources, Inc.^ | 164,182 | ||||||
8,605 | Contango Oil & Gas Co.* | 251,610 | ||||||
18,495 | Green Plains Renewable Energy, Inc.^ | 458,306 | ||||||
31,037 | Northern Oil & Gas, Inc.*^ | 175,359 | ||||||
19,407 | PDC Energy, Inc.*^ | 800,927 | ||||||
38,938 | Penn Virginia Corp.*^ | 260,106 | ||||||
31,793 | PetroQuest Energy, Inc.* | 118,906 | ||||||
34,779 | Pioneer Energy Services Corp.* | 192,676 | ||||||
26,338 | Rex Energy Corp.*^ | 134,324 | ||||||
30,402 | Stone Energy Corp.*^ | 513,186 | ||||||
23,962 | Swift Energy Co.*^ | 97,046 | ||||||
37,365 | Synergy Resources Corp.* | 468,557 | ||||||
|
| |||||||
6,276,796 | ||||||||
|
| |||||||
| Paper & Forest Products (1.4%): |
| ||||||
21,314 | Boise Cascade Co.* | 791,815 | ||||||
10,570 | Clearwater Paper Corp.* | 724,574 | ||||||
5,992 | Deltic Timber Corp. | 409,853 | ||||||
45,731 | KapStone Paper & Packaging Corp.^ | 1,340,376 | ||||||
8,990 | Neenah Paper, Inc. | 541,827 | ||||||
23,211 | P.H. Glatfelter Co.^ | 593,505 | ||||||
16,477 | Schweitzer-Mauduit International, Inc. | 696,977 | ||||||
27,038 | Wausau Paper Corp.^ | 307,422 | ||||||
|
| |||||||
5,406,349 | ||||||||
|
| |||||||
| Personal Products (0.4%): |
| ||||||
9,219 | Inter Parfums, Inc. | 253,062 | ||||||
6,082 | Medifast, Inc.* | 204,051 | ||||||
28,236 | Prestige Brands Holdings, Inc.*^ | 980,354 | ||||||
|
| |||||||
1,437,467 | ||||||||
|
| |||||||
| Pharmaceuticals (1.3%): |
| ||||||
40,255 | Akorn, Inc.*^ | 1,457,230 | ||||||
31,812 | DepoMed, Inc.* | 512,491 | ||||||
35,857 | Impax Laboratories, Inc.*^ | 1,135,950 | ||||||
14,343 | Lannett Co., Inc.*^ | 615,028 | ||||||
35,404 | Medicines Co. (The)*^ | 979,629 | ||||||
12,260 | Sagent Pharmaceuticals, Inc.*^ | 307,849 | ||||||
|
| |||||||
5,008,177 | ||||||||
|
| |||||||
| Professional Services (1.5%): |
| ||||||
7,894 | CDI Corp. | 139,803 | ||||||
6,965 | Exponent, Inc. | 574,613 | ||||||
8,936 | Heidrick & Struggles International, Inc. | 205,975 | ||||||
12,209 | Insperity, Inc. | 413,763 | ||||||
16,200 | Kelly Services, Inc., A | 275,724 | ||||||
27,206 | Korn/Ferry International* | 782,445 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Professional Services, continued |
| ||||||
26,261 | Navigant Consulting, Inc.* | $ | 403,632 | |||||
25,495 | On Assignment, Inc.*^ | 846,179 | ||||||
20,583 | Resources Connection, Inc.^ | 338,590 | ||||||
23,025 | Trueblue, Inc.* | 512,306 | ||||||
17,792 | Wageworks, Inc.*^ | 1,148,828 | ||||||
|
| |||||||
5,641,858 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (8.1%): |
| ||||||
36,580 | Acadia Realty Trust^ | 1,171,657 | ||||||
9,352 | Agree Realty Corp. | 290,754 | ||||||
18,272 | American Assets Trust, Inc.^ | 727,408 | ||||||
31,178 | Associated Estates Realty Corp. | 723,641 | ||||||
13,296 | AVIV REIT, Inc.^ | 458,446 | ||||||
51,822 | Capstead Mortgage Corp.^ | 636,374 | ||||||
15,229 | CareTrust REIT, Inc. | 187,772 | ||||||
37,283 | Cedar Shopping Centers, Inc. | 273,657 | ||||||
29,697 | Chesapeake Lodging Trust^ | 1,105,025 | ||||||
11,763 | Coresite Realty Corp.^ | 459,345 | ||||||
111,197 | Cousins Properties, Inc.^ | 1,269,870 | ||||||
105,806 | DiamondRock Hospitality, Co.^ | 1,573,335 | ||||||
17,278 | EastGroup Properties, Inc.^ | 1,094,043 | ||||||
20,170 | Education Realty Trust, Inc.^ | 738,020 | ||||||
30,919 | EPR Properties^ | 1,781,863 | ||||||
48,239 | Franklin Street Properties Corp.^ | 591,893 | ||||||
40,116 | Geo Group, Inc. (The)^ | 1,619,082 | ||||||
14,119 | Getty Realty Corp. | 257,107 | ||||||
38,063 | Government Properties Income Trust^ | 875,830 | ||||||
53,119 | Healthcare Realty Trust, Inc. | 1,451,211 | ||||||
47,633 | Inland Real Estate Corp.^ | 521,581 | ||||||
45,165 | Kite Realty Group Trust^ | 1,298,042 | ||||||
113,093 | Lexington Realty Trust^ | 1,241,761 | ||||||
18,846 | LTC Properties, Inc. | 813,582 | ||||||
93,302 | Medical Properties Trust, Inc.^ | 1,285,702 | ||||||
45,569 | Parkway Properties, Inc. | 838,014 | ||||||
37,289 | Pennsylvania Real Estate Investment Trust^ | 874,800 | ||||||
29,464 | Post Properties, Inc.^ | 1,731,599 | ||||||
10,507 | PS Business Parks, Inc. | 835,727 | ||||||
50,321 | Retail Opportunity Investments Corp.^ | 844,890 | ||||||
29,512 | Sabra Health Care REIT, Inc. | 896,279 | ||||||
6,127 | Saul Centers, Inc. | 350,403 | ||||||
18,264 | Sovran Self Storage, Inc. | 1,592,986 | ||||||
6,520 | Universal Health Realty Income Trust | 313,742 | ||||||
13,907 | Urstadt Biddle Properties, Inc., A^ | 304,285 | ||||||
|
| |||||||
31,029,726 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.1%): |
| ||||||
18,909 | Forestar Group, Inc.* | 291,199 | ||||||
|
| |||||||
| Road & Rail (1.0%): |
| ||||||
13,139 | ArcBest Corp.^ | 609,255 | ||||||
11,937 | Celadon Group, Inc. | 270,851 | ||||||
29,910 | Heartland Express, Inc.^ | 807,869 | ||||||
32,936 | Knight Transportation, Inc.^ | 1,108,626 |
Continued
9
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Road & Rail, continued |
| ||||||
14,985 | Roadrunner Transportation System, Inc.* | $ | 349,900 | |||||
13,403 | Saia, Inc.*^ | 741,990 | ||||||
|
| |||||||
3,888,491 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.1%): |
| ||||||
20,430 | Advanced Energy Industries, Inc.* | 484,191 | ||||||
36,158 | Brooks Automation, Inc. | 461,015 | ||||||
12,864 | Cabot Microelectronics Corp.* | 608,724 | ||||||
10,941 | CEVA, Inc.* | 198,470 | ||||||
34,188 | Cirrus Logic, Inc.*^ | 805,811 | ||||||
13,825 | Cohu, Inc. | 164,518 | ||||||
19,816 | Diodes, Inc.*^ | 546,327 | ||||||
11,718 | DSP Group, Inc.* | 127,375 | ||||||
49,152 | Entropic Communications, Inc.* | 124,355 | ||||||
25,400 | Exar Corp.* | 259,080 | ||||||
32,760 | Kopin Corp.*^ | 118,591 | ||||||
41,685 | Kulicke & Soffa Industries, Inc.* | 602,765 | ||||||
24,182 | Micrel, Inc. | 350,881 | ||||||
51,417 | Microsemi Corp.* | 1,459,213 | ||||||
28,684 | MKS Instruments, Inc.^ | 1,049,834 | ||||||
19,477 | Monolithic Power Systems, Inc. | 968,786 | ||||||
13,139 | Nanometrics, Inc.* | 220,998 | ||||||
10,701 | Pericom Semiconductor Corp.* | 144,892 | ||||||
15,977 | Power Integrations, Inc.^ | 826,650 | ||||||
17,905 | Rudolph Technologies, Inc.* | 183,168 | ||||||
25,418 | Tessera Technologies, Inc.^ | 908,948 | ||||||
15,261 | Ultratech, Inc.* | 283,244 | ||||||
21,754 | Veeco Instruments, Inc.*^ | 758,780 | ||||||
|
| |||||||
11,656,616 | ||||||||
|
| |||||||
| Software (2.6%): |
| ||||||
25,050 | Blackbaud, Inc. | 1,083,663 | ||||||
20,696 | Bottomline Technologies, Inc.*^ | 523,195 | ||||||
15,900 | Ebix, Inc.^ | 270,141 | ||||||
16,976 | EPIQ Systems, Inc.^ | 289,950 | ||||||
9,139 | Interactive Intelligence Group*^ | 437,758 | ||||||
40,373 | Manhattan Associates, Inc.*^ | 1,643,988 | ||||||
4,890 | MicroStrategy, Inc., A* | 794,136 | ||||||
21,193 | Monotype Imaging Holdings, Inc.^ | 610,994 | ||||||
20,291 | NetScout Systems, Inc.*^ | 741,433 | ||||||
27,160 | Progress Software Corp.* | 733,863 | ||||||
19,481 | Synchronoss Technologies, Inc.*^ | 815,475 | ||||||
45,519 | Take-Two Interactive Software, Inc.*^ | 1,275,898 | ||||||
19,710 | Tangoe, Inc.* | 256,821 | ||||||
15,884 | VASCO Data Security International, Inc.*^ | 448,088 | ||||||
|
| |||||||
9,925,403 | ||||||||
|
| |||||||
| Specialty Retail (4.1%): |
| ||||||
43,089 | Aeropostale, Inc.*^ | 99,966 | ||||||
23,186 | Barnes & Noble, Inc.*^ | 538,379 | ||||||
9,787 | Big 5 Sporting Goods Corp. | 143,184 | ||||||
23,721 | Brown Shoe Co., Inc.^ | 762,630 | ||||||
15,176 | Buckle, Inc. (The)^ | 797,044 | ||||||
13,896 | Cato Corp.^ | 586,133 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Specialty Retail, continued |
| ||||||
11,473 | Children’s Place Retail Stores, Inc. (The)^ | $ | 653,961 | |||||
20,010 | Christopher & Banks Corp.*^ | 114,257 | ||||||
25,848 | Finish Line, Inc. (The), A | 628,365 | ||||||
22,908 | Francesca’s Holdings Corp.* | 382,564 | ||||||
13,029 | Genesco, Inc.*^ | 998,283 | ||||||
11,576 | Group 1 Automotive, Inc.^ | 1,037,442 | ||||||
11,146 | Haverty Furniture Co., Inc. | 245,323 | ||||||
13,531 | Hibbett Sports, Inc.*^ | 655,306 | ||||||
8,038 | Kirkland’s, Inc.* | 190,018 | ||||||
12,360 | Lithia Motors, Inc., A^ | 1,071,489 | ||||||
14,659 | Lumber Liquidators Holdings, Inc.*^ | 972,038 | ||||||
13,463 | MarineMax, Inc.* | 269,933 | ||||||
24,685 | Men’s Wearhouse, Inc. (The)^ | 1,089,844 | ||||||
17,108 | Monro Muffler Brake, Inc.^ | 988,842 | ||||||
29,155 | Pep Boys – Manny, Moe & Jack*^ | 286,302 | ||||||
28,838 | Select Comfort Corp.*^ | 779,491 | ||||||
18,009 | Sonic Automotive, Inc., A^ | 486,963 | ||||||
17,212 | Stage Store, Inc. | 356,288 | ||||||
15,289 | Stein Mart, Inc. | 223,525 | ||||||
16,708 | Vitamin Shoppe, Inc.*^ | 811,675 | ||||||
11,696 | Zumiez, Inc.*^ | 451,816 | ||||||
|
| |||||||
15,621,061 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.0%): |
| ||||||
25,440 | Electronics for Imaging, Inc.*^ | 1,089,595 | ||||||
47,724 | QLogic Corp.*^ | 635,684 | ||||||
18,918 | Super Micro Computer, Inc.* | 659,860 | ||||||
19,966 | Synaptics, Inc.*^ | 1,374,459 | ||||||
|
| |||||||
3,759,598 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (2.0%): |
| ||||||
44,655 | Crocs, Inc.*^ | 557,741 | ||||||
10,338 | G-III Apparel Group, Ltd.*^ | 1,044,241 | ||||||
25,975 | Iconix Brand Group, Inc.*^ | 877,695 | ||||||
9,781 | Movado Group, Inc. | 277,487 | ||||||
7,842 | Oxford Industries, Inc.^ | 432,957 | ||||||
6,550 | Perry Ellis International, Inc.*^ | 169,842 | ||||||
67,578 | Quiksilver Resources, Inc.*^ | 149,347 | ||||||
22,187 | Skechers U.S.A., Inc., Class A*^ | 1,225,832 | ||||||
30,582 | Steven Madden, Ltd.* | 973,425 | ||||||
7,814 | Unifi, Inc.* | 232,310 | ||||||
54,950 | Wolverine World Wide, Inc.^ | 1,619,377 | ||||||
|
| |||||||
7,560,254 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.8%): |
| ||||||
23,486 | Bank Mutual Corp.^ | 161,114 | ||||||
7,059 | Bofi Holding, Inc.*^ | 549,260 | ||||||
37,892 | Brookline Bancorp, Inc. | 380,057 | ||||||
16,343 | Dime Community Bancshares | 266,064 | ||||||
51,371 | Northwest Bancshares, Inc. ^ | 643,678 | ||||||
20,639 | Oritani Financial Corp. | 317,841 | ||||||
29,142 | Provident Financial Services, Inc. | 526,305 | ||||||
51,242 | TrustCo Bank Corp.^ | 372,017 | ||||||
|
| |||||||
3,216,336 | ||||||||
|
|
Continued
10
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Tobacco (0.2%): |
| ||||||
45,503 | Alliance One International, Inc.* | $ | 71,895 | |||||
12,537 | Universal Corp.^ | 551,377 | ||||||
|
| |||||||
623,272 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.7%): |
| ||||||
14,763 | Aceto Corp. | 320,357 | ||||||
22,336 | Applied Industrial Technologies, Inc.^ | 1,018,298 | ||||||
6,962 | Dxp Enterprises, Inc.*^ | 351,790 | ||||||
14,657 | Kaman Corp., A^ | 587,599 | ||||||
4,422 | Veritiv Corp.*^ | 229,369 | ||||||
|
| |||||||
2,507,413 | ||||||||
|
| |||||||
| Water Utilities (0.2%): |
| ||||||
20,782 | American States Water Co.^ | 782,650 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
9,071 | NTELOS Holdings Corp.^ | 38,007 | ||||||
11,824 | Spok Holdings, Inc. | 205,265 | ||||||
|
| |||||||
243,272 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $249,446,397) | 375,414,113 | ||||||
|
| |||||||
| Right (0.0%): |
| ||||||
| Electronic Equipment, Instruments & Components (0.0%): |
| ||||||
10,537 | Gerber Scientific, Inc.* | — | ||||||
|
| |||||||
| Total Right (Cost $—) | — | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (29.2%): |
| ||||||
$111,487,356 | Allianz Variable Insurance Products Securities Lending Collateral Trust(a) | $ | 111,487,356 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 111,487,356 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.0%): |
| ||||||
3,801,990 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(b) | 3,801,990 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $3,801,990) | 3,801,990 | ||||||
|
| |||||||
| Total Investment Securities (Cost $364,735,743)(c) — 128.6% | 490,703,459 | ||||||
| Net other assets (liabilities) — (28.6)% | (109,118,450 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 381,585,009 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $108,165,728. |
(a) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(b) | The rate represents the effective yield at December 31, 2014. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “-” are either $0 or round to less than $1.
Futures Contracts
Cash of $237,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Russell 2000 Mini Index March Futures | Long | 3/20/15 | 55 | $ | 6,603,850 | $ | 137,917 |
See accompanying notes to the financial statements.
11
AZL Small Cap Stock Index Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 364,735,743 | |||
|
| ||||
Investment securities, at value* | $ | 490,703,459 | |||
Segregated cash for collateral | 237,000 | ||||
Interest and dividends receivable | 522,720 | ||||
Receivable for capital shares issued | 7,470 | ||||
Receivable for investments sold | 2,721,562 | ||||
Prepaid expenses | 3,168 | ||||
|
| ||||
Total Assets | 494,195,379 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 551,087 | ||||
Payable for capital shares redeemed | 293,285 | ||||
Payable for collateral received on loaned securities | 111,487,356 | ||||
Payable for variation margin on futures contracts | 36,058 | ||||
Manager fees payable | 85,706 | ||||
Administration fees payable | 9,084 | ||||
Distribution fees payable | 79,831 | ||||
Custodian fees payable | 4,428 | ||||
Administrative and compliance services fees payable | 1,108 | ||||
Trustee fees payable | 22 | ||||
Other accrued liabilities | 62,405 | ||||
|
| ||||
Total Liabilities | 112,610,370 | ||||
|
| ||||
Net Assets | $ | 381,585,009 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 235,124,960 | |||
Accumulated net investment income/(loss) | 3,014,216 | ||||
Accumulated net realized gains/(losses) from investment transactions | 17,340,201 | ||||
Net unrealized appreciation/(depreciation) on investments | 126,105,632 | ||||
|
| ||||
Net Assets | $ | 381,585,009 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 24,737,747 | ||||
Net Asset Value (offering and redemption price per share) | $ | 15.43 | |||
|
|
* | Includes securities on loan of $108,165,728. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 4,929,219 | |||
Income from securities lending | 276,759 | ||||
Foreign withholding tax | (415 | ) | |||
|
| ||||
Total Investment Income | 5,205,563 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 973,417 | ||||
Administration fees | 106,284 | ||||
Distribution fees | 935,974 | ||||
Custodian fees | 19,750 | ||||
Administrative and compliance services fees | 5,034 | ||||
Trustee fees | 19,323 | ||||
Professional fees | 20,870 | ||||
Shareholder reports | 22,189 | ||||
Recoupment of prior expenses reimbursed by the manager | 7,655 | ||||
Other expenses | 80,840 | ||||
|
| ||||
Total expenses | 2,191,336 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,014,227 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 26,291,372 | ||||
Net realized gains/(losses) on futures contracts | 78,929 | ||||
Change in net unrealized appreciation/depreciation on investments | (10,424,079 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 15,946,222 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 18,960,449 | |||
|
|
See accompanying notes to the financial statements.
12
Statements of Changes in Net Assets
AZL Small Cap Stock Index Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,014,227 | $ | 2,300,037 | ||||||
Net realized gains/(losses) on investment transactions | 26,370,301 | 21,520,628 | ||||||||
Change in unrealized appreciation/depreciation on investments | (10,424,079 | ) | 85,642,048 | |||||||
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|
|
| |||||||
Change in net assets resulting from operations | 18,960,449 | 109,462,713 | ||||||||
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|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (2,252,073 | ) | (3,162,887 | ) | ||||||
From net realized gains | (21,348,069 | ) | (4,536,872 | ) | ||||||
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|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (23,600,142 | ) | (7,699,759 | ) | ||||||
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|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 31,350,526 | 47,168,227 | ||||||||
Proceeds from dividends reinvested | 23,600,142 | 7,699,759 | ||||||||
Value of shares redeemed | (51,878,166 | ) | (40,531,433 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 3,072,502 | 14,336,553 | ||||||||
|
|
|
| |||||||
Change in net assets | (1,567,191 | ) | 116,099,507 | |||||||
Net Assets: | ||||||||||
Beginning of period | 383,152,200 | 267,052,693 | ||||||||
|
|
|
| |||||||
End of period | $ | 381,585,009 | $ | 383,152,200 | ||||||
|
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| |||||||
Accumulated net investment income/(loss) | $ | 3,014,216 | $ | 2,300,035 | ||||||
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|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 2,069,433 | 3,497,435 | ||||||||
Dividends reinvested | 1,604,360 | 554,338 | ||||||||
Shares redeemed | (3,415,127 | ) | (3,016,965 | ) | ||||||
|
|
|
| |||||||
Change in shares | 258,666 | 1,034,808 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
13
AZL Small Cap Stock Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.65 | $ | 11.39 | $ | 9.87 | $ | 9.90 | $ | 7.94 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.09 | 0.13 | 0.05 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.65 | 4.50 | 1.43 | (0.03 | ) | 1.94 | |||||||||||||||||||
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|
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| ||||||||||||||||
Total from Investment Activities | 0.77 | 4.59 | 1.56 | 0.02 | 2.01 | ||||||||||||||||||||
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| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.09 | ) | (0.14 | ) | (0.04 | ) | (0.05 | ) | (0.05 | ) | |||||||||||||||
Net Realized Gains | (0.90 | ) | (0.19 | ) | — | — | — | ||||||||||||||||||
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| ||||||||||||||||
Total Dividends | (0.99 | ) | (0.33 | ) | (0.04 | ) | (0.05 | ) | (0.05 | ) | |||||||||||||||
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| ||||||||||||||||
Net Asset Value, End of Period | $ | 15.43 | $ | 15.65 | $ | 11.39 | $ | 9.87 | $ | 9.90 | |||||||||||||||
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| ||||||||||||||||
Total Return(a) | 5.23 | % | 40.62 | % | 15.82 | % | 0.29 | % | 25.49 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 381,585 | $ | 383,152 | $ | 267,053 | $ | 203,895 | $ | 199,967 | |||||||||||||||
Net Investment Income/(Loss) | 0.81 | % | 0.71 | % | 1.33 | % | 0.46 | % | 0.62 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.59 | % | 0.59 | % | 0.61 | % | 0.63 | % | 0.65 | % | |||||||||||||||
Expenses Net of Reductions | 0.59 | % | 0.59 | % | 0.61 | % | 0.62 | % | 0.58 | % | |||||||||||||||
Portfolio Turnover Rate | 14 | % | 17 | % | 10 | % | 21 | % | 24 | % |
(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. |
See accompanying notes to the financial statements.
14
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Small Cap Stock Index Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
15
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $41.7 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $27,301 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” 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.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $6.6 million as of December 31, 2014. The monthly average notional amount for these contracts was $5.5 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 137,917 | Payable for variation margin on futures contracts | $ | — |
* | 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, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 78,929 | $ | (150,224 | ) |
16
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2014
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 with 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Small Cap Stock Index Fund | 0.26 | % | 0.71 | % |
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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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. During the year ended December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $4,651 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
17
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2014
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 375,414,113 | $ | — | $ | 375,414,113 | |||||||||
Right | — | — | ^ | — | ^ | ||||||||||
Securities Held as Collateral for Securities on Loan | — | 111,487,356 | 111,487,356 | ||||||||||||
Unaffiliated Investment Company | 3,801,990 | — | 3,801,990 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | 379,216,103 | 111,487,356 | 490,703,459 | ||||||||||||
|
|
|
|
|
| ||||||||||
Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 137,917 | — | 137,917 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investments | $ | 379,354,020 | $ | 111,487,356 | $ | 490,841,376 | |||||||||
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
^ | Represents the interest in securities that were determined to have a value of zero at December 31, 2014. |
5. Security Purchases and Sales
For the year ended December 31, 2014, 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 | $ | 51,971,051 | $ | 67,834,362 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all
18
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2014
circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $372,558,289. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 137,569,631 | ||
Unrealized depreciation | (19,424,461 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 118,145,170 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 4,385,860 | $ | 19,214,282 | $ | 23,600,142 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 3,162,887 | $ | 4,536,872 | $ | 7,699,759 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Small Cap Stock Index Fund | $ | 4,086,973 | $ | 24,227,906 | $ | — | $ | 118,145,170 | $ | 146,460,049 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
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, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 62.29% 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, 2014, the Fund declared net long-term capital gain distributions of $19,214,282.
During the year ended December 31, 2014, the Fund declared net short-term capital gain distributions of $2,133,787.
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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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® T. Rowe Price Capital Appreciation Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 12
Statement of Operations
Page 12
Statements of Changes in Net Assets
Page 13
Financial Highlights
Page 14
Notes to the Financial Statements
Page 15
Report of Independent Registered Public Accounting Firm
Page 22
Other Federal Income Tax Information
Page 23
Other Information
Page 24
Approval of Investment Advisory and Subadvisory Agreements
Page 25
Information about the Board of Trustees and Officers
Page 28
This report is submitted for the general information of the shareholder 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.
AZL® T. Rowe Price Capital Appreciation Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® T. Rowe Price Capital Appreciation Fund and T. Rowe Price Associates, Inc. serves as Subadviser to the Fund.
What factors affected the Fund’s performance during the year ended December 31, 2014?
For the year ended December 31, 2014, the AZL® T. Rowe Price Capital Appreciation Fund returned 11.77%. That compared to a 10.56% total return for its benchmark, the Balanced Composite Index, which is comprised of a 60% weighting in the S&P 500 Index1 and a 40% weighting in the Barclays U.S. Aggregate Bond Index2.
U.S. equities rose in 2014 for the sixth consecutive year as the economy recovered strongly from a first-quarter weather-related contraction. Falling long-term interest rates, solid employment growth, and favorable corporate earnings also supported strong gains for stocks. Nearly all S&P 500 sectors produced positive results, led by utilities. Energy was the only sector to decline. Long-term interest rates continued to decline due to global economic weakness and geopolitical uncertainties.
The Fund lagged the all-equity S&P 500 Index in 2014 due to its allocation to bonds in a rising equity environment. While the Fund’s equity holdings outpaced the S&P 500, its fixed income segment, while positive for the year, lagged its benchmark, the Barclays U.S. Aggregate Index. The portfolio’s overweight to high-yield bonds was beneficial in the first half of the year but detracted from returns later in the period.*
The Fund’s subadvisor trimmed holdings within the utilities and consumer staples sectors during the period and decreased its overall equity exposure from the prior year. However, the subadvisor continued to build on an overweight position in the health care sector. The Fund maintained significant exposure to covered call options, which provided downside protection while offering the benefits of owning a stock, such as dividends and capital appreciation, as long as the stock remained below the option strike price.*
Within equities, stock selection and an overweight within the health care sector supported the Fund’s performance relative to its benchmark. The acquisition of two health care stocks late in the year added to results. The industrials and business services sector detracted from relative results due to both stock selection and an overweight position. The energy sector also detracted from relative performance due to stock selection, though an underweight position in the year’s worst performing sector limited the damage.*
The Fund’s overall weighting toward fixed income marginally decreased during 2014 due to increasing difficulty finding attractive opportunities. Holdings in 10-year U.S. Treasuries were eliminated in the fourth quarter, as long-term interest rates continued to decline due to global economic weakness and geopolitical uncertainties. Meanwhile, the Fund’s exposure to high-yield bonds was increased as falling oil prices caused spreads to widen. Energy sector bonds compose the largest segment of the high-yield market, making it particularly sensitive to the price of oil. High-yield bonds remain the Fund’s largest asset class within fixed income, accounting for 15% at year-end.*
At the end of the period the Fund held currency forwards, equity options and index futures, all of which generated a net derivative exposure equivalent to approximately 6% of net assets. Short call options were used in a covered call strategy which decreased exposure to underlying securities. During the first 11 months of the period the Fund held only equity options. The estimated return impact from employing currency forwards was negligible. During the last three months of the period, the covered call strategy represented, on average, roughly 5% of the overall portfolio and generated a return of approximately 8%. The covered call strategy’s estimated contribution to the portfolio’s total return was less than 1%.*
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, 2014. |
1 | The S&P 500 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 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 |
AZL® T. Rowe Price Capital Appreciation Fund (unaudited)
Fund Objective
The Fund’s investment objective is to seek long-term capital appreciation with preservation of capital as an important intermediate-term 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 50% of its net assets in the common stock of established U.S. Companies that have above-average potential for capital growth. The remaining assets are generally invested in convertible securities, corporate and government debt, bank loans, and foreign 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.
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.
Investing in a single industry or sector, or concentrating investments in a limited number of industries or sectors, tends to increase the risk that economic, political, or regulatory developments affecting certain industries or sectors will have a large impact on the value of the portfolio.
The Fund is subject to the risk that principal values reacts in opposition to the movement of interest rates and that a rising interest rate environment increases the risk of loss of principal.
High-yield bonds have a higher risk of default or other adverse credit events, but have the potential to pay higher earnings over investment grade bonds. The higher risk of default, or the inability of the creditor to repay its debt, is the primary reason for the higher interest rates on high-yield bonds.
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.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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 as well as the component indices of the Fund’s benchmark, and represents the reinvestment of dividends and capital gains in the Fund
Average Annual Total Returns as of December 31, 2014
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® T. Rowe Price Capital Appreciation Fund | 11.77 | % | 17.72 | % | 11.86 | % | 5.98 | % | ||||||||
Balanced Composite Index | 10.56 | % | 13.18 | % | 11.29 | % | 6.87 | % | ||||||||
S&P 500 Index | 13.69 | % | 20.41 | % | 15.45 | % | 7.67 | % | ||||||||
Barclay’s U.S. Aggregate Bond Index | 5.97 | % | 2.66 | % | 4.45 | % | 4.71 | % | ||||||||
Russell 1000® Value Index | 13.45 | % | 20.89 | % | 15.42 | % | 7.30 | % |
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® T. Rowe Price Capital Appreciation Fund | 1.07 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager 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 and Acquired Fund fees and expenses), to 1.20% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 other investment companies. 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 1.06%. |
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 was previously measured against the Russell 1000® Index. 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. It is currently measured against a composite index (the “Balanced Composite Index”), which is comprised of 60% of the Standard & Poor’s 500 Index (“S&P 500”) and 40% of the Barclays U.S. Aggregate Bond Index. The S&P 500 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 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 |
AZL T. Rowe Price Capital Appreciation Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL T. Rowe Price Capital Appreciation Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 1,000.00 | $ | 1,047.00 | $ | 5.16 | 1.00 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks, Preferred Stocks, and Convertible Preferred Stocks | 61.7 | % | |||
Corporate Bonds | 20.8 | ||||
Money Market | 12.0 | ||||
Securities Held as Collateral for Securities on Loan | 6.1 | ||||
Yankee Dollars | 5.2 | ||||
U.S. Treasury Obligations | 1.3 | ||||
Foreign Bonds | 0.3 | ||||
Convertible Bonds | 0.2 | ||||
|
| ||||
Total Investment Securities | 107.6 | ||||
Net other assets (liabilities) | (7.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (61.1%): |
| ||||||
| Aerospace & Defense (1.1%): |
| ||||||
44,300 | Boeing Co. (The) | $ | 5,758,114 | |||||
24,300 | United Technologies Corp. | 2,794,500 | ||||||
|
| |||||||
8,552,614 | ||||||||
|
| |||||||
| Auto Components (2.0%): |
| ||||||
106,900 | Delphi Automotive plc | 7,773,768 | ||||||
162,500 | Johnson Controls, Inc. | 7,855,250 | ||||||
|
| |||||||
15,629,018 | ||||||||
|
| |||||||
| Banks (0.9%): |
| ||||||
109,900 | JPMorgan Chase & Co. | 6,877,542 | ||||||
|
| |||||||
| Beverages (0.8%): |
| ||||||
62,500 | PepsiCo, Inc. | 5,910,000 | ||||||
|
| |||||||
| Capital Markets (5.5%): |
| ||||||
142,400 | Bank of New York Mellon Corp. (The) | 5,777,168 | ||||||
45,100 | Invesco, Ltd. | 1,782,352 | ||||||
31,760 | Julius Baer Group, Ltd. | 1,449,807 | ||||||
194,400 | State Street Corp. | 15,260,400 | ||||||
254,100 | TD Ameritrade Holding Corp.^ | 9,091,698 | ||||||
560,512 | UBS Group AG* | 9,637,941 | ||||||
|
| |||||||
42,999,366 | ||||||||
|
| |||||||
| Chemicals (0.6%): |
| ||||||
103,400 | Cytec Industries, Inc. | 4,773,978 | ||||||
|
| |||||||
| Commercial Services & Supplies (1.6%): |
| ||||||
102,913 | Iron Mountain, Inc.^ | 3,978,617 | ||||||
190,000 | Tyco International plc | 8,333,400 | ||||||
|
| |||||||
12,312,017 | ||||||||
|
| |||||||
| Communications Equipment (0.2%): |
| ||||||
58,000 | Cisco Systems, Inc. | 1,613,270 | ||||||
|
| |||||||
| Electric Utilities (0.3%): |
| ||||||
62,500 | FirstEnergy Corp.^ | 2,436,875 | ||||||
|
| |||||||
| Electrical Equipment (1.9%): |
| ||||||
155,800 | AMETEK, Inc. | 8,199,754 | ||||||
43,800 | Roper Industries, Inc. | 6,848,130 | ||||||
|
| |||||||
15,047,884 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.8%): |
| ||||||
38,000 | CVS Health Corp. | 3,659,780 | ||||||
26,500 | Wal-Mart Stores, Inc. | 2,275,820 | ||||||
|
| |||||||
5,935,600 | ||||||||
|
| |||||||
| Food Products (0.7%): |
| ||||||
5,300 | J.M. Smucker Co. (The)^ | 535,194 | ||||||
135,400 | Mondelez International, Inc., Class A | 4,918,405 | ||||||
|
| |||||||
5,453,599 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (3.0%): |
| ||||||
176,100 | Abbott Laboratories | 7,928,022 | ||||||
72,100 | Becton, Dickinson & Co.^ | 10,033,436 | ||||||
95,500 | CareFusion Corp.* | 5,666,970 | ||||||
|
| |||||||
23,628,428 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services (2.4%): |
| ||||||
68,300 | CIGNA Corp. | $ | 7,028,752 | |||||
35,700 | DaVita, Inc.* | 2,703,918 | ||||||
13,400 | Henry Schein, Inc.* | 1,824,410 | ||||||
72,000 | UnitedHealth Group, Inc. | 7,278,480 | ||||||
|
| |||||||
18,835,560 | ||||||||
|
| |||||||
| Industrial Conglomerates (4.5%): |
| ||||||
416,300 | Danaher Corp. | 35,681,073 | ||||||
|
| |||||||
| Insurance (2.7%): |
| ||||||
377,700 | Marsh & McLennan Cos., Inc. | 21,619,548 | ||||||
|
| |||||||
| Internet Software & Services (1.2%): |
| ||||||
34,400 | eBay, Inc.* | 1,930,528 | ||||||
9,600 | Google, Inc., Class C* | 5,053,440 | ||||||
5,100 | Google, Inc., Class A* | 2,706,366 | ||||||
|
| |||||||
9,690,334 | ||||||||
|
| |||||||
| IT Services (5.1%): |
| ||||||
142,200 | Fidelity National Information Services, Inc. | 8,844,840 | ||||||
273,700 | Fiserv, Inc.*^ | 19,424,489 | ||||||
30,000 | Vantive, Inc., Class A* | 1,017,600 | ||||||
44,500 | Visa, Inc., Class A | 11,667,900 | ||||||
|
| |||||||
40,954,829 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (3.2%): |
| ||||||
88,700 | Agilent Technologies, Inc. | 3,631,378 | ||||||
169,300 | Thermo Fisher Scientific, Inc. | 21,211,597 | ||||||
|
| |||||||
24,842,975 | ||||||||
|
| |||||||
| Machinery (2.0%): |
| ||||||
44,400 | IDEX Corp. | 3,456,096 | ||||||
190,600 | Pentair, Ltd. | 12,659,652 | ||||||
|
| |||||||
16,115,748 | ||||||||
|
| |||||||
| Media (1.6%): |
| ||||||
32,100 | Liberty Global plc, Class A* | 1,611,581 | ||||||
145,500 | Liberty Global plc, Series C* | 7,029,105 | ||||||
73,700 | Twenty-First Century Fox, Inc., Class B | 2,718,793 | ||||||
15,000 | Viacom, Inc., Class B | 1,128,750 | ||||||
|
| |||||||
12,488,229 | ||||||||
|
| |||||||
| Multi-Utilities (2.2%): |
| ||||||
267,900 | PG&E Corp. | 14,262,996 | ||||||
83,400 | Xcel Energy, Inc. | 2,995,728 | ||||||
|
| |||||||
17,258,724 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (2.7%): |
| ||||||
36,700 | Apache Corp.^ | 2,299,989 | ||||||
19,800 | California Resources Corp.*^ | 109,098 | ||||||
395,800 | Canadian Natural Resources, Ltd. | 12,222,304 | ||||||
51,800 | Occidental Petroleum Corp. | 4,175,598 | ||||||
42,673 | Range Resources Corp.^ | 2,280,872 | ||||||
|
| |||||||
�� | 21,087,861 | |||||||
|
| |||||||
| Paper & Forest Products (0.0%): |
| ||||||
488,000 | Sino-Forest Corp.*(a)(b) | — | ||||||
|
|
Continued
4
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Pharmaceuticals (6.9%): | |||||||
45,600 | Actavis, Inc. plc* | $ | 11,737,896 | |||||
62,400 | Allergan, Inc. | 13,265,616 | ||||||
200,900 | Eli Lilly & Co. | 13,860,090 | ||||||
28,100 | Merck & Co., Inc. | 1,595,799 | ||||||
227,600 | Pfizer, Inc. | 7,089,740 | ||||||
177,200 | Zoetis, Inc. | 7,624,916 | ||||||
|
| |||||||
55,174,057 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (1.5%): | |||||||
49,300 | American Tower Corp. | 4,873,305 | ||||||
90,300 | Crown Castle International Corp. | 7,106,610 | ||||||
|
| |||||||
11,979,915 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.9%): | |||||||
137,900 | Texas Instruments, Inc. | 7,372,824 | ||||||
|
| |||||||
| Specialty Retail (3.7%): | |||||||
32,400 | AutoZone, Inc.*^ | 20,059,164 | ||||||
110,900 | Lowe’s Cos., Inc. | 7,629,920 | ||||||
7,400 | O’Reilly Automotive, Inc.* | 1,425,388 | ||||||
|
| |||||||
29,114,472 | ||||||||
|
| |||||||
| Tobacco (0.8%): | |||||||
73,500 | Philip Morris International, Inc. | 5,986,575 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.3%): | |||||||
19,100 | SBA Communications Corp., Class A* | 2,115,516 | ||||||
|
| |||||||
| Total Common Stocks (Cost $425,419,096) | 481,488,431 | ||||||
|
| |||||||
| Preferred Stocks (0.1%): | |||||||
| Banks (0.0%): | |||||||
9,874 | U.S. Bancorp, Series F, Preferred Shares^ | 290,789 | ||||||
|
| |||||||
| Capital Markets (0.1%): | |||||||
21,000 | State Street Corp., Preferred Shares | 530,040 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $789,426) | 820,829 | ||||||
|
| |||||||
| Convertible Preferred Stocks (0.5%): | |||||||
| Electric Utilities (0.2%): | |||||||
16,700 | SCE Trust I, 5.63%, Callable 6/15/17 @25^ | 409,150 | ||||||
2,930 | SCE Trust II, 5.10%, Callable 3/15/18 @25 | 66,628 | ||||||
32,472 | SCE Trust II, 5.75%, Callable 3/15/24 @25^ | 858,885 | ||||||
|
| |||||||
1,334,663 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.0%): | |||||||
210 | Chesapeake Energy Corp., 4.50%^ | 19,215 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.3%): | |||||||
40,285 | T-Mobile US, Inc., Series A, 5.50% | 2,134,702 | ||||||
|
| |||||||
| Total Convertible Preferred Stocks (Cost $3,263,415) | 3,488,580 | ||||||
|
| |||||||
| Convertible Bonds (0.2%): | |||||||
| Airlines (0.1%): | |||||||
365,000 | United Airlines, Inc., 4.50%, 1/15/15 | 1,278,641 | ||||||
|
| |||||||
| Media (0.1%): | |||||||
542,000 | Group, Inc. (The), 0.35%, 6/15/20^ | 604,330 | ||||||
|
| |||||||
| Total Convertible Bonds (Cost $1,348,248) | 1,882,971 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds (20.8%): | |||||||
| Advertising (0.1%): | |||||||
$ | 225,000 | CCO Holdings LLC/CCO Holdings Capital Corp., 8.13%, 4/30/20, Callable 4/30/15 @ 104.06 | $ | 236,813 | ||||
825,000 | CCO Holdings LLC/CCO Holdings Capital Corp., 7.38%, 6/1/20, Callable 12/1/15 @ 103.69 | 874,500 | ||||||
|
| |||||||
1,111,313 | ||||||||
|
| |||||||
| Aerospace & Defense (0.0%): | |||||||
200,000 | Moog, Inc., 5.25%, 12/1/22, Callable 12/1/17 @ 103.94(c) | 202,500 | ||||||
|
| |||||||
| Airlines (0.1%): | |||||||
580,533 | U.S. Airways 2010-1A PTT, Series A, 6.25%, 10/22/24 | 651,649 | ||||||
|
| |||||||
| Auto Components (0.4%): | |||||||
950,000 | Delphi Corp., 6.13%, 5/15/21, Callable 5/15/16 @ 103.06^ | 1,035,500 | ||||||
2,000,000 | Delphi Corp., 5.00%, 2/15/23, Callable 2/15/18 @ 102.5 | 2,134,960 | ||||||
|
| |||||||
3,170,460 | ||||||||
|
| |||||||
| Banks (0.1%): | |||||||
651,860 | Pinnacle Foods Finance LLC, 2.73%, 4/29/20(d) | 631,287 | ||||||
495,000 | Pinnacle Foods Finance LLC, 3.00%, 4/29/20(d) | 478,913 | ||||||
|
| |||||||
1,110,200 | ||||||||
|
| |||||||
| Capital Markets (1.4%): | |||||||
1,450,000 | E*TRADE Financial Corp., 6.38%, 11/15/19, Callable 11/15/15 @ 104.78 | 1,537,000 | ||||||
250,000 | Ford Motor Credit Co. LLC, 4.25%, 2/3/17^ | 262,517 | ||||||
500,000 | Ford Motor Credit Co. LLC, 6.63%, 8/15/17 | 557,379 | ||||||
1,000,000 | Ford Motor Credit Co. LLC, 0.76%, 9/8/17(d) | 993,114 | ||||||
1,800,000 | Ford Motor Credit Co. LLC, 0.81%, 12/6/17(d) | 1,788,439 | ||||||
475,000 | Ford Motor Credit Co. LLC, 1.72%, 12/6/17 | 470,091 | ||||||
1,625,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 1,765,641 | ||||||
1,975,000 | Ford Motor Credit Co. LLC, 2.38%, 3/12/19^ | 1,961,249 | ||||||
1,400,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 1,392,469 | ||||||
|
| |||||||
10,727,899 | ||||||||
|
| |||||||
| Chemicals (0.4%): | |||||||
905,000 | Cytec Industries, Inc., 3.95%, 5/1/25, Callable 2/1/25 @ 100 | 915,982 | ||||||
1,044,339 | Kronos, Inc., 4.50%, 10/30/19(d) | 1,034,470 | ||||||
1,250,000 | Kronos, Inc., 9.75%, 4/30/20(d) | 1,268,750 | ||||||
|
| |||||||
3,219,202 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.1%): | |||||||
500,000 | International Lease Finance Corp., 2.19%, 6/15/16^(d) | 499,375 | ||||||
|
| |||||||
| Consumer Finance (0.0%): | |||||||
250,000 | First Data Corp., 3.67%, 3/24/18(d) | 244,375 | ||||||
|
| |||||||
| Diversified Financial Services (1.2%): | |||||||
570,000 | Caterpillar Financial Services Corp., 2.25%, 12/1/19, MTN^ | 570,624 | ||||||
540,000 | Caterpillar Financial Services Corp., 3.25%, 12/1/24, MTN | 547,135 |
Continued
5
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Diversified Financial Services, continued |
| ||||||
$ | 50,000 | CNH Industrial Capital LLC, 3.88%, 11/1/15^ | $ | 50,250 | ||||
1,425,000 | CNH Industrial Capital LLC, 6.25%, 11/1/16^ | 1,492,688 | ||||||
275,000 | CNH Industrial Capital LLC, 3.63%, 4/15/18 | 270,875 | ||||||
6,300,000 | UPC Financing Partnership, 3.25%, 6/30/21(d) | 6,134,625 | ||||||
|
| |||||||
9,066,197 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.8%): |
| ||||||
13,600,000 | Intelsat Jackson Holding SA, 3.75%, 6/30/19(d) | 13,379,000 | ||||||
1,979,899 | Telesat Canada, 3.50%, 3/28/19(d) | 1,948,973 | ||||||
|
| |||||||
15,327,973 | ||||||||
|
| |||||||
| Electric Utilities (0.0%): |
| ||||||
253,960 | Texas Competitive Electric Holdings Co. LLC, 3.75%, 5/5/16(d) | 253,960 | ||||||
|
| |||||||
253,960 | ||||||||
|
| |||||||
| Electrical Equipment (0.0%): |
| ||||||
210,000 | Amphenol Corp., 1.55%, 9/15/17 | 209,415 | ||||||
|
| |||||||
| Food & Staples Retailing (0.5%): |
| ||||||
746,250 | Rite Aid Corp., 3.50%, 2/21/20(d) | 741,586 | ||||||
2,800,000 | Rite Aid Corp., 8.00%, 8/15/20, Callable 8/15/15 @ 104 | 2,992,500 | ||||||
|
| |||||||
3,734,086 | ||||||||
|
| |||||||
| Food Products (1.2%): |
| ||||||
250,000 | B&G Foods, Inc., 4.63%, 6/1/21, Callable 6/1/16 @ 103.47 | 244,025 | ||||||
8,913,008 | H.J. Heinz Co., 3.50%, 6/5/20(d) | 8,847,764 | ||||||
|
| |||||||
9,091,789 | ||||||||
|
| |||||||
| Gas Utilities (0.1%): |
| ||||||
625,000 | Suburban Propane Partners LP, 7.38%, 3/15/20, Callable 3/15/15 @ 103.69 | 648,438 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (0.8%): |
| ||||||
650,000 | Becton, Dickinson & Co., 1.80%, 12/15/17 | 652,397 | ||||||
630,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 638,285 | ||||||
575,000 | Becton, Dickinson & Co., 3.73%, 12/15/24, Callable 9/15/24 @ 100 | 592,006 | ||||||
155,000 | Becton, Dickinson & Co., 4.69%, 12/15/44, Callable 6/15/44 @ 100 | 166,929 | ||||||
500,000 | Medtronic, Inc., 1.50%, 3/15/18(c) | 497,611 | ||||||
795,000 | Medtronic, Inc., 2.50%, 3/15/20(c) | 797,085 | ||||||
1,040,000 | Medtronic, Inc., 3.50%, 3/15/25(c) | 1,063,889 | ||||||
1,405,000 | Medtronic, Inc., 4.63%, 3/15/45(c) | 1,523,005 | ||||||
|
| |||||||
5,931,207 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Health Care Providers & Services (1.3%): |
| ||||||
$ | 2,023,063 | DaVita Healthcare Partners, Inc., 3.50%, 6/24/21(d) | $ | 1,998,240 | ||||
3,700,000 | DaVita HealthCare Partners, Inc., 5.13%, 7/15/24, Callable 7/15/19 @ 102.56^ | 3,774,000 | ||||||
975,000 | DaVita, Inc., 6.63%, 11/1/20, Callable 2/6/15 @ 104.97^ | 1,023,750 | ||||||
2,600,000 | DaVita, Inc., 5.75%, 8/15/22, Callable 8/15/17 @ 102.88 | 2,756,000 | ||||||
350,000 | Omnicare, Inc., 5.00%, 12/1/24, Callable 9/1/24 @ 100 | 358,750 | ||||||
470,000 | UnitedHealth Group, Inc., 1.40%, 12/15/17 | 469,581 | ||||||
|
| |||||||
10,380,321 | ||||||||
|
| |||||||
| Health Care Services (0.2%): |
| ||||||
600,000 | Fresenius Medical Care, 5.63%, 7/31/19(c) | 640,500 | ||||||
525,000 | Fresenius Medical Care, 5.88%, 1/31/22(c) | 569,625 | ||||||
|
| |||||||
1,210,125 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.3%): |
| ||||||
200,000 | Cedar Fair LP, 5.25%, 3/15/21, Callable 3/15/16 @ 103.94 | 201,000 | ||||||
850,000 | Hilton Worldwide Finance LLC, 3.50%, 10/25/20(d) | 839,018 | ||||||
989,975 | Wendy’s International LLC, 3.25%, 5/15/19(d) | 980,283 | ||||||
|
| |||||||
2,020,301 | ||||||||
|
| |||||||
| Internet & Catalog Retail (0.3%): |
| ||||||
1,305,000 | Amazon.com, Inc., 2.60%, 12/5/19, Callable 11/5/19 @ 100^ | 1,318,260 | ||||||
650,000 | Amazon.com, Inc., 3.80%, 12/5/24, Callable 9/5/24 @ 100 | 665,938 | ||||||
|
| |||||||
1,984,198 | ||||||||
|
| |||||||
| Machinery (0.1%): |
| ||||||
550,000 | Xylem, Inc., 3.55%, 9/20/16 | 571,556 | ||||||
|
| |||||||
| Media (1.6%): |
| ||||||
575,000 | Charter Communications, Inc., 4.25%, 8/12/21(d) | 578,237 | ||||||
250,000 | Lamar Media Corp., 5.88%, 2/1/22, Callable 2/1/17 @ 102.94 | 259,375 | ||||||
270,000 | Lamar Media Corp., 5.00%, 5/1/23, Callable 5/1/18 @ 102.5^ | 267,300 | ||||||
4,575,000 | Univision Communications, Inc., 6.88%, 5/15/19, Callable 5/15/15 @ 103.44(c) | 4,763,719 | ||||||
3,250,000 | Univision Communications, Inc., 7.88%, 11/1/20, Callable 11/1/15 @ 103.94(c) | 3,461,250 | ||||||
2,009,000 | Univision Communications, Inc., 6.75%, 9/15/22, Callable 9/15/17 @ 103.38(c) | 2,149,630 | ||||||
850,000 | Univision Communications, Inc., 5.13%, 5/15/23, Callable 5/15/18 @ 102.56(c) | 858,500 | ||||||
|
| |||||||
12,338,011 | ||||||||
|
|
Continued
6
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Multiline Retail (0.1%): |
| ||||||
$ | 75,000 | Amerigas Finance Corp. LLC, 6.75%, 5/20/20, Callable 5/20/16 @ 103.38 | $ | 77,250 | ||||
525,000 | Amerigas Finance Corp. LLC, 7.00%, 5/20/22, Callable 5/20/17 @ 103.5 | 543,375 | ||||||
|
| |||||||
620,625 | ||||||||
|
| |||||||
| Multi-Utilities (0.6%): |
| ||||||
725,000 | Berkshire Hathaway Energy Co., 2.40%, 2/1/20, Callable 1/1/20 @ 100^(c) | 721,843 | ||||||
750,000 | Berkshire Hathaway Energy Co., 3.50%, 2/1/25, Callable 12/1/24 @ 100(c) | 754,769 | ||||||
550,000 | Berkshire Hathaway Energy Co., 4.50%, 2/1/45, Callable 8/1/44 @ 100(c) | 575,491 | ||||||
450,000 | CMS Energy Corp., 8.75%, 6/15/19 | 563,373 | ||||||
1,250,000 | Dominion Resources, Inc., 2.50%, 12/1/19, Callable 11/1/19 @ 100^ | 1,253,650 | ||||||
525,000 | Dominion Resources, Inc., 3.63%, 12/1/24, Callable 9/1/24 @ 100 | 531,805 | ||||||
|
| |||||||
4,400,931 | ||||||||
|
| |||||||
| Oil Gas & Consumable Fuels (0.0%): |
| ||||||
210,000 | Noble Energy, Inc., 3.90%, 11/15/24, Callable 8/15/24 @ 100^ | 207,553 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (6.0%): |
| ||||||
1,075,000 | Antero Resources Finance Corp., 6.00%, 12/1/20, Callable 12/1/15 @ 104.03 | 1,072,313 | ||||||
1,000,000 | Antero Resources Finance Corp., 5.38%, 11/1/21, Callable 11/1/16 @ 104.03 | 967,500 | ||||||
475,000 | Antero Resources Finance Corp., 5.13%, 12/1/22, Callable 6/1/17 @ 103.84^(c) | 447,688 | ||||||
725,000 | Chesapeake Energy Corp., 3.25%, 3/15/16, Callable 2/6/15 @ 101 | 723,188 | ||||||
525,000 | Chesapeake Energy Corp., 3.48%, 4/15/19, Callable 4/15/15 @ 101(d) | 514,500 | ||||||
3,175,000 | Concho Resources, Inc., 7.00%, 1/15/21, Callable 1/15/16 @ 103.5^ | 3,325,812 | ||||||
825,000 | Concho Resources, Inc., 6.50%, 1/15/22, Callable 1/15/17 @ 103.25 | 862,125 | ||||||
1,375,000 | Concho Resources, Inc., 5.50%, 4/1/23, Callable 10/1/17 @ 102.75 | 1,381,463 | ||||||
700,000 | CONSOL Energy, Inc., 5.88%, 4/15/22, Callable 4/15/17 @ 104.41(c) | 651,000 | ||||||
500,000 | Energy Transfer Partners LP, 4.15%, 10/1/20, Callable 8/1/20 @ 100 | 512,590 | ||||||
550,000 | Energy Transfer Partners LP, 4.90%, 2/1/24, Callable 11/1/23 @ 100 | 576,329 | ||||||
210,000 | EQT Corp., 6.50%, 4/1/18 | 236,321 | ||||||
350,000 | EQT Corp., 8.13%, 6/1/19 | 421,951 | ||||||
2,025,000 | EQT Corp., 4.88%, 11/15/21 | 2,187,622 | ||||||
2,025,000 | Laredo Petroleum, Inc., 9.50%, 2/15/19, Callable 2/15/15 @ 104.75 | 2,014,875 | ||||||
600,000 | Laredo Petroleum, Inc., 5.63%, 1/15/22, Callable 1/15/17 @ 104.22^ | 525,000 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
$ | 1,525,000 | Markwest Energy Partners LP, 6.75%, 11/1/20, Callable 11/1/15 @ 103.38^ | $ | 1,586,000 | ||||
1,225,000 | Markwest Energy Partners LP, 6.50%, 8/15/21, Callable 2/15/16 @ 103.25 | 1,261,750 | ||||||
1,875,000 | Markwest Energy Partners LP, 6.25%, 6/15/22, Callable 12/15/16 @ 103.13 | 1,940,625 | ||||||
2,625,000 | Markwest Energy Partners LP, 5.50%, 2/15/23, Callable 8/15/17 @ 102.75^ | 2,657,813 | ||||||
3,650,000 | Markwest Energy Partners LP, 4.50%, 7/15/23, Callable 4/15/23 @ 100 | 3,513,124 | ||||||
1,000,000 | MarkWest Energy Partners LP, 4.88%, 12/1/24, Callable 9/1/24 @ 100^ | 977,500 | ||||||
1,850,000 | Range Resources Corp., 6.75%, 8/1/20, Callable 8/1/15 @ 103.38 | 1,924,000 | ||||||
4,625,000 | Range Resources Corp., 5.75%, 6/1/21, Callable 6/1/16 @ 102.88^ | 4,775,312 | ||||||
4,275,000 | Range Resources Corp., 5.00%, 8/15/22, Callable 2/15/17 @ 102.5 | 4,274,999 | ||||||
5,150,000 | Range Resources Corp., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5^ | 5,149,999 | ||||||
875,000 | SM Energy Co., 6.50%, 11/15/21, Callable 11/15/16 @ 103.25 | 848,750 | ||||||
350,000 | Targa Resources Partners LP, 6.88%, 2/1/21, Callable 2/1/16 @ 103.44^ | 357,875 | ||||||
700,000 | Targa Resources Partners LP, 5.25%, 5/1/23, Callable 11/1/17 @ 102.63 | 675,500 | ||||||
750,000 | Targa Resources Partners LP, 4.25%, 11/15/23, Callable 5/15/18 @ 102.13 | 682,500 | ||||||
725,000 | WPX Energy, Inc., 5.25%, 1/15/17^ | 732,250 | ||||||
|
| |||||||
47,778,274 | ||||||||
|
| |||||||
| Pharmaceuticals (0.4%): |
| ||||||
405,000 | Johnson & Johnson, 1.13%, 11/21/17^ | 403,791 | ||||||
1,850,000 | Johnson & Johnson, 3.38%, 12/5/23 | 1,979,543 | ||||||
200,000 | Novartis Capital Corp., 3.40%, 5/6/24 | 208,056 | ||||||
830,000 | Roche Holding, Inc., 3.35%, 9/30/24, Callable 6/30/24 @ 100(c) | 854,242 | ||||||
|
| |||||||
3,445,632 | ||||||||
|
| |||||||
| Real Estate Investment Trusts (REITs) (0.9%): |
| ||||||
300,000 | American Tower Corp., 5.00%, 2/15/24^ | 318,140 | ||||||
4,341,169 | Crown Castle Operating Co., 3.00%, 1/31/21(d) | 4,265,198 | ||||||
500,000 | DE Master Blenders, 4.25%, 7/2/21 | 601,711 | ||||||
1,975,000 | DE Master Blenders, 4.25%, 7/2/21 | 1,930,563 | ||||||
|
| |||||||
7,115,612 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.1%): |
| ||||||
750,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 766,425 | ||||||
|
| |||||||
| Specialty Retail (0.3%): |
| ||||||
125,000 | Group 1 Automotive, Inc., 5.00%, 6/1/22, Callable 6/1/17 @ 103.75(c) | 122,188 | ||||||
350,000 | L Brands, Inc., 6.90%, 7/15/17^ | 385,000 | ||||||
250,000 | L Brands, Inc., 8.50%, 6/15/19 | 296,250 |
Continued
7
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Specialty Retail, continued |
| ||||||
$ | 250,000 | L Brands, Inc., 7.00%, 5/1/20 | $ | 283,750 | ||||
500,000 | L Brands, Inc., 6.63%, 4/1/21 | 562,500 | ||||||
525,000 | L Brands, Inc., 5.63%, 2/15/22 | 564,375 | ||||||
350,000 | Penske Automotive Group, Inc., 5.38%, 12/1/24, Callable 12/1/19 @ 102.69 | 354,375 | ||||||
|
| |||||||
2,568,438 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.4%): |
| ||||||
1,050,000 | Crown Castle International Corp., 4.88%, 4/15/22 | 1,060,500 | ||||||
725,000 | Crown Castle International Corp., 5.25%, 1/15/23 | 739,500 | ||||||
225,000 | SBA Communications Corp., 5.63%, 10/1/19, Callable 10/1/16 @ 102.81 | 230,063 | ||||||
500,000 | SBA Communications Corp., 5.75%, 7/15/20, Callable 7/15/16 @ 102.88 | 508,900 | ||||||
750,000 | Sprint Communications, Inc., 9.00%, 11/15/18(c) | 853,050 | ||||||
|
| |||||||
3,392,013 | ||||||||
|
| |||||||
| Total Corporate Bonds (Cost $165,590,979) | 164,000,053 | ||||||
|
| |||||||
| Foreign Bonds (0.3%): |
| ||||||
| Containers & Packaging (0.1%): |
| ||||||
750,000 | Rexam plc, 6.75%, 6/29/67, Callable 6/29/17 @ 100+(d) | 907,430 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.2%): |
| ||||||
1,025,000 | Matterhorn Mobile SA, 6.75%, 5/15/19, Callable 2/15/15 @ 105.06+(c) | 1,082,959 | ||||||
|
| |||||||
| Total Foreign Bonds (Cost $2,194,744) | 1,990,389 | ||||||
|
| |||||||
| Yankee Dollars (5.2%): |
| ||||||
| Banks (0.8%): |
| ||||||
1,225,000 | KFW, Series G, 0.50%, 4/19/16 | 1,224,976 | ||||||
4,715,000 | KFW, 2.50%, 11/20/24 | 4,780,873 | ||||||
|
| |||||||
6,005,849 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.5%): |
| ||||||
1,975,000 | Intelsat Jackson Holding SA, 7.25%, 4/1/19, Callable 4/1/15 @ 103.65 | 2,061,406 | ||||||
4,885,000 | Intelsat Jackson Holding SA, 7.25%, 10/15/20, Callable 10/15/15 @ 103.63 | 5,159,781 | ||||||
1,715,000 | Intelsat Jackson Holding SA, 5.50%, 8/1/23, Callable 8/1/18 @ 102.75^ | 1,704,539 | ||||||
1,850,000 | Intelsat Jackson Holdings SA, 7.50%, 4/1/21, Callable 4/1/15 @ 103.75 | 1,979,500 | ||||||
530,000 | Telesat Canada, 6.00%, 5/15/17, Callable 2/6/15 @ 103(c) | 540,600 | ||||||
|
| |||||||
11,445,826 | ||||||||
|
| |||||||
| Media (0.5%): |
| ||||||
2,475,000 | Unitymedia Hessen, 7.50%, 3/15/19, Callable 3/15/15 @ 103.75(c) | 2,598,750 | ||||||
650,000 | Unitymedia Hessen, 5.50%, 1/15/23, Callable 1/15/18 @ 103(c) | 679,250 | ||||||
950,000 | Unitymedia Kabelbw GMBH, 6.13%, 1/15/25(c) | 980,875 | ||||||
|
| |||||||
4,258,875 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Oil, Gas & Consumable Fuels (0.1%): |
| ||||||
$ | 360,000 | Canadian Natural Resources, 1.75%, 1/15/18 | $ | 357,882 | ||||
770,000 | Canadian Natural Resources, 3.90%, 2/1/25, Callable 11/1/24 @ 100 | 759,040 | ||||||
|
| |||||||
1,116,922 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.5%): |
| ||||||
1,550,000 | NXP Funding BV/NXP Funding LLC, 3.75%, 6/1/18(c) | 1,550,000 | ||||||
1,150,000 | NXP Funding BV/NXP Funding LLC, 5.75%, 2/15/21, Callable 2/15/17 @ 102.88(c) | 1,207,500 | ||||||
1,400,000 | NXP Funding BV/NXP Funding LLC, 5.75%, 3/15/23, Callable 3/15/18 @ 102.88(c) | 1,473,500 | ||||||
|
| |||||||
4,231,000 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (1.8%): |
| ||||||
5,880,000 | UPCB Finance III, Ltd., 6.63%, 7/1/20, Callable 7/1/15 @ 103.31(c) | 6,173,999 | ||||||
3,800,000 | UPCB Finance V, Ltd., 7.25%, 11/15/21, Callable 11/15/16 @ 103.63(c) | 4,156,250 | ||||||
3,325,000 | UPCB Finance VI, Ltd., 6.88%, 1/15/22, Callable 1/15/17 @ 103.44(c) | 3,615,938 | ||||||
|
| |||||||
13,946,187 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $40,724,139) | 41,004,659 | ||||||
|
| |||||||
| U.S. Treasury Obligation (1.3%): |
| ||||||
| U.S. Treasury Note (1.3%) | |||||||
10,000,000 | 0.25%, 10/31/15 | 9,999,220 | ||||||
|
| |||||||
| Total U.S. Treasury Obligation (Cost $9,998,451) | 9,999,220 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (6.1%): |
| ||||||
48,016,055 | Allianz Variable Insurance Products Securities Lending Collateral Trust(e) | 48,016,055 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 48,016,055 | ||||||
|
| |||||||
| Unaffiliated Investment Company (12.0%): |
| ||||||
94,849,675 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(f) | 94,849,675 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $94,849,675) | 94,849,675 | ||||||
|
| |||||||
| Total Investment Securities (Cost $792,194,228)(g) —107.6% | 847,540,862 | ||||||
| Net other assets (liabilities) — (7.6)% | (59,970,579 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 787,570,283 | |||||
|
|
Continued
8
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Percentages indicated are based on net assets as of December 31, 2014.
MTN—Medium Term Note
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $46,362,614. |
+ | The principal amount is disclosed in local currency and the fair value is disclosed in U.S. Dollars. |
(a) | Security issued in connection with a pending litigation settlement. |
(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, 2014, these securities represent 0.00% of the net assets of the fund. |
(c) | 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 liquid based on procedures approved by the Board of Trustees. |
(d) | Variable rate security. The rate presented represents the rate in effect at December 31, 2014. The date presented represents the final maturity date. |
(e) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
(f) | The rate represents the effective yield at December 31, 2014. |
(g) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—” are either $0 or round to less than $1.
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2014:
Country | Percentage | |||
Canada | 1.6 | % | ||
Cayman Islands | 1.7 | % | ||
Germany | 1.2 | % | ||
Ireland (Republic of) | 2.5 | % | ||
Luxembourg | 1.4 | % | ||
Netherlands | 0.5 | % | ||
Switzerland | 1.3 | % | ||
United Kingdom | 1.1 | % | ||
United States | 88.7 | % | ||
|
| |||
100.0 | % | |||
|
|
Futures Contracts
Cash of $967,087 has been segregated to cover margin requirements for the following open contracts as of December 31, 2014:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Long | 3/23/15 | 212 | $ | 8,036,152 | $ | 400,847 | |||||||||||||
DJ EURO SROXX 600 March Futures (Euro) | Long | 3/20/15 | 199 | 4,088,299 | 86,175 | |||||||||||||||
|
| |||||||||||||||||||
Total | $ | 487,022 | ||||||||||||||||||
|
|
Over-the-counter options written as of December 31, 2014 were as follows:
Description | Counterparty | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Allergan, Inc. | Citibank | Call | USD | 170.00 | 01/16/15 | 98 | $ | (421,750 | ) | |||||||||||||||
American Tower Corp. | Citibank | Call | USD | 105.00 | 01/15/16 | 36 | (18,594 | ) | ||||||||||||||||
American Tower Corp. | Citibank | Call | USD | 110.00 | 01/15/16 | 37 | (13,022 | ) | ||||||||||||||||
American Tower Corp. | Citibank | Call | USD | 115.00 | 01/15/16 | 73 | (17,150 | ) | ||||||||||||||||
Apache Corp. | Morgan Stanley | Call | USD | 90.00 | 01/16/15 | 34 | (20 | ) | ||||||||||||||||
Apache Corp. | Morgan Stanley | Call | USD | 93.00 | 01/16/15 | 68 | (27 | ) | ||||||||||||||||
Apache Corp. | Morgan Stanley | Call | USD | 95.00 | 01/16/15 | 67 | (19 | ) | ||||||||||||||||
Apache Corp. | Morgan Stanley | Call | USD | 95.00 | 01/16/15 | 23 | (5 | ) |
Continued
9
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Description | Counterparty | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Cisco Systems, Inc. | Citibank | Call | USD | 25.00 | 01/15/16 | 510 | $ | (186,611 | ) | |||||||||||||||
CVS Health Corp. | Morgan Stanley | Call | USD | 78.00 | 01/16/15 | 19 | (35,762 | ) | ||||||||||||||||
CVS Health Corp. | Morgan Stanley | Call | USD | 80.00 | 01/16/15 | 19 | (31,036 | ) | ||||||||||||||||
CVS Health Corp. | Morgan Stanley | Call | USD | 90.00 | 01/15/16 | 126 | (134,305 | ) | ||||||||||||||||
CVS Health Corp. | Morgan Stanley | Call | USD | 95.00 | 01/15/16 | 126 | (96,942 | ) | ||||||||||||||||
Danaher Corp. | JPMorgan Chase | Call | USD | 80.00 | 01/16/15 | 18 | (10,571 | ) | ||||||||||||||||
Danaher Corp. | JPMorgan Chase | Call | USD | 85.00 | 01/16/15 | 18 | (3,069 | ) | ||||||||||||||||
Danaher Corp. | JPMorgan Chase | Call | USD | 90.00 | 01/16/15 | 61 | (591 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | Morgan Stanley | Call | USD | 60.00 | 01/15/16 | 315 | (335,234 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | Morgan Stanley | Call | USD | 75.00 | 01/15/16 | 119 | (38,870 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | Morgan Stanley | Call | USD | 53.00 | 01/16/15 | 14 | (22,537 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | Morgan Stanley | Call | USD | 55.00 | 01/16/15 | 14 | (19,069 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | JPMorgan Chase | Call | USD | 55.00 | 01/16/15 | 153 | (208,403 | ) | ||||||||||||||||
Mondelez International, Inc. | Citibank | Call | USD | 45.00 | 01/15/16 | 194 | (12,886 | ) | ||||||||||||||||
Occidental Petroleum Corp. | Citibank | Call | USD | 95.00 | 01/15/16 | 239 | (58,201 | ) | ||||||||||||||||
Occidental Petroleum Corp. | Citibank | Call | USD | 98.00 | 01/15/16 | 239 | (47,708 | ) | ||||||||||||||||
PepsiCo, Inc. | Morgan Stanley | Call | USD | 100.00 | 01/15/16 | 177 | (56,119 | ) | ||||||||||||||||
PepsiCo, Inc. | Morgan Stanley | Call | USD | 105.00 | 01/15/16 | 108 | (20,527 | ) | ||||||||||||||||
PepsiCo, Inc. | Morgan Stanley | Call | USD | 110.00 | 01/15/16 | 184 | (20,776 | ) | ||||||||||||||||
Pfizer, Inc. | Citibank | Call | USD | 30.00 | 01/15/16 | 721 | (182,643 | ) | ||||||||||||||||
Pfizer, Inc. | Citibank | Call | USD | 32.00 | 01/16/15 | 98 | (1,763 | ) | ||||||||||||||||
Pfizer, Inc. | Citibank | Call | USD | 35.00 | 01/16/15 | 98 | (159 | ) | ||||||||||||||||
State Street Corp. | Morgan Stanley | Call | USD | 85.00 | 01/15/16 | 99 | (43,807 | ) | ||||||||||||||||
TD Ameritrade Holding Corp. | Citibank | Call | USD | 30.00 | 01/16/15 | 1,211 | (759,165 | ) | ||||||||||||||||
TD Ameritrade Holding Corp. | JPMorgan Chase | Call | USD | 33.00 | 01/16/15 | 607 | (173,521 | ) | ||||||||||||||||
TD Ameritrade Holding Corp. | Citibank | Call | USD | 30.00 | 02/20/15 | 723 | (417,162 | ) | ||||||||||||||||
Texas Instruments, Inc. | Citibank | Call | USD | 45.00 | 01/16/15 | 489 | (416,416 | ) | ||||||||||||||||
Texas Instruments, Inc. | Citibank | Call | USD | 50.00 | 01/16/15 | 215 | (80,755 | ) | ||||||||||||||||
The Boeing Co. | Citibank | Call | USD | 140.00 | 01/15/16 | 61 | (35,491 | ) | ||||||||||||||||
The Boeing Co. | Citibank | Call | USD | 145.00 | 01/16/15 | 40 | (47 | ) | ||||||||||||||||
The Boeing Co. | Citibank | Call | USD | 150.00 | 01/16/15 | 41 | (16 | ) | ||||||||||||||||
The Boeing Co. | Citibank | Call | USD | 155.00 | 01/16/15 | 40 | (5 | ) | ||||||||||||||||
Thermo Fisher Scientific, Inc. | Citibank | Call | USD | 150.00 | 01/15/16 | 49 | (19,976 | ) | ||||||||||||||||
United Technologies Corp. | Citibank | Call | USD | 120.00 | 01/15/16 | 160 | (95,852 | ) | ||||||||||||||||
United Technologies Corp. | Citibank | Call | USD | 120.00 | 01/16/15 | 83 | (1,651 | ) | ||||||||||||||||
UnitedHealth Group, Inc. | Citibank | Call | USD | 100.00 | 01/15/16 | 102 | (94,464 | ) | ||||||||||||||||
UnitedHealth Group, Inc. | Citibank | Call | USD | 105.00 | 01/15/16 | 102 | (69,963 | ) | ||||||||||||||||
Wal-Mart Stores, Inc. | Citibank | Call | USD | 80.00 | 01/15/16 | 123 | (102,604 | ) | ||||||||||||||||
Wal-Mart Stores, Inc. | Citibank | Call | USD | 83.00 | 01/15/16 | 123 | (82,327 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total Over-the-counter options |
| $ | (4,387,591 | ) | ||||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2014 were as follows:
Description | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
Apache Corp. | Call | USD | 97.50 | 01/16/15 | 26 | $ | (78 | ) | ||||||||||||
Apache Corp. | Call | USD | 100.00 | 01/16/15 | 56 | (56 | ) | |||||||||||||
Apache Corp. | Call | USD | 105.00 | 01/16/15 | 26 | (26 | ) | |||||||||||||
AutoZone, Inc. | Call | USD | 570.00 | 01/16/15 | 1 | (5,025 | ) | |||||||||||||
AutoZone, Inc. | Call | USD | 600.00 | 01/16/15 | 1 | (2,240 | ) | |||||||||||||
Google, Inc. | Call | USD | 1280.00 | 01/16/15 | 1 | (150 | ) | |||||||||||||
Google, Inc. | Call | USD | 1330.00 | 01/16/15 | 1 | (145 | ) | |||||||||||||
JPMorgan Chase & Co. | Call | USD | 70.00 | 01/15/16 | 391 | (72,922 | ) | |||||||||||||
JPMorgan Chase & Co. | Call | USD | 60.00 | 01/16/15 | 22 | (5,962 | ) | |||||||||||||
JPMorgan Chase & Co. | Call | USD | 65.00 | 01/16/15 | 24 | (480 | ) | |||||||||||||
Philip Morris International, Inc. | Call | USD | 95.00 | 01/16/15 | 42 | (84 | ) | |||||||||||||
Philip Morris International, Inc. | Call | USD | 97.50 | 01/16/15 | 5 | (20 | ) |
Continued
10
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2014
Description | Put/Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
Texas Instruments, Inc. | Call | USD | 50.00 | 01/16/15 | 62 | $ | (22,785 | ) | ||||||||||||
The Boeing Co. | Call | USD | 135.00 | 01/16/15 | 21 | (788 | ) | |||||||||||||
The Boeing Co. | Call | USD | 140.00 | 01/16/15 | 21 | (147 | ) | |||||||||||||
Visa, Inc. | Call | USD | 280.00 | 01/15/16 | 44 | (66,330 | ) | |||||||||||||
Visa, Inc. | Call | USD | 300.00 | 01/15/16 | 45 | (39,263 | ) | |||||||||||||
|
| |||||||||||||||||||
Total Exchange-traded options | $ | (216,501 | ) | |||||||||||||||||
|
|
Forward Currency Contracts
At December 31, 2014, the Fund’s open forward currency contracts were as follows:
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||
Short Contracts: | ||||||||||||||||||||
European Euro | Merrill Lynch | 3/25/15 | 1,210,000 | $ | 1,474,899 | $ | 1,465,082 | $ | 9,817 | |||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 1,474,899 | $ | 1,465,082 | $ | 9,817 | |||||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
11
AZL T. Rowe Price Capital Appreciation Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 792,194,228 | |||
|
| ||||
Investment securities, at value* | $ | 847,540,862 | |||
Cash | 57,143 | ||||
Segregated cash for collateral | 967,087 | ||||
Interest and dividends receivable | 3,141,713 | ||||
Foreign currency, at value (cost $509,959) | 504,231 | ||||
Unrealized appreciation on forward currency contracts | 9,817 | ||||
Receivable for capital shares issued | 2,521,057 | ||||
Receivable for investments sold | 3,131,261 | ||||
Reclaims receivable | 42,846 | ||||
Prepaid expenses | 6,158 | ||||
|
| ||||
Total Assets | 857,922,175 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 16,736,296 | ||||
Payable for capital shares redeemed | 303,496 | ||||
Payable for collateral received on loaned securities | 48,016,055 | ||||
Written Options (Premiums received $2,178,591) | 4,604,092 | ||||
Manager fees payable | 459,984 | ||||
Administration fees payable | 19,020 | ||||
Distribution fees payable | 164,280 | ||||
Custodian fees payable | 7,056 | ||||
Administrative and compliance services fees payable | 2,108 | ||||
Trustee fees payable | 42 | ||||
Other accrued liabilities | 39,463 | ||||
|
| ||||
Total Liabilities | 70,351,892 | ||||
|
| ||||
Net Assets | $ | 787,570,283 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 694,488,080 | |||
Accumulated net investment income/(loss) | 5,989,304 | ||||
Accumulated net realized gains/(losses) from investment transactions | 33,684,672 | ||||
Net unrealized appreciation/(depreciation) on investments | 53,408,227 | ||||
|
| ||||
Net Assets | $ | 787,570,283 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 49,520,499 | ||||
Net Asset Value (offering and redemption price per share) | $ | 15.90 | |||
|
|
* | Includes securities on loan of $46,362,614. |
Statement of Operations
For the Year Ended December 31, 2014
Investment Income: | |||||
Dividends | $ | 6,367,248 | |||
Interest | 5,878,615 | ||||
Income from securities lending | 30,812 | ||||
Foreign withholding tax | (35,690 | ) | |||
|
| ||||
Total Investment Income | 12,240,985 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,740,351 | ||||
Administration fees | �� | 184,513 | |||
Distribution fees | 1,580,117 | ||||
Custodian fees | 28,511 | ||||
Administrative and compliance services fees | 8,251 | ||||
Trustee fees | 31,118 | ||||
Professional fees | 37,113 | ||||
Shareholder reports | 38,759 | ||||
Other expenses | 17,630 | ||||
|
| ||||
Total expenses before reductions | 6,666,363 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (316,033 | ) | |||
|
| ||||
Net expenses | 6,350,330 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,890,655 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 34,130,209 | ||||
Net realized gains/(losses) on futures contracts | (790,069 | ) | |||
Net realized gains/(losses) on options contracts | 560,092 | ||||
Net realized gains/(losses) on forward currency contracts | (31,125 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 31,445,254 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 65,314,361 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 71,205,016 | |||
|
|
See accompanying notes to the financial statements.
12
Statements of Changes in Net Assets
AZL T. Rowe Price Capital Appreciation Fund | ||||||||||
For the Year Ended December 31, 2014 | For the Year Ended December 31, 2013 | |||||||||
Change in Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,890,655 | $ | 2,168,561 | ||||||
Net realized gains/(losses) on investment transactions | 33,869,107 | 209,333,841 | ||||||||
Change in unrealized appreciation/depreciation on investments | 31,445,254 | (86,896,119 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 71,205,016 | 124,606,283 | ||||||||
|
|
|
| |||||||
Dividends to Shareholders: | ||||||||||
From net investment income | (2,093,311 | ) | (4,077,861 | ) | ||||||
From net realized gains | (66,596,069 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from dividends to shareholders | (68,689,380 | ) | (4,077,861 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 271,387,641 | 44,380,761 | ||||||||
Proceeds from dividends reinvested | 68,689,380 | 4,077,861 | ||||||||
Value of shares redeemed | (74,270,125 | ) | (70,733,204 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 265,806,896 | (22,274,582 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 268,322,532 | 98,253,840 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 519,247,751 | 420,993,911 | ||||||||
|
|
|
| |||||||
End of period | $ | 787,570,283 | $ | 519,247,751 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,989,304 | $ | 2,093,377 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 16,855,919 | 3,126,962 | ||||||||
Dividends reinvested | 4,492,438 | 276,465 | ||||||||
Shares redeemed | (4,617,286 | ) | (4,879,004 | ) | ||||||
|
|
|
| |||||||
Change in shares | 16,731,071 | (1,475,577 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
13
AZL T. Rowe Price Capital Appreciation Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.84 | $ | 12.29 | $ | 10.98 | $ | 11.57 | $ | 10.59 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.11 | 0.07 | 0.13 | 0.09 | 0.14 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.69 | 3.60 | 1.22 | (0.58 | ) | 1.10 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.80 | 3.67 | 1.35 | (0.49 | ) | 1.24 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.06 | ) | (0.12 | ) | (0.04 | ) | (0.10 | ) | (0.26 | ) | |||||||||||||||
Net Realized Gains | (1.68 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.74 | ) | (0.12 | ) | (0.04 | ) | (0.10 | ) | (0.26 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 15.90 | $ | 15.84 | $ | 12.29 | $ | 10.98 | $ | 11.57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 11.77 | % | 29.94 | %(c) | 12.32 | % | (4.20 | )% | 12.05 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 787,570 | $ | 519,248 | $ | 420,994 | $ | 364,642 | $ | 425,305 | |||||||||||||||
Net Investment Income/(Loss) | 0.93 | % | 0.44 | % | 1.14 | % | 0.71 | % | 0.55 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.05 | % | 1.06 | % | 1.07 | % | 1.10 | % | 1.08 | % | |||||||||||||||
Expenses Net of Reductions | 1.00 | % | 1.01 | % | 1.02 | % | 1.06 | % | 1.03 | % | |||||||||||||||
Portfolio Turnover Rate | 72 | % | 122 | %(d) | 24 | % | 11 | % | 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 any. If such fee reductions had not occurred, the ratios would have been as indicated. |
(c) | During the year ended December 31, 2013, the Fund received monies related to certain nonrecurring litigation settlements. The corresponding impact to the return was 0.10%. |
(d) | Effective November 15, 2013, the Subadviser changed from Davis Selected Advisors, LP to T. Rowe Price Associates, Inc. Costs of purchase and proceeds from sales of portfolio securities associated with the change in the Subadviser contributed to higher portfolio turnover rate for the year ended December 31, 2013 as compared to prior years. |
See accompanying notes to the financial statements.
14
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL T. Rowe Price Capital Appreciation Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
15
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $17.8 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $3,069 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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. The Fund ceased participation in the program in June 2014.
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.
Forward Currency Contracts
During the year ended December 31, 2014, the Fund entered into forward currency 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. In the event of default by the counterparty to the transaction, the Fund’s maximum amount of loss, as either the buyer or the seller, is the unrealized appreciation of the contract. The forward currency 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. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The contract amount of forward currency contracts outstanding was $1.5 million as of December 31, 2014. The monthly average amount for these contracts was $0.1 million for the year ended December 31, 2014.
Futures Contracts
During the year ended December 31, 2014, 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 fair 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 $12.1 million as of December 31,2014. The monthly average notional amount for these contracts was $1 million for the year ended December 31, 2014. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Options Contracts
The Fund may purchase or write put and call options on a security or an index of securities. During the year ended December 31, 2014, the Fund purchased and wrote call and put options to increase or decrease its exposure to underlying instruments (including equity risk, interest rate risk and/or foreign currency exchange rate risk) and/or, in the case of options written, to generate gains from options premiums.
16
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
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 that expire are treated as realized gains. Premiums received from writing options that are either exercised or closed are offset against the proceeds received or the amount paid on the transaction to determine realized gains or losses. The risk associated with writing an option is that the Fund bears the market risk of an unfavorable change in the price of an underlying asset and is required to buy or sell an underlying asset under the contractual terms of the option at a price different from the current value. Realized gains and losses, if any, are reported as “Net realized gains/(losses) on options contracts” on the Statement of Operations.
Number of Contracts | Premiums Received | |||||||||
Options outstanding at December 31, 2013 | (1,938 | ) | $ | (826,586 | ) | |||||
Options written | (13,307 | ) | (2,873,476 | ) | ||||||
Options exercised | 75 | 16,371 | ||||||||
Options expired | 577 | 101,696 | ||||||||
Options closed | 5,530 | 1,403,404 | ||||||||
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| |||||||
Options outstanding at December 31, 2014 | (9,063 | ) | $ | (2,178,591 | ) | |||||
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Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014:
Asset Derivatives | Liability Derivatives | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value | ||||||||
Equity Contracts | Investment securities, at value (purchased options) | $ | — | Written options | $ | (4,604,092 | ) | |||||
Foreign Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 9,817 | Unrealized depreciation on forward currency contracts | — | |||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 487,022 | Payable for variation margin on futures contracts | — |
* | 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, categorized by risk exposure, for the year ended December 31, 2014:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized in Income | Realized Gains/(Losses) on Derivatives Recognized in Income | Change in Net Unrealized Appreciation/ Depreciation on Derivatives Recognized in Income | |||||||
Equity Contracts | Net realized gains/(losses) on options contracts/Change in unrealized appreciation/depreciation on investments | $ | 560,092 | $ | (2,278,840 | ) | ||||
Foreign Currency Contracts | Net realized gains/(losses) on forward currency contracts/Change in unrealized appreciation/depreciation on investments | (31,125 | ) | 9,817 | ||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | (790,069 | ) | 487,022 |
Effective January 1, 2013, the Fund adopted Financial Accounting Standards Board Accounting Standards Update (“ASU”) No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”) which amended Accounting Standards Codification Subtopic 210-20, Balance Sheet Offsetting. ASU 2013-01 clarified the scope of ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of that entity’s financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. ASU 2013-01 clarifies the scope of ASU 2011-11 as applying to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are offset either in accordance with other requirements of U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement.
The Fund is generally subject to master netting agreements that allow for amounts owed between the Fund and the counterparty to be netted. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The master netting agreements do not apply to amounts owed to/from different counterparties. The amounts shown in the Statement of Assets and Liabilities do not take into consideration the effects of legally enforceable master netting agreements. The table below presents the gross and net amounts of these assets and liabilities with any offsets to reflect the Fund’s ability to reflect the master netting agreements at
17
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
December 31, 2014. For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to master netting arrangements in the Statement of Assets and Liabilities. This table also summarizes the fair values of derivative instruments on the Fund’s Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2014.
As of December 31, 2014, the Fund’s derivative assets and liabilities by type are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Option contracts | $ | — | $ | 4,604,092 | ||||||
Forward currency contracts | 9,817 | — | ||||||||
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| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 9,817 | 4,604,092 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | — | (216,501 | ) | |||||||
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| |||||||
Total assets and liabilities subject to a MNA | $ | 9,817 | $ | 4,387,591 | ||||||
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The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under a MNA and net of the related collateral received by the Fund as of December 31, 2013:
Counterparty | Derivative Assets | Derivatives Available for Offset | Non-cash Collateral Received | Cash Collateral Received | Net Amount of Derivative Assets | ||||||||||||||||||||
Merrill Lynch | $ | 9,817 | $ | — | $ | — | $ | — | $ | 9,817 | |||||||||||||||
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Total | $ | 9,817 | $ | — | $ | — | $ | — | $ | 9,817 | |||||||||||||||
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The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under a MNA and net of the related collateral pledged by the Fund as of December 31, 2014:
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged | Cash Collateral Pledged | Net Amount of Derivative Liabilities | ||||||||||||||||||||
Citibank | $ | 3,136,381 | $ | — | $ | — | $ | — | $ | 3,136,381 | |||||||||||||||
Morgan Stanley | 855,055 | — | — | — | 855,055 | ||||||||||||||||||||
JPMorgan Chase | 396,155 | — | — | — | 396,155 | ||||||||||||||||||||
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Total | $ | 4,387,591 | $ | — | $ | — | $ | — | $ | 4,387,591 | |||||||||||||||
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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 subadvisory agreement with T. Rowe Price Associates, Inc. (“T. Rowe Price”), T. Rowe Price 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL T. Rowe Price Capital Appreciation Fund | 0.75 | % | 1.20 | % |
* | The Manager voluntarily reduced 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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.
18
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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 of the 1940 Act. 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, 2014, $7,639 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 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.
Options are generally valued at the average of the closing bid and ask quotations on the principal exchange on which the option is traded, which are then typically categorized as Level 1 in the fair value hierarchy. Forward 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.
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 NYSE. 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.
19
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the year ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Capital Markets | $ | 41,549,559 | $ | 1,449,807 | $ | 42,999,366 | |||||||||
All Other Common Stocks+ | 438,489,065 | — | 438,489,065 | ||||||||||||
Convertible Bonds+ | — | 1,882,971 | 1,882,971 | ||||||||||||
Convertible Preferred Stocks+ | 3,488,580 | — | 3,488,580 | ||||||||||||
Corporate Bonds+ | — | 164,000,053 | 164,000,053 | ||||||||||||
Foreign Bonds+ | — | 1,990,389 | 1,990,389 | ||||||||||||
Preferred Stocks+ | 820,829 | — | 820,829 | ||||||||||||
U.S. Treasury Obligation | — | 9,999,220 | 9,999,220 | ||||||||||||
Yankee Dollars+ | — | 41,004,659 | 41,004,659 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 48,016,055 | 48,016,055 | ||||||||||||
Unaffiliated Investment Company | 94,849,675 | — | 94,849,675 | ||||||||||||
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Total Investment Securities | 579,197,708 | 268,343,154 | 847,540,862 | ||||||||||||
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Other Financial Instruments* | |||||||||||||||
Forward Currency Contracts | 9,817 | — | 9,817 | ||||||||||||
Futures Contracts | 487,022 | — | 487,022 | ||||||||||||
Written Call Options | (216,501 | ) | (4,387,591 | ) | (4,604,092 | ) | |||||||||
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Total Investments | $ | 579,478,046 | $ | 263,955,563 | $ | 843,433,609 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as written options, futures contracts and forward currency contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment |
5. Security Purchases and Sales
For the year ended December 31, 2014, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 563,232,111 | $ | 408,206,109 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Foreign Securities and Currencies Risk: 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.
7. Federal 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.
20
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2014
Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $793,082,177. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 62,586,388 | ||
Unrealized depreciation | (8,127,703 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 54,458,685 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2014 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 2,039,311 | $ | 66,596,069 | $ | 68,689,380 |
(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, 2013 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 4,077,861 | $ | — | $ | 4,077,861 |
(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, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 25,091,405 | $ | 15,957,542 | $ | — | $ | 52,033,256 | $ | 93,082,203 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL T. Rowe Price Capital Appreciation Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, 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.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
22
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2014, 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, 2014, the Fund declared net long-term capital gain distributions of $66,596,069.
23
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 Fund of Funds 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.
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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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
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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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
AZL® Wells Fargo Large Cap Growth Fund
Annual Report
December 31, 2014
Table of Contents
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 6
Statement of Operations
Page 6
Statements of Changes in Net Assets
Page 7
Financial Highlights
Page 8
Notes to the Financial Statements
Page 9
Report of Independent Registered Public Accounting Firm
Page 13
Other Information
Page 14
Approval of Investment Advisory and Subadvisory Agreements
Page 15
Information about the Board of Trustees and Officers
Page 18
This report is submitted for the general information of the shareholder 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.
AZL® Wells Fargo Large Cap Growth Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Wells Fargo Large Cap Growth Fund and Wells Capital Management Incorporated serves as Subadviser to the Fund.
What factors affected the Fund’s performance from its inception on April 25, 2014 to the period ended December 31, 2014?
From its inception on April 25, 2014 to the period ended December 31, 2014, the AZL® Wells Fargo Large Cap Growth Fund returned 12.70%. That compared to a 13.13% total return for its benchmark, the Russell 1000® Growth Index1.
Equities generally performed strongly during the period, and the Fund’s absolute returns benefited from the largely positive investor sentiment. Investors were encouraged by improved U.S. economic data, including increased gross domestic product2 growth. However, concerns about the potential for deflation in Europe and slowing growth in China created some headwinds that dragged on absolute returns.
Investors made a dramatic move away from fast-growing equities in the early part of the period, regardless of the companies’ fundamentals. In the second half of the year they continued to prioritize slower-growing, dividend-paying stocks, even as growth stocks reported strong earnings.
The Fund slightly underperformed the benchmark. Underweight positions in slower growing dividend-paying, mega-cap brands, which do not meet the Fund’s investment criteria, detracted from relative performance as investors moved away from growth stocks during the first and second quarters. For example, the Fund holds underweight positions in two global tech giants, whose stock prices rose over the period. However, the firms were not growing fast enough to merit a larger investment from the Fund. In addition, an underweight position in the consumer staples sector slightly detracted from the Fund’s relative performance.*
The Fund’s holdings in a chain of national auto parts stores, a discount retailer and a hotel company were among the larger positive contributors to relative performance. Additionally, overweight holdings of two pharmaceutical companies as well as oversized positions in two railroads and a regional airline boosted relative returns. The Fund’s overweight holdings in a social media tech company and a credit card company also played a role.*
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, 2014. |
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. |
2 | Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. Investors cannot invest directly in an index. |
1
AZL® Wells Fargo Large Cap Growth Fund (unaudited)
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 its net assets in equity securities of large-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.
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 based investments can perform differently from the market as a whole and can be more volatile than other types of securities.
Investing in a single industry or sector, or concentrating investments in a limited number of industries or sectors, tends to increase the risk that economic, political, or regulatory developments affecting certain industries or sectors will have a large impact on the value of the portfolio.
The Fund is subject to the risk that principal values reacts in opposition to the movement of interest rates and that a rising interest rate environment increases the risk of loss of principal.
For a complete description of these and other risks associated with investing in a mutual Fund, please refer to the Fund’s prospectus.
Growth of $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, 2014
6 Month | Since Inception (4/25/14) | |||||||
AZL® Wells Fargo Large Cap Growth Fund | 5.43 | % | 12.70 | % | ||||
Russell 1000® Growth Index | 6.34 | % | 13.13 | % |
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® Wells Fargo Large Cap Growth Fund | 1.15 | % |
The above expense ratio is based on the current Fund prospectus dated April 28, 2014. The Manager 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 and Acquired Fund fees and expenses), to 1.20% through April 30, 2016. Additional information pertaining to the December 31, 2014 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 fees for services provided to the Fund. Investors cannot invest directly in an index.
2 |
AZL Wells Fargo Large Cap Growth Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Wells Fargo Large Cap Growth Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. 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.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Wells Fargo Large Cap Growth Fund | $ | 1,000.00 | $ | 1,054.30 | $ | 4.97 | 0.96 | % |
The Hypothetical Expense 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.
Beginning Account Value 7/1/14 | Ending Account Value 12/31/14 | Expenses Paid During Period 7/1/14 - 12/31/14* | Annualized Expense Ratio During Period 7/1/14 - 12/31/14 | |||||||||||||||||
AZL Wells Fargo Large Cap Growth Fund | $ | 1,000.00 | $ | 1,020.37 | $ | 4.89 | 0.96 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 27.1 | % | |||
Consumer Discretionary | 26.0 | ||||
Health Care | 15.4 | ||||
Industrials | 12.4 | ||||
Financials | 6.2 | ||||
Materials | 4.2 | ||||
Consumer Staples | 4.2 | ||||
Energy | 4.2 | ||||
|
| ||||
Total Common Stocks | 99.7 | ||||
Securities Held as Collateral for Securities on Loan | 8.4 | ||||
Money Market | 0.4 | ||||
|
| ||||
Total Investment Securities | 108.5 | ||||
Net other assets (liabilities) | (8.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Wells Fargo Large Cap Growth Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks (99.7%): |
| ||||||
| Aerospace & Defense (2.4%): |
| ||||||
7,140 | Boeing Co. (The) | $ | 928,057 | |||||
2,590 | Precision Castparts Corp. | 623,879 | ||||||
7,420 | United Technologies Corp. | 853,300 | ||||||
|
| |||||||
2,405,236 | ||||||||
|
| |||||||
| Air Freight & Logistics (1.0%): |
| ||||||
8,810 | United Parcel Service, Inc., Class B | 979,408 | ||||||
|
| |||||||
| Airlines (0.8%): |
| ||||||
18,400 | Southwest Airlines Co. | 778,688 | ||||||
|
| |||||||
| Auto Components (0.6%): |
| ||||||
7,930 | Delphi Automotive plc | 576,670 | ||||||
|
| |||||||
| Biotechnology (9.2%): |
| ||||||
14,350 | Alexion Pharmaceuticals, Inc.* | 2,655,180 | ||||||
5,600 | Biogen Idec, Inc.* | 1,900,920 | ||||||
14,900 | Celgene Corp.* | 1,666,714 | ||||||
14,500 | Gilead Sciences, Inc.* | 1,366,770 | ||||||
4,480 | Regeneron Pharmaceuticals, Inc.* | 1,837,920 | ||||||
|
| |||||||
9,427,504 | ||||||||
|
| |||||||
| Capital Markets (2.7%): |
| ||||||
4,180 | Ameriprise Financial, Inc. | 552,805 | ||||||
9,730 | Northern Trust Corp. | 655,802 | ||||||
44,000 | TD Ameritrade Holding Corp. | 1,574,320 | ||||||
|
| |||||||
2,782,927 | ||||||||
|
| |||||||
| Chemicals (4.2%): |
| ||||||
14,550 | Ecolab, Inc. | 1,520,766 | ||||||
5,630 | Monsanto Co. | 672,616 | ||||||
15,920 | Praxair, Inc. | 2,062,595 | ||||||
|
| |||||||
4,255,977 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.6%): |
| ||||||
14,520 | Tyco International plc | 636,847 | ||||||
|
| |||||||
| Communications Equipment (1.2%): |
| ||||||
16,610 | QUALCOMM, Inc. | 1,234,621 | ||||||
|
| |||||||
| Consumer Finance (3.1%): |
| ||||||
17,720 | American Express Co. | 1,648,669 | ||||||
22,220 | Discover Financial Services | 1,455,188 | ||||||
|
| |||||||
3,103,857 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.3%): |
| ||||||
14,940 | Schlumberger, Ltd. | 1,276,025 | ||||||
|
| |||||||
| Food & Staples Retailing (2.2%): |
| ||||||
15,980 | Costco Wholesale Corp. | 2,265,165 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (1.3%): |
| ||||||
12,810 | Covidien plc | 1,310,207 | ||||||
|
| |||||||
| Health Care Providers & Services (2.7%): |
| ||||||
12,500 | AmerisourceBergen Corp. | 1,127,000 | ||||||
24,600 | Cerner Corp.* | 1,590,636 | ||||||
|
| |||||||
2,717,636 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (6.4%): |
| ||||||
2,310 | Chipotle Mexican Grill, Inc.* | 1,581,218 | ||||||
15,790 | Hilton Worldwide Holdings, Inc.* | 411,961 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
18,000 | Marriott International, Inc., Class A | $ | 1,404,540 | |||||
20,680 | Starbucks Corp. | 1,696,793 | ||||||
9,610 | Wynn Resorts, Ltd. | 1,429,584 | ||||||
|
| |||||||
6,524,096 | ||||||||
|
| |||||||
| Household Products (0.9%): |
| ||||||
13,000 | Colgate-Palmolive Co. | 899,470 | ||||||
|
| |||||||
| Industrial Conglomerates (2.0%): |
| ||||||
7,170 | 3M Co. | 1,178,174 | ||||||
10,480 | Danaher Corp. | 898,241 | ||||||
|
| |||||||
2,076,415 | ||||||||
|
| |||||||
| Internet & Catalog Retail (2.3%): |
| ||||||
4,010 | Amazon.com, Inc.* | 1,244,503 | ||||||
770 | Netflix, Inc.* | 263,040 | ||||||
720 | Priceline.com, Inc.* | 820,951 | ||||||
|
| |||||||
2,328,494 | ||||||||
|
| |||||||
| Internet Software & Services (7.7%): |
| ||||||
10,690 | Akamai Technologies, Inc.* | 673,042 | ||||||
33,840 | Facebook, Inc., Class A* | 2,640,196 | ||||||
4,230 | Google, Inc., Class C* | 2,226,672 | ||||||
4,260 | Google, Inc., Class A* | 2,260,612 | ||||||
|
| |||||||
7,800,522 | ||||||||
|
| |||||||
| IT Services (6.4%): |
| ||||||
9,300 | Accenture plc, Class A | 830,583 | ||||||
5,350 | Alliance Data Systems Corp.* | 1,530,368 | ||||||
27,000 | MasterCard, Inc., Class A | 2,326,320 | ||||||
7,130 | Visa, Inc., Class A | 1,869,486 | ||||||
|
| |||||||
6,556,757 | ||||||||
|
| |||||||
| Media (3.6%): |
| ||||||
30,000 | CBS Corp., Class B | 1,660,200 | ||||||
21,440 | Pandora Media, Inc.* | 382,275 | ||||||
17,100 | Walt Disney Co. (The) | 1,610,649 | ||||||
|
| |||||||
3,653,124 | ||||||||
|
| |||||||
| Multiline Retail (3.9%): |
| ||||||
35,180 | Dollar Tree, Inc.* | 2,475,968 | ||||||
18,420 | Nordstrom, Inc. | 1,462,364 | ||||||
|
| |||||||
3,938,332 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (2.9%): |
| ||||||
8,800 | Antero Resources Corp.* | 357,104 | ||||||
12,360 | Concho Resources, Inc.* | 1,232,910 | ||||||
9,190 | Pioneer Natural Resources Co. | 1,367,932 | ||||||
|
| |||||||
2,957,946 | ||||||||
|
| |||||||
| Personal Products (1.1%): |
| ||||||
14,430 | Estee Lauder Co., Inc. (The), Class A | 1,099,566 | ||||||
|
| |||||||
| Pharmaceuticals (2.2%): |
| ||||||
9,630 | Merck & Co., Inc. | 546,888 | ||||||
10,210 | Perrigo Co. plc | 1,706,704 | ||||||
|
| |||||||
2,253,592 | ||||||||
|
|
Continued
4
AZL Wells Fargo Large Cap Growth Fund
Schedule of Portfolio Investments
December 31, 2014
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Investment Trusts (REITs) (0.4%): |
| ||||||
4,590 | American Tower Corp. | $ | 453,722 | |||||
|
| |||||||
| Road & Rail (3.9%): |
| ||||||
7,330 | Kansas City Southern Industries, Inc. | 894,480 | ||||||
8,440 | Norfolk Southern Corp. | 925,108 | ||||||
18,130 | Union Pacific Corp. | 2,159,827 | ||||||
|
| |||||||
3,979,415 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.3%): |
| ||||||
18,960 | Arm Holdings plc, ADR | 877,848 | ||||||
30,160 | Microchip Technology, Inc. | 1,360,517 | ||||||
22,350 | Texas Instruments, Inc. | 1,194,943 | ||||||
|
| |||||||
3,433,308 | ||||||||
|
| |||||||
| Software (5.9%): |
| ||||||
9,450 | Adobe Systems, Inc.* | 687,016 | ||||||
41,420 | Microsoft Corp. | 1,923,959 | ||||||
25,270 | Salesforce.com, Inc.* | 1,498,764 | ||||||
16,500 | ServiceNow, Inc.* | 1,119,525 | ||||||
12,540 | Splunk, Inc.* | 739,233 | ||||||
|
| |||||||
5,968,497 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Specialty Retail (5.2%): |
| ||||||
28,590 | CarMax, Inc.* | $ | 1,903,522 | |||||
8,830 | O’Reilly Automotive, Inc.* | 1,700,835 | ||||||
22,000 | Tractor Supply Co. | 1,734,040 | ||||||
|
| |||||||
5,338,397 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (2.6%): |
| ||||||
23,620 | Apple, Inc. | 2,607,176 | ||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (4.0%): |
| ||||||
22,390 | Nike, Inc., Class B | 2,152,799 | ||||||
26,260 | V.F. Corp. | 1,966,874 | ||||||
|
| |||||||
4,119,673 | ||||||||
|
| |||||||
| Trading Companies & Distributors (1.7%): |
| ||||||
6,710 | W.W. Grainger, Inc. | 1,710,312 | ||||||
|
| |||||||
| Total Common Stocks (Cost $89,618,093) | 101,449,582 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (8.4%): |
| ||||||
$ | 8,569,423 | Allianz Variable Insurance Products Securities Lending Collateral Trust(b) | 8,569,423 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 8,569,423 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.4%): |
| ||||||
403,642 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.00%(a) | 403,642 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $403,642) | 403,642 | ||||||
|
| |||||||
| Total Investment Securities (Cost $98,591,158)(b) — 108.5% | 110,422,647 | ||||||
| Net other assets (liabilities) — (8.5)% | (8,682,976 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 101,739,671 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2014.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2014. The total value of securities on loan as of December 31, 2014, was $8,380,697. |
(a) | The rate represents the effective yield at December 31, 2014. |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
(c) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2014. |
See accompanying notes to the financial statements.
5
AZL Wells Fargo Large Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2014
Assets: | |||||
Investment securities, at cost | $ | 98,591,158 | |||
|
| ||||
Investment securities, at value* | $ | 110,422,647 | |||
Interest and dividends receivable | 69,035 | ||||
Prepaid expenses | 893 | ||||
|
| ||||
Total Assets | 110,492,575 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 64,020 | ||||
Payable for capital shares redeemed | 27,806 | ||||
Payable for collateral received on loaned securities | 8,569,423 | ||||
Manager fees payable | 60,647 | ||||
Administration fees payable | 2,430 | ||||
Distribution fees payable | 21,659 | ||||
Custodian fees payable | 2,288 | ||||
Administrative and compliance services fees payable | 430 | ||||
Trustee fees payable | 9 | ||||
Other accrued liabilities | 4,192 | ||||
|
| ||||
Total Liabilities | 8,752,904 | ||||
|
| ||||
Net Assets | $ | 101,739,671 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 90,079,559 | |||
Accumulated net investment income/(loss) | 68,566 | ||||
Accumulated net realized gains/(losses) from investment transactions | (239,943 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 11,831,489 | ||||
|
| ||||
Net Assets | $ | 101,739,671 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 9,027,024 | ||||
Net Asset Value (offering and redemption price per share) | 11.27 | ||||
|
|
* | Includes securities on loan of $8,380,697. |
Statement of Operations
For the Period Ended December 31, 2014(a)
Investment Income: | |||||
Dividends | $ | 677,168 | |||
Income from securities lending | 5,205 | ||||
|
| ||||
Total Investment Income | 682,373 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 545,733 | ||||
Administration fees | 5,820 | ||||
Distribution fees | 170,541 | ||||
Custodian fees | 5,295 | ||||
Administrative and compliance services fees | 925 | ||||
Trustee fees | 3,799 | ||||
Professional fees | 5,712 | ||||
Shareholder reports | 1,499 | ||||
Other expenses | 1,391 | ||||
|
| ||||
Total expenses before reductions | 740,715 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (68,216 | ) | |||
|
| ||||
Net expenses | 672,499 | ||||
|
| ||||
Net Investment Income/(Loss) | 9,874 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (239,943 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 11,831,489 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 11,591,546 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 11,601,420 | |||
|
|
(a) | For the period April 28, 2014 (commencement of operations) to December 31, 2014 |
See accompanying notes to the financial statements.
6
Statement of Changes in Net Assets
AZL Wells Fargo Large Cap Growth Fund | |||||
April 28, 2014 to December 31, 2014(a) | |||||
Change In Net Assets: | |||||
Operations: | |||||
Net investment income/(loss) | $ | 9,874 | |||
Net realized gains/(losses) on investment transactions | (239,943 | ) | |||
Change in unrealized appreciation/depreciation on investments | 11,831,489 | ||||
|
| ||||
Change in net assets resulting from operations | 11,601,420 | ||||
|
| ||||
Capital Transactions: | |||||
Proceeds from shares issued | 97,277,902 | ||||
Value of shares redeemed | (7,139,651 | ) | |||
|
| ||||
Change in net assets resulting from capital transactions | 90,138,251 | ||||
|
| ||||
Change in net assets | 101,739,671 | ||||
Net Assets: | |||||
Beginning of period | — | ||||
|
| ||||
End of period | $ | 101,739,671 | |||
|
| ||||
Accumulated net investment income/(loss) | $ | 68,566 | |||
|
| ||||
Share Transactions: | |||||
Shares issued | 9,680,346 | ||||
Shares redeemed | (653,322 | ) | |||
|
| ||||
Change in shares | 9,027,024 | ||||
|
|
(a) | Period from commencement of operations. |
See accompanying notes to the financial statements.
7
AZL Wells Fargo Large Cap Growth Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
April 28, 2014 to December 31, 2014(a) | |||||
Net Asset Value, Beginning of Period | $ | 10. 00 | |||
|
| ||||
Investment Activities: | |||||
Net Investment Income/(Loss) | — | (b) | |||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.27 | ||||
|
| ||||
Total from Investment Activities | 1.27 | ||||
|
| ||||
Net Asset Value, End of Period | 11.27 | ||||
|
| ||||
Total Return(c) | 12.70 | %(d) | |||
Ratios to Average Net Assets/Supplemental Data: | |||||
Net Assets, End of Period (000’s) | $ | 101,740 | |||
Net Investment Income/(Loss)(e) | 0.01 | % | |||
Expenses Before Reductions(e) (f) | 1.09 | % | |||
Expenses Net of Reductions(e) | 0.99 | % | |||
Portfolio Turnover Rate | 24 | %(d) |
(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. |
(e) | Annualized for periods less than one year. |
(f) | Excludes fee reductions, if any. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
8
AZL Wells Fargo Large Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
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”) and thus is determined to be an investment company for accounting purposes. The Trust consists of 31 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Wells Fargo Large Cap Growth Fund (the “Fund”), and 30 are presented in separate reports.
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 (“U.S. 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.
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 not later than on the business day following trade date. However, for financial reporting purposes, investment transactions are accounted for on trade date. 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.
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. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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 is determined in accordance with federal income tax regulations, which may differ from U.S. 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.
9
AZL Wells Fargo Large Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
Securities Lending
To generate additional income, the Fund may lend up to 33 1/3% of its assets pursuant to agreements requiring that the loan be continuously secured by any combination of cash, 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 borrower of securities is at all times required to post collateral to the Fund in an amount equal to 100% of the fair value of the securities loaned based on the previous day’s fair value of the securities loaned, marked-to-market daily. Any collateral shortfalls are adjusted the next business day. The Fund bears all of the gains and losses on such investments. 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. In extremely low interest rate environments, the broker rebate fee may exceed the interest earned or the cash collateral which would result in a loss to the Fund. 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. Securities on loan at December 31, 2014 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $4.1 million for the year ended December 31, 2014.
Cash collateral received in connection with securities lending is invested in the Allianz Variable Insurance Products Securities Lending Collateral Trust (the “Securities Lending Collateral Trust”) managed by The Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The Securities Lending Collateral Trust invests in short-term investments that have a remaining maturity of 397 days or less as calculated in accordance with Rule 2a-7 under the 1940 Act. The Fund pays the Securities Lending Agent 9% of the gross revenues received from securities lending activities and keeps 91%. The Fund paid securities lending fees of $514 during the year ended December 31, 2014. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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 with Wells Capital Management Incorporated (“Wells Capital”), Wells 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 U.S. 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, 2016.
For the year ended December 31, 2014, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL Wells Fargo Large Cap Growth Fund | 0.80 | % | 1.20 | % |
* | The Manager voluntarily reduced 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 lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2014, 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 $100 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 on the first $4 billion, 0.04% of daily average net assets on the next $2 billion, 0.02% of daily average net assets on the next $2 billion and 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. Fees payable to the Administrator are subject to certain reductions associated with services provided to new funds. Beginning January 1, 2015, these reductions are no longer applicable to new funds. 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.
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AZL Wells Fargo Large Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
The Trust has adopted a distribution and service plan in conformance with Rule 12b-1 of the 1940 Act. 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, 2014, $742 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 $163,000 annual Board retainer and the Lead Director receives an additional $24,450 annually. In addition, 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, 2014, actual Trustee compensation was $1,155,670 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) |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The Fund determines transfers between fair value hierarchy levels at the reporting period end. 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 Eastern Time). 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 Level 2 in the fair value hierarchy.
For the period ended December 31, 2014, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.
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 NYSE. 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 which are then typically categorized as Level 2 in the fair value hierarchy.
For the period ended December 31, 2014, 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, 2014 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 101,449,582 | $ | — | $ | 101,449,582 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 8,569,423 | 8,569,423 | ||||||||||||
Unaffiliated Investment Company | 403,642 | — | 403,642 | ||||||||||||
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Total Investment Securities | $ | 101,853,224 | $ | 8,569,423 | $ | 110,422,647 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
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AZL Wells Fargo Large Cap Growth Fund
Notes to the Financial Statements
December 31, 2014
5. Security Purchases and Sales
For the year ended December 31, 2014, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Wells Fargo Large Cap Growth Fund | $ | 111,785,897 | $ | 21,927,861 |
6. Investment Risks
Foreign Securities and Currencies Risk: 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.
7. Federal 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 Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax 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, 2014 is $98,598,410. The gross unrealized appreciation/ (depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 13,848,123 | ||
Unrealized depreciation | (2,023,886 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 11,824,237 | ||
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As of the end of its tax year ended December 31, 2014, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the tables below. CLCFs subject to expiration are applied as short-term capital loss regardless of whether the originating capital loss was short-term or long-term. CLCFs that are not subject to expiration must be utilized before those that are subject to expiration. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset or expires.
CLCFs not subject to expiration:
Short Term Amount | Long Term Amount | Total Amount | |||||||||||||
AZL Wells Fargo Large Cap Growth Fund | $ | 232,691 | $ | — | $ | 232,691 |
As of December 31, 2014, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ (Depreciation)(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Wells Fargo Large Cap Growth Fund | $ | 68,566 | $ | — | $ | (232,691 | ) | $ | 11,824,237 | $ | 11,660,112 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2014, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 50% of the Fund.
9. Subsequent Events
Management has evaluated events and transactions subsequent to period end through the date the financial statements were issued, for purposes of recognition or disclosure in these financial statements and there are no subsequent events to report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
We have audited the accompanying statement of assets and liabilities of AZL Wells Fargo Large Cap Growth Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2014, and the related statements of operations and changes in net assets, and the financial highlights for the period April 28, 2014 to December 31, 2014. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated 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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. 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, 2014, the results of its operations, the changes in its net assets, and the financial highlights for the period April 28, 2014 to December 31, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 25, 2015
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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.
14
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 and a Compliance Services 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 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 2014. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 14, 2014, and at an “in person” Board of Trustees meeting held October 21, 2014. The Agreements were approved at the Board meeting of October 21, 2014. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2016. 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
15
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. Under the Advisory Agreement, the Manager holds the sole and exclusive responsibility to provide, or arrange for other to provide, the management of the Funds’ assets and the placement of orders for the purchase and sale of the securities of the Funds. As the Trust is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for each Fund to handle day-to-day management of the Funds’ investment portfolios; the Manager is responsible for determining, in the first instance, which investment advisers to recommend to the Board of Trustees for selection as a Subadviser. The Trustees were aware that, notwithstanding the retention of the Subadvisers to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by each Subadviser with the investment policies and restrictions of the respective Funds, with such other limitations or directions of the Board of Trustees, and with all legal requirements under federal or state law or regulation. The Manager also is responsible primarily to provide statistical information and other data to the Trustees regarding the Funds’ portfolio investments and to make available to the Funds’ administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager 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 are continuously refined and enhanced in light of new regulatory requirements. The Trustees 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 October 21, 2014, the Manager reported that for the three year period ended June 30, 2014, 11 Funds were in the top 40%, nine were in the middle 20% and five were in the bottom 40%, and for the one year period ended June 30, 2014, nine Funds were in the top 40%, 11 were in the middle 20%, and eight were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2014, nine Funds were in the top 40%, six were in the middle 20%, and six were in the bottom 40%. At the Board of Trustees meeting held October 21, 2014, 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 30 Funds reviewed by the Board of Trustees in the fall of 2014, 25 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 2014 for the 30 Funds was as follows: (1) 27 of the Funds had total expense rankings below the 65th percentile (with 19 Funds below the 50th percentile); (2) the AZL Russell 1000 Value Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; (3) the AZL International Index Fund had a total expense ranking in the 66th percentile; the Manager reported that there is only a limited peer group for such Fund; and (4) the AZL Morgan Stanley Global Real Estate Fund had a total expense ranking in the 66th percentile; it was reported by the Manager that there is only a limited peer group for such Fund, and such Fund is the third smallest in its peer group.
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 2011 through June 30, 2014. 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 the profitability for the Subadviser which is 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.
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(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, 2014 were approximately $8.0 billion, and that no single non-money market Fund had assets in excess of $625 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, 2015, 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.
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Information about the Board of Trustees and Officers (Unaudited)
The Trust is managed by the Trustees in accordance with the laws of the state of Delaware governing business trusts. There are currently nine Trustees, two of whom are “interested persons” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages, their positions held with the Trust, their terms of office with the Trust and length of time served, their principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and their other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Peter R. Burnim, Age 67 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to 2012; Chairman,Northstar Group Holdings Ltd.Bermuda, 2011 to present; Expert Witness, Massachusetts Department of Revenue, 2011 to 2012; Executive Vice President, Northstar Companies, 2002 to 2005; Senior Officer, Citibank and Citicorp for over 25 years. | 43 | Argus Group Holdings; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; and Bank of Bermuda NY | |||||
Peggy L. Ettestad, Age 57 5701 Golden Hills Drive Minneapolis, MN 55416 | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present; Senior Managing Director, Residential Capital LLC, 2003 to 2008; Chief Operations Officer, Transamerica Reinsurance 2002 to 2003. | 43 | Luther College | |||||
Roger Gelfenbien, Age 71 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999. | 43 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 59 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Connecticut Innovations, Inc., 2012 to present; General Partner, Fairview Capital, L.P., 1994 to 2012. | 43 | Connecticut Technology Council and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 66 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Consultant to Lifetouch National School Studios; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2013; Vice President/General Manager of Jostens, Inc., 2002 to 2006; Senior Vice President of Fortis Group, 1997 to 2002. | 43 | None | |||||
Peter W. McClean, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; President and CEO of Measurisk, LLC, 2001 to 2003; Chief Risk Management Officer at Bank Of Bermuda Ltd., 1996 to 2001. | 43 | PNMAC Opportunity Fund; Northeast Bank; and FHI | |||||
Arthur C. Reeds III, Age 70 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Senior Investment Officer, Hartford Foundation for Public Giving, 2000 to 2003; Chairman, Chief Executive and President of Conning Corp., 1999 to 2000; Investment Consultant 1997 to 1999. | 43 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with VIP Trust and FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for VIP Trust and FOF Trust | Other Directorships Held Outside the AZL Fund Complex | |||||
Robert DeChellis, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present. | 43 | None | |||||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Advisory Management, Allianz Investment Management LLC from December 2005 to November 2010. | 43 | None |
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Officers
Name, Address, and Age | Positions Held with VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 44 5701 Golden Hills Drive Minneapolis, MN 55416 | President | Since 11/10 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present; Vice President, Allianz Investment Management LLC from December 2005 to November 2010. | |||
Michael Radmer, Age 69 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 2/02 | Partner, Dorsey and Whitney LLP since 1976. | |||
Steve Rudden, Age 45 Citi Fund Services Ohio, Inc. 3435 Stelzer Road Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 6/14 | Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc., April 2011 to present; Vice President, JPMorgan, April 2006 to April 2010. | |||
Chris R. Pheiffer, Age 46 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-Money Laundering Compliance Officer | Since 2/14 | Chief Compliance Officer of the VIP Trust and the FOF Trust, February 2014 to present; Deputy Chief Compliance Officer of the VIP Trust and the FOF Trust and Compliance Director, Allianz Life, February 2007 to February 2014. |
(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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1214 2/15 |
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.
2014 | 2013 | |||||||
(a) Audit Fees | $ | 403,000 | $ | 370,000 | ||||
(b) Audit-Related Fees | $ | 8,500 | $ | 11,500 |
Audit-related fees for both years relate to the review of the annual registration statement filed with the Securities and Exchange Commission (“SEC”). Audit-related fees for 2013 also include the consent for issuance of one Form N-14 filing.
2014 | 2013 | |||||||
(c) Tax Fees | $ | 93,000 | $ | 68,975 |
Tax fees for both years relate 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.
2014 | 2013 | |||||||
(d) 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
2014 | 2013 | |||||||
4(g) | $ | 101,500 | $ | 80,475 |
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.
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.
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 | |||
Brian Muench, President | ||||
Date March 5, 2015 | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | ||||
By (Signature and Title) | /s/ Brian Muench | |||
Brian Muench, President | ||||
Date March 5, 2015 | ||||
By (Signature and Title) | /s/ Steve Rudden | |||
Steve Rudden, Treasurer | ||||
Date March 5, 2015 |